Following the rules
What Is the Optimal Speed Limit on Freeways?
Arthur van Benthem
Journal of Public Economics, April 2015, Pages 44–62
Abstract:
When choosing his speed, a driver faces a trade-off between private benefits (time savings) and private costs (fuel cost and own damage and injury). Driving faster also has external costs (pollution, adverse health impacts and injury to other drivers). This paper uses large-scale speed limit increases in the western United States in 1987 and 1996 to address three related questions. First, do the social benefits of raising speed limits exceed the social costs? Second, do the private benefits of driving faster exceed the private costs? Third, what is the optimal speed limit? I find that a 10 mph speed limit increase on highways leads to a 3-4 mph increase in travel speed, 9-15% more accidents, 34-60% more fatal accidents, and elevated pollutant concentrations of 14-24% (carbon monoxide), 8-15% (nitrogen oxides), 1-11% (ozone) and 9% higher fetal death rates around the affected freeways. Using these estimates, I find that the social costs of speed limit increases are two to seven times larger than the social benefits. In contrast, many individual drivers would enjoy a net private benefit from driving faster. Privately, a value of a statistical life (VSL) of $6.0 million or less justifies driving faster, but the social planner’s VSL could be at most $0.9-$2.0 million to justify higher speed limits. I conclude that the optimal speed limit was lower, but not much lower, than 55 mph.
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Is Regulation to Blame for the Decline in American Entrepreneurship?
Nathan Goldschlag & Alex Tabarrok
George Mason University Working Paper, December 2014
Abstract:
Mounting evidence suggests that economic dynamism and entrepreneurial activity are declining in the United States. Over the past thirty years, the annual number of new business startups and the pace of job reallocation have declined significantly. A variety of causes for these trends have been suggested, including an increasing ability of firms to respond to idiosyncratic shocks, technology induced changes in the costs of hiring and training, and increasing regulation. This research combines data from the Statistics of U.S. Businesses, which contains measures of the decline in economic dynamism, with RegData, a novel dataset leveraging the textual content of the Code of Federal Regulations. RegData contains annual industry level measures of the stringency of regulation. By combining these data, we are able to estimate the extent to which changes in the level of federal regulation can explain decreasing entrepreneurial activity and dynamism. We find that Federal regulation has had little to no effect on declining dynamism.
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Industrial Concentration under the Rule of Reason
Sam Peltzman
Journal of Law and Economics, August 2014, Pages S101-S120
Abstract:
Robert Bork thought that antitrust restrictions on horizontal mergers should be confined to already highly concentrated markets. Actual policy, which had been much more restrictive, adopted Bork’s recommendation in the early 1980s. This paper examines the connection between this policy shift and concentration in the manufacturing sector. I find that concentration, which had been unchanged on average for all of the 20th century, began rising at the same time that merger policy changed. Concentration has increased steadily over the entire post-Bork period. The increase has been especially pronounced in consumer goods industries, which were already becoming more concentrated in the pre-Bork era. I find little difference in the underlying trends between already highly concentrated industries and the rest of manufacturing. Neither slowing growth in domestic manufacturing nor growing imports seem sufficient to explain the increased concentration.
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Analyzing the Labor Market Outcomes of Occupational Licensing
Maury Gittleman, Mark Klee & Morris Kleiner
NBER Working Paper, February 2015
Abstract:
Recent assessments of occupational licensing have shown varying effects of the institution on labor market outcomes. This study revisits the relationship between occupational licensing and labor market outcomes by analyzing a new topical module to the Survey of Income and Program Participation (SIPP). Relative to previously available data, the topical module offers more detailed information on occupational licensing from government, with larger sample sizes and access to richer sets of person-level characteristics. We exploit this larger and more detailed data set to examine the labor market outcomes of occupational licensing and how workers obtain these licenses from government. More specifically, we analyze whether there is evidence of a licensing wage premium, and how this premium varies with aspects of the regulatory regime such as the requirements to obtain a license or certification and the level of government oversight. After controlling for observable heterogeneity, including occupational status, we find that those with a license earn higher pay, are more likely to be employed, and have a higher probability of retirement and pension plan offers.
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Unaffordable housing and local employment growth: Evidence from California municipalities
Ritashree Chakrabarti & Junfu Zhang
Urban Studies, May 2015, Pages 1134-1151
Abstract:
It is widely believed that unaffordable housing could drive businesses away and thus impede job growth. However, there is little evidence to support this view. This paper presents a simple model to clarify how housing affordability is linked to employment growth and why unaffordable housing could negatively affect employment growth. The paper then investigates this effect empirically using data on California municipalities. For various reasons, a simple correlation between unaffordable housing and employment growth cannot be interpreted as causal. Several empirical strategies are employed to identify the causal effect of unaffordable housing on employment growth. The estimation results provide consistent evidence that unaffordable housing indeed slows local employment growth.
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Melissa Wong et al.
American Journal of Public Health, March 2015, Pages e81-e87
Objectives: We evaluated the impact of the New York City restaurant letter-grading program on restaurant hygiene, food safety practices, and public awareness.
Methods: We analyzed data from 43 448 restaurants inspected between 2007 and 2013 to measure changes in inspection score and violation citations since program launch in July 2010. We used binomial regression to assess probability of scoring 0 to 13 points (A-range score). Two population-based random-digit-dial telephone surveys assessed public perceptions of the program.
Results: After we controlled for repeated restaurant observations, season of inspection, and chain restaurant status, the probability of scoring 0 to 13 points on an unannounced inspection increased 35% (95% confidence interval [CI] = 31%, 40%) 3 years after compared with 3 years before grading. There were notable improvements in compliance with some specific requirements, including having a certified kitchen manager on site and being pest-free. More than 91% (95% CI = 88%, 94%) of New Yorkers approved of the program and 88% (95% CI = 85%, 92%) considered grades in dining decisions in 2012.
Conclusions: Restaurant letter grading in New York City has resulted in improved sanitary conditions on unannounced inspection, suggesting that the program is an effective regulatory tool.
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Characteristics of Bitcoin users: An analysis of Google search data
Aaron Yelowitz & Matthew Wilson
Applied Economics Letters, forthcoming
Abstract:
The anonymity of Bitcoin prevents analysis of its users. We collect Google Trends data to examine determinants of interest in Bitcoin. Based on anecdotal evidence regarding Bitcoin users, we construct proxies for four possible clientele: computer programming enthusiasts, speculative investors, Libertarians and criminals. Computer programming and illegal activity search terms are positively correlated with Bitcoin interest, while Libertarian and investment terms are not.
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Does State Antitrust Enforcement Drive Establishment Exit?
Robert Feinberg, Thomas Husted & Florian Szücs
Journal of Competition Law & Economics, March 2015, Pages 85-106
Abstract:
While studies have examined motivations for businesses to exit and relocate in response to tax and regulatory policies at the state level, no previous work has considered whether U.S. state antitrust enforcement may have similar effects. The results of this article suggest that state-level antitrust (even when coordinated with the federal government) plays a fairly minor role in the exit decision of firms. Where it does play a role, the type of enforcement — anti-cartel vs. other measures — seems to determine the direction of impact. The economic significance of these effects is quite small, however, suggesting that state antitrust authorities need not worry about impacts on the broader economy in their enforcement decisions. Their focus should simply be on the merits of the particular case.
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Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices
Matthew Grennan & Robert Town
NBER Working Paper, February 2015
Abstract:
This paper examines optimal regulatory testing requirements when new product quality is uncertain but market participants may learn over time. We develop a model capturing the regulator's tradeoff between consumer risk exposure and access to innovation. Using new data and exogenous variation between EU and US medical device regulatory rules, we document patterns consistent with our model and estimate its parameters. We find: without information from regulatory testing, risk shuts down the market; US policy is close to the one that maximizes a measure of welfare derived from our theoretical model and our empirical estimates; EU surplus could increase 20 percent with more pre-market testing; and “post-market surveillance” could increase surplus 24 percent.
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Vertical Separation Increases Gasoline Prices
Nathan Wilson
Economic Inquiry, April 2015, Pages 1380–1391
Abstract:
I examine the relationship between vertical separation and gasoline stations' prices and sales. The endogeneity of stations' organizational forms is addressed using both panel methods and an instrumental variables strategy. Controlling for the endogeneity of form, I find that vertical separation raises margins by 25%–45% but does not have a statistically significant impact on output. I interpret these results as suggesting that vertical separation induces local agents to exert effort in ways that increase consumers' demand.
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Can state law combat exclusionary zoning? Evidence from Massachusetts
Lynn Fisher & Nicholas Marantz
Urban Studies, May 2015, Pages 1071-1089
Abstract:
This paper empirically analyses a Massachusetts law (Chapter 40B) allowing developers of income-restricted housing to appeal local land-use decisions to a state administrative body. Based on a unique dataset, we assess whether Chapter 40B was more likely to be used by developers in municipalities that place stronger restrictions on development. We find that the use of Chapter 40B to overcome regulatory barriers depends on the type of project. For rental development, developers were more likely to use the law in municipalities that were relatively accessible to jobs and that placed relatively stringent zoning restrictions on multifamily development. The use of Chapter 40B for condominium development was more likely in larger, less well-located municipalities with relatively stringent wetlands regulations.
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Douglas Wrenn & Elena Irwin
Regional Science and Urban Economics, March 2015, Pages 25–36
Abstract:
Variation in regulatory costs over time and across different types of investment projects creates risk for developers who hold land. These so-called implicit costs, which arise as a result of regulatory delay in the land development process, are hypothesized to be potentially large, but empirical evidence of their influence on development outcomes is limited. Using a unique micro-level data set on parcel-level subdivision development that includes data on the timing of subdivision approvals, we test the effects of implicit costs that arise as a result of increased subdivision approval times on the timing and pattern of residential subdivision development. Consistent with theory, we find that these regulation-induced implicit costs reduce the probability of subdivision development on any given parcel. In addition, we find that systematic variation in regulation-induced implicit costs across space has reduced development in more heavily regulated urbanized areas intended for development and intensified development in less regulated exurban areas located farther away. The results provide a new explanation of scattered, low-density urban development as the result of optimal land development with multiple development options and heterogeneous regulatory costs.
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The Impact of a Multiple Listing Service
Lingxiao Li & Abdullah Yavas
Real Estate Economics, forthcoming
Abstract:
This article offers a theoretical investigation of the impact of a multiple listing service (MLS) and its optimal size. We study a principal-agent model of real estate brokerage with multiple agents, where the entry of new agents imposes externalities on the other agents. We solve simultaneously for the equilibrium and socially efficient levels of agents’ effort choices, the size of the MLS and the commission rate. Introducing an MLS reduces the number of agents, increases agents’ effort levels and improves total surplus. Current commission rates of 5–7% appear much higher than the competitive commission rate, leading to too many agents, too much effort by agents and a lower overall surplus. We also find that giving a greater portion of the commission to the selling agent increases effort levels, reduces the number of agents and improves total surplus.