In the system
Alessandro Acquisti, Leslie John & George Loewenstein
Journal of Legal Studies, June 2013, Pages 249-274
Abstract:
Understanding the value that individuals assign to the protection of their personal data is of great importance for business, law, and public policy. We use a field experiment informed by behavioral economics and decision research to investigate individual privacy valuations and find evidence of endowment and order effects. Individuals assigned markedly different values to the privacy of their data depending on (1) whether they were asked to consider how much money they would accept to disclose otherwise private information or how much they would pay to protect otherwise public information and (2) the order in which they considered different offers for their data. The gap between such values is large compared with that observed in comparable studies of consumer goods. The results highlight the sensitivity of privacy valuations to contextual, nonnormative factors.
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The Politics of Accountability: The American Recovery and Reinvestment Act of 2009 ARRA
Paul Posner, Timothy Conlan & Priscilla Regan
George Mason University Working Paper, August 2013
Abstract:
Accountability has become an iconic concept in public management -- never more so than in the implementation of the 2009 American Recovery and Reinvestment Act (ARRA), or the Obama Administration's stimulus. With more than $800 billion and economic growth on the line, the Administration placed its fiscal and political fortunes on the line with this high stakes policy management initiative. A strong emphasis on accountability would help the Administration offer symbolic reassurance to a restive Congress and public, and evidence suggests that ex ante design and ex post audits were successful in warding off characteristic fraud and abuse that often plagues such urgent and highly visible national initiatives. However, such outcomes were achieved at the expense of high administrative costs and significant conflicts among newly emboldened networks of top political officials, program managers and audit officials, all acting under the glare of greater public transparency for spending and jobs. The complex structure of over 200 programs and the reliance on decentralized intergovernmental networks may have diffused blame for embarrassing implementation lapses, but this same structure deprived the President of valuable credit claiming opportunities for the largely successful economic outcomes flowing from one of the largest domestic spending initiatives in postwar history. Notwithstanding credible economic impact estimates by CBO, a confused and bewildered public refused to believe that the stimulus had a favorable impact on a struggling economy.
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Corruption, regulation, and growth: An empirical study of the United States
Noel Johnson et al.
Economics of Governance, forthcoming
Abstract:
This paper investigates whether the costs of corruption are conditional on the extent of government intervention in the economy. We use data on corruption convictions and economic growth between 1975 and 2007 across the US states to test this hypothesis. Although no state approaches the level of government intervention found in many developing countries, we still find evidence for the “weak” form of the grease-the-wheels hypothesis. While corruption is never good for growth, its harmful effects are smaller in states with more regulation.
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Do fixed patent terms distort innovation? Evidence from cancer clinical trials
Eric Budish, Benjamin Roin & Heidi Williams
NBER Working Paper, September 2013
Abstract:
Patents award innovators a fixed period of market exclusivity, e.g., 20 years in the United States. Yet, since in many industries firms file patents at the time of discovery (“invention”) rather than first sale (“commercialization”), effective patent terms vary: inventions that commercialize at the time of invention receive a full patent term, whereas inventions that have a long time lag between invention and commercialization receive substantially reduced - or in extreme cases, zero - effective patent terms. We present a simple model formalizing how this variation may distort research and development (R&D). We then explore this distortion empirically in the context of cancer R&D, where clinical trials are shorter - and hence, effective patent terms longer - for drugs targeting late-stage cancer patients, relative to drugs targeting early-stage cancer patients or cancer prevention. Using a newly constructed data set on cancer clinical trial investments, we provide several sources of evidence consistent with fixed patent terms distorting cancer R&D. Back-of-the-envelope calculations suggest that the number of life-years at stake is large. We discuss three specific policy levers that could eliminate this distortion - patent design, targeted R&D subsidies, and surrogate (non-mortality) clinical trial endpoints - and provide empirical evidence that surrogate endpoints can be effective in practice.
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Taking the High Ground: FEMA Trailer Siting after Hurricane Katrina
Daniel Aldrich & Kevin Crook
Public Administration Review, July/August 2013, Pages 613–622
Abstract:
Using data on more than 300 census blocks from across New Orleans, Louisiana, this article investigates two steps in the placement of temporary housing after Hurricane Katrina. First, the authors seek to understand the factors that determined whether census blocks were selected for Federal Emergency Management Agency (FEMA) trailers. Then, in light of the widespread resistance to the trailers, they focus on variables that influenced whether trailers were successfully placed on those sites. Despite past research arguing that race, collective action potential, and political factors are the primary determinants of facility placement and the success or failure of the attempt, these data show that technocratic criteria dominated. Interestingly, although census blocks in less vulnerable areas were more likely to be selected as locations for FEMA trailer parks than ones in more vulnerable areas, it was precisely the former areas where siting success was less likely. Flood-resistant areas that decision makers chose for housing were less willing to accept such projects than more flood-prone ones.
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Skeletons in the Database: An Early Analysis of the CFPB's Consumer Complaints
Ian Ayres, Jeff Lingwall & Sonia Steinway
Yale Working Paper, July 2013
Abstract:
Analyzing a new data set of 110,000 consumer complaints lodged with the Consumer Financial Protection Bureau, we find that (i) Bank of America, Citibank, and PNC Bank were significantly less timely in responding to consumer complaints than the average financial institution; (ii) consumers of some of the largest financial services providers, including Wells Fargo, Amex, and Bank of America, were significantly more likely than average to dispute the company‘s response to their initial complaints; and (iii) among companies that provide mortgages, OneWest Bank, HSBC, Nationstar Mortgage, and Bank of America all received more mortgage complaints relative to mortgages sold than other banks. In addition, regression analysis suggests that consumer financial companies respond differently to complaints about different products and based on different issues, generating significant differences in timeliness of response, as well as significant differences in whether consumers dispute that response. Moreover, demographics matter: there were significant increases in mortgage complaints per mortgage in ZIP codes with larger proportions of certain populations, including Blacks and Hispanics, as well as an increase in untimeliness and company responses disputed for groups on which the CFPB is mandated to focus, including senior citizens and college students.
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The Effectiveness of Central Bank Independence vs. Policy Rules
John Taylor
Business Economics, July 2013, Pages 155–162
Abstract:
This paper assesses the relative effectiveness of central bank independence vs. policy rules for the policy instruments in bringing about good economic performance. It examines historical changes in (1) macroeconomic performance, (2) the adherence to rules-based monetary policy, and (3) the degree of central bank independence. Macroeconomic performance is defined in terms of both price stability and output stability. Both de jure and de facto central bank independence at the Federal Reserve are considered. The main finding is that changes in macroeconomic performance during the past half century were closely associated with changes in the adherence to rules-based monetary policy and in the degree of de facto monetary independence at the Federal Reserve. But changes in economic performance were not associated with changes in de jure central bank independence. Formal central bank independence alone has not generated good monetary policy outcomes. A rules-based framework is essential.
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A New Angle on Rules versus Standards
Ezra Friedman & Abraham Wickelgren
American Law and Economics Review, forthcoming
Abstract:
The debate over standards versus rules has traditionally been framed as a trade-off between the certainty and lower administrative costs of rules versus standards' flexibility to consider case-specific information. We argue that even if judges have no ability to directly assess case-specific information, using standards creates a sorting effect that favors ex-post efficient decisions. When judges are not bound by rules, their decision is more likely to be sensitive to the quality of legal representation. In the absence of externalities, the party that desires the ex-post efficient decision has the most to gain, and, thus, a greater incentive to invest in high-quality representation. While the higher litigation costs under standards can easily outweigh the increased likelihood of an efficient decision, bargaining in the shadow of standards can preserve their sorting benefit while ameliorating the increase in legal costs.
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Alex Edmans, Mirko Heinle & Chong Huang
NBER Working Paper, September 2013
Abstract:
This paper models the effect of disclosure on real investment. We show that, even if the act of disclosure is costless, a high-disclosure policy can be costly. Some information ("soft") cannot be disclosed. Increased disclosure of "hard" information augments absolute information and reduces the cost of capital. However, by distorting the relative amounts of hard and soft information, increased disclosure induces the manager to improve hard information at the expense of soft, e.g. by cutting investment. Investment depends on asset pricing variables such as investors' liquidity shocks; disclosure depends (non-monotonically) on corporate finance variables such as growth opportunities and the manager's horizon. Even if a low disclosure policy is optimal to induce investment, the manager may be unable to commit to it. If hard information turns out to be good, he will disclose it regardless of the preannounced policy. Government intervention to cap disclosure can create value, in contrast to common calls to increase disclosure.
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Can Prohibitions on “Price Gouging” Reduce Deadweight Losses?
Robert Fleck
International Review of Law and Economics, forthcoming
Abstract:
The vast literature on price controls says little about the way laws against “price gouging” differ from generic price ceilings, yet there is an important difference. By creating the foreseeable possibility (not certainty) of a shortage, a prohibition on price gouging may cause rational consumers to increase consumption. This has particularly interesting implications for markets with external benefits – expectations about policy-induced shortages may increase socially beneficial preparedness for times of acute scarcity (e.g., obtaining vaccinations prior to epidemics, keeping goods on hand in preparation for natural disasters). Thus, under some conditions, laws against price gouging may increase total surplus.
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James Peltier, Mark Skidmore & George Milne
Journal of Public Policy & Marketing, forthcoming
Abstract:
The effectiveness of gasoline-specific sales-below-cost (SBC) laws designed to limit firms' predatory behavior is yet to be determined. To provide policy makers with conceptual and empirical insights into this issue, the authors propose and empirically test a simultaneous equations model grounded in the structure–conduct–performance framework that assesses the direct and indirect impacts that SBC laws have on market structure (number of sellers) and on the wholesale and retail prices of gasoline. Unlike other SBC studies, which are more cross-sectional in nature and focus on a limited number of areas, the authors use monthly gasoline wholesale and retail prices from 1983 to 2010 for all 50 states. This approach is advantageous because it includes the opportunity to assess the long-term impact of SBC laws and transitional effects as states enact or repeal SBC legislation. The results suggest that SBC laws reduce retail prices directly and indirectly by increasing the number of sellers, thus improving customer welfare.
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Efficiencies Brewed: Pricing and Consolidation in the U.S. Beer Industry
Orley Ashenfelter, Daniel Hosken & Matthew Weinberg
NBER Working Paper, August 2013
Abstract:
Merger efficiencies provide the primary justification for why mergers of competitors may benefit consumers. Surprisingly, there is little evidence that efficiencies can offset incentives to raise prices following mergers. We estimate the effects of increased concentration and efficiencies on pricing by using panel scanner data and geographic variation in how the merger of Miller and Coors breweries was expected to increase concentration and reduce costs. All else equal, the average predicted increase in concentration lead to price increases of two percent, but at the mean this was offset by a nearly equal and opposite efficiency effect.
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On the Performance of the U.S. Transportation System: Caution Ahead
Clifford Winston
Journal of Economic Literature, September 2013, Pages 773-824
Abstract:
Transportation is a vital sector of the U.S. economy based on consumers', firms', and government's enormous expenditures in money and time and on its effect on virtually all other sectors in the economy. I assess the performance of the transportation system and consider how it could be improved by analyzing whether the United States has the optimal mix of public and private provision. The empirical evidence indicates that our hugely important transportation system has been compromised by various government policies and the significant welfare costs motivate either vastly improving public provision or expanding the role of the private sector.
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The competitive effects of firm exit: Evidence from the U.S. airline industry
Kai Hüschelrath & Kathrin Müller
Economics of Transportation, June–September 2013, Pages 72–85
Abstract:
We study the competitive effects of five liquidations and six mergers in the domestic U.S. airline industry between 1995 and 2010. Applying fixed effects regression models, we find that route exits due to liquidation lead to substantially larger price increases than merger-related exits. Within the merger category, our analysis reveals significant price increases on all affected routes immediately after the exit events. In the medium and long-run, however, realized merger efficiencies and entry-inducing effects are found to be strong enough to drive prices down to pre-exit levels.
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When are Private Standards more Stringent than Public Standards?
Thijs Vandemoortele & Koen Deconinck
American Journal of Agricultural Economics, forthcoming
Abstract:
Retailers’ private standards are increasingly important for addressing consumer concerns about safety, quality, and social and environmental issues. Empirical evidence shows that these private standards are frequently more stringent than their public counterparts. This article develops a political economy model that helps explain this stylized fact. We show that if producers exercise their political power to persuade the government to impose a lower public standard, retailers may apply their market power to install a private standard at a higher level than the public one, depending on several factors.
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Do the Laws of Tax Incidence Hold? Point of Collection and the Pass-through of State Diesel Taxes
Wojciech Kopczuk et al.
NBER Working Paper, September 2013
Abstract:
The canonical theory of taxation holds that the incidence of a tax is independent of the side of the market which is responsible for remitting the tax to the government. However, this prediction does not survive in certain circumstances, for example when the ability to evade taxes differs across economic agents. In this paper, we estimate in the context of state diesel fuel taxes how the incidence of a quantity tax depends on the point of tax collection, where the level of the supply chain responsible for remitting the tax varies across states and over time. Our results indicate that moving the point of tax collection from the retail station to higher in the supply chain substantially raises the pass-through of diesel taxes to the retail price. Furthermore, tax revenues respond positively to collecting taxes from the distributor or prime supplier rather than from the retailer, suggesting that evasion is the likely explanation for the incidence result.
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State Governments as Entrepreneurs in Securing Federal Benefits for Their Citizens
Susan Miller & Lael Keiser
Publius, Fall 2013, Pages 497-526
Abstract:
Cooperative federalism provides state governments the ability to shape federal policy in line with subgovernment interests. Although a large literature explores how states promote their goals using federal grants-in-aid, little attention has been paid to how states use their self-assigned application assistance role for federal programs to advance their own agendas. Using data from the Veterans’ Disability Compensation program, we find evidence that state governments’ efforts to provide application assistance affect state veterans’ access to federal benefits in ways that generate state tax revenue. Our findings highlight the importance of state governments as actors in federal programs that are, at first glance, completely federalized, and have implications for scholarship on federalism, state politics, and social welfare policy.
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Designing Self-Reporting Regimes to Encourage Truth Telling: An Experimental Study
Lana Friesen & Lata Gangadharan
Journal of Economic Behavior & Organization, October 2013, Pages 90–102
Abstract:
We report results from an experiment that investigates truthfulness in self-reporting under different reporting regimes. The experiment involves a production task with self-reporting of accidents, with reporting compulsory for some participants, but only voluntary for others. We find that dishonesty is prevalent, but accident reporting is more frequent with compulsory reporting compared with voluntary. Our results suggest that the lie aversion effect is stronger than any potential crowding out of intrinsic motivation to voluntarily report, and that careful design of self-reporting regimes is necessary by enforcement agencies to achieve satisfactory compliance outcomes. Our results are relevant for areas beyond regulatory compliance, including dishonesty in social security claims, insurance claims, workplace expense claims, income tax returns, and financial reporting.
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The Effects of the Interstate Commerce Act on Transport Costs: Evidence from Wheat Prices
Bruce Blonigen & Anca Cristea
Review of Industrial Organization, August 2013, Pages 41-62
Abstract:
There is significant debate over the effect of the Interstate Commerce Act (ICA) on the cost of rail transport to shippers. Taking price differences across locations as proxy for transport costs, we use data on wheat prices before and after the implementation of the ICA to see if the Act led to smaller differences in wheat prices across American cities relative to a control group of European cities. We find that the ICA had no effect on US transport costs; however, it reduced their volatility substantially. This evidence supports the view that the ICA helped stabilize cartel prices after a period of significant price wars.