support@economics.utoronto.ca (IT Support) support@economics.utoronto.ca (IT Support) Mon, 19 Nov 2018 13:22:42 EST Department of Economics, University of Toronto en-ca 720 Research U of T: Economics: Working Papers https://www.economics.utoronto.ca/index.php/index/research/workingPapers Working Papers http://www.dev.economics.utoronto.ca/templates/images/rss_deptlogo.jpg U of T: Economics: Working Papers https://www.economics.utoronto.ca/index.php/index/research/workingPapers SHARP BOUNDS AND TESTABILITY OF A ROY MODEL OF STEM MAJOR CHOICES by Ismael Mourifie, Marc Henry, Romuald Meango, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/624 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/624 Mon, 12 Nov 2018 00:00:00 EST We analyze the empirical content of the Roy model, stripped down to its essential features, namely sector specific unobserved heterogeneity and self-selection on the basis of potential outcomes. We characterize sharp bounds on the joint distribution of potential outcomes and testable implications of the Roy self-selection model under an instrumental constraint on the joint distribution of potential outcomes we call stochastically monotone instrumental variable (SMIV). We show that testing the Roy model selection is equivalent to testing stochastic monotonicity of observed outcomes relative to the instrument. We apply our sharp bounds to the derivation of a measure of departure from Roy self-selection to identify values of observable characteristics that induce the most costly misallocation of talent and sector and are therefore prime targets for intervention. Special emphasis is put on the case of binary outcomes, which has received little attention in the literature to date. For richer sets of outcomes, we emphasize the distinction between point-wise sharp bounds and functional sharp bounds, and its importance, when constructing sharp bounds on functional features, such as inequality measures. We analyze a Roy model of college major choice in Canada and Germany within this framework, and we take a new look at the under-representation of women in STEM. TESTING IDENTIFYING ASSUMPTIONS IN FUZZY REGRESSION DISCONTINUITY DESIGNS by Yoichi Arai, Yu-Chin Hsu, Toru Kitagawa, Ismael Mourifie, Yuanyuan Wan, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/623 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/623 Mon, 12 Nov 2018 00:00:00 EST We propose a new specification test for assessing the validity of fuzzy regression discontinuity designs (FRD-validity). We derive a new set of testable implications, characterized by a set of inequality restrictions on the joint distribution of observed outcomes and treatment status at the cut-off. We show that this new characterization exploits all the information in the data useful for detecting violations of FRD-validity. Our approach differs from, and complements existing approaches that test continuity of the distributions of running variables and baseline covariates at the cut-off since ours focuses on the distribution of the observed outcome and treatment status. We show that the proposed test has appealing statistical properties. It controls size in large sample uniformly over a large class of distributions, is consistent against all fixed alternatives, and has non-trivial power against some local alternatives. We apply our test to evaluate the validity of two FRD designs. The test does not reject the FRD-validity in the class size design studied by Angrist and Lavy (1999) and rejects in the insurance subsidy design for poor households in Colombia studied by Miller, Pinto, and Vera-Hernández (2013) for some outcome variables, while existing density tests suggest the opposite in each of the cases. Barriers to Entry and Regional Economic Growth in China by Loren Brandt, Gueorgui Kambourov, Kjetil Storesletten, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/622 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/622 Wed, 7 Nov 2018 00:00:00 EST The non-state manufacturing sector has been the engine of China's economic transformation. Up through the mid-1990s, the sector exhibited large regional differences; between 1995 and 2004 we observe rapid convergence in terms of productivity, wages, and new firm start-up rates. To analyze the drivers of this behavior, we construct a Hopenhayn (1992) model that incorporates location-specific capital wedges, output wedges, and a novel entry barrier. Using Chinese Industry Census data we estimate these wedges and examine their role in explaining differences in performance across prefectures and over time. Entry barriers turn out to be the salient factor explaining performance differences. We investigate the empirical covariates of these entry barriers and find that barriers are causally related to the size of the state sector. Thus, the downsizing of the state sector after 1997 may be important in explaining the regional convergence and manufacturing growth after 1995. A Gini Coefficient for Measuring Relative Distributional Inequality in a Collection of Distributions: A Note. by Gordon Anderson, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/621 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/621 Wed, 7 Nov 2018 00:00:00 EST In many situations a collection of distributions need to be compared and contrasted. International comparisons of all kinds, be it health, wealth, education, income etc. are essentially about comparing aspects of their respective distributions of those variates of interest. The convergence-polarization and equality of opportunity literatures are similarly concerned with comparing collections of distributions. An aid to such comparisons would be some measure of the extent to which those distributions are collectively different. Here a Gini-like coefficient recording the extent of relative distributional inequality of a collection of (potentially multivariate) distributions is proposed. Firms' Beliefs and Learning: Models, Identification, and Empirical Evidence by Victor Aguirregabiria, Jihye Jeon, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/620 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/620 Wed, 17 Oct 2018 00:00:00 EDT This paper reviews recent literature on structural models of oligopoly competition where firms have biased beliefs about primitives of the model (e.g. demand, costs) or about the strategic behavior of other firms in the market. We describe different structural models that have been proposed to study this phenomenon and examine the approaches used to identify firms' beliefs. We discuss empirical results in recent studies and show that accounting for firms' biased beliefs and learning can have important implications on our measures and interpretation of market efficiency. Piercing the 'Payoff Function' Veil: Tracing Beliefs and Motives by Guidon Fenig, Giovanni Gallipoli, Yoram Halevy, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/619 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/619 Thu, 20 Sep 2018 00:00:00 EDT This paper develops an experimental methodology that allows the identification of decision-making processes in interactive settings using tracking of non-choice data. This non-intrusive and indirect approach provides essential information for the characterization of beliefs. The analysis reveals significant heterogeneity, which is reduced to two broad types, differentiated by the importance of pecuniary rewards in agents' payoff function. Most subjects maximize monetary rewards by best responding to beliefs shaped by recent history. Others are able to identify profit-maximizing actions but choose to systematically deviate from them. The interaction among different types is key to understanding aggregate outcomes. Hamiltonian Sequential Monte Carlo with Application to Consumer Choice Behavior by Martin Burda, Remi Daviet, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/618 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/618 Wed, 12 Sep 2018 00:00:00 EDT Practical use of nonparametric Bayesian methods requires the availability of efficient algorithms for implementation for posterior inference. The inherently serial nature of Markov Chain Monte Carlo (MCMC) imposes limitations on its efficiency and scalability. In recent years there has been a surge of research activity devoted to developing alternative implementation methods that target parallel computing environments. Sequential Monte Carlo (SMC), also known as a particle filter, has been gaining popularity due to its desirable properties. SMC uses a genetic mutation-selection sampling approach with a set of particles representing the posterior distribution of a stochastic process. We propose to enhance the performance of SMC by utilizing Hamiltonian transition dynamics in the particle transition phase, in place of random walk used in the previous literature. We call the resulting procedure Hamiltonian Sequential Monte Carlo (HSMC). Hamiltonian transition dynamics has been shown to yield superior mixing and convergence properties relative to random walk transition dynamics in the context of MCMC procedures. The rationale behind HSMC is to translate such gains to the SMC environment. We apply both SMC and HSMC to a panel discrete choice model with a nonparametric distribution of unobserved individual heterogeneity. We contrast both methods in terms of convergence properties and show the favorable performance of HSMC. Auctions with Limited Commitment by Qingmin Liu, Konrad Mierendorff, Xianwen Shi, Weijie Zhong, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/617 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/617 Wed, 5 Sep 2018 00:00:00 EDT We study the role of limited commitment in a standard auction environment. In each period, the seller can commit to an auction with a reserve price but not to future reserve prices. We characterize the set of equilibrium profits attainable for the seller as the period length vanishes. An immediate sale by efficient auction is optimal when there are at least three buyers. For many natural distributions two buyers is enough. Otherwise, we give conditions under which the maximal profit is attained through continuously declining reserve prices. Voting on Multiple Issues: What to Put on the Ballot? by Alex Gershkov, Benny Moldovanu, Xianwen Shi, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/616 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/616 Wed, 5 Sep 2018 00:00:00 EDT We study a multi-dimensional collective decision problem under incomplete information. Agents have Euclidean preferences and vote by simple majority on each issue (dimension), yielding the coordinate-wise median. Judicious rotations of the orthogonal axes -- the issues that are voted upon -- lead to welfare improvements. If the agents' types are drawn from a distribution with independent marginals then, under weak conditions, voting on the original issues is not optimal. If the marginals are identical (but not necessarily independent), then voting first on the total sum and next on the differences is often welfare superior to voting on the original issues. We also provide various lower bounds on incentive efficiency: in particular, if agents' types are drawn from a log-concave density with I.I.D. marginals, a second-best voting mechanism attains at least 88% of the first-best efficiency. Finally, we generalize our method and some of our insights to preferences derived from distance functions based on inner products. Market Constraints, Misallocation, and Productivity in Vietnam Agriculture by Stephen Ayerst, Loren Brandt, Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/615 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/615 Wed, 22 Aug 2018 00:00:00 EDT We examine important changes in agriculture in Vietnam in the context of ongoing structural changes in the economy. We use a household-level panel dataset and a quantitative framework to document the extent and consequences of factor misallocation in agriculture during the period between 2006 and 2016. Despite rapid growth in agricultural productivity and a reallocation of factor inputs to more productive farmers, we find that misallocation across farmers remains high and increased during the period. Reallocation of factor inputs has not been strong enough to accommodate substantial changes in farm productivity over time. Our analysis also reveals important differences between the north and south regions. The Monetary and Fiscal History of Venezuela 1960-2016 by Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/614 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/614 Wed, 22 Aug 2018 00:00:00 EDT I document the salient features of monetary and fiscal outcomes for the Venezuelan economy during the 1960 to 2016 period. Using the consolidated government-budget accounting framework of Chapter 2, I assess the importance of fiscal balance, seigniorage, and growth in accounting for the evolution of debt ratios. I find that extraordinary transfers, mostly associated with unprofitable public enterprises, and not central-government primary deficits, account for the increase in financing needs in recent decades. Seigniorage has been a consistent source of financing of deficits and transfers, especially in the last decade, with increases in debt ratios being important in some periods. Are China's "Leftover Women" Really Leftover? An Investigation of Marriage Market Penalties in Modern-day China by Loren Brandt, Hongbin Li, Laura Turner, Jiaqi Zou, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/613 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/613 Sat, 18 Aug 2018 00:00:00 EDT A recent trend in Korea and Japan sees college-graduate women marrying later and at lower rates than less-educated women. In China, "leftover women" have also become a top policy concern. This paper finds however that China's higher-educated urban women attain marital outcomes more like those in the US than in the other Asian Tiger countries, marrying later, but ultimately at comparable rates to less-educated women. For 1990-2009, we quantify marriage quality using the classic Choo-Siow (2006) estimator and find large returns to marrying later but minimal direct higher education effects. Using the Choo (2015) dynamic estimator, we project future marriage rates to remain stable among the higher educated and to decline for lower-educated women. On Average Establishment Size across Sectors and Countries by Pedro Bento, Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/612 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/612 Sat, 18 Aug 2018 00:00:00 EDT We construct a new dataset for the average employment size of establishments across sectors and countries from hundreds of sources. Establishments are larger in manufacturing than in services, and in each sector they are larger in richer countries. The cross-country income elasticity of establishment size is remarkably similar across sectors, about 0.3. We discuss these facts in light of several prominent theories of development such as entry costs and misallocation. We then quantify the sectoral and aggregate impact of entry costs and misallocation in an otherwise standard two-sector model of structural transformation with endogenous firm entry and firm-level productivity. We find that observed measures of misallocation account for the entire range of establishment-size differences across sectors and countries and almost 50 percent of the difference in non-agricultural GDP per capita between rich and poor countries. Teacher Performance and Accountability Incentives by Hugh Macartney, Robert McMillan, Uros Petronijevic, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/610 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/610 Mon, 25 Jun 2018 00:00:00 EDT This paper documents a new empirical regularity: teacher value-added increases within-teacher when accountability incentives are strengthened. That finding motivates a strategy to separate value-added into incentive-varying teacher effort and incentive-invariant teacher ability, combining rich longitudinal data with exogenous incentive-policy variation from North Carolina. Our estimates indicate that teacher effort and ability both raise current and future test scores, with ability having stronger effects. These estimates feed into a framework for comparing the cost-effectiveness of alternative education policies. For illustration, we show incentive-oriented reforms can outperform policies targeting teacher ability, given their potential to influence all teachers rather than a subset. Misallocation and Aggregate Productivity across Time and Space by Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/608 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/608 Mon, 11 Jun 2018 00:00:00 EDT Productivity is at the core of the large differences in income per capita across countries. What accounts for international productivity differences? I discuss cross-country differences in the allocation of inputs across heterogeneous production units-misallocation-as a potential factor in accounting for aggregate productivity. Policies and institutions generating misallocation are prevalent in poor and developing countries and may also be responsible for differences in the selection of operating producers and technology used, contributing substantially to aggregate productivity differences across countries. Attention and Selection Effects by Sandro Ambuehl, Axel Ockenfels, Colin Stewart, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/607 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/607 Fri, 25 May 2018 00:00:00 EDT Who participates in transactions when information about the consequences must be learned? We show theoretically that decision makers for whom acquiring and processing information is more costly not only respond more strongly to changes in incentive payments for participating but also decide to participate based on worse information. With higher payments, the pool of participants consists of a larger proportion of individuals who have a worse understanding of the consequences of their decision. We conduct a behavioral experiment that confirms these predictions, both for experimental variation in the costs of information acquisition and for various measures of information costs, including school grades and cognitive ability. These findings are relevant for any transaction combining a payment for participation with uncertain yet learnable consequences. Unobserved Heterogeneity in Auctions under Restricted Stochastic Dominance by Yao Luo, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/606 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/606 Sat, 19 May 2018 00:00:00 EDT We study the identification of first-price auctions with nonseparable unobserved heterogeneity. In particular, we extend Hu, McAdams, and Shum (2013) by relaxing the first-order stochastic dominance condition. Instead, we assume restricted stochastic dominance relations among the value quantile functions and show that the same relations pass to the bid quantile functions. An ordered tree summarizes these relations and provides a total ordering. Relying on the proposed restricted stochastic dominance ordering, we extend a list of identification results in the empirical auction literature. The Varying Shadow of China's Banking System by Xiaodong Zhu, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/605 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/605 Thu, 17 May 2018 00:00:00 EDT The rapid rise of shadow banking activities in China since 2009 has attracted a great deal of attention in both academia and policy circles. Most existing studies and commentary on China’s shadow banking have treated it as a recent phenomenon that appeared after the Global Financial Crisis and China’s response to it. In this paper, I argue that shadow banking is not a new phenomenon; it has always been a part of China’s financial system since the 1980s, and arose from the need to get around various lending restrictions imposed by the central government on banks. I also emphasize that there are two types of shadow banking activities, those initiated by banks and those initiated by local governments or state-owned enterprises. I provide evidence suggesting that the shadow banking activities initiated by banks tend to be efficiency enhancing, but those initiated by local governments and state-owned enterprises are more likely to be associated with misallocation of capital. The policy implication is that the central government should implement policies and regulations that break the link between financial institutions and local governments or state-owned enterprises. Sufficient Statistics for Unobserved Heterogeneity in Structural Dynamic Logit Models by Victor Aguirregabiria, Jiaying Gu, Yao Luo, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/603 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/603 Thu, 10 May 2018 00:00:00 EDT We study the identification and estimation of structural parameters in dynamic panel data logit models where decisions are forward-looking and the joint distribution of unobserved heterogeneity and observable state variables is nonparametric, i.e., fixed-effects model. We consider models with two endogenous state variables: the lagged decision variable, and the time duration in the last choice. This class of models includes as particular cases important economic applications such as models of market entry-exit, occupational choice, machine replacement, inventory and investment decisions, or dynamic demand of differentiated products. The identification of structural parameters requires a sufficient statistic that controls for unobserved heterogeneity not only in current utility but also in the continuation value of the forward-looking decision problem. We obtain the minimal sufficient statistic and prove identification of some structural parameters using a conditional likelihood approach. We apply this estimator to a machine replacement model. Multidimensional Nation Wellbeing, More Equal yet More Polarized: An Analysis of the Progress of Human Development since 1990 by Gordon Anderson, Alessio Farcomeni, Maria Grazia Pittau, Roberto Zelli, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/602 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/602 Fri, 4 May 2018 00:00:00 EDT Mounting concern regarding inadequacies of per capita GDP or GNI as a source of nation wellbeing classi cation and comparison lead to the employment of multidimensional approaches with attendant concerns regarding their arbitrary and complex nature. Here, based upon commonalities in multidimensional behavior of nations, feasible, less arbitrary, classi cation methodologies and techniques for assessing wellbeing within and between groups are proposed. Implementation in a three dimensional study of 164 countries from 1990 to 2014 in a Human Development Index (HDI) framework reveals substantive multi-dimensional growth in a slowly evolving, relatively immobile three group world exhibiting simultaneous increases in equality and polarization with a growing Lower HD class and shrinking Middle and High HD classes. Financial Frictions and the Rule of Law by Ashantha Ranasinghe, Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/601 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/601 Tue, 17 Apr 2018 00:00:00 EDT Using cross-country micro establishment-level data we document that crime and lack of access to finance are two major obstacles to business operation in poor and developing countries. Using an otherwise standard model of production heterogeneity that integrates institutional differences in the degree of financial development and the rule of law, we quantify the effects of these institutions on aggregate outcomes and economic development. The model accounts for the patterns across establishments in access to finance and crime as obstacles to their operation. Weaker financial development and rule of law have substantial negative effects on aggregate output, reducing output per capita by 50 percent. Weak rule-of-law institutions substantially amplify the negative impact of financial frictions. While financial markets are crucial for development, an essential precondition to reap the gains from financial liberalization is that property rights are secure. Structural Change and Aggregate Employment Fluctuations in China and the US by Wen Yao, Xiaodong Zhu, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/600 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/600 Sat, 14 Apr 2018 00:00:00 EDT The correlation between the cyclical components of aggregate employment and GDP is highly positive in the US, but close to zero in China. We argue that the difference in the size of the agricultural sector is the reason for the difference in employment-output correlation. We construct a simple two-sector growth model with productivity shocks and non-homothetic preferences and show that the model can simultaneously account for the long-run structural change and short-run employment fluctuations at sector level and in the aggregate for both economies. Positively responsive collective choice rules and majority rule: a generalization of May's theorem to many alternatives by Sean Horan, Martin J. Osborne, M. Remzi Sanver, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/599 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/599 Fri, 13 Apr 2018 00:00:00 EDT A collective choice rule selects a set of alternatives for each collective choice problem. Suppose that the alternative x is in the set selected by a collective choice rule for some collective choice problem. Now suppose that x rises above another selected alternative y in some individual’s preferences. If the collective choice rule is "positively responsive", x remains selected but y is no longer selected. If the set of alternatives contains two members, an anonymous and neutral collective choice rule is positively responsive if and only if it is majority rule (May 1952). If the set of alternatives contains three or more members, a large set of collective choice rules satisfy these three conditions. We show, however, that in this case only the rule that assigns to every problem its strict Condorcet winner satisfies the three conditions plus Nash’s version of "independence of irrelevant alternatives" for the domain of problems that have strict Condorcet winners. Further, no rule satisfies the four conditions for the domain of all preference relations. Geography and Agricultural Productivity: Cross-Country Evidence from Micro Plot-Level Data by Tasso Adamopoulos, Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/598 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/598 Wed, 11 Apr 2018 00:00:00 EDT Why is agricultural productivity so low in poor countries relative to the rest of the world? Is it due to geography or constrained economic choices? We assess the quantitative role of geography and land quality for agricultural productivity differences across countries using high-resolution micro-geography data and a spatial accounting framework. Our rich spatial data provide in each cell of land covering the entire globe actual yields of cultivated crops and potential yields for 18 crops, which measure the maximum attainable output for each crop given soil quality, climate conditions, terrain topography, and a level of cultivation inputs. While there is considerable heterogeneity in land quality across space, even within narrow geographic regions, we find that low agricultural productivity in poor countries is not due to poor land endowments. If countries produced current crops in each cell according to potential yields, the rich-poor agricultural yield gap would virtually disappear, from more than 200 percent to less than 5 percent. We also find evidence of additional productivity gains attainable through the spatial reallocation of production and changes in crop choices. Learning, On-the-Job Search and Wage-Tenure Contracts by Kevin Fawcett, Shouyong Shi, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/597 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/597 Fri, 9 Mar 2018 00:00:00 EST When workers have incomplete information about their ability, they can learn about this ability by searching for jobs, both while employed and unemployed. Search outcomes yield information for updating the belief about the ability which affects optimal search decisions in the future. Firms respond to updated beliefs by altering vacancy creation and optimal wage contracts. To study equilibrium interactions between learning and search, this paper integrates learning into a search equilibrium with on-the-job search and wage-tenure contracts. The model generates results that shed light on a number of empirical facts, such as wage cuts in job-to-job transition, wage growth over tenure, true duration dependence of unemployment, and frictional wage inequality. We calibrate the model to quantify the extent to which learning and on-the-job search explain these empirical facts. Misallocation and Aggregate Productivity across Time and Space by Diego Restuccia, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/596 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/596 Thu, 8 Feb 2018 00:00:00 EST Productivity is at the core of the large differences in per-capita income across countries. What accounts for international productivity differences? I discuss the possible cross-country differences in the allocation of inputs across heterogeneous production units---misallocation---as a factor in accounting for aggregate productivity. The policies and institutions generating misallocation are prevalent in poor and developing countries, and may also be responsible for differences in the selection and technology use of operating producers, contributing substantially to per-capita income differences across countries. Violence, Psychological Stress and Educational Performance during the "War on Drugs" in Mexico by Maren M. Michaelsen, Paola Salardi, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/595 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/595 Wed, 3 Jan 2018 00:00:00 EST We provide evidence that violence in Mexico related to the "war on drugs" from 2006-2011 had a significant negative impact on educational performance that is primarily attributable to acute psychological stress among students in the immediate aftermath of local violence. Using geographically and temporally disaggregated data we demonstrate that the largest impacts of violence on educational performance result from homicides committed within the vicinity of schools during the week immediately prior to national standardized tests. This short-term impact increases with geographic proximity and levels of violence, and dramatically exceeds the effects of longer-term violence spread over a full school year. Education Reform in General Equilibrium: Evidence from California’s Class Size Reduction by Mike Gilraine, Hugh Macartney, Rob McMillan, http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/594 http://www.economics.utoronto.ca/index.php/index/research/workingPaperDetails/594 Tue, 2 Jan 2018 00:00:00 EST This paper sheds new light on general equilibrium responses to major education reforms, focusing on a sorting mechanism likely to operate whenever a reform improves public school quality significantly. It does so in the context of California’s statewide class size reduction program of the late-1990s, and makes two main contributions. First, using a transparent differencing strategy that exploits the grade-specific roll-out of the reform, we show evidence of general equilibrium sorting effects: Improvements in public school quality caused marked reductions in local private school shares, consequent changes in public school demographics, and significant increases in local house prices – the latter indicative of the reform’s full impact. Second, using a generalization of the differencing approach, we provide credible estimates of the direct and indirect impacts of the reform on a common scale. These reveal a large pure class size effect of 0.11σ (in terms of mathematics scores), and an even larger indirect effect of 0.16σ via induced changes in school demographics. Further, we show that both effects persist positively, giving rise to an overall policy impact estimated to be 0.4σ higher after four years of treatment (relative to none). The analysis draws attention, more broadly, to conditions under which the indirect sorting effects of major reforms are likely to be first order.