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Friday, March 13, 2015

Jonesing

Inequality, Leverage, and Crises

Michael Kumhof, Romain Ranciere & Pablo Winant
American Economic Review, March 2015, Pages 1217-1245

Abstract:
The paper studies how high household leverage and crises can be caused by changes in the income distribution. Empirically, the periods 1920-1929 and 1983–2008 both exhibited a large increase in the income share of high-income households, a large increase in debt leverage of low- and middle-income households, and an eventual financial and real crisis. The paper presents a theoretical model where higher leverage and crises are the endogenous result of a growing income share of high-income households. The model matches the profiles of the income distribution, the debt-to-income ratio and crisis risk for the three decades preceding the Great Recession.

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Perceptions of U.S. Social Mobility Are Divided (and Distorted) Along Ideological Lines

John Chambers, Lawton Swan & Martin Heesacker
Psychological Science, forthcoming

Abstract:
The ability to move upward in social class or economic position (i.e., social mobility) is a defining feature of the American Dream, yet recent public-opinion polls indicate that many Americans are losing confidence in the essential fairness of the system and their opportunities for financial advancement. In two studies, we examined Americans’ perceptions of both current levels of mobility in the United States and temporal trends in mobility, and we compared these perceptions with objective indicators to determine perceptual accuracy. Overall, participants underestimated current mobility and erroneously concluded that mobility has declined over the past four decades. These misperceptions were more pronounced among politically liberal participants than among politically moderate or conservative ones. These perception differences were accounted for by liberals’ relative dissatisfaction with the current social system, social hierarchies, and economic inequality. These findings have important implications for theories of political ideology.

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Americans overestimate social class mobility

Michael Kraus & Jacinth Tan
Journal of Experimental Social Psychology, May 2015, Pages 101–111

Abstract:
In this research we examine estimates of American social class mobility — the ability to move up or down in education and income status. Across studies, overestimates of class mobility were large and particularly likely among younger participants and those higher in subjective social class — both measured (Studies 1–3) and manipulated (Study 4). Class mobility overestimates were independent of general estimation errors (Study 3) and persisted after accounting for knowledge of class mobility assessed in terms of educational attainment and self-ratings. Experiments revealed that mobility overestimates were shaped by exposure to information about the genetic determinants of social class — a faux science article suggesting genetic constraints to economic advancement increased accuracy in class mobility estimates (Study 2) — and motivated by needs to protect the self — heightening the self-relevance of class mobility increased overestimates (Study 3). Discussion focused on both the costs and benefits of overestimates of class mobility for individuals and society.

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Living in the Garden of Eden: Mineral Resources and Preferences for Redistribution

Mathieu Couttenier & Marc Sangnier
Journal of Comparative Economics, forthcoming

Abstract:
This paper provides empirical evidence that mineral resources abundance is associated to preferences for redistribution in the United States. We show that individuals living in states with large mineral resources endowment are more opposed to redistribution than others. We take advantage of both the spatial and the temporal distributions of mineral resources discoveries since 1800 to uncover two mechanisms through which mineral resources can foster ones’ opposition to redistribution: either by transmission of values formed in the past, or by the exposure to mineral discoveries during individuals’ life-time. We show that both mechanisms matter to explain respondents’ preferences.

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Lay Theories About Social Class Buffer Lower-Class Individuals Against Poor Self-Rated Health and Negative Affect

Jacinth Tan & Michael Kraus
Personality and Social Psychology Bulletin, March 2015, Pages 446-461

Abstract:
The economic conditions of one’s life can profoundly and systematically influence health outcomes over the life course. Our present research demonstrates that rejecting the notion that social class categories are biologically determined — a nonessentialist belief — buffers lower-class individuals from poor self-rated health and negative affect, whereas conceiving of social class categories as rooted in biology — an essentialist belief — does not. In Study 1, lower-class individuals self-reported poorer health than upper-class individuals when they endorsed essentialist beliefs but showed no such difference when they rejected such beliefs. Exposure to essentialist theories of social class also led lower-class individuals to report greater feelings of negative self-conscious emotions (Studies 2 and 3), and perceive poorer health (Study 3) than upper-class individuals, whereas exposure to nonessentialist theories did not lead to such differences. Discussion considers how lay theories of social class potentially shape long-term trajectories of health and affect of lower-class individuals.

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The undervalued self: Social class and self-evaluation

Michael Kraus & Jun Park
Frontiers in Psychology, December 2014

Abstract:
Social class ranks people on the social ladder of society, and in this research we examine how perceptions of economic standing shape the way that individuals evaluate the self. Given that reminders of one’s own subordinate status in society are an indicator of how society values the self in comparison to others, we predicted that chronic lower perceptions of economic standing vis-à-vis others would explain associations between objective social class and negative self-evaluation, whereas situation-specific reminders of low economic standing would elicit negative self-evaluations, particularly in those from lower-class backgrounds. In Study 1, perceptions of social class rank accounted for the positive relationship between objective material resource measures of social class and self-esteem. In Study 2, lower-class individuals who received a low (versus equal) share of economic resources in an economic game scenario reported more negative self-conscious emotions — a correlate of negative self-evaluation — relative to upper-class individuals. Discussion focused on the implications of this research for understanding class-based cultural models of the self, and for how social class shapes self-evaluations chronically.

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Unionization and the partisan effect on income inequality

Eric Graig Castater
Business and Politics, forthcoming

Abstract:
Does partisanship matter for income inequality? The empirical evidence is notably mixed. I argue that these inconsistent findings are partly the result of scholars not (properly) modeling the relationship between unionization and the partisan composition of government. If we accept that union members favor greater government intervention to reduce economic inequalities than non-union members, politicians desire to hold elected office and be popular but also to implement particular public policies, and left party politicians share union members’ policy preferences to a greater extent than center and right party politicians, then partisan differences should be greatest at moderate levels of unionization, a condition that allows all politicians to pursue their policy preferences while maintaining electoral viability. The empirical analysis examines 16 wealthy democracies between 1970 and 2010. The results of error-correction models confirm the theoretical expectation and hold regardless of whether there is a majoritarian or proportional representation electoral system.

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International Human Rights and Domestic Income Inequality: A Difficult Case of Compliance in World Society

Wade Cole
American Sociological Review, forthcoming

Abstract:
Much research finds that human rights treaties fail to improve domestic practices unless governments are held accountable in some fashion. The implication is that noncompliance can be attributed to insincere commitments and willful disobedience. I challenge this claim for a core but overlooked treaty: the International Covenant on Economic, Social, and Cultural Rights (ICESCR). Few analysts have studied the ICESCR because its terms are difficult to implement and suitable measures for judging compliance are hard to find. I analyze its association with income inequality, using data for more than 100 countries (1981 to 2005) and methods that account for the possibility of reverse causality. ICESCR membership reduces inequality in both developed and developing countries, although the relationship is stronger for developed countries — precisely those with the greatest capacity to implement their obligations. Other key determinants of income inequality and treaty compliance — left partisanship, union density, workers’ rights, and democracy — do not systematically condition the effects of ICESCR membership. The ICESCR is therefore quite effective in reducing inequality, an outcome likely explained by renewed global attention to socioeconomic rights during the neoliberal era.

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Long-Term Intergenerational Persistence of Human Capital: An Empirical Analysis of Four Generations

Mikael Lindahl et al.
Journal of Human Resources, Winter 2015, Pages 1-33

Abstract:
Most previous studies of intergenerational transmission of human capital are restricted to two generations: how parents influence their children. In this study, we use a Swedish data set that links individual measures of lifetime earnings for three generations and data on educational attainment for four generations. We find that estimates obtained from data on two generations severely underestimate long-run intergenerational persistence in both labor earnings and educational attainments. Long-run social mobility is hence much lower than previously thought. We attribute this additional persistence to “dynastic human capital” — the influence on human capital of more distant family members than parents.

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Labor Market Institutions and Technology: The Causes of Rising Wage Inequality in U.S. Industries, 1968-2012

Tali Kristal & Yinon Cohen
Columbia University Working Paper, January 2015

Abstract:
Most inequality scholars view skill-biased technological change – the computerization of workplaces that favors high-skilled workers – as the main cause of rising wage inequality in America, while institutional factors are generally relegated to a secondary role. The evidence presented in this paper, however, does not support this widely held view. Using direct measures for computers and pay-setting institutions at the industry level, this paper provides the first rigorous analysis of the independent effect of technological and institutional factors on rising wage inequality. Analyzing data on 43 U.S. industries between 1968 and 2012, we find that declining unions and the fall in the real value of the minimum wage explain about half of rising inequality, while computerization explains one fifth. This suggests that much of rising inequality in the U.S. is driven by worker disempowerment rather than by market forces – a finding that can resolve the puzzle on the diverging inequality trends in U.S. and Europe.

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National patterns of income and wealth inequality

Nora Skopek, Sandra Buchholz & Hans-Peter Blossfeld
International Journal of Comparative Sociology, December 2014, Pages 463-488

Abstract:
The aim of this article is to show that wealth must be treated as a distinct dimension of social stratification alongside income. In a first step, we explain why social stratification researchers have largely overlooked wealth in the past and present a detailed definition of wealth by differentiating it from income. In the empirical part of the article, we analyze the distribution of wealth across 18 countries, and we describe and compare national patterns of wealth inequality to those of income inequality making use of different data sources. Our results show – first – that there is strong variation in the distribution of wealth between these 18 countries, and – second – that levels of wealth inequality significantly differ from levels of income inequality in about half of the countries analyzed. Surprisingly high levels of wealth inequality we find in Sweden and Denmark, two countries widely considered being highly egalitarian societies. Conversely, the Southern European countries – where income inequality is relatively high – exhibit comparatively low levels of wealth inequality.

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Reference Points and Redistributive Preferences: Experimental Evidence

Jimmy Charité, Raymond Fisman & Ilyana Kuziemko
NBER Working Paper, March 2015

Abstract:
If individuals evaluate outcomes relative to the status quo, then a social planner may limit redistribution from rich to poor even in the absence of moral hazard. We present two experiments suggesting that individuals, placed in the position of a social planner, do in fact respect the reference points of others. First, subjects are given the opportunity to redistribute unequal, unearned initial endowments between two anonymous recipients. They redistribute significantly less when the recipients know the initial endowments (and thus may have formed corresponding reference points) than when the recipients do not know (when we observe near-complete redistribution). Subjects who are themselves risk-seeking over losses drive the effect, suggesting they project their own loss-aversion onto the recipients. In a separate experiment, respondents are asked to choose a tax rate for someone who (due to luck) became rich either five or one year(s) ago. Subjects faced with the five-year scenario choose a lower tax rate, indicating respect for the more deeply embedded (five-year) reference point. Our results thus suggest that respect for reference points of the wealthy may help explain why voters demand less redistribution than standard models predict.

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The inequality-growth plateau

Daniel Henderson, Junhui Qian & Le Wang
Economics Letters, March 2015, Pages 17–20

Abstract:
We examine the (potentially nonlinear) relationship between inequality and growth using a method which does not require an a priori assumption on the underlying functional form. This approach reveals a plateau completely missed by commonly used (nonlinear) parametric approaches – the economy first expands rapidly with a large decline in inequality, plateaus when inequality remains relatively stable, and then decreases rapidly with a large increase in inequality. This novel finding helps reconcile the conflicting results in the literature (using different parametric assumptions and datasets) and has important policy implications.

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Partisan Differences in the Distributional Effects of Economic Growth: Stock Market Performance, Unemployment, and Political Control of the Presidency

Bryan Dettrey & Harvey Palmer
Journal of Elections, Public Opinion and Parties, forthcoming

Abstract:
This article examines the differences in the distributional effects of economic growth. While all incumbents are incentivized to create economic growth in order to win reelection, they use a diverse variety of policies to achieve this growth. These policy choices are often congruent with the demands of the core constituent groups of the respective parties. This suggests that economic growth is not equally shared by all, but that some groups are more or less benefited from the sets of policies chosen by the incumbent parties to stimulate growth. We test this proposition by investigating the effects of economic growth on stock market performance and unemployment. Our results show that economic growth under Republican presidents has a stronger effect on stimulating stock market performance, while economic growth under Democratic presidents has a stronger effect on reducing unemployment. Overall, these results highlight the partisan differences in macroeconomic policy and illustrate one of the causal mechanisms behind the substantial and rising economic inequality in the USA.

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How Has Educational Expansion Shaped Social Mobility Trends in the United States?

Fabian Pfeffer & Florian Hertel
Social Forces, forthcoming

Abstract:
This contribution provides a long-term assessment of intergenerational social mobility trends in the United States across the 20th and early 21st centuries and assesses the determinants of those trends. In particular, we study how educational expansion has contributed to the observed changes in mobility opportunities for men across cohorts. Drawing on recently developed decomposition methods, we empirically identify the contribution of each of the multiple channels through which changing rates of educational participation shape mobility trends. We find that a modest but gradual increase in social class mobility can nearly exclusively be ascribed to an interaction known as the compositional effect, according to which the direct influence of social class backgrounds on social class destinations is lower among the growing number of individuals attaining higher levels of education. This dominant role of the compositional effect is also due to the fact that, despite pronounced changes in the distribution of education, class inequality in education has remained stable while class returns to education have shown no consistent trend. Our analyses also provide a cautionary tale about mistaking increasing levels of social class mobility for a general trend toward more fluidity in the United States. The impact of parental education on son's educational and class attainment has grown or remained stable, respectively. Here, the compositional effect pertaining to the direct association between parental education and son's class attainment counteracts a long-term trend of increasing inequality in educational attainment tied to parents' education.

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Paradoxes of Social Policy: Welfare Transfers, Relative Poverty, and Redistribution Preferences

David Brady & Amie Bostic
American Sociological Review, forthcoming

Abstract:
Korpi and Palme’s (1998) classic “The Paradox of Redistribution and Strategies of Equality” claims that universal social policy better reduces poverty than social policies targeted at the poor. This article revisits Korpi and Palme’s classic, and in the process, explores and informs a set of enduring questions about social policy, politics, and social equality. Specifically, we investigate the relationships between three dimensions of welfare transfers — transfer share (the average share of household income from welfare transfers), low-income targeting, and universalism — and poverty and preferences for redistribution. We analyze rich democracies like Korpi and Palme, but we also generalize to a broader sample of developed and developing countries. Consistent with Korpi and Palme, we show (1) poverty is negatively associated with transfer share and universalism; (2) redistribution preferences are negatively associated with low-income targeting; and (3) universalism is positively associated with transfer share. Contrary to Korpi and Palme, redistribution preferences are not related to transfer share or universalism; and low-income targeting is neither positively associated with poverty nor negatively associated with transfer share. Therefore, instead of the “paradox of redistribution” we propose two new paradoxes of social policy: non-complementarity and undermining. The non-complementarity paradox entails a mismatch between the dimensions that matter to poverty and the dimension that matters to redistribution preferences. The undermining paradox emphasizes that the dimension (transfer share) that most reduces poverty tends to increase with the one dimension (low-income targeting) that reduces support for redistribution.

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Is an Increasing Capital Share under Capitalism Inevitable?

Yew-Kwang Ng
European Journal of Political Economy, June 2015, Pages 82–86

Abstract:
Piketty’s influential book Capital in the Twenty-First Century and its prominent review by Milanovic in the Journal of Economic Literature both assert the inevitability of an increasing share of capital in total income, given a higher rate of return to capital than the rate of growth in income. This paper shows by a specific example, a logical argument and its intuition that the alleged inevitability is not valid. Even just for capital to grow faster than income, we need an additional requirement that saving of non-capital income is larger than consumption of capital income. Even if this is satisfied, the capital share may not increase as the rate of return may fall and non-capital incomes may increase with capital accumulation.

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Actively Closing the Gap? Social Class, Organized Activities, and Academic Achievement in High School

David Morris
Youth & Society, March 2015, Pages 267-290

Abstract:
Participation in Organized Activities (OA) is associated with positive behavioral and developmental outcomes in children. However, less is known about how particular aspects of participation affect the academic achievement of high school students from different social class positions. Using the Education Longitudinal Study of 2002, this study examines the math achievement gains from organized activity participation for advantaged and disadvantaged youths. Findings indicate that the relationship between OA and achievement does indeed vary by social class. Regardless of the type of OA, less advantaged high school students see substantial academic improvements from time in OA while their more advantaged peers do not. These findings suggest that participation in organized activities is a form of resource compensation that helps to reduce the achievement gap between advantaged and disadvantaged youths, even at the end of the K-12 schooling process.

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The Financial Premium in the US Labor Market: A Distributional Analysis

Ken-Hou Lin
Social Forces, forthcoming

Abstract:
Using both cross-sectional and panel data, this article revisits the evolution of the financial premium between 1970 and 2011 with a distributional approach. I report that above-market compensation was present in the finance sector in the 1970s, but concentrated mostly at the bottom of the earnings distribution. The financial premium observed since the 1980s, however, is largely driven by excessive compensation at the top, a development that increasingly contributes to the national concentration of earnings. Furthermore, the analysis suggests that the financial premium for top earners remained robust in the early 2000s, when deregulation slowed down, and in the aftermath of the recent financial meltdown. These findings are inconsistent with the account that the earnings differential is driven by unobserved skill difference and demand shocks but supportive of the institutional account of rising inequality.

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Capital Taxation Under Political Constraints

Florian Scheuer & Alexander Wolitzky
Stanford Working Paper, February 2015

Abstract:
This paper studies optimal dynamic tax policy under the threat of political reform. A policy will be reformed ex post if a large enough political coalition supports reform; thus, sustainable policies are those that will continue to attract enough political support in the future. We find that optimal marginal capital taxes are either progressive or U-shaped, so that savings are subsidized for the poor and/or the middle class but are taxed for the rich. U-shaped capital taxes always emerge when the salient reform threat consists of radically redistributing capital and individuals' political behavior is purely determined by economic motives.

By KEVIN LEWIS | 09:00:00 AM

Thursday, March 12, 2015

Upright

Social Class, Power, and Selfishness: When and Why Upper and Lower Class Individuals Behave Unethically

David Dubois, Derek Rucker & Adam Galinsky
Journal of Personality and Social Psychology, March 2015, Pages 436-449

Abstract:
Are the rich more unethical than the poor? To answer this question, the current research introduces a key conceptual distinction between selfish and unethical behavior. Based on this distinction, the current article offers 2 novel findings that illuminate the relationship between social class and unethical behavior. First, the effects of social class on unethical behavior are not invariant; rather, the effects of social class are moderated by whether unethical behavior benefits the self or others. Replicating past work, social class positively predicted unethical behavior; however, this relationship was only observed when that behavior was self-beneficial. When unethical behavior was performed to benefit others, social class negatively predicted unethical behavior; lower class individuals were more likely than upper class individuals to engage in unethical behavior. Overall, social class predicts people’s tendency to behave selfishly, rather than predicting unethical behavior per se. Second, individuals’ sense of power drove the effects of social class on unethical behavior. Evidence for this relationship was provided in three forms. First, income, but not education level, predicted unethical behavior. Second, feelings of power mediated the effect of social class on unethical behavior, but feelings of status did not. Third, two distinct manipulations of power produced the same moderation by self-versus-other beneficiary as was found with social class. The current theoretical framework and data both synthesize and help to explain a range of findings in the social class and power literatures.

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Is the Relationship Between Pathogen Avoidance and Ideological Conservatism Explained by Sexual Strategies?

Joshua Tybur et al.
Evolution and Human Behavior, forthcoming

Abstract:
Multiple recent studies report that measures of pathogen avoidance (e.g., disgust sensitivity) correlate with political ideology. This relationships have been interpreted as suggesting that certain political views (specifically, those views that are categorized as socially conservative) function to mitigate the pathogen threats posed either by intergroup interactions or departures from traditional societal norms, which sometimes evolve culturally for anti-pathogen functions. We propose and test the alternative hypothesis that pathogen avoidance relates to conservatism indirectly via sexual strategies (e.g., relatively monogamous versus relatively promiscuous). Specifically, we argue that individuals who are more invested in avoiding pathogens follow a more monogamous mating strategy to mitigate against pathogens transmitted during sexual contact, and individuals following a more monogamous mating strategy adopt socially conservative political ideologies to support their reproductive interests. Results from three studies (N’s = 819, 238, and 248) using multiple measures of pathogen avoidance, sexual strategies, and ideology support this account, with sexual strategies fully mediating the relationship between measures of pathogen avoidance and conservatism in each study.

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On the Origins of Dishonesty: From Parents to Children

Daniel Houser et al.
NBER Working Paper, January 2015

Abstract:
Acts of dishonesty permeate life. Understanding their origins, and what mechanisms help to attenuate such acts is an underexplored area of research. This study takes an economics approach to explore the propensity of individuals to act dishonestly across different economic environments. We begin by developing a simple model that highlights the channels through which one can increase or decrease dishonest acts. We lend empirical insights into this model by using an experiment that includes both parents and their young children as subjects. We find that the highest level of dishonesty occurs in settings where the parent acts alone and the dishonest act benefits the child rather than the parent. In this spirit, there is also an interesting effect of children on parents’ behavior: in the child’s presence, parents act more honestly, but there are gender differences. Parents act more dishonestly in front of sons than daughters. This finding has the potential of shedding light on the origins of the widely documented gender differences in cheating behavior observed among adults.

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How Foreign Language Shapes Moral Judgment

Janet Geipel, Constantinos Hadjichristidis & Luca Surian
Journal of Experimental Social Psychology, July 2015, Pages 8–17

Abstract:
We investigated whether and how processing information in a foreign language as opposed to the native language affects moral judgments. Participants judged the moral wrongness of several private actions, such as consensual incest, that were depicted as harmless and presented in either the native or a foreign language. The use of a foreign language promoted less severe moral judgments and less confidence in them. Harmful and harmless social norm violations, such as saying a white lie to get a reduced fare, were also judged more leniently. The results do not support explanations based on facilitated deliberation, misunderstanding, or the adoption of a universalistic stance. We propose that the influence of foreign language is best explained by a reduced activation of social and moral norms when making moral judgments.

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Threats to Social Identity Can Trigger Social Deviance

Peter Belmi et al.
Personality and Social Psychology Bulletin, forthcoming

Abstract:
We hypothesized that threats to people’s social (i.e., group) identity can trigger deviant attitudes and behaviors. A correlational study and five experiments showed that experiencing or recalling situations associated with the devaluation of a social identity caused participants to endorse or engage in deviant actions, including stealing, cheating, and lying. The effect was driven by the tendency to construe social identity threats not as isolated incidents but as symbolic of the continuing devaluation and disrespectful treatment of one’s group. Supplementing sociological approaches to deviance and delinquency, the results suggest the relevance and utility of a social-psychological account.

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Is Business Ethics Education Effective? An Analysis of Gender, Personal Ethical Perspectives, and Moral Judgment

Liz Wang & Lisa Calvano
Journal of Business Ethics, February 2015, Pages 591-602

Abstract:
Although ethics instruction has become an accepted part of the business school curriculum at both the undergraduate and graduate levels, some scholars have questioned its effectiveness, and research results have been mixed. However, studies yield interesting results regarding certain factors that influence the ethicality of business students and may impact the effectiveness of business ethics instruction. One of these factors is gender. Using personal and business ethics scenarios, we examine the main and interactive effects of gender and business ethics education on moral judgment. We then analyze the relationships between gender and business ethics education on personal ethical perspectives. Our results indicate that women are generally more inclined to act ethically than men, but paradoxically women who have had business ethics instruction are less likely to respond ethically to business situations. In addition, men may be more responsive to business ethics education than women. Finally, women’s personal ethical orientations may become more relativistic after taking a business ethics class.

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Into the wild? How a film can change adolescents' values

Anna Döring & Alessa Hillbrink
Journal of Adolescence, April 2015, Pages 78–82

Abstract:
In adolescence, behavior and attitudes are constantly rethought and value priorities are established. Still, there is hardly any research addressing how values are shaped throughout this sensitive period. We employed an experimental design, testing whether adolescents' values can be influenced by exposure to a film. In our study, 154 German adolescents (80 females, ages 13–15) were randomly assigned to an experimental group that watched excerpts from the film “Into the wild” or to a control group. Value change was assessed in a pre-post-test design with a one-week interval. As hypothesized, values changed in the direction of those displayed by the film's protagonist: Universalism values increased significantly and conformity values decreased significantly as compared to the control group. Our findings suggest that single exposure to a film may initiate value change, indicating that not only major live events, but also everyday experiences significantly affect adolescents' values.

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In the name of democracy: The value of democracy explains leniency towards wrongdoings as a function of group political organization

Andrea Pereira et al.
European Journal of Social Psychology, forthcoming

Abstract:
According to the “democracy-as-value” hypothesis, democracy has become an ideological belief system providing social value to democratic individuals, groups and institutions, granting legitimacy to their actions (even if dishonest or violent), and protecting them from consecutive punishments. The present research investigates the extent to which this legitimizing process is based on the individual endorsement of democratic principles. Across four experiments, following the misdeed of a (few) group member(s), respondents who valued democratic group organization and democracy in general expressed more lenient retributive justice judgments towards democratic (as compared with nondemocratic) offender groups. These findings shed light on the ways in which democratic ideology infuses justice judgments.

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Affective and Physiological Responses to the Suffering of Others: Compassion and Vagal Activity

Jennifer Stellar et al.
Journal of Personality and Social Psychology, forthcoming

Abstract:
Compassion is an affective response to another’s suffering and a catalyst of prosocial behavior. In the present studies, we explore the peripheral physiological changes associated with the experience of compassion. Guided by long-standing theoretical claims, we propose that compassion is associated with activation in the parasympathetic autonomic nervous system through the vagus nerve. Across 4 studies, participants witnessed others suffer while we recorded physiological measures, including heart rate, respiration, skin conductance, and a measure of vagal activity called respiratory sinus arrhythmia (RSA). Participants exhibited greater RSA during the compassion induction compared with a neutral control (Study 1), another positive emotion (Study 2), and a prosocial emotion lacking appraisals of another person’s suffering (Study 3). Greater RSA during the experience of compassion compared with the neutral or control emotion was often accompanied by lower heart rate and respiration but no difference in skin conductance. In Study 4, increases in RSA during compassion positively predicted an established composite of compassion-related words, continuous self-reports of compassion, and nonverbal displays of compassion. Compassion, a core affective component of empathy and prosociality, is associated with heightened parasympathetic activity.

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Is Corporate Social Responsibility Performance Associated with Tax Avoidance?

Roman Lanis & Grant Richardson
Journal of Business Ethics, March 2015, Pages 439-457

Abstract:
This study examines whether corporate social responsibility performance is associated with corporate tax avoidance. Employing a matched sample of 434 firm-year observations (i.e., 217 tax-avoidant and 217 non-tax-avoidant firm-year observations) from the Kinder, Lydenberg, and Domini database over the period 2003–2009, our logit regression results show that the higher the level of CSR performance of a firm, the lower the likelihood of tax avoidance. Our results indicate that more socially responsible firms are likely to display less tax avoidance. Finally, the results from our additional analysis show that the CSR categories community relations and diversity represent particularly important elements of CSR performance that reduce tax avoidance.

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The Neural Bases for Devaluing Radical Political Statements Revealed by Penetrating Traumatic Brain Injury

Irene Cristofori et al.
Social Cognitive and Affective Neuroscience, forthcoming

Abstract:
Given the determinant role of ventromedial prefrontal cortex (vmPFC) in valuation, we examined whether vmPFC lesions also modulate how people scale political beliefs. Patients with penetrating traumatic brain injury (pTBI; N=102) and healthy controls (HC; N=31) were tested on the Political Belief Task, where they rated 75 statements expressing political opinions concerned with welfare, economy, political involvement, civil rights, war and security. Each statement was rated for level of agreement and scaled along three dimensions: radicalism, individualism, and conservatism. Voxel-based lesion-symptom mapping (VLSM) analysis showed that diminished scores for the radicalism dimension (i.e., statements were rated as less radical than the norms) were associated with lesions in bilateral vmPFC. After dividing the pTBI patients into three groups, according to lesion location (i.e., vmPFC, dorsolateral prefrontal cortex [dlPFC] and parietal cortex), we found that the vmPFC, but not the dlPFC, group had reduced radicalism scores compared to parietal and HC groups. These findings highlight the crucial role of the vmPFC in appropriately valuing political behaviors and may explain certain inappropriate social judgments observed in patients with vmPFC lesions.

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Incentives to Breach

Tess Wilkinson-Ryan
American Law and Economics Review, forthcoming

Abstract:
Empirical evidence and common sense tell us that most people are responsive to economic incentives as well as social and moral norms, and that these sets of incentives are often in tension. The tradeoffs between moral and financial preferences are particularly salient in much legal decision-making, especially in the private law context. This paper presents the methods and results of two new behavioral studies designed to elicit evidence for how people factor both monetary and non-monetary incentives in breach of contract. Participants in Study 1 played a Trust game modified to capture key features of a breach decision. Subjects were offered increasing payouts to break the deal they had made with an anonymous partner. 18.6% participants indicated willingness to break a deal for any amount of profit, and over a quarter (27.9%) were unwilling to breach even when offered $24, almost triple the initial payout, with the remaining subjects identifying a break-point somewhere in between. Study 2 used hypothetical scenarios asking subjects to take the perspectives of buyers or sellers and to indicate how much profit or savings an alternate deal would have to offer in order for the subject to breach the original contract, and found a similar curve. The paper concludes with a discussion of how these methods and preliminary findings may be deployed for more fine-grained inquiries into when individuals do and do not choose a financially attractive breach about which they have moral reservations.

By KEVIN LEWIS | 09:00:00 AM

Wednesday, March 11, 2015

Reaching for the sky

The Wrong Solution at the Right Time: The Failure of the Kyoto Protocol on Climate Change

Amanda Rosen
Politics & Policy, February 2015, Pages 30–58

Abstract:
This article argues that the Kyoto Protocol on climate change is a fundamentally flawed agreement that set back solutions on climate change by two decades. Using a systematic framework focused on compliance, efficiency, and effectiveness, I analyze the Kyoto Protocol and argue it is a clear case of institutional failure, with the design itself bearing substantial blame for this outcome. The study points to how particular features of the Protocol — its short time frame for action, binding targets, emission reduction measures, and provision for future commitment periods — have resulted in short-sighted behavior by member states and path-dependent structures that failed to make a substantial impact on the climate problem.

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Calculation of a Population Externality

Henning Bohn & Charles Stuart
American Economic Journal: Economic Policy, forthcoming

Abstract:
It is known that when people generate externalities, a birth also generates an externality and efficiency requires a Pigou tax/subsidy on having children. The size of the externality from a birth is important for studying policy. We calculate the size of this “population externality” in a specific case: we consider a maintained hypothesis that greenhouse gas emissions are a serious problem and assume government reacts by optimally restricting emissions. Calculated population externalities are large under many assumptions.

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Near-term acceleration in the rate of temperature change

Steven Smith et al.
Nature Climate Change, forthcoming

Abstract:
Anthropogenically driven climate changes, which are expected to impact human and natural systems, are often expressed in terms of global-mean temperature. The rate of climate change over multi-decadal scales is also important, with faster rates of change resulting in less time for human and natural systems to adapt. We find that present trends in greenhouse-gas and aerosol emissions are now moving the Earth system into a regime in terms of multi-decadal rates of change that are unprecedented for at least the past 1,000 years. The rate of global-mean temperature increase in the CMIP5 archive over 40-year periods increases to 0.25 ± 0.05 °C (1σ) per decade by 2020, an average greater than peak rates of change during the previous one to two millennia. Regional rates of change in Europe, North America and the Arctic are higher than the global average. Research on the impacts of such near-term rates of change is urgently needed.

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Climate Sensitivity Uncertainty: When is Good News Bad?

Mark Freeman, Gernot Wagner & Richard Zeckhauser
NBER Working Paper, January 2015

Abstract:
Climate change is real and dangerous. Exactly how bad it will get, however, is uncertain. Uncertainty is particularly relevant for estimates of one of the key parameters: equilibrium climate sensitivity—how eventual temperatures will react as atmospheric carbon dioxide concentrations double. Despite significant advances in climate science and increased confidence in the accuracy of the range itself, the “likely” range has been 1.5-4.5°C for over three decades. In 2007, the Intergovernmental Panel on Climate Change (IPCC) narrowed it to 2-4.5°C, only to reverse its decision in 2013, reinstating the prior range. In addition, the 2013 IPCC report removed prior mention of 3°C as the “best estimate.” We interpret the implications of the 2013 IPCC decision to lower the bottom of the range and excise a best estimate. Intuitively, it might seem that a lower bottom would be good news. Here we ask: When might apparently good news about climate sensitivity in fact be bad news? The lowered bottom value also implies higher uncertainty about the temperature increase, a definite bad. Under reasonable assumptions, both the lowering of the lower bound and the removal of the “best estimate” may well be bad news.

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Climate change in the Fertile Crescent and implications of the recent Syrian drought

Colin Kelley et al.
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
Before the Syrian uprising that began in 2011, the greater Fertile Crescent experienced the most severe drought in the instrumental record. For Syria, a country marked by poor governance and unsustainable agricultural and environmental policies, the drought had a catalytic effect, contributing to political unrest. We show that the recent decrease in Syrian precipitation is a combination of natural variability and a long-term drying trend, and the unusual severity of the observed drought is here shown to be highly unlikely without this trend. Precipitation changes in Syria are linked to rising mean sea-level pressure in the Eastern Mediterranean, which also shows a long-term trend. There has been also a long-term warming trend in the Eastern Mediterranean, adding to the drawdown of soil moisture. No natural cause is apparent for these trends, whereas the observed drying and warming are consistent with model studies of the response to increases in greenhouse gases. Furthermore, model studies show an increasingly drier and hotter future mean climate for the Eastern Mediterranean. Analyses of observations and model simulations indicate that a drought of the severity and duration of the recent Syrian drought, which is implicated in the current conflict, has become more than twice as likely as a consequence of human interference in the climate system.

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The changing nature of flooding across the central United States

Iman Mallakpour & Gabriele Villarini
Nature Climate Change, March 2015, Pages 250–254

Abstract:
In the twentieth and twenty-first centuries, flooding has taken a devastating societal and economic toll on the central United States, contributing to dozens of fatalities and causing billions of dollars in damage. As a warmer atmosphere can hold more moisture (the Clausius–Clapeyron relation), a pronounced increase in intense rainfall events is included in models of future climate. Therefore, it is crucial to examine whether the magnitude and/or frequency of flood events is remaining constant or has been changing over recent decades. If either or both of these attributes have changed over time, it is imperative that we understand the underlying mechanisms that are responsible. Here, we show that while observational records (774 stream gauge stations) from the central United States present limited evidence of significant changes in the magnitude of floodpeaks, strong evidence points to an increasing frequency of flooding. These changes in flood hydrology result from changes in both seasonal rainfall and temperature across this region.

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Geoengineering and Climate Change Polarization: Testing a Two-Channel Model of Science Communication

Dan Kahan et al.
ANNALS of the American Academy of Political and Social Science, March 2015, Pages 192-222

Abstract:
The cultural cognition thesis posits that individuals rely extensively on cultural meanings in forming perceptions of risk. The logic of the cultural cognition thesis suggests that a two-channel science communication strategy, combining information content (“Channel 1”) with cultural meanings (“Channel 2”), could promote open-minded assessment of information across diverse communities. We test this kind of communication strategy in a two-nation (United States, n = 1,500; England, n = 1,500) study, in which scientific information content on climate change was held constant while the cultural meaning of that information was experimentally manipulated. We found that cultural polarization over the validity of climate change science is offset by making citizens aware of the potential contribution of geoengineering as a supplement to restriction of CO2 emissions. We also tested the hypothesis, derived from a competing model of science communication, that exposure to information on geoengineering would lead citizens to discount climate change risks generally. Contrary to this hypothesis, we found that subjects exposed to information about geoengineering were slightly more concerned about climate change risks than those assigned to a control condition.

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Expecting the Unexpected: Emissions Uncertainty and Environmental Market Design

Severin Borenstein et al.
NBER Working Paper, March 2015

Abstract:
We analyze the demand for emissions allowances and the supply of allowances and abatement opportunities in California's 2013-2020 cap and trade market for greenhouse gases (GHG). We estimate a cointegrated vector autoregression for the main drivers of greenhouse gas emissions using annual data from 1990 to 2011. We use these estimates to forecast businss-as-usual (BAU) emissions during California's program and the impact of the state's other GHG reduction programs. We then consider additional price-responsive and price-inelastic activities that will affect the supply/demand balance in the allowance market. We show that there is significant uncertainty in the BAU emissions levels due to uncertainty in economic growth and other factors. Our analysis also suggests that most of the planned abatement will not be very sensitive to the price of allowances, creating a steep abatement supply curve. The combination of BAU emissions uncertainty and inelastic abatement supply implies a high probability that the price of allowances in California will either be at the price floor, or high enough to trigger a safety valve mechanism called the Allowance Price Containment Reserve (APCR). We estimate a low probability that the price would end up in an intermediate range between the price floor and the APCR. The analysis suggests that cap-and-trade markets, as they have been established in California, the EU and elsewhere may be more likely to experience price volatility and extreme low or high prices than is generally recognized.

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Anthropogenic warming has increased drought risk in California

Noah Diffenbaugh, Daniel Swain & Danielle Touma
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
California is currently in the midst of a record-setting drought. The drought began in 2012 and now includes the lowest calendar-year and 12-mo precipitation, the highest annual temperature, and the most extreme drought indicators on record. The extremely warm and dry conditions have led to acute water shortages, groundwater overdraft, critically low streamflow, and enhanced wildfire risk. Analyzing historical climate observations from California, we find that precipitation deficits in California were more than twice as likely to yield drought years if they occurred when conditions were warm. We find that although there has not been a substantial change in the probability of either negative or moderately negative precipitation anomalies in recent decades, the occurrence of drought years has been greater in the past two decades than in the preceding century. In addition, the probability that precipitation deficits co-occur with warm conditions and the probability that precipitation deficits produce drought have both increased. Climate model experiments with and without anthropogenic forcings reveal that human activities have increased the probability that dry precipitation years are also warm. Further, a large ensemble of climate model realizations reveals that additional global warming over the next few decades is very likely to create ∼100% probability that any annual-scale dry period is also extremely warm. We therefore conclude that anthropogenic warming is increasing the probability of co-occurring warm–dry conditions like those that have created the acute human and ecosystem impacts associated with the “exceptional” 2012–2014 drought in California.

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Observational determination of surface radiative forcing by CO2 from 2000 to 2010

D.R. Feldman et al.
Nature, forthcoming

Abstract:
The climatic impact of CO2 and other greenhouse gases is usually quantified in terms of radiative forcing, calculated as the difference between estimates of the Earth’s radiation field from pre-industrial and present-day concentrations of these gases. Radiative transfer models calculate that the increase in CO2 since 1750 corresponds to a global annual-mean radiative forcing at the tropopause of 1.82 ± 0.19 W m−2. However, despite widespread scientific discussion and modelling of the climate impacts of well-mixed greenhouse gases, there is little direct observational evidence of the radiative impact of increasing atmospheric CO2. Here we present observationally based evidence of clear-sky CO2 surface radiative forcing that is directly attributable to the increase, between 2000 and 2010, of 22 parts per million atmospheric CO2. The time series of this forcing at the two locations — the Southern Great Plains and the North Slope of Alaska — are derived from Atmospheric Emitted Radiance Interferometer spectra together with ancillary measurements and thoroughly corroborated radiative transfer calculations. The time series both show statistically significant trends of 0.2 W m−2 per decade (with respective uncertainties of ±0.06 W m−2 per decade and ±0.07 W m−2 per decade) and have seasonal ranges of 0.1–0.2 W m−2. This is approximately ten per cent of the trend in downwelling longwave radiation. These results confirm theoretical predictions of the atmospheric greenhouse effect due to anthropogenic emissions, and provide empirical evidence of how rising CO2 levels, mediated by temporal variations due to photosynthesis and respiration, are affecting the surface energy balance.

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Changes in observed climate extremes in global urban areas

Vimal Mishra et al.
Environmental Research Letters, February 2015

Abstract:
Climate extremes have profound implications for urban infrastructure and human society, but studies of observed changes in climate extremes over the global urban areas are few, even though more than half of the global population now resides in urban areas. Here, using observed station data for 217 urban areas across the globe, we show that these urban areas have experienced significant increases (p-value <0.05) in the number of heat waves during the period 1973–2012, while the frequency of cold waves has declined. Almost half of the urban areas experienced significant increases in the number of extreme hot days, while almost 2/3 showed significant increases in the frequency of extreme hot nights. Extreme windy days declined substantially during the last four decades with statistically significant declines in about 60% in the urban areas. Significant increases (p-value <0.05) in the frequency of daily precipitation extremes and in annual maximum precipitation occurred at smaller fractions (17 and 10% respectively) of the total urban areas, with about half as many urban areas showing statistically significant downtrends as uptrends. Changes in temperature and wind extremes, estimated as the result of a 40 year linear trend, differed for urban and non-urban pairs, while changes in indices of extreme precipitation showed no clear differentiation for urban and selected non-urban stations.

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Questionnaire Design Effects in Climate Change Surveys: Implications for the Partisan Divide

Jonathon Schuldt, Sungjong Roh & Norbert Schwarz
ANNALS of the American Academy of Political and Social Science, March 2015, Pages 67-85

Abstract:
Despite strong agreement among scientists, public opinion surveys reveal wide partisan disagreement on climate issues in the United States. We suggest that this divide may be exaggerated by questionnaire design variables. Following a brief literature review, we report on a national survey experiment involving U.S. Democrats and Republicans (n = 2,041) (fielded August 25–September 5, 2012) that examined the effects of question wording and order on the belief that climate change exists, perceptions of scientific consensus, and support for limiting greenhouse gas emissions. Wording a questionnaire in terms of “global warming” (versus “climate change”) reduced Republicans’ (but not Democrats’) existence beliefs and weakened perceptions of the scientific consensus for both groups. Moreover, “global warming” reduced Republicans’ support for limiting greenhouse gases when this question immediately followed personal existence beliefs but not when the scientific consensus question intervened. We highlight the importance of attending to questionnaire design in the analysis of partisan differences.

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Increased frequency of extreme La Niña events under greenhouse warming

Wenju Cai et al.
Nature Climate Change, February 2015, Pages 132–137

Abstract:
The El Niño/Southern Oscillation is Earth’s most prominent source of interannual climate variability, alternating irregularly between El Niño and La Niña, and resulting in global disruption of weather patterns, ecosystems, fisheries and agriculture. The 1998–1999 extreme La Niña event that followed the 1997–1998 extreme El Niño event switched extreme El Niño-induced severe droughts to devastating floods in western Pacific countries, and vice versa in the southwestern United States. During extreme La Niña events, cold sea surface conditions develop in the central Pacific, creating an enhanced temperature gradient from the Maritime continent to the central Pacific. Recent studies have revealed robust changes in El Niño characteristics in response to simulated future greenhouse warming, but how La Niña will change remains unclear. Here we present climate modelling evidence, from simulations conducted for the Coupled Model Intercomparison Project phase 5, for a near doubling in the frequency of future extreme La Niña events, from one in every 23 years to one in every 13 years. This occurs because projected faster mean warming of the Maritime continent than the central Pacific, enhanced upper ocean vertical temperature gradients, and increased frequency of extreme El Niño events are conducive to development of the extreme La Niña events. Approximately 75% of the increase occurs in years following extreme El Niño events, thus projecting more frequent swings between opposite extremes from one year to the next.

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Nonlinear regional warming with increasing CO2 concentrations

Peter Good et al.
Nature Climate Change, February 2015, Pages 138–142

Abstract:
When considering adaptation measures and global climate mitigation goals, stakeholders need regional-scale climate projections, including the range of plausible warming rates. To assist these stakeholders, it is important to understand whether some locations may see disproportionately high or low warming from additional forcing above targets such as 2 K. There is a need to narrow uncertainty in this nonlinear warming, which requires understanding how climate changes as forcings increase from medium to high levels. However, quantifying and understanding regional nonlinear processes is challenging. Here we show that regional-scale warming can be strongly superlinear to successive CO2 doublings, using five different climate models. Ensemble-mean warming is superlinear over most land locations. Further, the inter-model spread tends to be amplified at higher forcing levels, as nonlinearities grow — especially when considering changes per kelvin of global warming. Regional nonlinearities in surface warming arise from nonlinearities in global-mean radiative balance, the Atlantic meridional overturning circulation, surface snow/ice cover and evapotranspiration. For robust adaptation and mitigation advice, therefore, potentially avoidable climate change (the difference between business-as-usual and mitigation scenarios) and unavoidable climate change (change under strong mitigation scenarios) may need different analysis methods.

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Rising temperatures reduce global wheat production

S. Asseng et al.
Nature Climate Change, February 2015, Pages 143–147

Abstract:
Crop models are essential tools for assessing the threat of climate change to local and global food production. Present models used to predict wheat grain yield are highly uncertain when simulating how crops respond to temperature. Here we systematically tested 30 different wheat crop models of the Agricultural Model Intercomparison and Improvement Project against field experiments in which growing season mean temperatures ranged from 15 °C to 32 °C, including experiments with artificial heating. Many models simulated yields well, but were less accurate at higher temperatures. The model ensemble median was consistently more accurate in simulating the crop temperature response than any single model, regardless of the input information used. Extrapolating the model ensemble temperature response indicates that warming is already slowing yield gains at a majority of wheat-growing locations. Global wheat production is estimated to fall by 6% for each °C of further temperature increase and become more variable over space and time.

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Intensity of heat stress in winter wheat — phenology compensates for the adverse effect of global warming

Ehsan Eyshi Rezaei, Stefan Siebert & Frank Ewert
Environmental Research Letters, February 2015

Abstract:
Higher temperatures during the growing season are likely to reduce crop yields with implications for crop production and food security. The negative impact of heat stress has also been predicted to increase even further for cereals such as wheat under climate change. Previous empirical modeling studies have focused on the magnitude and frequency of extreme events during the growth period but did not consider the effect of higher temperature on crop phenology. Based on an extensive set of climate and phenology observations for Germany and period 1951–2009, interpolated to 1 × 1 km resolution and provided as supplementary data to this article (available at stacks.iop.org/ERL/10/024012/mmedia), we demonstrate a strong relationship between the mean temperature in spring and the day of heading (DOH) of winter wheat. We show that the cooling effect due to the 14 days earlier DOH almost fully compensates for the adverse effect of global warming on frequency and magnitude of crop heat stress. Earlier heading caused by the warmer spring period can prevent exposure to extreme heat events around anthesis, which is the most sensitive growth stage to heat stress. Consequently, the intensity of heat stress around anthesis in winter crops cultivated in Germany may not increase under climate change even if the number and duration of extreme heat waves increase. However, this does not mean that global warning would not harm crop production because of other impacts, e.g. shortening of the grain filling period. Based on the trends for the last 34 years in Germany, heat stress (stress thermal time) around anthesis would be 59% higher in year 2009 if the effect of high temperatures on accelerating wheat phenology were ignored. We conclude that climate impact assessments need to consider both the effect of high temperature on grain set at anthesis but also on crop phenology.

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Adaptive potential of a Pacific salmon challenged by climate change

Nicolas Muñoz et al.
Nature Climate Change, February 2015, Pages 163–166

Abstract:
Pacific salmon provide critical sustenance for millions of people worldwide and have far-reaching impacts on the productivity of ecosystems. Rising temperatures now threaten the persistence of these important fishes, yet it remains unknown whether populations can adapt. Here, we provide the first evidence that a Pacific salmon has both physiological and genetic capacities to increase its thermal tolerance in response to rising temperatures. In juvenile chinook salmon (Oncorhynchus tshawytscha), a 4 °C increase in developmental temperature was associated with a 2 °C increase in key measures of the thermal performance of cardiac function. Moreover, additive genetic effects significantly influenced several measures of cardiac capacity, indicative of heritable variation on which selection can act. However, a lack of both plasticity and genetic variation was found for the arrhythmic temperature of the heart, constraining this upper thermal limit to a maximum of 24.5 ± 2.2 °C. Linking this constraint on thermal tolerance with present-day river temperatures and projected warming scenarios, we predict a 17% chance of catastrophic loss in the population by 2100 based on the average warming projection, with this chance increasing to 98% in the maximum warming scenario. Climate change mitigation is thus necessary to ensure the future viability of Pacific salmon populations.

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Robust Hadley Circulation changes and increasing global dryness due to CO2 warming from CMIP5 model projections

William Lau & Kyu-Myong Kim
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
In this paper, we investigate changes in the Hadley Circulation (HC) and their connections to increased global dryness (suppressed rainfall and reduced tropospheric relative humidity) under CO2 warming from Coupled Model Intercomparison Project Phase 5 (CMIP5) model projections. We find a strengthening of the HC manifested in a “deep-tropics squeeze” (DTS), i.e., a deepening and narrowing of the convective zone, enhanced ascent, increased high clouds, suppressed low clouds, and a rise of the level of maximum meridional mass outflow in the upper troposphere (200−100 hPa) of the deep tropics. The DTS induces atmospheric moisture divergence and reduces tropospheric relative humidity in the tropics and subtropics, in conjunction with a widening of the subsiding branches of the HC, resulting in increased frequency of dry events in preferred geographic locations worldwide. Among various water-cycle parameters examined, global dryness is found to have the highest signal-to-noise ratio. Our results provide a physical basis for inferring that greenhouse warming is likely to contribute to the observed prolonged droughts worldwide in recent decades.

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Response of double cropping suitability to climate change in the United States

Christopher Seifert & David Lobell
Environmental Research Letters, February 2015

Abstract:
In adapting US agriculture to the climate of the 21st century, a key unknown is whether cropping frequency may increase, helping to offset projected negative yield impacts in major production regions. Combining daily weather data and crop phenology models, we find that cultivated area in the US suited to dryland winter wheat–soybeans, the most common double crop (DC) system, increased by up to 28% from 1988 to 2012. Changes in the observed distribution of DC area over the same period agree well with this suitability increase, evidence consistent with climate change playing a role in recent DC expansion in phenologically constrained states. We then apply the model to projections of future climate under the RCP45 and RCP85 scenarios and estimate an additional 126–239% increase, respectively, in DC area. Sensitivity tests reveal that in most instances, increases in mean temperature are more important than delays in fall freeze in driving increased DC suitability. The results suggest that climate change will relieve phenological constraints on wheat–soy DC systems over much of the United States, though it should be recognized that impacts on corn and soybean yields in this region are expected to be negative and larger in magnitude than the 0.4–0.75% per decade benefits we estimate here for double cropping.

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Citizens’, Scientists’, and Policy Advisors’ Beliefs about Global Warming

Toby Bolsen, James Druckman & Fay Lomax Cook
ANNALS of the American Academy of Political and Social Science, March 2015, Pages 271-295

Abstract:
Numerous factors shape citizens’ beliefs about global warming, but there is very little research that compares the views of the public with key actors in the policymaking process. We analyze data from simultaneous and parallel surveys of (1) the U.S. public, (2) scientists who actively publish research on energy technologies in the United States, and (3) congressional policy advisors and find that beliefs about global warming vary markedly among them. Scientists and policy advisors are more likely than the public to express a belief in the existence and anthropogenic nature of global warming. We also find ideological polarization about global warming in all three groups, although scientists are less polarized than the public and policy advisors over whether global warming is actually occurring. Alarmingly, there is evidence that the ideological divide about global warming gets significantly larger according to respondents’ knowledge about politics, energy, and science.

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Arctic warming will promote Atlantic–Pacific fish interchange

M.S. Wisz et al.
Nature Climate Change, March 2015, Pages 261–265

Abstract:
Throughout much of the Quaternary Period, inhospitable environmental conditions above the Arctic Circle have been a formidable barrier separating most marine organisms in the North Atlantic from those in the North Pacific. Rapid warming has begun to lift this barrier, potentially facilitating the interchange of marine biota between the two seas. Here, we forecast the potential northward progression of 515 fish species following climate change, and report the rate of potential species interchange between the Atlantic and the Pacific via the Northwest Passage and the Northeast Passage. For this, we projected niche-based models under climate change scenarios and simulated the spread of species through the passages when climatic conditions became suitable. Results reveal a complex range of responses during this century, and accelerated interchange after 2050. By 2100 up to 41 species could enter the Pacific and 44 species could enter the Atlantic, via one or both passages. Consistent with historical and recent biodiversity interchanges, this exchange of fish species may trigger changes for biodiversity and food webs in the North Atlantic and North Pacific, with ecological and economic consequences to ecosystems that at present contribute 39% to global marine fish landings.

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The fingerprint of climate trends on European crop yields

Frances Moore & David Lobell
Proceedings of the National Academy of Sciences, 3 March 2015, Pages 2670–2675

Abstract:
Europe has experienced a stagnation of some crop yields since the early 1990s as well as statistically significant warming during the growing season. Although it has been argued that these two are causally connected, no previous studies have formally attributed long-term yield trends to a changing climate. Here, we present two statistical tests based on the distinctive spatial pattern of climate change impacts and adaptation, and explore their power under a range of parameter values. We show that statistical power for the identification of climate change impacts is high in many settings, but that power for identifying adaptation is almost always low. Applying these tests to European agriculture, we find evidence that long-term temperature and precipitation trends since 1989 have reduced continent-wide wheat and barley yields by 2.5% and 3.8%, respectively, and have slightly increased maize and sugar beet yields. These averages disguise large heterogeneity across the continent, with regions around the Mediterranean experiencing significant adverse impacts on most crops. This result means that climate trends can account for ∼10% of the stagnation in European wheat and barley yields, with likely explanations for the remainder including changes in agriculture and environmental policies.

By KEVIN LEWIS | 09:00:00 AM

Tuesday, March 10, 2015

Raised right

Why Do Entrepreneurial Parents Have Entrepreneurial Children?

Matthew Lindquist, Joeri Sol & Mirjam Van Praag
Journal of Labor Economics, April 2015, Pages 269-296

Abstract:
We explore the origins of the intergenerational association in entrepreneurship using Swedish adoption data that allow us to quantify the relative importance of prebirth and postbirth factors. We find that parental entrepreneurship increases the probability of children’s entrepreneurship by about 60%. For adoptees, both biological and adoptive parents make significant contributions to this association. These contributions, however, are quite different in size. Postbirth factors account for twice as much as prebirth factors in our decomposition of the intergenerational association in entrepreneurship. We investigate several candidate explanations for this large postbirth factor and present suggestive evidence in favor of role modeling.

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A within-family analysis of birth order and intelligence using population conscription data on Swedish men

Kieron Barclay
Intelligence, March–April 2015, Pages 134–143

Abstract:
This study examines the relationship between birth order and intelligence in Sweden. This research question has been of interest for decades, but only one study using a sibling comparison design has found that birth order has a negative effect on intelligence. The data used in this study is Swedish administrative register data, with data on cognitive ability drawn from the military conscription register for men born 1965 to 1977. Within-family comparison linear regression models are used to estimate the difference in cognitive ability by birth order amongst brothers. I find that there is a negative relationship between birth order and cognitive ability. This is consistent in sibling-group-size-specific analyses of sibling groups with two through to six children. Further analyses demonstrate that this negative relationship between birth order and intelligence is consistent in different socioeconomic status groups, and amongst individuals born in the 1960s and 1970s. Analyses of brothers in two-child sibling groups show that the relationship between birth order and intelligence varies by the birth interval. Second borns have a statistically significantly lower cognitive ability score if the birth interval is up to six years, but not if it is longer.

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Detrimental for Some? Heterogeneous Effects of Maternal Incarceration on Child Wellbeing

Kristin Turney & Christopher Wildeman
Criminology & Public Policy, February 2015, Pages 125–156

Abstract:
We use data from the Fragile Families and Child Wellbeing Study (N = 3,197) to consider the heterogeneous effects of maternal incarceration on 9-year-old children. We find that maternal incarceration has no average effects on child wellbeing (measured by caregiver-reported internalizing problem behaviors, caregiver-reported externalizing problem behaviors, Peabody Picture Vocabulary Test-Third Edition scores, and child-reported early juvenile delinquency) but that the effects vary by mothers’ propensities for experiencing incarceration. Maternal incarceration is deleterious for children of mothers least likely to experience incarceration but mostly inconsequential for children of mothers more likely to experience incarceration.

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Serotonin transporter linked polymorphic region (5-HTTLPR) genotype moderates the longitudinal impact of early caregiving on externalizing behavior

Zoë Brett et al.
Development and Psychopathology, February 2015, Pages 7-18

Abstract:
We examined caregiver report of externalizing behavior from 12 to 54 months of age in 102 children randomized to care as usual in institutions or to newly created high-quality foster care. At baseline no differences by group or genotype in externalizing were found. However, changes in externalizing from baseline to 42 months of age were moderated by the serotonin transporter linked polymorphic region genotype and intervention group, where the slope for short–short (S/S) individuals differed as a function of intervention group. The slope for individuals carrying the long allele did not significantly differ between groups. At 54 months of age, S/S children in the foster care group had the lowest levels of externalizing behavior, while children with the S/S genotype in the care as usual group demonstrated the highest rates of externalizing behavior. No intervention group differences were found in externalizing behavior among children who carried the long allele. These findings, within a randomized controlled trial of foster care compared to continued care as usual, indicate that the serotonin transporter linked polymorphic region genotype moderates the relation between early caregiving environments to predict externalizing behavior in children exposed to early institutional care in a manner most consistent with differential susceptibility.

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Maternity leave and children’s cognitive and behavioral development

Michael Baker & Kevin Milligan
Journal of Population Economics, April 2015, Pages 373-391

Abstract:
We investigate the impact of maternity leave on the cognitive and behavioral development of children at ages 4 and 5, following up previous research on these children at younger ages. The impact is identified by legislated increases in the duration of maternity leave in Canada, which significantly increased the amount of first-year maternal care. Our results indicate no positive effect on indices of children’s cognitive and behavioral development. We uncover a small negative impact on PPVT scores.

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Nonresident fatherhood and adolescent sexual behavior: A comparison of siblings approach

Rebecca Ryan
Developmental Psychology, February 2015, Pages 211-223

Abstract:
Although voluminous research has linked nonresident fatherhood to riskier sexual behavior in adolescence, including earlier sexual debut, neither the causality of that link nor the mechanism accounting for it has been well-established. Using data from the National Longitudinal Survey of Youth, 1979 — the Young Adult Survey (CNLSY-YA), the present study addresses both questions by comparing the sexual development of siblings discordant for age at father departure from the home and examining results across behavioral (age at first intercourse), biological (pubertal timing), and cognitive (attitudes about childbearing and marriage) sexual outcomes (N = 5,542). Findings indicate that nonresident fatherhood, beginning either at birth or during middle childhood, leads to an earlier sexual debut for girls, but not for boys, an effect likely explained by weak parental monitoring rather than an accelerated reproductive strategy.

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Breastfeeding duration and non-verbal IQ in children

Ayesha Sajjad et al.
Journal of Epidemiology & Community Health, forthcoming

Background: Breastfeeding has been related to better cognitive development in children. However, due to methodological challenges, such as confounding, recall bias or insufficient power, the mechanism and nature of the relation remains subject to debate.

Methods: We included 3761 participants of a population-based cohort study from fetal life onwards and examined the association of breastfeeding duration with non-verbal intelligence in children of age 6 years. Maternal and paternal lifestyle, sociodemographic factors, child factors and maternal IQ were tested for their confounding effects on the association.

Results: We observed an initial association between breastfeeding duration and child IQ conferring an advantage of 0.32 (0.20 to 0.44) points for each additional month of breastfeeding. This association strongly attenuated to 0.09 (−0.03 to 0.21) points after adjustment for child factors, sociodemographic factors, parental lifestyle factors and maternal IQ. Similarly, the associations with breastfeeding duration as a categorical variable largely disappeared after confounding factors were added to the models.

Conclusions: The association between breastfeeding and child IQ can be largely explained by sociodemographic factors, parental lifestyle and maternal IQ. Our results cannot confirm beneficial effects of breastfeeding on child intelligence.

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Does the Amount of Time Mothers Spend With Children or Adolescents Matter?

Melissa Milkie, Kei Nomaguchi & Kathleen Denny
Journal of Marriage and Family, April 2015, Pages 355–372

Abstract:
Although intensive mothering ideology underscores the irreplaceable nature of mothers' time for children's optimal development, empirical testing of this assumption is scant. Using time diary and survey data from the Panel Study of Income Dynamics Child Development Supplement, the authors examined how the amount of time mothers spent with children ages 3–11 (N = 1,605) and adolescents 12–18 (N = 778) related to offspring behavioral, emotional, and academic outcomes and adolescent risky behavior. Both time mothers spent engaged with and accessible to offspring were assessed. In childhood and adolescence, the amount of maternal time did not matter for offspring behaviors, emotions, or academics, whereas social status factors were important. For adolescents, more engaged maternal time was related to fewer delinquent behaviors, and engaged time with parents together was related to better outcomes. Overall, the amount of mothers' time mattered in nuanced ways, and, unexpectedly, only in adolescence.

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Parenting Influence on the Development of Life History Strategy

Curtis Dunkel et al.
Evolution and Human Behavior, forthcoming

Abstract:
Using a newly developed measure of life history strategy, the influence of maternal and paternal sensitivity in childhood and maternal and paternal authoritative parenting in late adolescence on developing life history strategy was examined. Maternal sensitivity and maternal and paternal authoritative parenting were positively correlated with a slow LH strategy. Maternal sensitivity and maternal authoritative parenting each explained unique variance in life history strategy as measured in late adolescence. The results remained after controlling for ethnicity, sex, childhood SES, intelligence, and childhood temperament. Consistent with previous research and theory the results suggest that maternal sensitivity in early childhood affects the development of life history strategy. However, the results also suggest that significant post pubertal plasticity in life history strategy development remains and that parental behavior continues to be influential in an individual’s developing life history strategy.

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Unattractive infant faces elicit negative affect from adults

Stevie Schein & Judith Langlois
Infant Behavior and Development, February 2015, Pages 130–134

Abstract:
We examined the relationship between infant attractiveness and adult affect by investigating whether differing levels of infant facial attractiveness elicit facial muscle movement correlated with positive and negative affect from adults (N = 87) using electromyography. Unattractive infant faces evoked significantly more corrugator supercilii and levator labii superioris movement (physiological correlates of negative affect) than attractive infant faces. These results suggest that unattractive infants may be at risk for negative affective responses from adults, though the relationship between those responses and caregiving behavior remains elusive.

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Menstrual cycle phase affects discrimination of infant cuteness

Janek Lobmaier et al.
Hormones and Behavior, April 2015, Pages 1–6

Abstract:
Recent studies have shown that women are more sensitive than men to subtle cuteness differences in infant faces. It has been suggested that raised levels in estradiol and progesterone may be responsible for this advantage. We compared young women's sensitivity to computer-manipulated baby faces varying in cuteness. Thirty-six women were tested once during ovulation and once during the luteal phase of their menstrual cycle. In a two alternative forced-choice experiment, participants chose the baby which they thought was cuter (Task 1), younger (Task 2), or the baby that they would prefer to babysit (Task 3). Saliva samples to assess levels of estradiol, progesterone and testosterone were collected at each test session. During ovulation, women were more likely to choose the cuter baby than during the luteal phase, in all three tasks. These results suggest that cuteness discrimination may be driven by cyclic hormonal shifts. However none of the measured hormones were related to increased cuteness sensitivity. We speculate that other hormones than the ones measured here might be responsible for the increased sensitivity to subtle cuteness differences during ovulation.

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Effect of Early Institutionalization and Foster Care on Long-term White Matter Development: A Randomized Clinical Trial

Johanna Bick et al.
JAMA Pediatrics, March 2015, Pages 211-219

Objective: To examine associations among neglect in early life, early intervention, and the microstructural integrity of white matter pathways in middle childhood.

Design, Setting, and Participants: The Bucharest Early Intervention Project is a randomized clinical trial of high-quality foster care as an intervention for institutionally reared children in Bucharest, Romania, from 2000 through the present. During infancy, children were randomly selected to remain in an institution or to be placed in foster care. Those who remained in institutions experienced neglect, including social, emotional, linguistic, and cognitive impoverishment. Developmental trajectories of these children were compared with a group of sociodemographically matched children reared in biological families at baseline and several points throughout development. At approximately 8 years of age, 69 of the original 136 children underwent structural magnetic resonance imaging scans.

Main Outcomes and Measures: Four estimates of white matter integrity (fractional anisotropy [FA] and mean [MD], radial [RD], and axial [AD] diffusivity) for 48 white matter tracts throughout the brain were obtained through diffusion tensor imaging.

Results: Significant associations emerged between neglect in early life and microstructural integrity of the body of the corpus callosum (FA, β = 0.01 [P = .01]; RD, β = −0.02 [P = .005]; MD, β = −0.01 [P = .02]) and tracts involved in limbic circuitry (fornix crus [AD, β = 0.02 (P = .046)] and cingulum [RD, β = −0.01 (P = .02); MD, β = −0.01 (P = .049)]), frontostriatal circuitry (anterior [AD, β = −0.01 (P = .02)] and superior [AD, β = −0.02 (P = .02); MD, β = −0.01 (P = .03)] corona radiata and external capsule [right FA, β = 0.01 (P = .03); left FA, β = 0.01 (P = .03); RD, β = −0.01 (P = .01); MD, β = −0.01 (P = .03)]), and sensory processing (medial lemniscus [AD, β = −0.02 (P = .045); MD, β = −0.01 (P = .04)] and retrolenticular internal capsule [FA, β = −0.01 (P = .002); RD, β = 0.01 (P = .003); MD, β = 0.01 (P = .04)]). Follow-up analyses revealed that early intervention promoted more normative white matter development among previously neglected children who entered foster care.

Conclusions and Relevance: Results suggest that removal from conditions of neglect in early life and entry into a high-quality family environment can support more normative trajectories of white matter growth. Our findings have implications for public health and policy efforts designed to promote normative brain development among vulnerable children.

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Young adults’ reactions to infant crying

Christine Hechler, Roseriet Beijers & Carolina de Weerth
Infant Behavior and Development, February 2015, Pages 41–48

Aim: To determine whether young childless adults show negative emotions and cognitive disturbances when listening to infant crying, compared to other disturbing noises, and whether negative emotions and cognitive disturbances are associated.

Methods: We tested the cognitive performances and emotional reactions of 120 childless participants on a working memory task while being subjected to different disturbing noises including infant crying.

Results: Participants had the least correct trials on the working memory task, and showed the most negative emotions, when hearing infant crying as compared to the other noises. Participants also showed less positive emotions when hearing infant crying as compared to working in silence. Overall, negative emotions were associated with less correct trials on the working memory task, except in the infant crying condition. Furthermore, cognitive performance and emotional reactions to infant crying were unrelated to personality characteristics.

Conclusion: Negative emotions and cognitive disturbances may be general adult responses to infant crying that are not limited to parents. These results suggest a broadly present human emotional and cognitive response to infant crying, that may underlie a general predisposition to care for infants in distress.

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Can’t buy mommy’s love? Universal childcare and children’s long-term cognitive development

Christina Felfe, Natalia Nollenberger & Núria Rodríguez-Planas
Journal of Population Economics, April 2015, Pages 393-422

Abstract:
What happens to children’s long-run cognitive development when introducing universal high-quality childcare for 3-year-olds mainly crowds out family care? To answer this question, we take advantage of a sizeable expansion of publicly subsidized full-time high-quality childcare for 3-year-olds in Spain in the early 1990s. Identification relies on variation in the initial speed of the expansion of childcare slots across states. Using a difference-in-difference approach, we find strong evidence for sizeable improvements in children’s reading skills at age 15 (0.15 standard deviation) and weak evidence for a reduction in grade retentions during primary school (2.5 percentage points). The effects are driven by girls and disadvantaged children.

By KEVIN LEWIS | 09:00:00 AM

Monday, March 9, 2015

Blue horseshoe loves

Insider Trading in Supervised Industries

David Reeb, Yuzhao Zhang & Wanli Zhao
Journal of Law and Economics, August 2014, Pages 529-559

Abstract:
We investigate the impact of government agency oversight, such as by the Federal Reserve, on insider trading at the firm level. Regulatory supervision potentially limits trading based on material, nonpublic information, as it provides another layer of corporate governance to mitigate outflows of private information. Yet regulators themselves may serve as a source of information leakage, thereby facilitating insider-trading activity. We find, first, that in comparison to nonsupervised firms, supervised firms exhibit substantially greater trading based on inside information prior to earnings announcements. Second, in the first few days after firms provide private information to regulators or when regulators possess private information inaccessible to corporate insiders, these firms exhibit greater symptoms of insider trading. Finally, within a given supervised industry, insider-trading symptoms appear more pronounced when regulators exhibit greater leniency or operate in states with more political corruption. These insider-trading activities translate into over $1 billion in annual transfers.

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Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets

Catherine Eckel & Sascha Füllbrunn
American Economic Review, February 2015, Pages 906-920

Abstract:
Do women and men behave differently in financial asset markets? Our results from an asset market experiment show a marked gender difference in producing speculative price bubbles. Mixed markets show intermediate values, and a meta-analysis of 35 markets from different studies confirms the inverse relationship between the magnitude of price bubbles and the frequency of female traders in the market. Women's price forecasts also are significantly lower, even in the first period. Implications for financial markets and experimental methodology are discussed.

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Rumor Has It: Sensationalism in Financial Media

Kenneth Ahern & Denis Sosyura
Review of Financial Studies, forthcoming

Abstract:
The media has an incentive to publish sensational news. We study how this incentive affects the accuracy of media coverage in the context of merger rumors. Using a novel dataset, we find that accuracy is predicted by a journalist's experience, specialized education, and industry expertise. Conversely, less accurate stories use ambiguous language and feature well-known firms with broad readership appeal. Investors do not fully account for the predictive power of these characteristics, leading to an initial target price overreaction and a subsequent reversal, consistent with limited attention. Overall, we provide novel evidence on the determinants of media accuracy and its effect on asset prices.

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Do Sophisticated Investors Interpret Earnings Conference Call Tone Differently than Investors at Large? Evidence from Short Sales

Benjamin Blau, Jared DeLisle & McKay Price
Journal of Corporate Finance, April 2015, Pages 203–219

Abstract:
Recent research finds that investors, broadly defined, react to the linguistic tone of quarterly earnings conference calls; there is a positive relation between firms' stock returns and call tone (a measure of “sentiment” related word tabulations). However, this type of soft information can be subtle, context-specific, and difficult to interpret. Moreover, the literature suggests cross-sectional variation in information processing skills among investors. Thus, we test whether sophisticated investors interpret earnings conference call tone differently than investors at large by examining short selling activity and its relation to earnings conference call tone. We find that short sellers target firms with simultaneous high earnings surprise and abnormally high management tone. The combination of positive earnings surprise and unusually positive tone strengthens short sellers' return predictability. This result indicates that short sellers interpret revealed “inflated” call language by managers more completely than naïve investors. The incomplete stock price reaction by naïve investors due to the lack of reliability they place on this soft information results in overpricing of the stock. However, it also suggests that managers are unable to maintain prolonged overvaluation of their stock by striking an overly optimistic posture in the interactive conference call disclosure forum since short sellers' trades provide additional price discovery.

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Tips and Tells from Managers: How Analysts and the Market Read Between the Lines of Conference Calls

Marina Druz, Alexander Wagner & Richard Zeckhauser
NBER Working Paper, February 2015

Abstract:
Stock prices react significantly to the tone (negativity of words) managers use on earnings conference calls. This reaction reflects reasonably rational use of information. “Tone surprise” – the residual when negativity in managerial tone is regressed on the firm’s recent economic performance and CEO fixed effects – predicts future earnings and analyst uncertainty. Prices move more, as hypothesized, in firms where tone surprise predicts more strongly. Experienced analysts respond appropriately in revising their forecasts; inexperienced analysts overreact (underreact) to tone surprises in presentations (answers). Post-call price drift, like post-earnings announcement drift, suggests less-than-full-use of information embedded in managerial tone.

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The hidden face of the media: How financial journalists produce information

Congcong Li
University of Maryland Working Paper, December 2014

Abstract:
This study investigates how the media produces information. Using a sample of 296,497 Wall Street Journal news articles, I find that news articles written by experienced and reputable financial journalists are more informative about future earnings. I then examine the source of such information advantage by studying the detailed quotes from news articles. I further find that these journalists rely more heavily on first-hand access to management, institutional investors, and other external experts, an important channel through which they produce informative news. Interestingly, however, this information advantage is present only when the experienced and reputable journalists remain independent — for those journalists that repeatedly cover the same firm or rely primarily on information from management, the networking information advantage is completely muted. These results suggest that the quality of the media as an information intermediary depends critically on individual journalists’ ability to access information from industry networks and provide unbiased news.

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Hedge Funds and Stock Market Efficiency

Joni Kokkonen & Matti Suominen
Management Science, forthcoming

Abstract:
We measure misvaluation using the discounted residual income model. As shown in the literature, this measure of stocks' misvaluation significantly explains their future cross-sectional returns. We measure the market-level misvaluation (market inefficiency) by the misvaluation spread: the difference in the misvaluation of the most overvalued and undervalued shares. We show that the misvaluation spread is a strong predictor of a misvaluation-based long–short portfolio’s returns, reinforcing the hypothesis that it proxies for the level of mispricing in the stock market. Using data on hedge fund returns, hedge fund industry assets under management, flows, and individual hedge fund holdings, we present evidence that hedge funds' trading reduces market-level misvaluation. Our results are robust across different time periods and are not driven by market liquidity. Moreover, we find that mutual funds do not have the price-correcting effect that hedge funds have.

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Trust and Investment Management: The Effects of Manager Trustworthiness on Hedge Fund Investments

Ankur Pareek & Roy Zuckerman
Rutgers Working Paper, October 2014

Abstract:
This paper studies the effect of perceived manager trustworthiness on hedge fund investment. Controlling for past-performance, we find that hedge fund managers whose photographs are rated as more trustworthy are able to attract greater fund flows, in the medium performance range, and have a less convex flow-performance relationship compared to the managers rated as less trustworthy. We also find that "trustworthy" managers are more likely to survive given poor past-performance and generate lower risk-adjusted returns when compared to managers who are perceived as less trustworthy. We attribute this phenomenon to over-investment with "trustworthy" managers caused by an investor bias.

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Positive Mood and Investment Decisions: Evidence from Comedy Movie Attendance in the U.S.

Gabriele Lepori
Research in International Business and Finance, May 2015, Pages 142–163

Abstract:
Positive mood has been repeatedly shown to affect decision-making under risk. In this study I exploit the time-series variation in the domestic theatrical release of comedy movies as a natural experiment for testing the impact that happy mood (proxied by weekend comedy movie attendance) has on the demand for risky assets (proxied by the performance of the U.S. stock market). Using a sample of data from 1994 to 2010, I estimate that an increase in comedy attendance on a given weekend is followed by a decrease in equity returns on the subsequent Monday, which is consistent with the mood-maintenance hypothesis.

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Investor Mood and Demand for Stocks: Evidence from Popular TV Series Finales

Gabriele Lepori
Journal of Economic Psychology, forthcoming

Abstract:
In this paper I employ a novel discrete mood proxy to investigate the response of the U.S. stock market to exogenous daily variations in investor mood. Drawing upon the psychology and communication literature, which documents that the end of popular TV series causes negative emotional reactions in large numbers of television viewers, I employ major TV series finales (between 1967 and 2012) as mood-altering events. I find that an increase in the fraction of Americans watching a TV show finale on a given day is immediately followed by a decrease in U.S. stock returns. This effect is stronger in small-cap and high-volatility stocks, whose pricing is more sensitive to sentiment, and is consistent with the hypothesis that negative mood reduces the demand for risky assets.

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Contractual incompleteness, limited liability and asset price bubbles

James Dow & Jungsuk Han
Journal of Financial Economics, forthcoming

Abstract:
When should we expect bubbles? Can levered intermediaries bid up risky asset prices through asset substitution? We study an economy with financial intermediaries that issue debt and equity to buy risky assets. Asset substitution alone cannot cause bubbles because it is priced into the intermediaries׳ securities. But incomplete contracts and managerial agency problems can make intermediaries take excessive risk to exploit limited liability, bidding up risky asset prices. This destroys welfare through misallocation of resources. We argue that incentives for private monitoring cannot solve this problem. Finally, even without agency problems, debt subsidies will create similar effects.

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A Comparison of Buy-Side and Sell-Side Analysts

Jeffrey Hobbs & Vivek Singh
Review of Financial Economics, January 2015, Pages 42–51

Abstract:
There is very little research on the topic of buy-side analyst performance, and that which does exist yields mixed results. We use a large sample from both the buy- and sell-side and report several new results. First, while the contemporaneous returns to portfolios based on sell-side recommendations are positive, the returns for buy-side analysts, proxied by changes in institutional holdings, are negative. Second, the buy-side analysts’ underperformance is accentuated when they trade against sell-side analysts’ recommendations. Third, abnormal returns positively relate to both the portfolio size, and turnover of buy-side analysts’ institutions, suggesting that large institutions employ superior analysts and that superior analysts frequently change their recommendations. Abnormal returns are also positively related to buy-side portfolios with stocks that have higher analyst coverage, greater institutional holding, and lower earnings forecast dispersion. Fourth, there is substantial persistence in buy-side performance, but even the top decile performs poorly. These findings suggest that sell-side analysts still outperform buy-side analysts despite the severe conflicts of interest documented in the literature.

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Change You Can Believe In? Hedge Fund Data Revisions

Andrew Patton, Tarun Ramadorai & Michael Streatfield
Journal of Finance, forthcoming

Abstract:
We analyze the reliability of voluntary disclosures of financial information, focusing on widely-employed publicly available hedge fund databases. Tracking changes to statements of historical performance recorded between 2007 and 2011, we find that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Funds that revise their performance histories significantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for investors. These results speak to current debates about mandatory disclosures by financial institutions to market regulators.

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Top VC IPO Underpricing

Daniel Bradley, Incheol Kim & Laurie Krigman
Journal of Corporate Finance, April 2015, Pages 186–202

Abstract:
Before the IPO bubble burst, the first day return for IPOs backed by top VCs firms was double that of non-top VCs IPOs. Top VC IPOs were also twice as likely to receive all-star analyst coverage and suffered twice as large negative returns upon lockup expiration. We argue that this was not a coincidence. Underwriters benefited from underpricing vis-à-vis allocation strategies whereas VCs gain from information momentum which allows them to cash-out at higher prices at lockup expiration. All-stars are a scarce resource underwriters allocate to their best clients (Top VCs) who bring them repeat business. Post-bubble, regulatory shocks restricted preferential IPO allocations and reduced the value of all-star coverage. Consequently, these relations disappeared indicating that regulatory changes likely had the desired effect.

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The Real Effects of Short-Selling Constraints

Gustavo Grullon, Sébastien Michenaud & James Weston
Review of Financial Studies, forthcoming

Abstract:
We use a regulatory experiment (Regulation SHO) that relaxes short-selling constraints on a random sample of U.S. stocks to test whether capital market frictions have an effect on stock prices and corporate decisions. We find that an increase in short-selling activity causes prices to fall, and that small firms react to these lower prices by reducing equity issues and investment. These results not only provide evidence that short-selling constraints affect asset prices, but also confirm that short-selling activity has a causal impact on financing and investment decisions.

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How Quickly Do Markets Learn? Private Information Dissemination in a Natural Experiment

Robert Jackson, Wei Jiang & Joshua Mitts
Columbia University Working Paper, December 2014

Abstract:
Using data from a unique episode in which the SEC disseminated securities filings to a small group of private investors before releasing them to the public, we provide a direct test of the process through which private information is impounded into stock prices. Because the delay between the time when the filings were privately distributed and when the filings were made public was randomly distributed, our setting provides a rare natural experiment for examining how markets process new private information. We find that it takes minutes — not seconds — for informed traders to incorporate fundamental information into stock prices. We also show that the private investors who had early access to fundamental information profited more, and convey more information into stock prices, when the delay before the filings are released to the public is longer. More importantly, the rate at which information is impounded into stock prices is more correlated with the length of the predicted delay before public release than the actual delay, suggesting that informed investors trade strategically. Our study serves as the modern counterpart to Koudijs’s (2014a) study on insider trading on eighteenth-century stock exchanges — except, in our case, week-long sailing voyages have been replaced by modern electronic transmission as the conduit for information flows.

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Joining the conversation: How quiet is the IPO quiet period?

Matthew Cedergren
NYU Working Paper, December 2014

Abstract:
This study evaluates the IPO quiet period, which restricts managers' ability to publicly communicate in the weeks immediately following the IPO. I investigate the effectiveness of and compliance with the quiet period for a sample of 3,380 IPOs from 1996 through 2011, and report several key findings. Firms significantly increase their communication immediately after the quiet period expires, and this manifests in more firm-specific information in returns. While this suggests the quiet period rules are effective on average, I find that there is non-random variation across firms in this effectiveness. In particular, the marginal effect of increased communication on firm-specific information processed by the market is greater for firms which are harder to value or receive less-than-expected attention in the aftermarket. Moreover, notwithstanding overall effectiveness, I find wide variation in the level of compliance with the quiet period, and that firms benefit from non-compliance. In particular, firms with more quiet period "loudness" obtain more analyst attention and are more likely to meet or beat future consensus forecasts. Collectively, the results suggest that [1] the quiet period rules prevent investors from learning useful information in a timely manner, and [2] a lack of SEC enforcement provides advantages to firms that violate the spirit, if not the letter, of the rules. This calls into question whether the IPO quiet period rules — essentially unchanged for over 80 years — remain relevant and useful in modern equity markets.

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Are Firms in "Boring" Industries Worth Less?

Jia Chen, Kewei Hou & René Stulz
NBER Working Paper, January 2015

Abstract:
Using theories from the behavioral finance literature to predict that investors are attracted to industries with more salient outcomes and that therefore firms in such industries have higher valuations, we find that firms in industries that have high industry-level dispersion of profitability have on average higher market-to-book ratios than firms in low dispersion industries. This positive relation between market-to-book ratios and industry profitability dispersion is economically large and statistically significant and is robust to controlling for variables used to explain firm-level valuation ratios in the literature. Consistent with the mispricing explanation of this finding, we show that firms in less boring industries have a lower implied cost of equity and lower realized returns. We explore alternative explanations for our finding, but find that these alternative explanations cannot explain our results.

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Should you globally diversify or let the globally diversified firm do it for you?

Javeria Farooqi, Daniel Huerta & Thanh Ngo
Quarterly Review of Economics and Finance, forthcoming

Abstract:
This paper examines whether investor-made international diversification outperforms corporate international diversification. Our results indicate that internationally diversified firms yield higher returns relative to investor-made internationally diversified portfolios. Our results partially offer an explanation for the ‘home bias puzzle’, which argues that international asset holdings in individual portfolios remain significantly lower than forecasted by analysts despite the integration of global capital markets. However, as firms increase the number of geographic segments, the excess returns are lower. Additionally, firms that belong to durables, energy, manufacturing, shops and telecommunication industries have higher excess returns relative to other industries. Overall, our results suggest that investors will earn higher returns by investing in globally diversified MNCs rather than by attempting to build mimicking internationally diversified portfolios.

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Home away from Home: Geography of Information and Local Investors

Gennaro Bernile, Alok Kumar & Johan Sulaeman
Review of Financial Studies, forthcoming

Abstract:
We develop a 10-K-based multidimensional measure of firm locations. Using this measure, we show that firm-level information is geographically distributed and institutional investors are able to exploit the resulting information asymmetry. Specifically, institutional investors overweigh firms whose 10-K frequently mentions the investors' state even when those firms are not headquartered locally and earn superior returns on those stocks. These ownership and performance patterns are stronger among hard-to-value firms. Local investor performance increases with the degree of local bias and with the local economic exposure of portfolio firms. Overall, geographical variation in firm-level information generates economically significant location-based information asymmetry.

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(How) has the market become more efficient?

Stephen Bertone, Imants Paeglis & Rahul Ravi
Journal of Banking & Finance, May 2015, Pages 72–86

Abstract:
Using a portfolio of Dow Jones Industrial Average index constituents and the index ETF, we document significant intraday deviations from the law of one price. These are especially pronounced at very short time intervals. The extent of deviations is related to volatility, liquidity, and transaction costs of both the index constituents and the ETF. Further, the influence of news arrival, and liquidity (volatility) shocks on the deviations persists for several hours. Finally, we document significant decline (by at least 80%) in the deviations between 1998 and 2010. We find that this decline is largely due to decimalization, the repeal of the uptick rule, and the introduction of automated updating of the NYSE order book. Overall, our findings indicate an increase in operational market efficiency.

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Does transparency imply efficiency? The case of the European soccer betting market

Anastasios Oikonomidis, Alistair Bruce & Johnnie Johnson
Economics Letters, March 2015, Pages 59–61

Abstract:
We discover mispricing in an apparently transparent market - the European soccer betting market. Efficiency differences between countries are accounted for by variations in league competitiveness. We conclude that barriers to efficiency (e.g., risk evaluation problems) may remain in transparent markets.

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Why Stay-at-Home Investing Makes Sense

Martha O’Hagan-Luff & Jenny Berrill
International Review of Financial Analysis, March 2015, Pages 1–14

Abstract:
Despite the benefits of international diversification investors continue to display a preference for home based investments. Given this preference we investigate whether it is possible to mimic the benefits of international diversification via domestically traded products. We test this from the perspective of US investors for 37 countries between 1996 and 2011. We seek to replicate the equity index of each country with domestically traded US products such as Industry Indices, Multinational Corporations, American Depository Receipts, single country iShares ETFs and Closed-End Country Funds to investigate whether the benefits of international diversification can be exhausted domestically. While the benefits of investing overseas vary significantly across sub-periods, portfolios of US-traded products can replicate 36 of the 37 foreign country indices. These findings are robust to variance in the performance and volatility of the US market relative to other markets. US investors do not need to invest overseas to reap the benefits of international diversification.

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Can the Bond Price Reaction to Earnings Announcements Predict Future Stock Returns?

Omri Even-Tov
University of California Working Paper, January 2015

Abstract:
In this paper I show that the bond price reaction to earnings announcements has predictive power for post-announcement stock returns and that it is incremental to previously documented accounting-related anomalies. I find that bonds’ predictive ability is driven by non-investment grade bonds, for which earnings releases provide more value-relevant information. It is also stronger in firms with a lower proportion of institutional shareholders and for bonds whose trading is more heavily dominated by sophisticated investors. This suggests that the greater level of investor sophistication in the bond market relative to the stock market is what gives bond returns the ability to predict future stock returns. By demonstrating that a firm’s bond price reaction to an earnings announcement can predict future stock returns, this paper adds to the literature which documents that various earnings components also have predictive ability for post-announcement stock returns.

By KEVIN LEWIS | 09:00:00 AM

Sunday, March 8, 2015

For old times' sake

Levantine cranium from Manot Cave (Israel) foreshadows the first European modern humans

Israel Hershkovitz et al.
Nature, forthcoming

Abstract:
A key event in human evolution is the expansion of modern humans of African origin across Eurasia between 60 and 40 thousand years (kyr) before present (BP), replacing all other forms of hominins. Owing to the scarcity of human fossils from this period, these ancestors of all present-day non-African modern populations remain largely enigmatic. Here we describe a partial calvaria, recently discovered at Manot Cave (Western Galilee, Israel) and dated to 54.7 ± 5.5 kyr BP (arithmetic mean ± 2 standard deviations) by uranium–thorium dating, that sheds light on this crucial event. The overall shape and discrete morphological features of the Manot 1 calvaria demonstrate that this partial skull is unequivocally modern. It is similar in shape to recent African skulls as well as to European skulls from the Upper Palaeolithic period, but different from most other early anatomically modern humans in the Levant. This suggests that the Manot people could be closely related to the first modern humans who later successfully colonized Europe. Thus, the anatomical features used to support the ‘assimilation model’ in Europe might not have been inherited from European Neanderthals, but rather from earlier Levantine populations. Moreover, at present, Manot 1 is the only modern human specimen to provide evidence that during the Middle to Upper Palaeolithic interface, both modern humans and Neanderthals contemporaneously inhabited the southern Levant, close in time to the likely interbreeding event with Neanderthals.

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Human-like hand use in Australopithecus africanus

Matthew Skinner et al.
Science, 23 January 2015, Pages 395-399

Abstract:
The distinctly human ability for forceful precision and power “squeeze” gripping is linked to two key evolutionary transitions in hand use: a reduction in arboreal climbing and the manufacture and use of tools. However, it is unclear when these locomotory and manipulative transitions occurred. Here we show that Australopithecus africanus (~3 to 2 million years ago) and several Pleistocene hominins, traditionally considered not to have engaged in habitual tool manufacture, have a human-like trabecular bone pattern in the metacarpals consistent with forceful opposition of the thumb and fingers typically adopted during tool use. These results support archaeological evidence for stone tool use in australopiths and provide morphological evidence that Pliocene hominins achieved human-like hand postures much earlier and more frequently than previously considered.

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Fingerprints, sex, state, and the organization of the Tell Leilan ceramic industry

Akiva Sanders
Journal of Archaeological Science, forthcoming

Abstract:
The goal of this research is to elucidate the organization of ceramic production at Tell Leilan, Northeast Syria with respect to gender roles from 3400 to 1700 BCE through a study of fingerprint impressions on pottery. Using the distribution of epidermal ridge densities, a technique has been developed and tested to determine the proportion of men and women who formed and finished vessels in a ceramic assemblage. Analysis of 106 fingerprints preserved on sherds indicates that there is a discrete change in the sex ratio of potters at Leilan coincident with the rise of urbanism and state formation in northern Mesopotamia. No change in this pattern, however, are yet correlated with other political shifts, such as changes in the various regimes that had hegemony over the site during the Early and Middle Bronze Age. These results provide new information about the effect of state authority on the public and private organization of crafts as well as the division of society along gender lines. Surprisingly, this transformation in gender roles, which coincides with the rise of the state at Tell Leilan, is not visible at village sites in the Tell Leilan Regional Survey. This indicates that the changes in social fabric that occurred at urban sites with the establishment of state institutions did not occur to the same extent in smaller settlements even though the state did control some of the ceramic production at these sites, at least during the Akkadian period. This methodology and research has implications beyond northern Mesopotamia and provides an innovative technique to empirically test the highly theoretical literature on the relationship of gender to craft production in the archaeological record.

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Alluvial fan records from southeast Arabia reveal multiple windows for human dispersal

Ash Parton et al.
Geology, forthcoming

Abstract:
The dispersal of human populations out of Africa into Arabia was most likely linked to episodes of climatic amelioration, when increased monsoon rainfall led to the activation of drainage systems, improved freshwater availability, and the development of regional vegetation. Here we present the first dated terrestrial record from southeast Arabia that provides evidence for increased rainfall and the expansion of vegetation during both glacial and interglacial periods. Findings from extensive alluvial fan deposits indicate that drainage system activation occurred during Marine Isotope Stage (MIS) 6 (ca. 160–150 ka), MIS 5 (ca. 130–75 ka), and during early MIS 3 (ca. 55 ka). The development of active freshwater systems during these periods corresponds with monsoon intensity increases during insolation maxima, suggesting that humid periods in Arabia were not confined to eccentricity-paced deglaciations, and providing paleoenvironmental support for multiple windows of opportunity for dispersal out of Africa during the late Pleistocene.

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Sedimentary DNA from a submerged site reveals wheat in the British Isles 8000 years ago

Oliver Smith et al.
Science, 27 February 2015, Pages 998-1001

Abstract:
The Mesolithic-to-Neolithic transition marked the time when a hunter-gatherer economy gave way to agriculture, coinciding with rising sea levels. Bouldnor Cliff, is a submarine archaeological site off the Isle of Wight in the United Kingdom that has a well-preserved Mesolithic paleosol dated to 8000 years before the present. We analyzed a core obtained from sealed sediments, combining evidence from microgeomorphology and microfossils with sedimentary ancient DNA (sedaDNA) analyses to reconstruct floral and faunal changes during the occupation of this site, before it was submerged. In agreement with palynological analyses, the sedaDNA sequences suggest a mixed habitat of oak forest and herbaceous plants. However, they also provide evidence of wheat 2000 years earlier than mainland Britain and 400 years earlier than proximate European sites. These results suggest that sophisticated social networks linked the Neolithic front in southern Europe to the Mesolithic peoples of northern Europe.

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Effects of the demographic transition on the genetic variances and covariances of human life-history traits

Elisabeth Bolund et al.
Evolution, forthcoming

Abstract:
The recent demographic transitions to lower mortality and fertility rates in most human societies have led to changes and even quick reversals in phenotypic selection pressures. This can only result in evolutionary change if the affected traits are heritable, but changes in environmental conditions may also lead to subsequent changes in the genetic variance and covariance (the G matrix) of traits. It currently remains unclear if there have been concomitant changes in the G matrix of life-history traits following the demographic transition. Using 300 years of genealogical data from Finland, we found that four key life-history traits were heritable both before and after the demographic transition. The estimated heritabilities allow a quantifiable genetic response to selection during both time periods, thus facilitating continued evolutionary change. Further, the G matrices remained largely stable but revealed a trend for an increased additive genetic variance and thus evolutionary potential of the population after the transition. Our results demonstrate the validity of predictions of evolutionary change in human populations even after the recent dramatic environmental change, and facilitate predictions of how our biology interacts with changing environments, with implications for global public health and demography.

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Climate-driven introduction of the Black Death and successive plague reintroductions into Europe

Boris Schmid et al.
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
The Black Death, originating in Asia, arrived in the Mediterranean harbors of Europe in 1347 CE, via the land and sea trade routes of the ancient Silk Road system. This epidemic marked the start of the second plague pandemic, which lasted in Europe until the early 19th century. This pandemic is generally understood as the consequence of a singular introduction of Yersinia pestis, after which the disease established itself in European rodents over four centuries. To locate these putative plague reservoirs, we studied the climate fluctuations that preceded regional plague epidemics, based on a dataset of 7,711 georeferenced historical plague outbreaks and 15 annually resolved tree-ring records from Europe and Asia. We provide evidence for repeated climate-driven reintroductions of the bacterium into European harbors from reservoirs in Asia, with a delay of 15 ± 1 y. Our analysis finds no support for the existence of permanent plague reservoirs in medieval Europe.

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Late Pliocene fossiliferous sedimentary record and the environmental context of early Homo from Afar, Ethiopia

Erin DiMaggio et al.
Science, forthcoming

Abstract:
Sedimentary basins in eastern Africa preserve a record of continental rifting and contain important fossil assemblages for interpreting hominin evolution. However, the record of hominin evolution between 3 and 2.5 million years ago (Ma) is poorly documented in surface outcrops, particularly in Afar, Ethiopia. Here we present the discovery of 2.84-2.58 Ma fossil and hominin-bearing sediments in the Ledi-Geraru research area that have produced the earliest record of the genus Homo. Vertebrate fossils record a faunal turnover indicative of more open and probable arid habitats than those reconstructed earlier in this region, in broad agreement with hypotheses addressing the role of environmental forcing in hominin evolution at this time. Geological analyses constrain depositional and structural models of the Afar and date the LD 350-1 Homo mandible to 2.80-2.75 Ma.

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The process, biotic impact, and global implications of the human colonization of Sahul about 47,000 years ago

J.F. O’Connell & J. Allen
Journal of Archaeological Science, forthcoming

Abstract:
Comprehensive review of archaeological data shows that Sahul (Pleistocene Australia-New Guinea) was first occupied by humans ca. 47 ka (47,000 years ago); evidence for earlier arrival is weak. Colonizing populations remained low – perhaps two orders of magnitude below those estimated at European contact – for many millennia, and were long restricted to relatively favorable habitats. Though human arrival coincided with changes in native flora and fauna, these were mainly the products of climatic factors, not human interference. The genetic makeup of founding populations and their arrival date are consistent with the Late Dispersal Model of anatomically modern humans beyond SW Asia, beginning ca. 50 ka. Early Dispersal Models (120-70 ka) are not refuted, but draw no support from the Sahul record as currently understood.

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Evidence for recent, population-specific evolution of the human mutation rate

Kelley Harris
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
As humans dispersed out of Africa they adapted to new environmental challenges, including changes in exposure to mutagenic solar radiation. Humans in temperate latitudes have acquired light skin that is relatively transparent to UV light, and some evidence suggests that their DNA damage response pathways have also experienced local adaptation. This raises the possibility that different populations have experienced different selective pressures affecting genome integrity. Here, I present evidence that the rate of a particular mutation type has recently increased in the European population, rising in frequency by 50% during the 40,000–80,000 y since Europeans began diverging from Asians. A comparison of SNPs private to Africa, Asia, and Europe in the 1000 Genomes data reveals that private European variation is enriched for the transition 5′-TCC-3′ → 5′-TTC-3′. Although it is not clear whether UV played a causal role in changing the European mutational spectrum, 5′-TCC-3′ → 5′-TTC-3′ is known to be the most common somatic mutation present in melanoma skin cancers, as well as the mutation most frequently induced in vitro by UV. Regardless of its causality, this change indicates that DNA replication fidelity has not remained stable even since the origin of modern humans and might have changed numerous times during our recent evolutionary history.

By KEVIN LEWIS | 09:00:00 AM

Saturday, March 7, 2015

Quixotic

More Than Resisting Temptation: Beneficial Habits Mediate the Relationship Between Self-Control and Positive Life Outcomes

Brian Galla & Angela Duckworth
Journal of Personality and Social Psychology, forthcoming

Abstract:
Why does self-control predict such a wide array of positive life outcomes? Conventional wisdom holds that self-control is used to effortfully inhibit maladaptive impulses, yet this view conflicts with emerging evidence that self-control is associated with less inhibition in daily life. We propose that one of the reasons individuals with better self-control use less effortful inhibition, yet make better progress on their goals is that they rely on beneficial habits. Across 6 studies (total N = 2,274), we found support for this hypothesis. In Study 1, habits for eating healthy snacks, exercising, and getting consistent sleep mediated the effect of self-control on both increased automaticity and lower reported effortful inhibition in enacting those behaviors. In Studies 2 and 3, study habits mediated the effect of self-control on reduced motivational interference during a work–leisure conflict and on greater ability to study even under difficult circumstances. In Study 4, homework habits mediated the effect of self-control on classroom engagement and homework completion. Study 5 was a prospective longitudinal study of teenage youth who participated in a 5-day meditation retreat. Better self-control before the retreat predicted stronger meditation habits 3 months after the retreat, and habits mediated the effect of self-control on successfully accomplishing meditation practice goals. Finally, in Study 6, study habits mediated the effect of self-control on homework completion and 2 objectively measured long-term academic outcomes: grade point average and first-year college persistence. Collectively, these results suggest that beneficial habits — perhaps more so than effortful inhibition — are an important factor linking self-control with positive life outcomes.

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Minds “At Attention”: Mindfulness Training Curbs Attentional Lapses in Military Cohorts

Amishi Jha et al.
PLoS ONE, February 2015

Abstract:
We investigated the impact of mindfulness training (MT) on attentional performance lapses associated with task-unrelated thought (i.e., mind wandering). Periods of persistent and intensive demands may compromise attention and increase off-task thinking. Here, we investigated if MT may mitigate these deleterious effects and promote cognitive resilience in military cohorts enduring a high-demand interval of predeployment training. To better understand which aspects of MT programs are most beneficial, three military cohorts were examined. Two of the three groups were provided MT. One group received an 8-hour, 8-week variant of Mindfulness-based Mind Fitness Training (MMFT) emphasizing engagement in training exercises (training-focused MT, n = 40), a second group received a didactic-focused variant emphasizing content regarding stress and resilience (didactic-focused MT, n = 40), and the third group served as a no-training control (NTC, n = 24). Sustained Attention to Response Task (SART) performance was indexed in all military groups and a no-training civilian group (CIV, n = 45) before (T1) and after (T2) the MT course period. Attentional performance (measured by A’, a sensitivity index) was lower in NTC vs. CIV at T2, suggesting that performance suffers after enduring a high-demand predeployment interval relative to a similar time period of civilian life. Yet, there were significantly fewer performance lapses in the military cohorts receiving MT relative to NTC, with training-focused MT outperforming didactic-focused MT at T2. From T1 to T2, A’ degraded in NTC and didactic-focused MT but remained stable in training-focused MT and CIV. In sum, while protracted periods of high-demand military training may increase attentional performance lapses, practice-focused MT programs akin to training-focused MT may bolster attentional performance more than didactic-focused programs. As such, training-focused MT programs should be further examined in cohorts experiencing protracted high-demand intervals.

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Increasing propensity to mind-wander with transcranial direct current stimulation

Vadim Axelrod et al.
Proceedings of the National Academy of Sciences, forthcoming

Abstract:
Humans mind-wander quite intensely. Mind wandering is markedly different from other cognitive behaviors because it is spontaneous, self-generated, and inwardly directed (inner thoughts). However, can such an internal and intimate mental function also be modulated externally by means of brain stimulation? Addressing this question could also help identify the neural correlates of mind wandering in a causal manner, in contrast to the correlational methods used previously (primarily functional MRI). In our study, participants performed a monotonous task while we periodically sampled their thoughts to assess mind wandering. Concurrently, we applied transcranial direct current stimulation (tDCS). We found that stimulation of the frontal lobes [anode electrode at the left dorsolateral prefrontal cortex (DLPFC), cathode electrode at the right supraorbital area], but not of the occipital cortex or sham stimulation, increased the propensity to mind-wander. These results demonstrate for the first time, to our knowledge, that mind wandering can be enhanced externally using brain stimulation, and that the frontal lobes play a causal role in mind-wandering behavior. These results also suggest that the executive control network associated with the DLPFC might be an integral part of mind-wandering neural machinery.

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Age Differences in Risk: Perceptions, Intentions and Domains

Emily Bonem, Phoebe Ellsworth & Richard Gonzalez
Journal of Behavioral Decision Making, forthcoming

Abstract:
Although it is commonly assumed that older people are more cautious and risk averse than their younger counterparts, the research on age differences in risk taking is mixed. While some research has found that older adults are less risk seeking, other research has found the opposite or no differences. One explanation is that age differences vary across risk domains. In two studies, we surveyed three adult age groups ranging in age from 18 to 83 on their risk perceptions and intentions of risky behaviors across several domains. Our studies showed that compared with young adults, older adults tend to see more risk in behaviors in health and ethical domains but less risk in behaviors from the social domain. A similar pattern occurred for participants' intentions of engaging in the risky behaviors. Older adults rated risky behaviors from health and ethical domains as less enjoyable and less likely to produce gains than young adults, whereas they rated risky behaviors from the social domain as more enjoyable, less unpleasant, and less likely to produce losses than young adults. These results suggest that age differences in risk preferences may vary across domains and may result from differing motivations.

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DRD4 Long Allele Carriers Show Heightened Attention to High-priority Items Relative to Low-priority Items

Marissa Gorlick et al.
Journal of Cognitive Neuroscience, March 2015, Pages 509-521

Abstract:
Humans with seven or more repeats in exon III of the DRD4 gene (long DRD4 carriers) sometimes demonstrate impaired attention, as seen in attention-deficit hyperactivity disorder, and at other times demonstrate heightened attention, as seen in addictive behavior. Although the clinical effects of DRD4 are the focus of much work, this gene may not necessarily serve as a “risk” gene for attentional deficits, but as a plasticity gene where attention is heightened for priority items in the environment and impaired for minor items. Here we examine the role of DRD4 in two tasks that benefit from selective attention to high-priority information. We examine a category learning task where performance is supported by focusing on features and updating verbal rules. Here, selective attention to the most salient features is associated with good performance. In addition, we examine the Operation Span (OSPAN) task, a working memory capacity task that relies on selective attention to update and maintain items in memory while also performing a secondary task. Long DRD4 carriers show superior performance relative to short DRD4 homozygotes (six or less tandem repeats) in both the category learning and OSPAN tasks. These results suggest that DRD4 may serve as a “plasticity” gene where individuals with the long allele show heightened selective attention to high-priority items in the environment, which can be beneficial in the appropriate context.

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Spontaneous activity in the waiting brain: A marker of impulsive choice in attention-deficit/hyperactivity disorder?

Chia-Fen Hsu, Nicholas Benikos, Edmund Sonuga-Barke
Developmental Cognitive Neuroscience, April 2015, Pages 114–122

Background: Spontaneous very low frequency oscillations (VLFO), seen in the resting brain, are attenuated when individuals are working on attention demanding tasks or waiting for rewards ( Hsu et al., 2013). Individuals with attention-deficit/hyperactivity disorder (ADHD) display excess VLFO both when working on attention tasks. They also have difficulty waiting for rewards. Here we examined the waiting brain signature in ADHD and its association with impulsive choice.

Methods: DC-EEG from 21 children with ADHD and 21 controls (9–15 years) were collected under four conditions: (i) resting; (ii) choosing to wait; (iii) being “forced” to wait; and (iv) working on a reaction time task. A questionnaire measured two components of impulsive choice.

Results: Significant VLFO reductions were observed in controls within anterior brain regions in both working and waiting conditions. Individuals with ADHD showed VLFO attenuation while working but to a reduced level and none at all when waiting. A closer inspection revealed an increase of VLFO activity in temporal regions during waiting. Excess VLFO activity during waiting was associated with parents’ ratings of temporal discounting and delay aversion.

Conclusions: The results highlight the potential role for waiting-related spontaneous neural activity in the pathophysiology of impulsive decision-making of ADHD.

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Group Therapy for Adolescents With Attention-Deficit/Hyperactivity Disorder: A Randomized Controlled Trial

Raquel Vidal et al.
Journal of the American Academy of Child & Adolescent Psychiatry, forthcoming

Objective: To determine the efficacy of a group cognitive-behavioral therapy (CBT) on adolescents with attention-deficit/hyperactivity disorder (ADHD) who were in pharmacological treatment but still presented persistent symptoms.

Method: We conducted a multicenter, randomized rater-blinded controlled trial between April 2012 and May 2014 on a cohort of 119 adolescents (15-21 years). Participants were randomly assigned to 12 manualized group CBT sessions (n=45) or a waiting list control group (n=44). Primary outcomes were assessed by a blind evaluator (ADHD Rating Scale [ADHD-RS], Clinical Global Impression Scale for Severity [CGI-S], Global Assessment Functioning [GAF]) before and after treatment as well as by self-report and parent informant ratings.

Results: Of the initial 119 participants enrolled, 89 completed treatment. A mixed-effect model analysis revealed that participants who were assigned to the group CBT sessions experienced significantly reduced ADHD symptoms compared to the control group (ADHD-RS Adolescent: −7.46 [95% CI, −9.56 to −5.36]; p<0.001; d=7.5 and ADHD-RS Parents: −9.11 [95% CI, −11.48 to −6.75]; p<0.001; d=8.38. CGI-S Self-Report: −0.68 [95% CI, −0.98 to −0.39]; p<0.001; d=3.75 and CGI-S Clinician: −0.79 [95% CI, −0.95 to −0.62]; p<0.001; d=7.71). Functional impairment decreased significantly in the CBT group according to parents (Weiss Functional Impairment Scale −4.02 [95% CI, −7.76 to −0.29]; p < 0.05; d=2.29) and according to the blinded evaluator (GAF: −7.58 [95% CI, −9.1 to −6.05]; p<0.001; d=7.51).

Conclusion: Group CBT associated with pharmacological treatment is an efficacious intervention for reducing ADHD symptoms and functional impairment in adolescents.

By KEVIN LEWIS | 09:00:00 AM

Friday, March 6, 2015

Top dollar

Executive Compensation, Fat Cats, and Best Athletes

Jerry Kim, Bruce Kogut & Jae-Suk Yang
American Sociological Review, forthcoming

Abstract:
Income gains in the top 1 percent are the primary cause for the rapid growth in U.S. inequality since the late 1970s. Managers and executives of firms account for a large proportion of these top earners. Chief executive officers (CEOs), in particular, have seen their compensation increase faster than the growth in firm size. We propose that changes in the macro patterns of the distribution of CEO compensation resulted from a process of diffusion within localized networks, propagating higher pay among corporate executives. We compare three possible explanations for diffusion: director board interlocks, peer groups, and educational networks. The statistical results indicate that corporate director networks facilitate social comparisons that generate the observed pay patterns. Peer and education network effects do not survive a novel endogeneity test that we execute. A key implication is that local diffusion through executive network structures partially explains the changes in macro patterns of income distribution found in the inequality data.

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Does Corporate Social Responsibility Lead to Superior Financial Performance? A Regression Discontinuity Approach

Caroline Flammer
Management Science, forthcoming

Abstract:
This study examines the effect of shareholder proposals related to corporate social responsibility (CSR) on financial performance. Specifically, I focus on CSR proposals that pass or fail by a small margin of votes. The passage of such “close call” proposals is akin to a random assignment of CSR to companies and hence provides a quasi-experiment to study the effect of CSR on performance. I find that the adoption of close call CSR proposals leads to positive announcement returns and superior accounting performance, implying that these proposals are value enhancing. When I examine the channels through which companies benefit from CSR, I find that labor productivity and sales growth increase after the vote. Finally, I document that close call CSR proposals differ from non-close proposals along several dimensions. Accordingly, although my results imply that adopting close call CSR proposals is beneficial to companies, they do not necessarily imply that CSR proposals are beneficial in general.

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Market (In)Attention and Earnings Announcement Timing

Ed DeHaan, Terry Shevlin & Jacob Thornock
Stanford Working Paper, October 2014

Abstract:
We revisit a long-standing question: do managers “hide” bad news by announcing earnings during periods of low market attention? Or conversely, do managers “highlight” good news by reporting during periods of higher attention? We posit three necessary conditions for an effective hiding/highlighting strategy: (i) managers must change their earnings announcement timing frequently enough that to do so would not attract unwanted attention to bad news; (ii) there must be ex-ante predictable variation in market attention; and (iii) we must observe that managers tend to release more negative (positive) earnings news during periods of lower (higher) expected attention. The first and second conditions have not been directly examined. Prior studies examining the third condition have produced mixed results. We examine three times during which prior research has speculated that market attention is lower: after trading hours, on Fridays, and on “busy” days when numerous other firms are reporting earnings. We find that earnings announcement timing are highly variable, which supports the first necessary condition. Using four measures of market attention, we find that attention does appear to be lower after hours and on busy reporting days. However, we find that attention is the same or even higher on Fridays, which is inconsistent with the second condition. Finally, we find that unexpected earnings are lower in all three settings. In additional tests, we find negative returns around the scheduling of a forthcoming earnings announcement for a Friday, which is consistent with investors inferring that earnings news tends to be worse on Fridays. In sum, the results are consistent with managers strategically reporting bad news during times when they expect that attention is limited, and conversely, reporting good news in periods of higher attention. However, given that attention is the same or higher on Fridays than other days, it is unlikely that managers are able to effectively hide bad news by reporting immediately prior to the weekend. Instead, the preponderance of strategically reporting bad news on Fridays is possibly due to managers incorrectly perceiving attention as lower on Friday.

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Evidence on Contagion in Earnings Management

Simi Kedia, Kevin Koh & Shivaram Rajgopal
Accounting Review, forthcoming

Abstract:
We examine contagion in earnings management using 2,376 restatements announced during the years 1997-2008. Controlling for industry and firm characteristics, firms are more likely to begin managing earnings after the public announcement of a restatement by another firm in their industry or neighborhood. Such contagion is absent when the restating firm is disciplined by the SEC or class action lawsuits, suggesting deterrent effects of enforcement activity. Contagion among peers is observed (i) in the same account as the one restated by the target firm; or (ii) when larger target firms restate or the restatement in prominently disclosed; or (iii) when the target firm's restatement is less severe. Contagion stops during the years 2003-2005, possibly due to the enforcement associated with the Sarbanes-Oxley (SOX) Act but reappears during 2006-2008, perhaps because the sting associated with SOX has worn off. In sum, peers' actions appear to affect a firm's earnings management decisions.

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CEO Network Centrality and Merger Performance

Rwan El-Khatib, Kathy Fogel & Tomas Jandik
Journal of Financial Economics, forthcoming

Abstract:
We study the effects on M&A outcomes of CEO network centrality, which measures the extent and strength of a CEO's personal connections. High network centrality can allow CEOs to efficiently gather and control private information, facilitating value-creating acquisition decisions. We show, however, that M&A deals initiated by high-centrality CEOs, in addition to being more frequent, carry greater value losses to both the acquirer and the combined entity than deals initiated by low-centrality CEOs. We also document that high-centrality CEOs are capable of avoiding the discipline of the markets for corporate control and the executive labor market, and that the mitigating effect of internal governance on CEO actions is limited. Our evidence suggests that corporate decisions can be influenced by a CEO's position in the social hierarchy, with high-centrality CEOs using their power and influence to increase entrenchment and reap private benefits.

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Board interlocking network and the design of executive compensation packages

Ling Heng Henry Wong, André Gygax & Peng Wang
Social Networks, forthcoming

Abstract:
The standard approach used to model interlocks in the business and management literature is to treat each interlock of a network as an independent data point. However, such an approach ignores the complex inter-dependencies among the common director interlocks. We propose that an interlocking board network is an important inter-corporate setting that has bearing on how company boards make corporate decisions. Using a sample of 725 large U.S.-based public companies over the period 2007–2010, board member information, executive compensation information, and exponential random graph modeling (ERGM) techniques for social networks, we present evidence that board interlocks are positively linked with similarities in the design of executive compensation packages in interlocked firms, particularly the proportions of the options component. We also find evidence that board interlocks are positively linked with similarities in a number of board characteristics.

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Tax Rates and Corporate Decision Making

John Graham et al.
MIT Working Paper, January 2015

Abstract:
It has long been suspected that managers use short-cuts (e.g., heuristics) to make many decisions and that their decisions are affected by behavioral biases such as a tendency to overly rely on ‘salient’ or vivid metrics/information. We document that managers do indeed exhibit these behavioral biases when incorporating taxes into their decision processes. For example, we find that many firms employ the more salient average tax rate (i.e., the GAAP effective tax rate) to evaluate incremental decisions rather than the more theoretically correct marginal tax rate. We estimate that behavioral biases that influence firms to use the average tax rate for decision-making lead to deadweight losses that average $10 million for poor capital structure decisions and $25 million for suboptimal acquisitions, and also reduce the responsiveness of corporate investment to growth opportunities.

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The Benefits of Selective Disclosure: Evidence from Private Firms

Joan Farre-Mensa
Harvard Working Paper, January 2015

Abstract:
I investigate an unexplored benefit of being privately-held: Non-SEC-filing private firms’ ability to disclose confidential information to selected investors minimizes the scope for information asymmetry between the firms and their investors. This decreases private firms’ exposure to misvaluation and leads them to hold lower levels of precautionary cash than similar-sized public firms, as private firms do not need to optimize the timing of their equity issues. Consistent with these predictions, I use a unique panel of non-SEC-filing private U.S. firms to show that the average public firm holds twice as much cash as the average private firm. This cash gap is driven by small- and medium-sized public firms, which are most equity dependent, and is larger in industries with higher exposure to misvaluation shocks.

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Dynamics of CEO Compensation: Old is Gold

Hari Adhikari et al.
Quarterly Review of Economics and Finance, forthcoming

Abstract:
There is an ongoing debate regarding the hiring and compensation of younger versus older employees. In this paper, we examine this question for Chief Executive Officers (CEOs) in the context of the Sarbanes-Oxley Act (SOX) of 2002. We argue that the increased complexities in the post-SOX era (regulatory, technological, and the ever-changing business environment) have forced corporate boards to incentivize top executives for the increased burden. We contend that older CEOs are perceived as more reliable, efficient, and trustworthy (to fulfill the regulatory requirements demanded by SOX) than their younger counterparts. Consistent with our contention, we find that the total compensation of CEOs of U.S. firms has increased significantly for older CEOs as compared to their younger counterparts after the introduction of SOX. Our results are robust to sophisticated econometric techniques and also consistent with the logic that in order to motivate older CEOs (who would have raised substantial personal wealth over time) to keep working rather than retiring or moving to a competitor, their compensation package must be highly competitive.

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The Structure of Voluntary Disclosure Narratives: Evidence from Tone Dispersion

Kristian Allee & Matthew DeAngelis
Journal of Accounting Research, forthcoming

Abstract:
We examine tone dispersion, or the degree to which tone words are spread evenly within a narrative, to evaluate whether narrative structure provides insight into managers’ voluntary disclosures and users’ responses to those disclosures. We find that positive and negative tone dispersion are associated with current aggregate and disaggregated performance and future performance, managers’ financial reporting decisions and managers’ incentives and actions to manage perceptions. Furthermore, we find that tone dispersion is associated with analysts’ and investors’ responses to conference call narratives. Our results suggest that tone dispersion both reflects and affects the information that managers convey through their narratives.

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Managerial Ownership and Earnings Management: Evidence from Stock Ownership Plans

Phillip Quinn
University of Washington Working Paper, December 2014

Abstract:
Stock ownership plans require executives to hold a minimum level of stock. I exploit the changes in stock ownership following plan adoptions to examine the relation between managerial ownership and earnings management. In contrast to prior work that suggests equity incentives induce opportunistic earnings management, I find evidence of a reduction in earnings management for adoption firms relative to a propensity-matched control sample. Splitting adopters into firms with plans that required increases in ownership and firms with plans that did not, I find the reductions in earnings management are concentrated in firms that required increases in managerial ownership. Thus, I document evidence that mandatory managerial ownership increases lead to a reduction in earnings management.

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The market response to corporate scandals involving CEOs

Surendranath Jory et al.
Applied Economics, Spring 2015, Pages 1723-1738

Abstract:
This article examines corporate scandals of both a financial and nonfinancial nature between 1993 and 2011 which is expressly linked to a firm’s CEO. Findings suggest that in the short run, investors react adversely to such events and that recalcitrant CEOs end up costing their shareholders dearly. Such scandals are more likely to occur among large firms, firms with insiders on the board and where the value of options granted to a firm’s managers is substantial. However, firms with more cash flows are less likely to be mired in such scandals, and their stock returns are less likely to be affected. There is an increase in stock price volatility of affected firms in the days following the announcement of the scandal. A point of respite for investors is the damage being confined to the short run. The stock price performance of the firms affected by the scandals matches the performance of control firms in the long run post-announcement. However, the operating performance of the sample firms is better than their matched counterparts in the years after the scandal. We contribute to the extant literature by considering corporate scandal events that are the doings of a firm’s CEO and not necessarily financially motivated.

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Which Skills Matter in the Market for CEOs? Evidence from Pay for CEO Credentials

Antonio Falato, Dan Li & Todd Milbourn
Management Science, forthcoming

Abstract:
Market-based theories predict that differences in CEO skills lead to potentially large differences in pay, but it is challenging to quantify the CEO skill premium in pay. In a first step toward overcoming this empirical challenge, we code detailed biographical information for a large sample of CEOs for a panel of S&P 1500 firms between 1993 and 2005 to identify specific reputational, career, and educational credentials that are indicative of skills. Newly appointed CEOs earn up to a 5% or $280,000 total pay premium per credential decile, which is concentrated among CEOs with better reputational and career credentials, those with the very best credentials, and those who run large firms. Consistent with the unique economic mechanism of market-based theories, CEO credentials have a positive impact on firm performance. The performance differential for newly appointed CEOs is up to 0.5% per credential decile and is also concentrated among CEOs with better reputational and career credentials and those at large firms. Credentials are positively correlated with unobserved CEO heterogeneity in pay and performance, which further validates our hypothesis that boards use them as publicly observable signals of otherwise hard-to-gauge CEO skills. In all, our results offer direct evidence in support of market-based explanations of the overall rise in CEO pay.

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M&A Negotiations and Lawyer Expertise

Christel Karsten, Ulrike Malmendier & Zacharias Sautner
University of California Working Paper, September 2014

Abstract:
We shed light on the effects of lawyer expertise on contract design in the context of M&A negotiations. Using proprietary data on 151 private transactions, we document that lawyer expertise significantly affects contract design. More lawyer expertise is associated with more beneficial contractual outcomes in terms of warranties, implicit risk-shifting, and in terms of length of the negotiation among other outcomes. In order to address concerns about the endogenous allocation of lawyers to deals or clients, we exploit firms’ inclination to work with the same lawyer (“house lawyer”) on subsequent deals and restrict the analysis to repeated deals. We also perform lawyer fixed-effect and client fixed-effect analyses. Our results help explain the importance of league table rankings and the variation in legal fees within the legal M&A services industry.

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Does Takeover Activity Cause Managerial Discipline? Evidence from International M&A Laws

Ugur Lel & Darius Miller
Review of Financial Studies, forthcoming

Abstract:
This paper exploits the staggered initiation of takeover laws across countries to examine whether the threat of takeover enhances managerial discipline. We show that following the passage of takeover laws, poorly performing firms experience more frequent takeovers; the propensity to replace poorly performing CEOs increases, especially in countries with weak investor protection; and directors of targeted firms are more likely to lose board seats following corporate-control events. Our findings suggest that the threat of takeover causes managerial discipline through the incentives that the market for corporate control provides to boards to monitor managers.

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Gender Diversity and Securities Fraud

Douglas Cumming, Tak Leung & Oliver Rui
Academy of Management Journal, forthcoming

Abstract:
We formulate theory on the effect of board of director gender diversity on the broad spectrum of securities fraud and generate three main insights. First, based on ethicality, risk aversion, and diversity, we hypothesize that gender diversity on boards can operate as a significant moderator for the frequency of fraud. Second, we hypothesize that the stock market response to fraud from a more gender-diverse board is significantly less pronounced. Third, we hypothesize that women are more effective in male-dominated industries in reducing both the frequency and severity of fraud. Our first-ever empirical tests, based on data from a large sample of Chinese firms that committed securities fraud, are largely consistent with each of these hypotheses.

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Who Withdraws Shareholder Proposals and Does It Matter? An Analysis of Sponsor Identity and Pay Practices

Rob Bauer, Frank Moers & Michael Viehs
Corporate Governance, forthcoming

Research Question/Issue: We study more than 12,000 shareholder proposals that were filed to S&P1500 companies from 1997 to 2009, and investigate the determinants of proposal withdrawal by the sponsoring shareholder. We also study the effectiveness of withdrawn proposals as a corporate governance device.

Research Findings/Insights: We find that proposals filed by influential investors are more likely to be withdrawn than proposals filed by private investors. Our empirical results show that institutional ownership (in particular by long-term, passively investing institutions) is positively related to a proposal's withdrawal likelihood if the sponsoring shareholder is an institutional investor. We also document a negative relation between CEO ownership and the withdrawal likelihood. This effect is most pronounced for corporate governance proposals. We also show that withdrawn proposals on executive compensation change subsequent corporate pay practices.

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Board Independence and Corporate Investments

Jun Lu & Wei Wang
Review of Financial Economics, January 2015, Pages 52–64

Abstract:
This research investigates whether and how board independence influences corporate investment decisions in a Seemingly Unrelated Regression (SUR) framework, where the capital investment and the research and development (R&D) investment are examined simultaneously. We argue that the free cash flow problem primarily inflicts capital investments, while the managerial conservatism mainly undercuts the more risky R&D investments. Consistent with independent board mitigating both agency problems, we find that firms with a higher degree of board independence is negatively associated with capital investments but positively associated with R&D investments, after controlling for common determinants of investments. We address the endogeneity of board independence by exploiting an exogenous change in board structure brought about by the Sarbanes-Oxley Act (SOX) and continue to find consistent results.

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Out-of-the-Money CEOs: How Do Proxy Contests Affect Insider Option Exercises

Vyacheslav Fos & Wei Jiang
Columbia University Working Paper, June 2014

Abstract:
When a proxy contest is looming, the rate at which CEOs exercise options in order to sell (hold) the resulting shares slows down by 80% (accelerates by 60%), consistent with their desire to maintain or strengthen voting rights when facing control challenges. Such deviations are closely aligned with features unique to proxy contests, e.g., the record dates and nomination status. Moreover, a contest triples the probability that an insider exercises options out-of-the-money, an irrational strategy under conventional models. The various distortions suggest that incumbents (with private benefits of control) value their stocks 5% – 20% higher than the market price.

By KEVIN LEWIS | 09:00:00 AM

Thursday, March 5, 2015

Bad influences

This Ad is for You: Targeting and the Effect of Alcohol Advertising on Youth Drinking

Eamon Molloy
Health Economics, forthcoming

Abstract:
Endogenous targeting of alcohol advertisements presents a challenge for empirically identifying a causal effect of advertising on drinking. Drinkers prefer a particular media; firms recognize this and target alcohol advertising at these media. This paper overcomes this challenge by utilizing novel data with detailed individual measures of media viewing and alcohol consumption and three separate empirical techniques, which represent significant improvements over previous methods. First, controls for the average audience characteristics of the media an individual views account for attributes of magazines and television programs alcohol firms may consider when deciding where to target advertising. A second specification directly controls for each television program and magazine a person views. The third method exploits variation in advertising exposure due to a 2003 change in an industry-wide rule that governs where firms may advertise. Although the unconditional correlation between advertising and drinking by youth (ages 18–24) is strong, models that include simple controls for targeting imply, at most, a modest advertising effect. Although the coefficients are estimated less precisely, estimates with models including more rigorous controls for targeting indicate no significant effect of advertising on youth drinking.

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The price elasticity of demand for heroin: Matched longitudinal and experimental evidence

Todd Olmstead et al.
Journal of Health Economics, May 2015, Pages 59–71

Abstract:
This paper reports estimates of the price elasticity of demand for heroin based on a newly constructed dataset. The dataset has two matched components concerning the same sample of regular heroin users: longitudinal information about real-world heroin demand (actual price and actual quantity at daily intervals for each heroin user in the sample) and experimental information about laboratory heroin demand (elicited by presenting the same heroin users with scenarios in a laboratory setting). Two empirical strategies are used to estimate the price elasticity of demand for heroin. The first strategy exploits the idiosyncratic variation in the price experienced by a heroin user over time that occurs in markets for illegal drugs. The second strategy exploits the experimentally-induced variation in price experienced by a heroin user across experimental scenarios. Both empirical strategies result in the estimate that the conditional price elasticity of demand for heroin is approximately 0.80.

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A Natural Experiment of Peer Influences on Youth Alcohol Use

Guang Guo et al.
Social Science Research, July 2015, Pages 193–207

Abstract:
This study estimates peer effects on alcohol use, drawing from a database of about 2,000 randomly-assigned roommates on a college campus. The estimation of peer influences also takes into consideration ego’s history of alcohol use and friendship with the peer. College students averaged an additional two-fifths of a binge drinking episode per month and an additional one-half of a drinking episode per month when randomly assigned a roommate who drank in high school than when assigned a roommate who did not drink in high school. An individual’s prior history of alcohol use proves important. Peer effects on binge drinking as well as drinking for those who already drank in high school were about twice as large as average peer effects. When one did not have a history of alcohol use, negative peer influences were absent. Also important is the friendship between peers. When a peer is considered a best friend, the step-up effect (or positive interaction effect) increased by 1.25-1.61 drinking episodes per month. However, even when a peer is not considered a best friend, a drinking peer still increased ego’s drinking episodes by 0.75-1.00 per month.

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Ethnic Differences in Associations Among Popularity, Likability, and Trajectories of Adolescents' Alcohol Use and Frequency

Sophia Choukas-Bradley et al.
Child Development, forthcoming

Abstract:
Two-part latent growth models examined associations between two forms of peer status (popularity, likability) and adolescents' alcohol use trajectories throughout high school; ethnicity was examined as a moderator. Ninth-grade low-income adolescents (N = 364; Mage = 15.08; 52.5% Caucasian; 25.8% African American; 21.7% Latino) completed sociometric nominations of peer status and aggression at baseline, and reported their alcohol use every 6 months. After controlling for gender, aggression, ethnicity, and socioeconomic status, popularity — but not likability — prospectively predicted alcohol use trajectories. However, these effects were moderated by ethnicity, suggesting popularity as a risk factor for alcohol use probability and frequency among Caucasian and Latino, but not African American adolescents. Results suggest that developmental correlates of peer status should be considered within cultural context.

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Complexity, Efficiency, and Fairness in Multiproduct Liquor Pricing

Eugenio Miravete, Katja Seim & Jeff Thurk
University of Pennsylvania Working Paper, February 2014

Abstract:
The Pennsylvania Liquor Control Board administers the purchase and sale of wine and spirits and is mandated to charge a uniform 30% markup on all products. We use an estimated discrete choice model of demand for spirits, together with information on wholesale prices, to assess the implications of this policy. We find that failure to account for the correlation between demographics and consumption patterns leads to lower prices than those charged by a profit-maximizing, multi-product monopolist. Using product-specific markups leads to higher prices on average, less quantity consumed, an 11% increase in total profits, and greater welfare. The current one-size-fits-all pricing rule ignores variations in demand elasticities resulting in the implicit taxation of high-income and educated households by raising the prices of spirits they prefer (vodka and whiskey) while lowering the price of products favored by low-income and minority households (gin and rum).

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A differential susceptibility analysis reveals the “who and how” about adolescents' responses to preventive interventions: Tests of first- and second-generation Gene × Intervention hypotheses

Gene Brody, Tianyi Yu & Steven Beach
Development and Psychopathology, February 2015, Pages 37-49

Abstract:
This study was designed to investigate a genetic moderation effect of dopamine receptor 4 gene (DRD4) alleles that have seven or more repeats (long alleles) on an intervention to deter drug use among rural African American adolescents in high-risk families. Adolescents (N = 291, M age = 17) were assigned randomly to the Adults in the Making (AIM) program or to a control condition and were followed for 27.5 months. Adolescents provided data on drug use and vulnerability cognitions three times after pretest. Pretest assessments of caregiver depressive symptoms, disruption in the home, and support toward the adolescent were used to construct a family risk index. Adolescents living in high-risk families who carried at least one DRD4 long allele and were assigned to the control condition evinced greater escalations in drug use than did (a) adolescents who lived in high-risk families, carried the DRD4 long allele, and were assigned to AIM, or (b) adolescents assigned to either condition who carried no DRD4 long alleles. AIM-induced reductions in vulnerability cognitions were responsible for the Family Risk × AIM × DRD4 status drug use prevention effects. These findings support differential susceptibility predictions and imply that prevention effects on genetically susceptible individuals may be underestimated.

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A population-based Swedish Twin and Sibling Study of cannabis, stimulant and sedative abuse in men

Kenneth Kendler et al.
Drug and Alcohol Dependence, forthcoming

Background: Prior studies, utilizing interview-based assessments, suggest that most of the genetic risk factors for drug abuse (DA) are non-specific with a minority acting specifically on risk for abuse of particular psychoactive substance classes. We seek to replicate these findings using objective national registry data.

Methods: We examined abuse of cannabis, stimulants (including cocaine) and sedatives ascertained from national Swedish registers in male–male monozygotic (1720 pairs) and dizygotic twins (1219 pairs) combined with near-age full siblings (76,457 pairs) to provide sufficient power. Modeling was performed using Mx.

Results: A common pathway model fitted better than an independent pathway model. The latent liability to DA was highly heritable but also influenced by shared environment. Cannabis, stimulant and sedative abuse all loaded strongly on the common factor. Estimates for the total heritability for the three forms of substance abuse ranged from 64 to 70%. Between 75 and 90% of that genetic risk was non-specific, coming from the common factor with the remainder deriving from substance specific genetic risk factors. By contrast, all of the shared environmental effects, which accounted for 18–20% of the variance in liability, were non-specific.

Conclusions: In accord with prior studies based on personal interviews, the large preponderance of genetic risk factors for abuse of specific classes of psychoactive substance are non-specific. These results suggest that genetic variation in the primary sites of action of the psychoactive drugs, which differ widely across most drug classes, play a minor role in human individual differences in risk for DA.

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The relation between tobacco taxes and youth and young adult smoking: What happened following the 2009 U.S. federal tax increase on cigarettes?

Martijn van Hasselt et al.
Addictive Behaviors, June 2015, Pages 104–109

Background: On April 1, 2009, the federal government raised cigarette taxes from $0.39 to $1.01 per pack. This study examines the impact of this increase on a range of smoking behaviors among youth aged 12 to 17 and young adults aged 18 to 25.

Methods: Data from the 2002–2011 National Survey on Drug Use and Health (NSDUH) were used to estimate the impact of the tax increase on five smoking outcomes: (1) past year smoking initiation, (2) past month smoking, (3) past year smoking cessation, (4) number of days cigarettes were smoked during the past month, and (5) average number of cigarettes smoked per day. Each model included individual and state-level covariates and other tobacco control policies that coincided with the tax increase. We examined the impact overall and by race and gender.

Results: The odds of smoking initiation decreased for youth after the tax increase (Odds Ratio(OR) = 0.83, p < 0.0001). The odds of past-month smoking also decreased (youth: OR = 0.83, p < 0.0001; young adults: OR = 0.92, p < 0.0001), but the odds of smoking cessation remained unchanged. Current smokers smoked on fewer days (youth: coefficient = -0.97, p = 0.0001; young adults: coefficient = -0.84, p < 0.0001) and smoked fewer cigarettes per day after the tax increase (youth: coefficient = -1.02, p = 0.0011; young adults: coefficient = -0.92, p < 0.0001).

Conclusions: The 2009 federal cigarette tax increase was associated with a substantial reduction in smoking among youths and young adults. The impact of the tax increase varied across male, female, white and black subpopulations.

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The Effect of Alcohol Consumption on Labor Market Outcomes of Young Adults: Evidence from Minimum Legal Drinking Age Laws

Ceren Ertan Yörük
B.E. Journal of Economic Analysis & Policy, forthcoming

Abstract:
This paper uses a regression discontinuity design to estimate the impact of the minimum legal drinking age (MLDA) laws on alcohol consumption and labor market outcomes of young adults. Using confidential data from the National Longitudinal Survey of Youth 1997 Cohort (NLSY97), I find that granting legal access to alcohol at age 21 leads to an increase in several measures of alcohol consumption. The discrete jump in the alcohol consumption at the MLDA has also negative spillover effects on the labor market outcomes of young adults. In particular, I document that the MLDA is associated with a 1 hour decrease in weekly working hours. However, the effect of the MLDA laws on wages is negative only under certain specifications. These results suggest that the policies designed to curb drinking may not only have desirable effects in reducing alcohol consumption among young adults but also have positive spillover effects on their labor market outcomes.

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Should pathological gambling and obesity be considered addictive disorders? A factor analytic study in a nationally representative sample

Carlos Blanco et al.
Drug and Alcohol Dependence, forthcoming

Objective: Pathological gambling (PG) is now aligned with substance use disorders in the DSM-5 as the first officially recognized behavioral addiction. There is growing interest in examining obesity as an addictive disorder as well. The goal of this study was to investigate whether epidemiological data provide support for the consideration of PG and obesity as addictive disorders.

Method: Factor analysis of data from a large, nationally representative sample of US adults (N = 43,093), using nicotine dependence, alcohol dependence, drug dependence, PG and obesity as indicators. It was hypothesized that nicotine dependence, alcohol dependence and drug use dependence would load on a single factor. It was further hypothesized that if PG and obesity were addictive disorders, they would load on the same factor as substance use disorders, whereas failure to load on the addictive factor would not support their conceptualization as addictive disorders.

Results: A model with one factor including nicotine dependence, alcohol dependence, drug dependence and PG, but not obesity, provided a very good fit to the data, as indicated by CFI = 0.99, TLI = 0.99 and RMSEA=.01 and loadings of all indicators >0.4.

Conclusion: Data from this study support the inclusion of PG in a latent factor with substance use disorders but do not lend support to the consideration of obesity, as defined by BMI, as an addictive disorder. Future research should investigate whether certain subtypes of obesity are best conceptualized as addictive disorders and the shared biological and environmental factors that account for the common and specific features of addictive disorders.

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Polygenic Score × Intervention Moderation: An application of discrete-time survival analysis to modeling the timing of first tobacco use among urban youth

Rashelle Musci et al.
Development and Psychopathology, February 2015, Pages 111-122

Abstract:
The present study examines the interaction between a polygenic score and an elementary school-based universal preventive intervention trial. The polygenic score reflects the contribution of multiple genes and has been shown in prior research to be predictive of smoking cessation and tobacco use (Uhl et al., 2014). Using data from a longitudinal preventive intervention study, we examined age of first tobacco use from sixth grade to age 18. Genetic data were collected during emerging adulthood and were genotyped using the Affymetrix 6.0 microarray. The polygenic score was computed using these data. Discrete-time survival analysis was employed to test for intervention main and interaction effects with the polygenic score. We found a main effect of the intervention, with the intervention participants reporting their first cigarette smoked at an age significantly later than controls. We also found an Intervention × Polygenic Score interaction, with participants at the higher end of the polygenic score benefitting the most from the intervention in terms of delayed age of first use. These results are consistent with Belsky and colleagues' (e.g., Belsky, Bakermans-Kranenburg, & van IJzendoorn, 2007; Belsky & Pleuss, 2009, 2013; Ellis, Boyce, Belsky, Bakermans-Kranenburg, & van IJzendoorn, 2011) differential susceptibility hypothesis and the concept of “for better or worse,” wherein the expression of genetic variants are optimally realized in the context of an enriched environment, such as provided by a preventive intervention.

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Abrupt Decline in Oxycodone-caused Mortality after Implementation of Florida's Prescription Drug Monitoring Program

Chris Delcher et al.
Drug and Alcohol Dependence, forthcoming

Background: In Florida, oxycodone-caused deaths declined substantially in 2012. Multiple important law enforcement, pharmaceutical, policy, and public health actions occurred concurrently, including implementation of a statewide prescription drug monitoring program (PDMP). The effects of the PDMP on oxycodone-caused mortality in Florida were evaluated.

Methods: A time-series, quasi-experimental research design with autoregressive integrated moving average (ARIMA) statistical models, including internal and external covariates. Data included 120 repeated monthly observations. Monthly counts of oxycodone-caused deaths, obtained from the Florida Medical Examiners Commission (MEC) was the outcome variable. Models included market-entry of tamper-resistant oxycodone HC1 controlled release tablets (OxyContin®), enforcement crackdowns (Operation Pill Nation), and regulation by FL House Bill 7095, measured by the monthly count of Florida pain management clinics closed. Two approaches were used to test the PDMP's hypothesized effect: (1) a binary indicator variable (0 = pre-implementation, 1 = post-implementation), and (2) a continuous indicator consisting of the number of PDMP queries by health care providers.

Results: Oxycodone-caused mortality abruptly declined 25% the month after implementation of Florida's PDMP (p = 0.008). The effect remained after integrating other related historical events into the model. Results indicate that for a system-wide increase of one PDMP query per health care provider, oxycodone-caused deaths declined by 0.229 persons per month (p = 0.002).

Conclusions: This is the first study to demonstrate that the PDMP had a significant effect in reducing oxycodone-caused mortality in Florida. Results have implications for national efforts to address the prescription drug epidemic.

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Alcohol reduces aversion to ambiguity

Tadeusz Tyszka, Anna Macko & Maciej Stańczak
Frontiers in Psychology, January 2015

Abstract:
Several years ago, Cohen et al. (1958) demonstrated that under the influence of alcohol drivers became more risk prone, although their risk perception remained unchanged. Research shows that ambiguity aversion is to some extent positively correlated with risk aversion, though not very highly (Camerer and Weber, 1992). The question addressed by the present research is whether alcohol reduces ambiguity aversion. Our research was conducted in a natural setting (a restaurant bar), where customers with differing levels of alcohol intoxication were offered a choice between a risky and an ambiguous lottery. We found that alcohol reduced ambiguity aversion and that the effect occurred in men but not women. We interpret these findings in terms of the risk-as-value hypothesis, according to which, people in Western culture tend to value risk, and suggest that alcohol consumption triggers adherence to socially and culturally valued patterns of conduct different for men and women.

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DAT1 and alcohol use: Differential responses to life stress during adolescence

John Stogner
Criminal Justice Studies, Winter 2015, Pages 18-38

Abstract:
Stressful life events can impact both substance use initiation and the quantity of substances consumed by adolescents; however, the effect of stress on substance use may be contingent on other factors including social support, peers, and genotype. DAT1, a polymorphic dopamine transporter gene, is one such factor that may be responsible for differential susceptibility to cumulative life pressures. Data from the National Longitudinal Study of Adolescent Health were utilized to determine whether adolescents with the 10-repeat allele are more likely to respond to life stresses by engaging in alcohol use than those without the allele. Respondents’ self-reports of key stressors were used to create a composite life stress scale. The interaction of this measure with the number of 10-repeat DAT1 alleles was evaluated in series of logistic regression models. A significant interaction emerged between stressful life experiences and DAT1 for alcohol use among females, but this pattern was not seen in males. Females with the 10-repeat allele appear to be more sensitive to life stress as compared to those without the allele. It appears that variation in the DAT1 gene may help explain why some women are more likely to consume alcohol when confronted with stress. It, however, does not appear to condition the reaction of men, in terms of alcohol use, to stress.

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Recall of Anti-Tobacco Advertisements and Effects on Quitting Behavior: Results From the California Smokers Cohort

Eric Leas et al.
American Journal of Public Health, February 2015, Pages e90-e97

Objectives: We assessed whether an anti-tobacco television advertisement called “Stages,” which depicted a woman giving a brief emotional narrative of her experiences with tobacco use, would be recalled more often and have a greater effect on smoking cessation than 3 other advertisements with different intended themes.

Methods: Our data were derived from a sample of 2596 California adult smokers. We used multivariable log-binomial and modified Poisson regression models to calculate respondents’ probability of quitting as a result of advertisement recall.

Results: More respondents recalled the “Stages” ad (58.5%) than the 3 other ads (23.1%, 23.4%, and 25.6%; P < .001). Respondents who recalled “Stages” at baseline had a higher probability than those who did not recall the ad of making a quit attempt between baseline and follow-up (adjusted risk ratio [RR] = 1.18; 95% confidence interval [CI] = 1.03, 1.34) and a higher probability of being in a period of smoking abstinence for at least a month at follow-up (adjusted RR = 1.55; 95% CI = 1.02, 2.37).

Conclusions: Anti-tobacco television advertisements that depict visceral and personal messages may be recalled by a larger percentage of smokers and may have a greater impact on smoking cessation than other types of advertisements.

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Substance Use and Teen Pregnancy in the United States: Evidence from the NSDUH 2002–2012

Christopher Salas-Wright et al.
Addictive Behaviors, June 2015, Pages 218–225

Introduction: Few, if any, studies have systematically examined the relationship between substance use and teen pregnancy using population-based samples. We aim to provide a comprehensive examination of substance use among pregnant adolescents in the United States.

Method: Employing data from the National Survey on Drug Use and Health between 2002 and 2012 (n = 97,850), we examine the prevalence of past 12-month and past 30-day substance use and substance use disorders among pregnant and non-pregnant adolescents (ages 12–17). We also examine psychosocial and pregnancy-related correlates of current substance use among the subsample of pregnant adolescents (n = 810).

Results: Pregnant teens were significantly more likely to have experimented with a variety of substances and meet criteria for alcohol (AOR = 1.65, 95% CI = 1.26-2.17), cannabis (AOR = 2.29, 95% CI = 1.72-3.04), and other illicit drug use disorders (AOR = 2.84, 95% CI = 1.92-4.19). Pregnant early adolescents (ages 12–14; AOR = 4.34, 95% CI = 2.28-8.26) were significantly more likely and pregnant late adolescents (ages 15–17; AOR = 0.71, 95% CI = 0.56-0.90) significantly less likely than their non-pregnant counterparts to be current substance users.

Conclusions: Study findings point not only to a relationship between pregnancy and prior substance use, but also suggest that substance use continues for many teens during pregnancy. We found that substance use is particularly problematic among early adolescents that the prevalence of substance use attenuates dramatically as youth progress from the first to the second and third trimesters of pregnancy.

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Smoking normalizes cerebral blood flow and oxygen consumption after 12-hour abstention

Manouchehr Vafaee et al.
Journal of Cerebral Blood Flow & Metabolism, forthcoming

Abstract:
Acute nicotine administration stimulates [14C]deoxyglucose trapping in thalamus and other regions of rat brain, but acute effects of nicotine and smoking on energy metabolism have rarely been investigated in human brain by positron emission tomography (PET). We obtained quantitative PET measurements of cerebral blood flow (CBF) and metabolic rate of oxygen (CMRO2) in 12 smokers who had refrained from smoking overnight, and in a historical group of nonsmokers, testing the prediction that overnight abstinence results in widespread, coupled reductions of CBF and CMRO2. At the end of the abstention period, global grey-matter CBF and CMRO2 were both reduced by 17% relative to nonsmokers. At 15 minutes after renewed smoking, global CBF had increased insignificantly, while global CMRO2 had increased by 11%. Regional analysis showed that CMRO2 had increased in the left putamen and thalamus, and in right posterior cortical regions at this time. At 60 and 105 minutes after smoking resumption, CBF had increased by 8% and CMRO2 had increased by 11-12%. Thus, we find substantial and global impairment of CBF/CMRO2 in abstaining smokers, and acute restoration by resumption of smoking. The reduced CBF and CMRO2 during acute abstention may mediate the cognitive changes described in chronic smokers.

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Psychological Distress and Problem Drinking

Emmanouil Mentzakis et al.
Health Economics, forthcoming

Abstract:
We examine the influence of harmful alcohol use on mental health using a flexible two-step instrumental variables approach and household survey data from nine countries of the former Soviet Union. Using alcohol advertisements to instrument for alcohol, we show that problem drinking has a large detrimental effect on psychological distress, with problem drinkers exhibiting a 42% increase in the number of mental health problems reported and a 15% higher chance of reporting very poor mental health. Ignoring endogeneity leads to an underestimation of the damaging effect of excessive drinking. Findings suggest that more effective alcohol polices and treatment services in the former Soviet Union may have added benefits in terms of reducing poor mental health.

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On the demand for smoking quitlines

Rajeev Goel
Journal of Economics and Finance, January 2015, Pages 201-210

Abstract:
Using recent cross-state U.S. data, this paper estimates the demand for calls to smoking quitlines. Besides formal insights into the determinants of quitline demand, another key contribution is to provide unique insights on the role of related internet resources, using two novel measures. Results show that higher cigarette prices, lower income, and greater government resources increase the demand for quitline calls, with the internet measures having positive but statistically insignificant effects. In terms of magnitude, the elasticity of quitline calls with respect to cigarette prices was about four times greater than that with respect to public funds for quitlines. Policy implications are discussed.

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Effects of Ostracism and Sex on Alcohol Consumption in a Clinical Laboratory Setting

Amy Bacon, Alexi Cranford & Heidemarie Blumenthal
Psychology of Addictive Behaviors, forthcoming

Abstract:
Drinking to cope with negative affect is a drinking pattern that leads to problematic alcohol use both in college and after graduation. Despite theory and correlational evidence to this effect, establishing a link between stress and alcohol consumption among college students in the laboratory has yielded both a limited number of studies and, at times, inconsistent results. The present study attempts to resolve these issues through investigating the effects of an ecologically relevant stressor — ostracism — on alcohol consumption in a clinical laboratory setting. Social drinking college students (N = 40; 55% female) completed a 5-min game of Cyberball and were randomly assigned either to be included or excluded in the virtual ball-toss game. The amount (in ml) of beer consumed in a subsequent mock taste test served as our primary dependent variable, with breath alcohol concentration (BrAC) as a secondary dependent variable. Results indicated that excluded participants reported a trend toward an increase in negative affect from pre- to post-Cyberball, and endorsed significantly lower self-esteem, belonging, control, and belief in a meaningful existence compared to included participants. A significant Sex × Condition effect indicated that excluded women consumed less beer than both included women and excluded men, supported by a nonsignificant trend in BrAC. Men did not differ in their consumption of beer as a result of Cyberball condition. Implications of sex and social context on alcohol use are discussed, as well as ostracism as a method for investigating relationships between social stress and alcohol use.

By KEVIN LEWIS | 09:00:00 AM

Wednesday, March 4, 2015

Down and out

Minimum wages, poverty, and material hardship: New evidence from the SIPP

Joseph Sabia & Robert Nielsen
Review of Economics of the Household, March 2015, Pages 95-134

Abstract:
While a number of policymakers have argued that raising the minimum wage will reduce material hardship, empirical evidence to support or refute this claim is scant. Using data drawn from the Survey of Income and Program Participation, we examine the effect of minimum wage increases on poverty, material hardship, and government program participation. Difference-in-difference estimates provide little evidence that state and federal minimum wage increases between 1996 and 2007 reduced poverty, material hardship, or receipt of public program benefits among all individuals, workers, younger individuals without high school degrees, or younger black individuals. Our findings are robust across several measures of hardship, including poverty, financial hardship, housing stress, food insecurity, durable goods deprivation, and health insecurity. We find some evidence of modest redistribution effects of the minimum wage among low-skilled individuals.

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Does Welfare Spending Crowd Out Charitable Activity? Evidence from Historical England under the Poor Laws

Nina Boberg-Fazlic & Paul Sharp
Economic Journal, forthcoming

Abstract:
This paper examines the relationship between government spending and charitable activity. We present a novel way of testing the ‘crowding out hypothesis’, making use of the fact that welfare provision under the Old Poor Laws was decided on the parish level, thus giving heterogeneity within a single country. Using data on poor relief spending combined with data on charitable incomes by county before and after 1800, we find a positive relationship: areas with more public provision also enjoyed higher levels of charitable income. These results are confirmed when instrumenting for Poor Law spending, and when looking at first differences.

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Bounding the Labor Supply Responses to a Randomized Welfare Experiment: A Revealed Preference Approach

Patrick Kline & Melissa Tartari
NBER Working Paper, January 2015

Abstract:
We study the short-term impact of Connecticut's Jobs First welfare reform experiment on women’s labor supply and program participation decisions. A non-parametric optimizing model is shown to restrict the set of counterfactual choices compatible with each woman's actual choice. These revealed preference restrictions yield informative bounds on the frequency of several intensive and extensive margin responses to the experiment. We find that welfare reform induced many women to work but led some others to reduce their earnings in order to receive assistance. The bounds on this latter “opt-in” effect imply that intensive margin labor supply responses are non-trivial.

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Housing Instability and Birth Weight among Young Urban Mothers

Bianca Carrion et al.
Journal of Urban Health, February 2015, Pages 1-9

Abstract:
Housing instability is an understudied social condition that may be a severe stressor during pregnancy. Aims of this study are to identify correlates of housing instability and to explore the association between housing instability and birth weight among pregnant teens and young mothers. Participants included pregnant women ages 14–21 from seven community hospitals and health centers in New York City (N = 623). Data were collected via structured surveys during the second trimester of pregnancy (14 to 24 weeks gestation, M = 19.35, SD = 3.20). Birth weight was obtained through labor and delivery logs. Housing instability was operationalized as two or more moves within the past year. More than one in four (28.5 %) pregnant teens and young women in this sample reported housing instability. Women who reported housing instability were less likely to be enrolled in school, have parents as main source of financial support, live in a single-family home or apartment, or be food secure; they were more likely to smoke (all p < 0.05). After adjusting for important clinical, behavioral, and demographic factors typically associated with lower birth weight, housing instability remained a significant predictor of lower birth weight (B (SE) = −83.96(35.47), p = 0.018). Results highlight the importance of housing stability during pregnancy for infant health. Future interventions and policies should ensure that women are housing stable before, during, and after pregnancy.

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Health Effects of Unemployment Benefit Program Generosity

Jonathan Cylus, Maria Glymour & Mauricio Avendano
American Journal of Public Health, February 2015, Pages 317-323

Objectives: We assessed the impact of unemployment benefit programs on the health of the unemployed.

Methods: We linked US state law data on maximum allowable unemployment benefit levels between 1985 and 2008 to individual self-rated health for heads of households in the Panel Study of Income Dynamics and implemented state and year fixed-effect models.

Results: Unemployment was associated with increased risk of reporting poor health among men in both linear probability (b = 0.0794; 95% confidence interval [CI] = 0.0623, 0.0965) and logistic models (odds ratio = 2.777; 95% CI = 2.294, 3.362), but this effect is lower when the generosity of state unemployment benefits is high (b for interaction between unemployment and benefits = −0.124; 95% CI = −0.197, −0.0523). A 63% increase in benefits completely offsets the impact of unemployment on self-reported health.

Conclusions: Results suggest that unemployment benefits may significantly alleviate the adverse health effects of unemployment among men.

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More Money, Fewer Lives: The Cost Effectiveness of Welfare Reform in the United States

Peter Muennig et al.
American Journal of Public Health, February 2015, Pages 324-328

Objectives: We evaluated the economic benefits of Temporary Assistance to Needy Families (TANF) relative to the previous program, Aid to Families with Dependent Children (AFDC).

Methods: We used pooled mortality hazard ratios from 2 randomized controlled trials — Connecticut Jobs First and the Florida Transition Program, which had follow-up from the early and mid-1990s through December 2011 — and previous estimates of health and economic benefits of TANF and AFDC. We entered them into a Markov model to evaluate TANF’s economic benefits relative to AFDC and weigh them against the potential health threats of TANF.

Results: Over the working life of the average cash assistance recipient, AFDC would cost approximately $28 000 more than TANF from the societal perspective. However, it would also bring 0.44 additional years of life. The incremental cost effectiveness of AFDC would be approximately $64 000 per life-year saved relative to TANF.

Conclusions: AFDC may provide more value as a health investment than TANF. Additional attention given to the neediest US families denied cash assistance could improve the value of TANF.

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The Effect of Disability Payments on Household Earnings and Income: Evidence from the Supplemental Security Income Children's Program

Manasi Deshpande
MIT Working Paper, November 2014

Abstract:
I estimate the effect of removing children with disabilities from the Supplemental Security Income (SSI) program on parental earnings and household income. Using administrative data from the Social Security Administration, I implement both a regression discontinuity design and a difference-in-differences design based on changes in the budget for medical reviews, which increase the likelihood of removal from SSI. I find that a loss of $1,000 in the child’s SSI payment increases parental earnings — exclusively on the intensive margin — by $700-$1,400, indicating that parents fully offset the SSI loss with increased earnings. The loss of the child’s SSI payment also discourages parents and siblings from applying for disability insurance. In addition, I find evidence that family members often apply for disability insurance at the same time, which suggests the importance of household-level shocks in the decision to apply. Using the unique institutional context of the SSI program, I provide suggestive evidence that the large response in parental earnings is driven mostly by an income effect rather than a substitution effect.

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Does Welfare Inhibit Success? The Long-Term Effects of Removing Low-Income Youth from Disability Insurance

Manasi Deshpande
MIT Working Paper, December 2014

Abstract:
I estimate the long-term effects of removing low-income youth with disabilities from Supplemental Security Income (SSI) on the level and variance of their earnings and income in adulthood. Using administrative data from the Social Security Administration, I implement a regression discontinuity design based on a change in the probability of SSI removal at age 18 created by the welfare reform law of 1996. I find that SSI youth who are removed earn on average $4,000 per year, an increase of just $2,600 relative to those who remain on SSI. This increase in earnings covers only one-third of the $7,700 they lose in annual SSI income, and they lose an additional 10% each year in other transfer income. As a result, removed SSI youth experience a present discounted income loss of $73,000, or 80% of the original SSI income loss, over the 16 years following removal. In addition to the large drop in income levels, the within-person variance of income quadruples as a result of the SSI loss. Based on back-of-the-envelope calculations assuming risk aversion and limited intertemporal consumption smoothing, I find that up to one-quarter of the recipient's welfare loss from SSI removal is attributable to the increase in income volatility rather than to the fall in income levels. This result suggests that ignoring the income stabilization effects of welfare and disability programs could substantially underestimate their value to recipients.

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Hungry today, unhappy tomorrow? Childhood hunger and subjective wellbeing later in life

Marco Bertoni
Journal of Health Economics, March 2015, Pages 40–53

Abstract:
I use anchoring vignettes to show that, on data for eleven European countries, exposure to episodes of hunger in childhood leads people to adopt lower subjective standards to evaluate satisfaction with life in adulthood. I also show that, as a consequence, estimates of the association between childhood starvation and late-life wellbeing that do not allow for reporting heterogeneity are biased towards finding a positive correlation. These results highlight the need to consider rescaling when drawing inference on subjective outcomes.

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Adolescent neighborhood context and young adult economic outcomes for low-income African Americans and Latinos

George Galster et al.
Journal of Economic Geography, forthcoming

Abstract:
We quantify how young adult employment and educational outcomes for low-income African Americans and Latinos relate to their adolescent neighborhood conditions. Data come from surveys of Denver Housing Authority (DHA) households who lived in public housing scattered throughout Denver County. Because DHA allocations mimic random assignment to neighborhood, this program represents a natural experiment for overcoming geographic selection bias. We use the neighborhood originally offered by DHA to instrument for neighborhood experienced during adolescence. Our control function logistic analyses found that higher percentages of foreign-born neighbors predicted higher odds of no post-secondary education and (less reliably) neither working nor attending school. Neighborhood occupational prestige predicted lower odds of young adults receiving public assistance and (less reliably) neither primarily working nor attending school. Effects differed for African Americans and Latinos. We consider potential causal processes underlying our results and suggest why they differ from those from the Moving To Opportunity demonstration.

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Eviction's Fallout: Housing, Hardship, and Health

Matthew Desmond & Rachel Tolbert Kimbro
Social Forces, forthcoming

Abstract:
Millions of families across the United States are evicted each year. Yet, we know next to nothing about the impact eviction has on their lives. Focusing on low-income urban mothers, a population at high risk of eviction, this study is among the first to examine rigorously the consequences of involuntary displacement from housing. Applying two methods of propensity score analyses to data from a national survey, we find that eviction has negative effects on mothers in multiple domains. Compared to matched mothers who were not evicted, mothers who were evicted in the previous year experienced more material hardship, were more likely to suffer from depression, reported worse health for themselves and their children, and reported more parenting stress. Some evidence suggests that at least two years after their eviction, mothers still experienced significantly higher rates of material hardship and depression than peers.

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Instrumental Variable Estimation of the Causal Effect of Hunger Early in Life on Health Later in Life

Gerard van den Berg, Pia Pinger & Johannes Schoch
Economic Journal, forthcoming

Abstract:
We estimate average causal effects of early-life hunger on late-life health by applying instrumental variable estimation, using data with self-reported periods of hunger earlier in life, with famines as instruments. The data contain samples from European countries and include birth cohorts exposed to various famines in the 20th century. We use two-sample IV estimation to deal with imperfect recollection of conditions at very early stages of life. The estimated average causal effects may exceed famine effects by at least a factor three.

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Receipt of independent living services among older youth in foster care: An analysis of national data from the U.S.

Nathanael Okpych
Children and Youth Services Review, April 2015, Pages 74–86

Abstract:
Fifteen years has passed since the Chafee Foster Care Independence Program was created under the Social Security Act, which marked an increased role of the U.S. federal government in supporting foster care youth to independence. It was not until the National Youth in Transition Database (NYTD) was launched in 2010 that all 50 states reported standard data on receipt of the 13 types of Chafee independent living services. This paper, which draws on the first two years of NYTD data, analyzes Chafee service receipt across the U.S. among youth in foster care (ages 16–21). About half of the 131,204 youth included in this analysis received at least one type of Chafee service, and considerable variation existed in the proportion of youth that received each of the 13 specific types of services. Females were more likely than males to receive all but one type of service, and African Americans were less likely to receive most of the services. An interaction effect indicated that Black youth were significantly less likely to receive services in large urban areas than other racial/ethnic groups. Young people with disabilities or medical/psychological conditions were generally more likely to receive services than youth without disabilities. Youth in large urban regions receive fewer services than youth residing in other areas, and substantial variation exists between states in proportions of service recipients. Recommendations are made for targeting services, future data collection, and research, including suggestions on ways to improve measurement of Chafee services.

By KEVIN LEWIS | 09:00:00 AM


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