TEXT SIZE A A A

Findings Banner

Monday, December 10, 2012

Picking winners and losers

 

Evidence on the Effects of Mandatory Disclaimers in Advertising

Kesten Green & Scott Armstrong
Journal of Public Policy & Marketing, November 2012, Pages 293-304

Abstract:
The authors find no evidence that consumers benefit from government-mandated disclaimers in advertising. Experiments and common experience show that admonishments to change or avoid behaviors often have effects opposite to those intended. The authors examine 18 experimental studies that provide evidence relevant to mandatory disclaimers. Mandated messages increased confusion for consumers and were ineffective or harmful in the 15 studies that examined perceptions, attitudes, or decisions. The authors conduct an experiment on the effects of a government-mandated disclaimer for a Florida court case, showing two advertisements for dentists offering implant dentistry to 317 participants. Only one advertiser had implant dentistry credentials. Participants exposed to the disclaimer recommended the advertiser who lacked credentials more often, and women and less-educated participants were particularly prone to this error. In addition, participants drew false and damaging inferences about the credentialed dentist.

----------------------

The Effects of Changing Anti-Discrimination Legal Standards on the Evaluation of Older Workers

Cody Cox & Laura Barron
Journal of Applied Social Psychology, forthcoming

Abstract:
Recent court decisions have raised evidentiary standards for demonstrating age discrimination, which may also impact attitudes toward older workers. In 2 studies, we explored the relationship between perceived legal protections and attitudes toward older workers. In Study 1, perceptions of current discrimination laws predicted attitudes toward older workers. In Study 2, participants received a training module that either discussed the recent ruling or previous law. When the new ruling was presented, older targets were rated less capable of change and less suitable for their jobs than were otherwise equivalent younger targets. Individuals high in power distance were particularly susceptible to this effect. Implications of the importance of age anti-discrimination laws are discussed.

----------------------

Regulatory Fog: The Role of Information in Regulatory Persistence

Patrick Warren & Tom Wilkening
Journal of Economic Behavior & Organization, December 2012, Pages 840-856

Abstract:
Regulation is very persistent, even when inefficient. We propose an explanation for regulatory persistence based on regulatory fog, the phenomenon by which regulation obscures information regarding the value of counterfactual policies. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the social planner's ability to observe the state of the world. Compared to a full-information benchmark, regulation is highly persistent, often lasting indefinitely. Regulatory fog is robust to a broad range of partially informative policies and can be quite detrimental to social welfare. Regulatory experiments, modeled as costly and imperfect signals of the underlying state, do not eliminate the effects of regulatory fog. We characterize their effects and provide a framework for choosing amongst a set of potential regulatory experiments.

----------------------

Assessing the long term benefit of banning the use of hand-held wireless devices while driving

Sheldon Jacobson et al.
Transportation Research Part A: Policy and Practice, December 2012, Pages 1586-1593

Abstract:
An increasing number of legislative efforts have been undertaken to prohibit the use of hand-held wireless devices while driving. As of July 2012, ten states and the District of Columbia enforce laws banning the use of hand-held cell phones while driving. Thirty-nine states and the District of Columbia have banned text messaging while driving. Recent studies of driver behavior suggest that hand-held wireless device usage negatively impacts driver performance. However few studies at the aggregate level address the plausible link between the use of hand-held wireless devices while driving, increased risk of automobile accidents, and government legislative efforts to reduce such risk. This paper analyzes data at the aggregate level and builds a regression model to estimate the long term accident rate reduction due to a hand-held ban. This model differs from previous studies, which consider short term accident rate reduction, by considering time trends in the accident rate due to the ban. Additionally, counties considered in this analysis are placed into groups based on driver density, defined by the number of licensed drivers per centerline mile of roadway, and a separate analysis is performed within these groups. This approach allows one to better quantify the effect of hand-held bans in counties of different driver densities. Results from this paper suggest that bans on hand-held wireless device use while driving reduce the rate of personal injury accidents in counties with high levels of driver density, but may increase accident rates in counties with low driver density levels. These results can inform transportation policymakers interested in reducing automobile-accident-risk attributable to the use of hand-held wireless devices while driving.

----------------------

Why firms exploitation of consumer myopia may benefit myopic consumers

Hans Zenger
Economics Letters, forthcoming

Abstract:
Myopic consumers underestimate the likelihood with which they will require follow-on services for products they purchase. Firms have an incentive to exploit this behavioral bias by skewing their price structure toward high add-on charges. Inadvertently, this skewed price structure provides myopic consumers with a monetary incentive mechanism that tends to inhibit, rather than propel, inefficient consumption decisions.

----------------------

Size and complexity in model financial systems

Nimalan Arinaminpathy, Sujit Kapadia & Robert May
Proceedings of the National Academy of Sciences, 6 November 2012, Pages 18338-18343

Abstract:
The global financial crisis has precipitated an increasing appreciation of the need for a systemic perspective toward financial stability. For example: What role do large banks play in systemic risk? How should capital adequacy standards recognize this role? How is stability shaped by concentration and diversification in the financial system? We explore these questions using a deliberately simplified, dynamic model of a banking system that combines three different channels for direct transmission of contagion from one bank to another: liquidity hoarding, asset price contagion, and the propagation of defaults via counterparty credit risk. Importantly, we also introduce a mechanism for capturing how swings in "confidence" in the system may contribute to instability. Our results highlight that the importance of relatively large, well-connected banks in system stability scales more than proportionately with their size: the impact of their collapse arises not only from their connectivity, but also from their effect on confidence in the system. Imposing tougher capital requirements on larger banks than smaller ones can thus enhance the resilience of the system. Moreover, these effects are more pronounced in more concentrated systems, and continue to apply, even when allowing for potential diversification benefits that may be realized by larger banks. We discuss some tentative implications for policy, as well as conceptual analogies in ecosystem stability and in the control of infectious diseases.

----------------------

Financial derivatives, opacity, and crash risk: Evidence from large U.S. banks

Michaël Dewally & Yingying Shao
Journal of Financial Stability, forthcoming

Abstract:
We test how the use of financial derivatives affects banks' informational structure and future stock performance based on a sample of large bank holding companies in the U.S. Using banks' use of financial derivatives as a proxy for opacity, we find that high level use of interest rate and foreign exchange derivatives are associated with an increase in the synchronicity (R2) of stock price movements with the market index, which indicates less revelation of bank-specific information to the market. This finding is consistent with the prediction of the model developed by Wagner (2007). We document that superior corporate governance tempers these effects. Finally, we find that an increase in the opacity is significantly and positively related to an increase in banks' future stock price crash risk.

----------------------

Rating agencies in the face of regulation

Christian Opp, Marcus Opp & Milton Harris
Journal of Financial Economics, forthcoming

Abstract:
This paper develops a theoretical framework to shed light on variation in credit rating standards over time and across asset classes. Ratings issued by credit rating agencies serve a dual role: they provide information to investors and are used to regulate institutional investors. We show that introducing rating-contingent regulation that favors highly rated securities may increase or decrease rating informativeness, but unambiguously increases the volume of highly rated securities. If the regulatory advantage of highly rated securities is sufficiently large, delegated information acquisition is unsustainable, since the rating agency prefers to facilitate regulatory arbitrage by inflating ratings. Our model relates rating informativeness to the quality distribution of issuers, the complexity of assets, and issuers' outside options. We reconcile our results with the existing empirical literature and highlight new, testable implications, such as repercussions of the Dodd-Frank Act.

----------------------

Affecting Policy by Manipulating Prediction Markets: Experimental Evidence

Cary Deck, Shengle Lin & David Porter
Journal of Economic Behavior & Organization, January 2013, Pages 48-62

Abstract:
Documented results indicate prediction markets effectively aggregate information and form accurate predictions. This has led to a proliferation of markets predicting everything from the results of elections to a company's sales to movie box office receipts. Recent research suggests prediction markets are robust to manipulation attacks and resulting market outcomes improve forecast accuracy. However, we present evidence from the lab indicating that single-minded, well-funded manipulators can in fact destroy a prediction market's ability to aggregate informative prices and mislead those who are making forecasts based upon market predictions. However, we find that manipulators primarily influence market trades meaning outstanding bids and asks remain informative.

----------------------

Revisiting WalMart's Impact on Iowa Small-Town Retail: 25 Years Later

Georgeanne Artz & Kenneth Stone
Economic Development Quarterly, November 2012, Pages 298-310

Abstract:
Ken Stone conducted the first study of WalMart stores' economic impact in Iowa in 1988. Since then, research on WalMart's impacts has exploded. Recent studies employ sophisticated statistical techniques to more accurately measure the size and direction of effects. Many reach conclusions similar to Stone's original work. This article updates the original Stone study with additional years of data. It draws on recent methodological advances to help account for the effects of WalMart's strategic location decisions on estimated retail sales in Iowa. As is consistent with previous studies, we find that WalMart's entry into smaller trade centers in Iowa had a big initial impact on host-town retail sales, with some categories experiencing significant increases while others saw declines in sales per capita. WalMart's presence helped stabilize or even expand the local retail sector of most rural Iowa host communities. To conclude, we discuss policy implications for local economic development officials.

----------------------

Mom-and-Pops or Big Box Stores: Some Evidence of WalMart Impact on Retail Trade

Michael Hicks, Stanley Keil & Lee Spector
Economic Development Quarterly, November 2012, Pages 311-320

Abstract:
This article explores WalMart's impact on the retail sector in the counties in which it is located, as well as in surrounding counties, by examining the number and size of retail outlets, by retail category. Using statewide data as well as a case study incorporating econometric modes, we find that the main impact of the entrance of a WalMart primarily falls on competitive big box stores. Furthermore, we find that the long-run adjustment to the entrance of a WalMart takes between 18 and 36 months.

----------------------

The Impact of an Urban WalMart Store on Area Businesses: The Chicago Case

David Merriman et al.
Economic Development Quarterly, November 2012, Pages 321-333

Abstract:
This study, the first on the impact of a WalMart in a large city, draws on three annual surveys of enterprises within a four-mile radius of a new Chicago WalMart. It shows that the probability of going out of business was significantly higher for establishments close to that store. This probability fell off at a rate of 6% per mile in all directions. Using this relationship, we estimate that WalMart's opening resulted in the loss of approximately 300 full-time equivalent jobs in nearby neighborhoods. This loss about equals WalMart's own employment in the area. Our analysis of separate data on sales tax receipts shows that after its opening there was no net increase in retail sales in WalMart's own and surrounding zip codes. Overall, these results support the contention that large-city WalMarts, like those in small towns, absorb retail sales from nearby stores without significantly expanding the market.

----------------------

Wal-Mart and the Geography of Grocery Retailing

Paul Ellickson & Paul Grieco
Journal of Urban Economics, forthcoming

Abstract:
This paper empirically examines the impact of entry by Wal-Mart on competition in the supermarket industry. Using a detailed panel dataset spanning 1994 to 2006, we estimate the impact of Wal-Mart on firm outcomes and market structure, controlling for persistent local trends and systematic differences across markets by exploiting the detailed spatial structure of our store-level census. We find that Wal-Mart's impact is highly localized, affecting firms only within a tight, two-mile radius of its location. Within this radius, the bulk of the impact falls on declining firms and mostly on the intensive margin. Entry of new firms is essentially unaffected. Moreover, the stores most damaged by Wal-Mart's entry are the outlets of larger chains. This suggests that Wal-Mart's expansion into groceries is quite distinct from its earlier experience in the discount industry, where the primary casualties were small chains and sole proprietorships that were forced to exit the market. This contrast sheds light on the role density economies play in shaping both equilibrium market structure and economic geography. In the case of grocery competition, high travel costs and the perishable nature of groceries appear to impart horizontal differentiation between firms. This differentiation in demand appears to reduce impact of scale economies advantages that Wal-Mart exploited to the detriment of far-flung competitors in the discount store industry.

----------------------

Freshwater, saltwater and deepwater: Efficient market hypothesis versus behavioural finance

Dariusz Wójcik, Nicholas Kreston & Sarah McGill
Journal of Economic Geography, forthcoming

Abstract:
The efficient market hypothesis (EMH) and behavioural finance (BF) form the blame-hope axis of the ongoing soul-searching exercise in economics, which frequently refers to the ‘Chicago School' and the ideological division between ‘freshwater' and ‘saltwater' universities. Citation analysis for 1965-2010 shows that these simple geographical shorthands do not apply, as saltwater economists heavily cited the seminal EMH papers from the beginning and vice versa. BF lags behind EMH in terms of the quantity, dynamics, scope and international reach of citations. BF is far from stealing a march on the EMH and the latter is still used as the benchmark.

----------------------

Beyond Kelly Green Golf Shoes: Evaluating the Demand for Scholarship of Free-Market and Mainstream Economists

J.R. Clark, Jennifer Miller-Wilford & Edward Peter Stringham
American Journal of Economics and Sociology, November 2012, Pages 1169-1184

Abstract:
We evaluate statistics from the Social Science Research Network (SSRN) to see how much free-market economists are being read and ranked compared with mainstream economists. We find that under various rankings using SSRN data, the top free-market economists rank among the most-read authors in the economics profession.

----------------------

The Impact of Nobel Prize Winners in Economics: Mainline vs. Mainstream

Peter Boettke, Alexander Fink & Daniel Smith
American Journal of Economics and Sociology, November 2012, Pages 1219-1249

Abstract:
We assess the impact of two groups of economists: mainline economists, who regard economics primarily as the science of exchange and mainstream economists, who perceive economics primarily as the science of choice. To control for scholarly quality we investigate the citation impact of Nobel Prize winning economists, who we break up into the two groups, mainline and mainstream. We find that over the period from 1970 to 2007 mainline economists had more of an impact than mainstream economists.

----------------------

Endogenous fertility and human capital in a Schumpeterian growth model

Angus Chu, Guido Cozzi & Chih-Hsing Liao
Journal of Population Economics, January 2013, Pages 181-202

Abstract:
This study develops a scale-invariant Schumpeterian growth model with endogenous fertility and human capital accumulation. The model features two engines of long-run economic growth: R&D-based innovation and human capital accumulation. One novelty of this study is endogenous fertility, which negatively affects the growth rate of human capital. Given this growth-theoretic framework, we characterize the dynamics of the model and derive comparative statics of the equilibrium growth rates with respect to structural parameters. As for policy implications, we analyze how patent policy affects economic growth through technological progress, human capital accumulation, and endogenous fertility. In summary, we find that strengthening patent protection has (a) a positive effect on technological progress, (b) a negative effect on human capital accumulation through a higher rate of fertility, and (c) an ambiguous overall effect on economic growth.

----------------------

Determinants of local housing growth in a multi-jurisdictional region, along with a test for nonmarket zoning

Paul Gottlieb et al.
Journal of Housing Economics, December 2012, Pages 296-309

Abstract:
In the State of New Jersey, two rural preservation tools are paramount: (1) Zoning that sets a floor on the size of residential lots; and (2) the outright acquisition of open space or its development rights by government and nonprofit entities. The present study explores the effects of these two policies on the number of building permits issued across 83 municipalities in northern New Jersey. The empirical work is based on a widely-used urban development model that uses both monocentric and polycentric factors to allocate growth across a set of suburban communities. The study also develops a growth-based test for binding minimum-lot-size zoning, leveraging the fact that the 83 communities are in a single housing market and must serve the distribution of home and lot-size demand collectively, not individually. The study finds strong evidence of excess large-lot zoning, leading to the suppression of short-term housing growth in communities that specialize in this particular "product." No firm evidence is found that residential development is attracted to the amenities that flow from either large-lot zoning or open space set asides.

----------------------

The Competitive Impact of Hypermarket Retailers on Gasoline Prices

Paul Zimmerman
Journal of Law and Economics, February 2012, Pages 27-41

Abstract:
Hypermarkets are large retail suppliers of general merchandise or grocery items that also sell gasoline, often at very low margins. This paper estimates the impact of hypermarkets on average state-level retail gasoline prices and margins. The empirical results indicate an economically and statistically significant price-decreasing effect of increased hypermarket competition. The estimations also suggest that refiners lower the delivered wholesale prices charged to their affiliated lessee-dealer and open-dealer stations in response to increased hypermarket competition, which in turn translates to lower retail (street) prices. The adoption of sales-below-cost laws may lessen the price-reducing effects from hypermarket competition.

----------------------

Why not in your backyard? On the location and size of a public facility

Giorgio Bellettini & Hubert Kempf
Regional Science and Urban Economics, forthcoming

Abstract:
In this paper, we tackle the issue of locating and sizing a public facility which provides a public good in a closed and populated territory and generates differentiated benefits to households. In the case of a "Nimby" ("Imby") facility, the smaller is the distance, the smaller (larger) is the individual benefit. Multiple solutions may arise in both cases, and we derive sufficient conditions for uniqueness in both cases. Optimal decisions on location and size are interrelated and depend on the complementarity or substitutability properties of size and distance in the utility function. Then we introduce a common-agency lobbying game, where agents attempt to influence the location and provision decisions by the government. Even when only a subset of households lobbies, the solution of the lobbying game can replicate the optimal solution. Under-provision or over-provision of the public good may be obtained both in the Nimby and the Imby cases. Finally, some non-lobbying households may be better off than in the case where all households lobby, which raises the possibility of free-riding at the lobbying stage.

----------------------

A Measure of Competition Based on 10-K Filings

Feng Li, Russell Lundholm & Michael Minnis
Journal of Accounting Research, forthcoming

Abstract:
In this paper we develop a measure of competition based on management's disclosures in their 10-K filing and find that firms' rates of diminishing marginal returns on new and existing investment vary significantly with our measure. We show that these firm-level disclosures are related to existing industry-level measures of disclosure (e.g. Herfindahl index), but capture something distinctly new. In particular, we show that the measure has both across-industry variation and within-industry variation, and each is related to the firm's future rates of diminishing marginal returns. As such, our measure is a useful complement to existing measures of competition. We present a battery of specification tests designed to explore the boundaries of our measure and how it varies with the definition of industry and the presence of other measures of competition.

----------------------

On the social value of quality: An economic evaluation of the Baldrige Performance Excellence Program

Albert Link & John Scott
Science and Public Policy, October 2012, Pages 680-689

Abstract:
This study estimates the net social value of the Baldrige Performance Excellence Program. It focuses specifically on a survey population of 273 applicants for the Malcolm Baldrige National Quality Award since 2006. Using a counterfactual evaluation method, social benefits have been quantified from the responses of 45 Award applicants to a web-based survey. We estimate the ratio of all measured social benefits to costs to be between 351:1 and 820:1. This finding certainly supports the belief that the Baldrige Program creates considerable value for the US economy.

----------------------

Do more US airports need slot controls? A welfare based approach to determine slot levels

Prem Swaroop et al.
Transportation Research Part B: Methodological, November 2012, Pages 1239-1259

Abstract:
This paper analyzes the welfare effects of slot controls on major US airports. We consider the fundamental tradeoff between benefits from queuing delay reduction and costs due to simultaneous schedule delay increase to passengers while imposing slot limits at airports. A set of quantitative models and simulation procedures are developed to explore the possible airline scheduling responses through reallocating and trimming flights. We find that, of the 35 major US airports, a more widespread use of slot controls would improve travelers' welfare. The results from our analyses suggest that slot caps at the four airports that currently have slot controls (Washington Reagan, Newark, New York LaGuardia, New York John F. Kennedy) are set too high. Further slot reduction by removing some of the flights at these airports could generate additional benefits to passengers. Slot controls can potentially reduce two thirds of the total system delays caused by congestion. A number of implementation and design issues related to the use of slot controls are also discussed in the paper.

By KEVIN LEWIS | 09:00:00 AM