(IT Support) (IT Support) Thu, 16 Aug 2018 00:14:18 EDT Department of Economics, University of Toronto en-ca 720 Research U of T: Economics: Working Papers Working Papers U of T: Economics: Working Papers Teacher Performance and Accountability Incentives by Hugh Macartney, Robert McMillan, Uros Petronijevic, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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, 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.