Taking advantage

Kevin Lewis

June 19, 2017

Endorsing Help For Others That You Oppose For Yourself: Mind Perception Alters the Perceived Effectiveness of Paternalism
Juliana Schroeder, Adam Waytz & Nicholas Epley
Journal of Experimental Psychology: General, forthcoming


How people choose to help each other can be just as important as how much people help. Help can come through relatively paternalistic or agentic aid. Paternalistic aid, such as banning certain foods to encourage weight loss or donating food to alleviate poverty, restricts recipients' choices compared with agentic aid, such as providing calorie counts or donating cash. Nine experiments demonstrate that how people choose to help depends partly on their beliefs about the recipient's mental capacities. People perceive paternalistic aid to be more effective for those who seem less mentally capable (Experiments 1 and 2), and people therefore give more paternalistically when others are described as relatively incompetent (Experiment 3). Because people tend to believe that they are more mentally capable than are others, people also believe that paternalistic aid will be more effective for others than for oneself, effectively treating other adults more like children (Experiments 4a-5b). Experiencing a personal mental shortcoming - overeating on Thanksgiving - therefore increased the perceived effectiveness of paternalism for oneself, such that participants thought paternalistic antiobesity policies would be more effective when surveyed the day after Thanksgiving than the day before (Experiment 6). A final experiment demonstrates that the link between perceived effectiveness of aid and mental capacity is bidirectional: Those receiving paternalistic aid were perceived as less mentally capable than those receiving relatively agentic aid (Experiment 7). Beliefs about how best to help someone in need are affected by subtle inferences about the mind of the person in need.

Regulatory Protective Measures and Risky Behavior: Evidence from Ice Hockey
Alberto Chong & Pascual Restrepo
Journal of Public Economics, July 2017, Pages 1-11


We provide evidence supporting the Peltzman effect, by which individuals required to wear protective gear end up taking additional risks that potentially offset the intended aim of the device. We take advantage of the fact that wearing a visor - a protective device in Ice Hockey - is mandatory in European, minor, and junior leagues but not in the NHL. This allows us to estimate the impact of wearing a visor by comparing the behavior in the NHL and other leagues of players who always wear a visor with that of players who wear one only when it is required. We find that when players are forced to wear a visor their behavior becomes more risky, earning an additional 0.19 penalty in minutes per game (compared to the average 1.14 penalty in minutes in our sample). We estimate an even larger effect of visors when we focus on players who were forced to use one during the 2004 season, when the NHL canceled its regular season and players had to move to European leagues temporarily. These estimates are not driven by players' observable attributes, playing style, or other differences across leagues.

The New Closed Shop? The Economic and Structural Effects of Occupational Licensure
Beth Redbird
American Sociological Review, June 2017, Pages 600-624


During the past few decades, licensure, a state-enforced mechanism for regulating occupational entry, quickly became the most prevalent form of occupational closure. Broad consensus among researchers holds that licensure creates wage premiums by establishing economic monopolies. This article demonstrates that, contrary to established wisdom, licensure does not limit competition, nor does it increase wages. Results are based on a new occupational dataset, covering 30 years, that exploits interstate variability in licensure across the 300 census-identified occupations. I argue that licensure, instead of increasing wages, creates a set of institutional mechanisms that enhance entry into the occupation, particularly for historically disadvantaged groups, while simultaneously stagnating quality.

Coarse Grades: Informing the Public by Withholding Information
Rick Harbaugh & Eric Rasmusen
American Economic Journal: Microeconomics, forthcoming


Certifiers of quality often report only coarse grades to the public despite having measured quality more finely, e.g., "Pass" or "Certified" instead of "73 out of 100". Why? We show that coarse grades result in more information being provided to the public because the coarseness encourages those of middling quality to apply for certification. Dropping exact grading in favor of the best coarse grading scheme reduces public uncertainty because the extra participation outweighs the coarser reporting. In some circumstances, the coarsest meaningful grading scheme, pass-fail grading, results in the most information.

Welcoming Prometheus: Experimental Support for Deregulating Gene Doping
Sarah Polcz & Anna Lewis
Stanford Working Paper, May 2017


The regulation of genetic modification is generating urgent international debate. Athletic competition provides an optimal laboratory for testing policy frameworks: a non-contrived, controlled environment, allowing for isolation of variables of interest. Genetic modification for enhancement (gene doping) is banned by the World Anti-Doping Agency (WADA), and enforced at considerable cost, on the basis that biological innateness is essential to what is valuable in sports. Because athletes will likely be early adopters of genetic modification, this ban is set to disproportionately affect other domains. We present a normative analysis of current regulation and the first experimental study (n=1000) on American attitudes towards gene doping. Through a series of ten scenarios, we find respondents: support allowing athletes modified to have an advantage competing alongside those born with it (79%); support allowing modified athletes to compete alongside unmodified athletes (54%); endorse creating a separate competitive category (34%). Only 12% support a ban.

Housing Constraints and Spatial Misallocation
Chang-Tai Hsieh & Enrico Moretti
University of Chicago Working Paper, May 2017


We quantify the amount of spatial misallocation of labor across US cities and its aggregate costs. Misallocation arises because high productivity cities like New York and the San Francisco Bay Area have adopted stringent restrictions to new housing supply, effectively limiting the number of workers who have access to such high productivity. Using a spatial equilibrium model and data from 220 metropolitan areas we find that these constraints lowered aggregate US growth by more than 50% from 1964 to 2009.

Should Governments Invest More in Nudging?
Shlomo Benartzi et al.
Psychological Science, forthcoming


Governments are increasingly adopting behavioral science techniques for changing individual behavior in pursuit of policy objectives. The types of "nudge" interventions that governments are now adopting alter people's decisions without coercion or significant changes to economic incentives. We calculated ratios of impact to cost for nudge interventions and for traditional policy tools, such as tax incentives and other financial inducements, and we found that nudge interventions often compare favorably with traditional interventions. We conclude that nudging is a valuable approach that should be used more often in conjunction with traditional policies, but more calculations are needed to determine the relative effectiveness of nudging.

Regulation of Charlatans in High-Skill Professions
Jonathan Berk & Jules van Binsbergen
Stanford Working Paper, June 2017


We study a market for a skill that is in short supply and high demand, where the presence of charlatans (professionals who sell a service that they do not deliver on) is an equilibrium outcome. We use this model to evaluate the belief that reducing the number of charlatans through regulation increases consumer surplus. We show that this belief is false: both information disclosure as well as setting standards reduces consumer surplus. Although both standards and disclosure drive charlatans out of the market, consumers are worse off because of the resulting reduction in competition amongst producers. Producers, on the other hand, strictly benefit from the regulation, implying that the regulation we observe in these markets likely derives from producer interests. The model provides insights into the parameters that drive the cross-sectional variation in charlatans across professions. Professions with weak trade groups, skills in larger supply, shorter training periods and less informative signals regarding the professional's skill, are more likely to feature charlatans. We conclude that the number of charlatans in equilibrium is positively related to the value added of that profession to consumers.

The Effect of Regulation on Broadband Markets: Evaluating the Empirical Evidence in the FCC's 2015 "Open Internet" Order
Thomas Hazlett & Joshua Wright
Review of Industrial Organization, June 2017, Pages 487-507


In 2015, the Federal Communications Commission (FCC) imposed common carriage regulation - so-called Title II requirements - on previously unregulated broadband Internet service providers. The regime shift was premised on the FCC's findings that such rules had demonstrably yielded economic gains. This paper evaluates the FCC's empirical arguments and finds them uncompelling. Adjustments for inflation or general economic trends eliminate the effects cited by the FCC. Moreover, contrary to the Commission's assessment, mobile services and broadband markets have shown notable growth in response to deregulatory events that reduce Title II requirements.

The FCC's Net Neutrality Decision and Stock Prices
Robert Crandall
Review of Industrial Organization, June 2017, Pages 555-582


More than a year after a court invalidated its "net neutrality" rules on broadband Internet service providers (ISPs), the Federal Communications Commission (FCC) decided to extend public-utility (Title II) regulation on broadband services. This paper uses traditional event analysis of the movements in the values of major communications and media companies' equities at key moments in the FCC's path to this decision to estimate the financial market's assessment of the likely effects of regulation on ISPs, traditional media companies, and new digital media companies. The results are surprising: the markets penalized only three large cable companies to any extent, and even these effects appear to have been short-lived. The media companies, arguably the intended beneficiaries of the regulations, were unaffected.

The Impact of Mergers on Quality Provision: Evidence from the Airline Industry
Jeffrey Prince & Daniel Simon
Journal of Industrial Economics, forthcoming


We examine how mergers affect quality provision by analyzing five U.S. airline mergers, focusing on on-time performance (OTP). We find that airline mergers have minimal negative impacts on OTP, and likely result in long-run improvements due to efficiencies. Importantly, we show that this finding is not driven by post-merger changes in price that could affect on-time performance. Consequently, policymakers should not, as a rule, fear the negative quality effects of mergers, and may want to consider potential positive impacts on non-price dimensions, in addition to impacts on price, when assessing a proposed merger.

Market competition and market price: Evidence from United/Continental airline merger
Ying Shen
Economics of Transportation, forthcoming


Using a difference-in-differences technique, this paper examines the relationship between market competition and market price in the airline industry by presenting a case study of United and Continental Airlines merger. I find that, in nonstop markets, the price for routes formerly competitive between United and Continental Airlines increases significantly following the merger. This result is robust after controlling for route-specific factors and using different samples and specifications. The market power effect dominates efficiency gains consistently throughout the whole merger process and after the merger was finalized. I also find that the increase in price is only on directly affected routes, not those out of adjacent airports. Since both United and Continental Airlines are legacy carriers, this paper provides informative results for future antitrust decision-making.

On the Unexpected Use of Unenforceable Contract Terms: Evidence from the Residential Rental Market
Meirav Furth-Matzkin
Journal of Legal Analysis, June 2017, Pages 1-49


This article explores the prevalence of unenforceable and misleading terms in residential rental contracts. For this purpose, the study analyzes a sample of seventy residential leases from the Greater Boston Area in terms of Massachusetts Landlord and Tenant Law. The article's findings reveal that landlords often use deceptive - as well as clearly invalid - provisions in their contracts, and regularly fail to disclose the vast majority of the mandatory rights and remedies that the law bestows upon tenants in their leases. Building on psychological insights and on survey evidence, the article suggests that this drafting pattern may significantly affect tenants' decisions and behavior. In particular, when a problem or a dispute with the landlord arises, tenants are likely to perceive the terms in their lease agreements as enforceable and binding, and consequently forgo valid legal rights and claims. Therefore, the article expects that such clauses will persist as long as monitoring and enforcement mechanisms do not sufficiently deter landlords from using such terms in their contracts. In light of this evidence, the article discusses preliminary policy prescriptions.

Price Discrimination as a Violation of the Sherman Act
Ramsi Woodcock
Georgia State University Working Paper, May 2017


The advance of the information age promises to make it possible for producers to charge consumers tailored prices that extract maximum value from them, a practice known as perfect price discrimination. I show that price discrimination violates antitrust law when it is supported by conduct designed to prevent those to which a price discriminator charges low prices from undermining the scheme by reselling the product to those to whom the discriminator wishes to charge high prices. I show that such conduct is not protected by the right, recognized by antitrust, of a seller to refuse to deal with competitors, such as resellers, particularly when the remedy antitrust would impose is an order requiring nondiscrimination, instead of cessation of the exclusionary conduct.

Performance, Reliability or Time-To-Market? Innovative Product Development and the Impact of Government Regulation
Morris Cohen, Shiliang Cui & Fei Gao
University of Pennsylvania Working Paper, April 2017


Consider a firm in the technology sector that develops an innovative product. We study the tradeoffs of its design decisions on product performance (the function of the product), reliability (whether the product will perform its function) and time-to-market. A more innovative product delivers better product performance but may suffer from lower reliability because innovations are less well understood (e.g., battery explosion of the Samsung's Note 7 phone). Product reliability can be improved, however, if the firm invests more resources and/or time into product development and testing, although the cost and the timing (being late to the market) would affect the firm's profit negatively. We derive the firm's optimal product development strategy in the presence of strategic consumers in addition to the trade-offs noted above, and focus on the effect of government regulation. We find that a minimum product reliability standard imposed by the government can be leveraged by the firm as a credible commitment to increase price and profit. On the other hand, the regulation can backfire and lead to worse product reliability and cause more product failure.

Do Credit-Based Insurance Scores Proxy for Income in Predicting Auto Claim Risk?
Darcy Steeg Morris, Daniel Schwarcz & Joshua Teitelbaum
Journal of Empirical Legal Studies, June 2017, Pages 397-423


Property and casualty insurers often use credit-based insurance scores in their underwriting and rating processes. The practice is controversial - many consumer groups oppose it, and most states regulate it, in part out of concern that insurance scores proxy for policyholder income in predicting claim risk. We offer new evidence on this issue in the context of auto insurance. Prior studies on the subject suffer from the limitation that they rely solely on aggregate measures of income, such as the median income in a policyholder's census tract or zip code. We analyze a panel of households that purchased auto and home policies from a U.S. insurance company. Because we observe the households' home policies as well as their auto policies, we are able to employ two measures of income: the median income in a household's census tract, an aggregate measure, and the insured value of the household's dwelling, a policyholder-level measure. Using these measures, we find that insurance scores do not proxy for income in a standard actuarial model of auto claim risk.

Occupational licensing causes a wage premium: Evidence from a natural experiment in Colorado's funeral services industry
Brandon Pizzola & Alexander Tabarrok
International Review of Law and Economics, June 2017, Pages 50-59


We study the effect of occupational licensing on wages in the funeral services industry using a rare natural experiment. In 1983, Colorado delicensed funeral services. Using difference-in-differences, difference-in-difference-in-differences, and synthetic control specifications, we compare wages in Colorado's funeral services industry to wages in the US funeral services industry. Overall, the results from difference-in-differences, difference-in-difference-in-differences, and synthetic control specifications suggest occupational licensing causes a wage premium of 11-12 percent. We find similar results from a standard cross-sectional wage regression using data on individuals in 1990. Thus, this suggests that cross-sectional regressions of wages on occupational licensing in other industries are a good baseline estimate of a causal effect. We also find that licensing increases prices and appears to push consumers away from cremation and towards more expensive burial procedures.

Assessing the Quality of Quality Assessment: The Role of Scheduling
Maria Ibanez & Michael Toffel
Harvard Working Paper, April 2017


Many production processes are subject to inspection to ensure they meet quality, safety, and environmental standards imposed by companies and regulators. This paper explores how the scheduling of inspections risks introducing bias that erodes inspection quality by altering inspector stringency. We theorize that inspection results will be affected by (a) when the inspection occurs within an inspector's daily schedule and (b) the inspection outcomes of the inspector's prior inspected establishment. Analyzing thousands of food safety inspections, we find that inspectors cite fewer violations in successive inspections throughout their day and when inspections risk prolonging their typical workday. We also find that inspectors cite more violations after inspecting establishments that exhibited worse compliance or greater compliance deterioration. We discuss several implications for managers who schedule or rely on inspections.

Market Structure and Broadband Internet Quality
Gabor Molnar & Scott Savage
Journal of Industrial Economics, March 2017, Pages 73-104


This paper investigates the effects of the number of firms and their product-type on broadband Internet quality. We estimate a model that relates the actual speeds delivered, in census block groups to the number of wireline and wireless internet service providers (ISP's), cost and demand conditions, and correction terms for the endogeneity of market structure. Model estimates show four main findings. Wireline speeds are often higher in markets with two or more wireline ISP's than with a single wireline ISP. Excluding the correction terms from the analysis understates this effect. Increases in wireline speeds are larger in the upstream direction, and there is no relationship between wireline speeds and the number of wireless ISP's.

Clean Slate: Land-Use Changes in San Francisco after the 1906 Disaster
James Siodla
Explorations in Economic History, forthcoming


The 1906 San Francisco fire, which destroyed thousands of buildings, provided a blank canvas upon which to reshape the city. After reconstruction, and at a time of immense growth in the city, developers shifted land out of residential uses and into nonresidential uses in burned areas relative to unburned areas. They facilitated this transition by rebuilding far fewer single-family dwellings compared to other types of housing, which suggests that houses inhibited the conversion of land to nonresidential uses before the fire. Aside from these broad effects, the fire also released new economic potential in areas that had shown little indication of shifting into nonresidential land uses before 1906, thereby creating new clusters of business activity. These impacts of the fire are still evident today - in roughly the same magnitudes and places - which suggests that the economic benefits realized upon reconstruction continue to drive the city's land-use patterns.

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