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Economics

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A MiddLab Project

The Price Revolution

The origins of a general trend in Europe of rising prices between 1520 and 1640, labeled the Price Revolution, have been deeply contested by economic historians since the 1920s. The debate is divided between two major camps, stressing the importance of monetary and ‘real’ factors respectively. My paper provides a general overview of the literature since the 1920s. I identify the influence of parallel developments in economic thought on the debate. Further, using the same qualitative primary sources employed by previous works on the topic I construct a novel explanation for these rising prices, avoiding constraints presented by flawed/restricted data.

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Anil Menon

Professor Paul Monod

 

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Brazil’s Bolsa Família program is a conditional cash transfer scheme that has been hailed for dramatically reducing poverty and inequality since its launch in 2003. Under the scheme, qualifying families receive a monthly stipend on the condition that they fulfill certain requirements in health and education. Although the Bolsa Família is a federal program, each of Brazil’s 5, 564 municipalities play an important role in its local implementation. Using a combination of regression analysis and four case studies from the state of Minas Gerais, Brazil, this study evaluates the impact of local government capacity on beneficiaries’ health and education. I find that municipalities with higher administrative capacity – more developed collaboration across sectors and more competent staff – are likely to be more effective in implementing the BFP, as observed by higher monitoring rates. As a result, the percentage of beneficiaries who comply with the program’s health and education requirements is likely to be higher in these municipalities. The paper concludes that local governments are critical actors in the success of this program and calls for policymakers to build administrative capacity through a combination of incentives and regulations.

 

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Researcher: Pui Shen Yoong

Advisors: Professor Jessica Teets (Political Science),

Professor John Maluccio (Economics)

 

 

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Bolsa Familia (in Portuguese)

The Nuts and Bolts of Brazil’s Bolsa Familia Program: Implementing Conditional Cash Transfers in a Decentralized Context 

Avoiding Governors: The Success of Bolsa Familia

Buying Out the Poor? Bolsa Familia & the 2010 Elections in Brazil

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From the movie, Inside Job, one gets the sense that economists are ethically challenged because they take payments for writing papers that say what the funders of their research want them to say. This paper takes issue with that and suggests that the more serious ethical problem of economics has little to do with the funding of economic research. It has to do with lack of humility. It argues that economists have a tendency to convey more scientific certainty in their policy positions than the theory and evidence objectively would allow. Too many economists are willing to make seemingly definitive scientific statements about policy based on models, that they know, or should know, are highly imperfect. To deal with that problem, this paper suggests that applied economists should see themselves as engineers, not as applied scientists. It argues that doing so is important because engineering has a broader and more humble methodology than does science. Because applied economists are essentially engineers, the paper argues that an Economists Code of Ethics can be closely based on the National Society of Professional Engineers Code of Ethics.

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When heterodox economists talk of pluralism they generally are talking about pluralism within the economics professionthey are asking: how can we have a more pluralistic economics profession? This paper argues that another, perhaps more useful, way to think of pluralism and economics is from the perspective of all the social sciences. When looked in reference to the social science profession rather than in reference to the economics profession, the amount of pluralism increases significantly, since different social sciences follow quite different methodologies. But looking at pluralism from the social science perspective reveals a different type of pluralism problem in social science. While there may be plenty of pluralism within social science as a whole, there is a serious question about whether it is appropriately distributed. This paper argues that heterodox economists agenda should be a greater blending of all the social science departments. It summarizes proposals to do so on both the undergraduate level and graduate level, and explains why supporting variations of these proposals would be a strategy that would further the objectives of most heterodox economists more so than would their current strategy of pushing for more pluralism in economics.

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Using data from a study that randomly assigns offers of HIV testing in two urban centers in East Africa, I examine the effects of testing, taking into account people's beliefs of their HIV status prior to testing. I objectively measure risky sexual behavior using sexually transmitted infections (STIs) contracted during the 6 month study as proxies. Individuals surprised by an HIV-positive test are over nine times more likely to contract an STI indicating an increase in risky sexual behavior. Individuals surprised by an HIV-negative test are 84% less likely to contract an STI indicating a decrease in risky sexual behavior. Using these estimates, I simulate the effects of testing on new HIV infections. I find the overall number of HIV infections increases by 30% when people are tested compared to when they are unaware of their status - an unintended consequence of testing.

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Despite unbelievable economic growth rates averaging between 8-10% in 2009 and bright economic prospects, China and India have become two of the largest contributors to world poverty. However, China has been able to alleviate more poverty than India. I believe that there are lessons to be learnt from China’s success. Thus, I will compare both nations and examine the impact of provincial politics (decentralization) on poverty alleviation to determine why China has been able to alleviate more poverty than India. Since China and India are populous, large countries, there is a strong presence of state-level political institutions, which guide policy implementation. I will, thus, examine the cases of Sichuan and Anhui in China and Kerala andBihar in India. The contrast between the success of Sichuan and Kerala and failures of Anhui and Bihar will provide insight on the impact of decentralization and effectiveness of policy implementation towards poverty alleviation.

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Ruchi Singh
Researcher

Jessica Teets
Sponsor & Assistant Professor of Political Science

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A MiddLab Project

Millborne Farms: A Case Study of Modern Dairy Farming in Vermont

Learn more about Economics at Middlebury College.

As times and consumer preferences change, how is a traditional Vermont dairy farmer to make a decent living? Is it worth their time to simply continue producing traditional products (milk, yogurt, cheese, butter) in a heavily saturated market, or should they branch out into kefirs, smoothies, or probiotic shots? Should they stay local and maintain the integrity of the farm or ship products around the country in order to avoid financial ruin? Gert and Arda Schute of Millborne Farms in Shoreham, VT deal with these concerns on a daily basis. This presentation will be the culmination of my personal research on profitability and dairy farming. It will also critically analyze the business issues currently facing Gert and Arda and offer solutions that will maintain the vitality and increase the profitability of their farm.

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Anne Bogert
Researcher

Jessica Holmes
Sponsor & Associate Professor of Economics

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In a January 2011 Winter Term Class, “Twenty-First Century Global Challenges,”  21 Middlebury students studied great challenges of our time – including wide-scale poverty, climate change, and the struggle for human rights. They then analyzed how social entrepreneurs – individuals and groups who are developing new ways to attack systematic problems – are taking on these challenges.  For example, Nina Cameron ’12 studied how the Global Network is trying to reduce the prevalence of neglected tropical diseases; Erin Kelly ’13 studied how the University of the Peopleis providing tuition-free higher-education throughout the developing world.  The students also spend much of the course developing a vision for a new center for social entrepreneurship based at Middlebury College.  On this MiddLab, we report the ongoing results of this work.

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Jonathan Isham, Jr.
Professor of Economics

Wahid Ahmed
Catherine Brown
Nina Cameron
Brian Clow
Thomas Crocker
Matthew Engel
Stuart Fram
Allison Grant
Mark Hannah
Paul Hildebrand
Aaron Kelly
Claire McIlvennie
Olivia Noble
Bradley Osborn
Devin Perkins
Hilary Platt
Jeronimo Riefkohl
Martin Sweeney
Rhidaya Trivedi
Kenneth Williams
Nicole Williams

The Ripple Effect in India

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Robert E. Prasch is Professor of Economics at Middlebury College where he teaches Monetary Theory and Policy,
Macroeconomics, American Economic History, and the History of Economic Thought.  He is the author of over
90 academic articles, book chapters, and book reviews in addition to Op-Eds and interviews in several outlets
including The Burlington Free Press, The Huffington Post, VPR, and WBAI (New York City).

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Robert Prasch

Professor of Economics

Yuan Lim

Student Organizer

Veronica Muoio

Student Organizer

Dan Murphy

Student Organizer

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Ingrid Pixley is a long-time Vermont resident, working as a Property Manager for Addison County Community Trust,  a local non-profit organization that provides affordable housing to the low- and middle-income people of Addison County. Doug Sinclair’s the co-founder of the Middlebury Community Care Coalition (MCCC), which since 2004 has since grown to 600 members who contribute over 18,000 volunteer hours per year supporting the housing and food needs of families and individuals who need a helping hand.

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Doug Sinclair

Co-Founder of Middlebury Community Care Coalition

Ingrid Pixley

Property Manager for Addison County Community Trust

Yuan Lim

Student Organizer

Veronica Muoio

Student Organizer

Dan Murphy

Student Organizer

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A MiddLab Project

Enterprise Land Use in the Russian Federation

Learn more about Russian and Economics at Middlebury College.

What is the state of urban industrial land use in Russia today? Why did the 2001 Land Code reforms fail, and what is more, why does successful reform have yet to be instated? What are the economic effects of ineffective land reform in Russia, and are there legal or other effects, as well? Most importantly, which amendments need to be considered in order to create effective Russian land policy?

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Casey Mahoney & Jessica Stevens
Researchers

William Pyle
Associate Professor of Economics and Project Sponsor


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View the full poster.

More resources, with descriptions are collected on our project blog.

Chinese household registration policy classifies each citizen as either an urban or rural dweller. As China’s coastal urban economies began to rapidly develop in the late 19070s and 1980s, many rural dwellers migrated to cities in search of higher wages. These migrant laborers were not able to receive the services provided to urban dwellers by local city governments. Preliminary results show that employers are more likely to offer these types of increased compensation when they are located in more mature job markets where the supply of jobs exceeds demand.

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Doug Shultz
Researcher

Anne Knowles
Associate Professor of Geography and Advisor

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October 21st- 29th will be the Fall Student Symposium, “American Poverty in Context.” We aim to build awareness and encourage discussion of poverty-related issues on the local and national level. The symposium will tackle issues such as hunger and local foods, social determinants of health, labor legislation, community action, and homelessness. In addition to inspiring intellectual discourse on poverty, we hope to motivate more students to participate in volunteer activities and to consider pursuing careers in non-profits.

Please click on the posters below in the downloads section for more detailed information about each event!

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Joel Berg

Executive Director of the New York Coalition Against Hunger

Harlan Beckley

Director of the Shepherd Program for the Interdisciplinary Study of Poverty and Human Capability at Washington and Lee University

Robert Prasch

Middlebury College Professor of Economics

Samantha Marder

Project Manager, Project Health  Providence

Hannah Nichols

Talent and Technology Coordinator, Project Health National Offices

Hal Colston

Founder and Director of Good News Garage and Neighborskeepers

Doug Sinclair

Co-Founder of Middlebury Community Care Coalition

Ingrid Pixley

Property Manager for Addison County Community Trust

Jeanne Montross

Executive Director of HOPE (Helping Overcome Poverty’s Effects)

Yuan Lim

Student Organizer

Veronica Muoio

Student Organizer

Dan Murphy

Student Organizer

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Social science disciplines see themselves as distinct, with their own territory, their own methods, and their own framework. Within such an environment multidisciplinary work involves enormous conflict and translation problems. This situation is no longer acceptable. Dealing with modern problems requires researchers with broad transdisciplinary knowledge and with the ability to communicate with other social science researchers in a way that will allow them to arrive at transdisciplinary recommendations. Complex issues such as healthcare, income distributions, crime prevention, industrial policy, agriculture require not only insights from multiple social disciplines, but the integration of those insights. This document offers a proposal for training social science researchers. Specifically, it proposes reintegrating the social sciences by modifying the current system of trainingwhich provides completely separate training for researchers in each sub-disciplineto incorporate a common first year core"of training for all social science researchers. If implemented, the proposal will reduce the babble that currently characterizes much of the interdisciplinary conversations.

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David Colander

Roland Kupers

Thomas Lux

Casey Rothschild

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The paper seeks to recast the goal of nudge policy from a goal of achieving a specific result determined by government or by behavioral economists to a goal of giving individuals as much power as is practical to decide the choice architecture they face. We call a nudge with such a giving individuals power over choice mechanisms goal a non-paternalistic nudge policy. The goal of non-paternalistic nudge policy is not to achieve a better result as seen by government or by behavioral economists. The goal of non-paternalistic nudge policy is to achieve a better result as seen by the agents being nudged as revealed through their choices of choice architectures. We argue that non-paternalistic nudge policy fits much better with the values inherent in Classical liberalism than does libertarian paternalistic nudge policy.

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David Colander

Andrew Qi Lin Chong

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We investigate the impact of civil war on high skilled emigration rates to the OECD over the period 1985-2000. Controlling for economic and institutional characteristics of source countries, we find that civil war increases high skilled emigration by about 5 percent on the average. However, the nature of conflict matters: While brain drain from countries with ethnic conflict is about 6-8 percent greater on average than it is from countries without conflict, brain drain from countries with nonethnic conflict is less, and statistically insignificant. Duration also matters: Each additional year of ethnic conflict worsens the brain drain by between 0.4 and 1 percent, whereas the effect of an additional year of nonethnic conflict is small and insignificant.

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Aniruddha Mitra

James T. Bang

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A MiddLab Project

The Effectiveness of Charity Auction Mechanisms

Learn more about Economics at Middlebury College.

Nonprofit organizations depend on charitable donations to provide cash revenue. Charities frequently employ auctions and raffles to grow revenue and transform “in kind” donations into cash. Despite this, neither the theory nor the practice of efficient fundraising – and, in particular, charity auctions – has received sufficient attention from economists. In the previous stage of our research, we studied the revenue potential of fifteen different charity auction mechanisms in the experimental lab. While some mechanisms had already received attention from theorists and empiricists, we also explored the potential of new formats, such as the “bucket” and “hybrid” auctions. We are now testing the most lucrative mechanisms from the lab in the field at national non-profit conventions to identify the fundraising mechanisms that generate the most revenue for charitable organizations.

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Max Benjamin
Michael DeLucia
Maria Perille
Researchers

Jeff Carpenter
Associate Professor of Economics

Jessica Holmes
Associate Professor of Economics

Peter Matthews
James B. Jermain Professor of Political Economy

Average Revenue (in $) of Auction Mechanisms
(click to view full chart)

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Paul Sommers

Alyssa A. Chong

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Paul Sommers

Mark B. Whelan

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Paul Sommers

Matthew H. LoRusso

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Paul Sommers

Alexandra A. Fox

Tucker P. Donahoe

John M. Yanchek

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A MiddLab Project

The Financial Burden of Terminal Illnesses and the Support System

Learn more about Economics and History at Middlebury College.

The onset of terminal illness within low and middle income families often has devastating effects. This effect is substantially magnified if the person who becomes terminally ill is the primary bread winner of the family. In the Indian setting the onset of terminal illness causes three primary changes within a family’s daily functioning. Firstly, the individual and to an extent the family has to face social stigma that is associated with certain terminal illnesses like HIV/AIDS and Cancer. Secondly, if the primary bread winner is affected then the family looses a significant revenue source. Thirdly, the terminal illness results in large increases in medical expenses. However, regardless of the intensity of the financial crisis these families do function (however impaired) from a week to the next. My research explores the support structure that allows for this sustenance, its nature and composition, and attempts to utilize the findings to stimulate policy changes within the local and state systems.

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Anil Menon
Researcher

Peter Matthews
Sponsor and  James B. Jermain Professor of Political Economy

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A MiddLab Project

Racer Swimsuits Fit to a T

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Paul Sommers

Jay Li

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A MiddLab Project

Chinese Interethnic Marriage: Passion or Rational Choice?

Learn more about Economics and Chinese at Middlebury College.

The One Child Policy (OCP) has had an enormous impact on Chinese society over the past thirty years and has further exacerbated the gender imbalance of the nation. The ensuing ?”marriage market shortages” in China have had important implications for marriageable-aged Chinese men and women. The scarcity of Han women in Chinese marriage markets and the concessions of the OCP with regard to ethnic minorities may increase the propensity of female Han to marry out when they see gains to marriage such as being able to have more than one child. Given this and other potential gains to intermarriage, under certain circumstances, interethnic marriage may be a rational choice for females in Chinese society.

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Rachel Butera
Researcher

Thiery Warin
Thesis Advisor& Associate Professor of Economics

Hang Du
Second Reader & Assistant Professor of Chinese

marriate_rates
marriate_rates2

(click to enlarge)

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We investigate the impact of home country institutions on the skill level of immigrants to the United States over 1988-1998. Specifically, we explore the hypothesis that institutions are multidimensional and that the different dimensions have conflicting impacts on the migration of skilled labor. Using an exploratory factor analysis on fifteen institutional variables, we identify the following dimensions of institutional character: credibility; transparency; democracy; and the security of civil society. We find that credibility and transparency increase the magnitude of brain drain; security reduces it; and democracy has no significant impact.

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Aniruddha Mitra

James T. Bang

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This paper contributes to the emerging literature on gender differences in the causes and

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Aniruddha Mitra

James T. Bang

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Paul Sommers

Alyssa A. Chong

Monica B. Ralston

Andrew C. Waxman

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A MiddLab Project

MONOPOLY POWER

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The 2004-2005 National Hockey League (NHL) lockout has had a twofold effect on mens Division I college hockey programs. First, NHL entry-level contracts are now much less expensive than they were before the lockout. As a consequence, NHL teams are now more inclined to induce Division I hockey players to forego years of remaining eligibility. Second, the age of unrestricted free agency has dropped, encouraging rookies to begin their NHL career at a younger age. The authors show that there has been not only a surge in the number of Division I college players who have signed NHL contracts in the two years after 2004-2005 lockout than in the two years before the lockout, but since the lockout disproportionately more NHL bound college players have left college in their junior year.

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Paul Sommers

Justin R. Gaines

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Paul Sommers

Douglas A. Raeder

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Paul Sommers

Christopher J. Teves

Joseph T. Burchenal

Daniel M. Haluska

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Paul Sommers

Kelsey F. Chisholm

Alyson M. Downing

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Paul Sommers

David U. Cha

Daniel P. Glatt

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Paul Sommers

Peter R. Smith

Russell K. Banker

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Paul Sommers

Elizabeth T. Knopman

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A MiddLab Project

Derby Drop-Offs

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Paul Sommers

Nicholas B. Angstman

Andrea L. Buono

Trevor B. Dodds

Andrew K. Somberg

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We examine motivations for prosocial behavior using new data on volunteer firefighters that contain a dictator-game based measure of altruism, surveyed measures of other behavioral factors, and call records that provide an objective measure of time spent volunteering. Controlling for a variety of other explanations, we find that the decision to volunteer is positively correlated with altruism as well as with concern for social reputation or image. Moreover, by utilizing variation in the presence and level of small stipends paid to the firefighters, we find that the positive effect of monetary incentives declines with image concerns, supporting a prediction that extrinsic incentives can crowd out image motivation for prosocial behavior.

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Paul Sommers

Douglas A. Raeder

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Paul Sommers

Dylan J. Fitzpatrick

Erin A. Toner

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Paul Sommers

Arthur E. Mittnacht

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This article argues that the neoclassical era in economics has ended and is being replaced by a new era. What best characterizes the new era is its acceptance that the economy is complex, and thus that it might be called the complexity era. The complexity era has not arrived through a revolution. Instead, it has evolved out of the many strains of neoclassical work, along with work done by less orthodox mainstream and heterodox economists. It is only in its beginning stages. The article discusses the work that is forming the foundation of the complexity era, and how that work will likely change the way in which we understand economic phenomena and the economics profession.

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David Colander

Richard P.F. Holt

J. Barkley Rosser

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Why are some lobby groups less benign in their external effects than others? Olson (1982) proposed that those that are less encompassing in the sense that their constituents collectively represent a narrower range of sectors are more apt to seek the types of subsidies, tariffs, tax loopholes and competition-limiting regulations that impose costs on the rest of society. But his hypothesis has to our knowledge not been directly tested. Part of the reason, we suspect, relates to the absence of adequate data. By drawing on a unique pair of surveys, targeted to both business associations (lobby groups) and their constituents, we provide what we believe to be the first direct test of Olsons hypothesis. Managers from a diverse array of Russian industrial firms and business associations were asked similar questions regarding their attitudes to policies that explicitly benefit well-defined sectoral or regional interests and, implicitly, impose external costs. The pattern of responses is striking. Managers of both the less encompassing associations and the firms that belong to such groups are much more apt to view such policies in a favorable light. More encompassing associations and the members of such organizations are relatively more skeptical of narrowly-targeted government interventions. The results, we believe, provide strong support for Olsons hypothesis.

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William Pyle

Laura Solanko

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This study investigates the benefits to human health that would occur in the United States (U.S.) due to reductions in local air pollutant emissions stemming from a federal policy to reduce greenhouse gas emissions (GHG). In order to measure the impacts of reduced emissions of local pollutants, this study considers a representative U.S. climate policy. Specifically, the climate policy modeled in this analysis is the Warner-Lieberman bill (S.2191) of 2008 and the paper considers the impacts of reduced emissions in the transport and electric power sectors. This analysis provides strong evidence that climate change policy in the U.S. will generate significant returns to society in excess of the benefits due to climate stabilization. The total health-related co-benefits associated with a representative climate policy over the years 2006 to 2030 range between $90 and $725 billion in present value terms depending on modeling assumptions. The majority of avoided damages are due to reduced emissions of SO2 from coal-fired power plants. Among the most important assumptions is whether remaining coal-fired generation capacity is permitted to backslide up to the Clean Air Interstate Rule (CAIR) cap on emissions. This analysis models two scenarios specifically related to this issue. Co-benefits increase from $90 billion, when the CAIR cap is met, to $256 billion if SO2 emissions are not permitted to exceed current emission rates. On a per ton basis, the co-benefit per ton of GHG emissions is projected to average between $2 and $14 ($2006). The per ton marginal abatement cost for the representative climate policy is estimated at $9 ($2006).

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Nicholas Muller

Britt Groosman

Erin ONeill

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We use a fixed effects panel data model to investigate the impact of institutions of governance on the educational attainment of immigrants to the United States over the period 1988 2000. Distinguishing between the quality and stability of political institutions in the countries of origin, we find that the two characteristics of institutional structure have conflicting impacts on the nature of brain drain. Immigrants from countries with a higher quality of political institutions tend to be better educated, on the average, than immigrants from countries with institutions of lower quality. However, immigrants from countries with greater political instability tend to be better educated than immigrants from countries with more stable governments.

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Aniruddha Mitra

James T. Bang

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Previous studies report that adult height has significant associations with wages even controlling for schooling. But schooling and height are imperfect measures of adult cognitive skills (brains) and strength (brawn); further they are not exogenous. Analysis of rich Guatemalan longitudinal data over 35 years finds that proximate determinantsadult reading comprehension skills and fat-free body masshave significantly positive associations with wages, but only brains, and not brawn, is significant when both human capital measures are treated as endogenous. Even in a poor developing economy in which strength plausibly has rewards, labor market returns are increased by brains, not brawn.

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John Maluccio

Jere R. Behrman

John Hoddinott

Reynaldo Martorell

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This paper considers how economists failed society by not preparing society to expect and plan for a possible financial crisis. It argues that the story told by Paul Krugman in his recent NYT Magazine article was too black and white in that it made it look as if Classical economists who were blinded by the beauty of mathematics, are to blame and that Keynesian economics is the path of the future. This paper takes issue with both those claims. It reviews the evolution of economic thinking from Classical to modern times, and shows the Keynesian/Classical terminology misses many of the nuances of policy discussions. It suggests that the solution for the macroeconomics profession isnt the solution that Krugman suggests it isto re-embrace Keynes. The solution is to re-embrace the broader Classical economic tradition, and to recognize that Keynes was an important part of that Classical tradition.

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Higher retail prices are frequently cited as a cost of living in poor, minority neighborhoods. However, the empirical evidence, which primarilycomes from the grocery gap literature on food prices, has been mixed. This study uses new data on retail gasoline prices in three major U.S.cities to provide evidence on the relationship between neighborhood characteristics and consumer prices. We find that gasoline prices do not varygreatly with neighborhood racial composition, but that prices are higher in poor neighborhoods. For a 10 percentage point increase in the percentof families with incomes below the poverty line relative to families with incomes between 1 and 2 times the poverty line, retail gasoline prices are estimated to increase by an average of 0.70 percent. This differential is reduced to 0.22 percent once we add controls for costs, competition, and demand. Finally, we provide evidence that the remaining, small, price differential for poor neighborhoods is likely the result of traditional price discrimination in response to less competition and/or more inelastic demand in these locations.

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Caitlin Knowles Myers

Grace Close

Laurice Fox

John William Meyer

Madeline Niemi

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This study uses Monte Carlo methods to characterize the uncertainty associated with per-ton damage estimates for 100 power plants in the contiguous United States (U.S.) This analysis focuses on damage estimates produced by an Integrated Assessment Model (IAM) for emissions of two local air pollutants: sulfur dioxide (SO2) and .ne particulate matter (PM2:5). For each power plant, the Monte Carlo procedure yields an empirical distribution for the damage per ton of SO2 and PM2:5:For a power plant in New York, one ton of SO2 produces $5,160 in damages with a 90% percentile interval between $1,000 and $14,090. A ton of PM2:5 emitted from the same facility causes $17,790 worth of damages with a 90% percentile interval of $3,780 and $47,930. Results for the sample of 100 fossil-fuel .red power plants shows a strong spatial pattern in the marginal damage distributions. The degree of variability increases by plant location from east to west. This result highlights the importance of capturing uncertainty in air quality modeling in the empirical marginal damage distributions. Further, by isolating uncertainty at each module in the IAM we .nd that uncertainty associated with the dose-response parameter, which captures the in.uence of exposure to PM2:5 on adult mortality rates, the mortality valuation parameter, and the air quality model exert the greatest in.uence on cumulative uncertainty. The paper also demonstrates how the marginal damage distributions may be used to guide regulators in the design of more efficient market-based air pollution policy in the U.S.

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Nicholas Muller

Yan N. Oak

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This The goal of nudge policy is generally presented as assisting people in finding their true preferences. Supporters argue that nudge policies meet a libertarian paternalism criterion. This claim has provoked complaints that nudge policies are unacceptably paternalistic. This paper suggests that by changing the explicit goal of nudge policy to a goal of making the choice of choice mechanism an explicit decision variable of the subgroup being affected by the nudge one can have a non-paternalistic nudge policy that better fits with the values inherent in Classical liberalism. The goal of non-paternalistic nudge policy is not to achieve a better result as seen by government or by behavioral economists. The goal of non-paternalistic nudge policy is to achieve a better result as seen by the agents being nudged as revealed through their choices of choice mechanisms. Examples are given of how nonpaternalistic nudge policy will and will not differ from paternalistic nudge policy.

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David Colander

Andrew Qi Lin Chong

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This paper argues that the ideas that win out in economics are not necessarily those that a representative researcher would choose, but are rather the emergent result of the competition of ideas in which system replicator dynamics dominate. This means that those ideas that fit the analytic technology available to researchers at the time dominate, while better ideas that do not offer advancement to researchers lose out. This paper spells out that view. It differentiates a consumers understanding of theory from a producers understanding of theory, and argues that a consumers understanding of theory is often better suited to applied policy than is a producers understanding of theory. Because the replicator dynamics of the economics profession does not reward people for acquiring a consumers understanding of theory, that understanding is often neglected. Heterodox economists often have a better consumers understanding of theory than do mainstream economists but because they do not prepare students to be successful in economic institutional environment, their views do not receive the hearing they should in the profession. The paper offers a number of suggestions for heterodox European macro economists for competing and shaping the economic institutional environment.

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Modern mainstream economics is a plurocracy in which there is no orthodoxy of ideas, only an orthodoxy of method. Given the training it provides its students, mainstream economics natural domain is science. With the mainstreams acceptance of complexity views of the economy, Austrian economists views can now get a hearing within the mainstream. Thus, within the science of economics, there is no need for a separate Austrian economics. However, there is a need for Austrian economics in political economy, that branch of economics that takes the insights of science and relates them to policy. The paper urges Austrian economics to embrace political economy as its domain, and to position its work as within political economy.

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This paper argues that the DSGE approach to macroeconometrics is the dominant approach because it meets the institutional needs of the replicator dynamics of the profession, not because it is necessarily the best way to do macroeconometrics. It further argues that this DSGE-theory first approach is inconsistent with the historical approach that economists have advocated in the past and that the alternative European CVAR approach is much more consistent with economists historically used methodology, correctly understood. However, because the European CVAR approach requires explicit researcher judgment, it does not do well in the replicator dynamics of the profession. The paper concludes with the suggestion that there should be an increase in dialog between the two approaches.

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We combine administrative and survey data to examine the effect of a conditional cash transfer program on grade progression in Nicaragua from 19992003, putting the spotlight on initial supply side conditions and the extent to which they conditioned program effectiveness. Our principal findings are that the program had a substantial effect on grade progression and that these increased over time, even after the original intervention group stopped receiving demand-side transfers. Half of the estimated program effect on progression is accounted for by a reduction in the dropout and repetition rates of beneficiary children who were already in school when the program began. Supply side conditions were important and several of them led to heterogeneous program impacts. The program was more effective in areas with autonomous schools, suggesting flexibility at the school level better enabled schools to respond to changing demand conditions. At the same time, it was also more effective in intervention areas with poor initial supply conditions as measured by indicators of grade availability and distance to school. These were the areas with lower enrollments and grade progression before the program, and thus more room for improvement. With the analysis of child schooling in hand, we then turn to assess the effect of the program on school supply conditions. It is precisely in the intervention areas with poor initial school supply conditions, that the program was relatively more effective in improving school supply as measured by grade availability, number of sessions per day and number of teachers. The results suggest that initial school supply conditions do not represent insurmountable obstacles for the implementation of a conditional cash transfer program, as long as these constraints are identified at the planning stage and mechanisms put in place to deal with them during the execution stage. Our results also underscore the importance of carefully considering the integrated (demand and supply) nature of conditional-cash-transfer programs, something often overlooked in the design of these interventions and, particularly, in the impact evaluation literature.

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Alexis Murphy

Ferdinando Regalia

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This paper argues that Robbins famous definition of economics was of economic science which he saw as only a narrow branch of the field of economics. The field of economics included both economic sciencewhich his definition dealt with, and political economy--which his essay did not deal with. His prescriptive message was that policy belonged in the political economy branch of economics. He believed that while the science of economics should avoid value judgments as much as possible, the political economy (applied policy) branch of economics should, and must, include value judgments. That prescriptive message has been lost.

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This paper reports the results of a survey of median economics graduate programs and compares it with the results of a survey of top economics graduate programs done by Colander. Overall it finds that while there are some differences in the programs, there are large areas of similarity. Some of the particular finding are that there are more US respondents in median programs than in top programs, median students have more interest in econometrics, history of thought and economic literature than do students at top programs, although after the fifth year, their interest in any field drops significantly. It also finds that students at top schools are much more likely to be involved in writing scholarly papers, and that students at top schools give far less emphasis to excellence in mathematics as a path to the fast track than do students at median schools.

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David Colander

Tiziana Dominguez

Gail Hoyt

KimMarie McGoldrick

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We explore how the introduction of explicit deposit insurance affects deposit flows into and out of banks of varying risk levels. Using evidence from a natural experiment in Russia, we employ a difference-in-difference estimator to isolate the change in the deposit flows of the newly insured group (i.e., households) relative to the uninsured control group (i.e., firms), thus improving upon prior studies that have sought to identify the effect of deposit insurance on market discipline. We find that the relative sensitivity of household deposits to bank capitalization diminished markedly after the introduction of an insurance program covering their deposits but not those of firms. The finding, we demonstrate, is not an artifact of the two groups responding differently to a banking crisis that occurred in Russia at roughly the same time.

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William Pyle

Alexei Karas

Koen Schoors

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We propose a new categorization of international organizations to account for the fact that within multilateral international organizations, states may engage in enticement strategies in order to advance their policy preferences. Thus, to the traditional multilateral/bilateral categorizations we substitute a hard multilateral/soft multilateral and reciprocal bilateral/bilateral taxonomy. For illustration purposes, we use the well-known case study of Japan and the International Whaling Commission (IWC). Using a modified gravity model to analyze Japans Official Development Assistance from 1973-2005, we find that Japan has a very traditional and generous assistance policy broadly defined, but when it comes to the IWC, some of the general principles driving the aid policy are put aside to possibly influence vote outcomes. Given this finding, we conclude that the IWC is best categorized as a soft multilateral organization.

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Thierry Warin

Kenneth S. Donahue

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The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in economics. We trace the deeper roots of this failure to the professions focus on models that, by design, disregard key elements driving outcomes in real-world markets. The economics profession has failed in communicating the limitations, weaknesses, and even dangers of its preferred models to the public. This state of affairs makes clear the need for a major reorientation of focus in the research economists undertake, as well as for the establishment of an ethical code that would ask economists to understand and communicate the limitations and potential misuses of their models.

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David Colander

Hans Fllmer

Armin Haas

Michael Goldberg

Katarina Juselius

Alan Kirman

Thomas Lux

Brigitte Sloth

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A MiddLab Project

In Praise of Modern Economics

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We compare non-experimental impact estimates based on matching methods with those from a randomized evaluation to determine whether the non-experimental approach can match the so-called gold standard. The social experiment we use was carried out to evaluate a geographically targeted conditional cash transfer antipoverty program in Nicaragua. The outcomes we assess include several components of household expenditure and a variety of childrens health outcomes including breast feeding, vaccinations, and morbidity. We find that using each of the following improves performance of matching for these outcomes: 1) geographically proximate comparison samples; 2) stringent common support requirements; and 3) both geographic- and household-level matching variables. Even for a geographically targeted program, in which the selection is at the geographic-, rather than at the individual- or household-level, and in which it is not possible to find comparison individuals or households in the program locales, matching can perform reasonably well. The results also suggest that the techniques may be more promising for evaluating the more easily measured individual-level binary outcomes, than for outcomes that are more difficult to measure, such as expenditure.

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John Maluccio

Sudhanshu Handa

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This paper provides insight into the skill development activities of graduate students at U.S. institutions providing graduate education in economics. It documents the extent of student participation in and preparation for research and teaching activities while in graduate school. Over fifty percent of students are involved in teaching related activities including grading, leading recitation sections, and teaching their own sections with and without guidance. Most were generally satisfied with their preparation. About fifty-five percent of graduate students attend economic conferences, twenty percent present papers, twenty-two percent submit papers and ten percent have published. Important differences by assistantship assignments, institutional rank, and gender in such activities are highlighted. Findings suggest that programs could do more to prepare students for participation in professional activities post graduation.

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David Colander

KimMarie McGoldrick

Gail Hoyt

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David Colander

Steven Jones

Eric Hoest

Richie Fuld

Mahesh Dahal

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This paper provides some background for considering the future of these two traditions by looking at global Latin American graduate economic programs. It reports the findings of a survey of Latin American global economics programs and discusses the debate between global economics and traditional economics, arguing that there is a role for both, with global economics concentrating on the science of economics, and traditional economics concentrating on the applied policy "political economy" branch of economics--which is much broader than the applied policy training that graduate students get in global economics.

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This paper was first presented at the AEA meetings on complexity. It was later published in a book edited by Massima Alszano and Alan Kirman, Economics: Complex Windows, Springer Publishers.

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This paper asks the question: Why has the general-to-specific cointegrated VAR approach as developed in Europe had only limited success in the US as a tool for doing empirical macroeconomics, where what might be called a theory comes first approach dominates? The reason this paper highlights is the incompatibility of the European approach with the US focus on the journal publication metric for advancement. Specifically, the European general-to specific cointegrated VAR approach requires researcher judgment to be part of the analysis, and the US focus on a journal publication metric discourages such research methods. The US theory comes first approach fits much better with the journal publication metric.

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This paper argues that macro models should be as simple as possible, but not more so. Existing models are more so by far. It is time for the science of macro to step beyond representative agent, DSGE models and focus more on alternative heterogeneous agent macro models that take agent interaction, complexity, coordination problems and endogenous learning seriously. It further argues that as analytic work on these scientific models continues, policy-relevant models should be more empirically based; policy researchers should not approach the data with theoretical blinders on; instead, they should follow an engineering approach to policy analysis and let the data guide their choice of the relevant theory to apply.

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David Colander

Peter Howitt

Alan Kirman

Axel Leijonhufvud

Perry Mehrling

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This paper argues that Bryan Caplans Myth of the Rational Voter overstates in case against democracy by not dealing with what might be called the historical/instrumentalist argument for democracy. It argues that the case for democracy that he attacks is primarily an academic exercise, which makes his argument against that case also an academic exercise. It further argues that the supposed policy choice that Caplan presents between the market and democracy is not the correct choice, and that his proposals that economists should be given more voting weight in the democratic decision process is inappropriate.

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David Colander

KimMarie McGoldrick

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The allocation of resources across generations and the consequences of these allocations represent a research agenda with significant policy implications. At the same time, their empirical investigation imposes immense data requirements, and therefore data collection challenges. In this paper, we describe how we met these challenges, in the Resource Flows Among Three Generations in Guatemala Study, or IGT, carried out in 200607. In doing so, we provide a guide for using and interpreting the data collected as part of IGT, as well as an example for others interested in implementing research projects on similar themes elsewhere. Complex research topics, across generations and across a range of possible measures of well-being, led to a relatively complicated sample selection process and survey design, with component modules that were applicable to different types of sample members, depending on their generational status and age, and who often lived in different locations. It also led to a wide set of survey domains, ranging from economic, educational, and psychological surveys to clinical medical exams for both the young and the elderly. Survey coverage was above 85% of the targeted sample for most categories of respondents and most modules, and a number of safeguards were in place to ensure high quality data. Biases due to attrition, measured against the original 1970s rounds of survey work upon which IGT built, while present, should not reduce substantially the validity of research findings to come from this rich sample. The extent to which this is true, though, may vary depending on the topic under consideration and the controls included in the analyses.

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Pal Melgar

Luis Fernando Ramrez

Scott McNiven

Rosa Mery Meja

Ann DiGirolamo

John Hoddinott

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The macro economy is complex; everyone knows that. Complex systems are difficult to analyze and manage; everyone knows that too. The best approach to teaching and describing the complex macro economy is something we know much less well. Currently, in teaching macro to both graduate and undergraduate students, we dont stress just how complex the economy really is. The argument in this paper is that we should emphasize that complexity to frame the macro question.1 Having done that, we can get on with what we do, and much of the structure of both the graduate and undergraduate macro can be taught as it currently is. But instead of seeing the approaches at the two levels as substitutes for one another, complexity helps to frame as what they really are: complementary approaches to addressing a challenging set of questions.

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This article describes the details underlying the targeting of a Nicaraguan anti-poverty program, emphasizing the rationale for how it was designed and implemented. It offers, by way of example, a guide for targeting in an anti-poverty program, and highlights some of the potential tradeoffs. It then goes on to present a quantitative assessment of how well the program was able to target poor households. A combination of ad hoc and statistical procedures led to targeting that was effective, with undercoverage rates of 10 percent or below and leakage rates of 15 percent or below. This was in spite of the fact that the targeting methodologies used were imprecise at both the household and geographic levels.

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The hedonic literature has established that public water bodies provide external benefits that are reflected in the value of nearby residential real estate. The literature has employed several approaches to quantify these nonmarket services. With a residential hedonic model, this paper tests whether model specification affects resource valuation using an actively managed reservoir in Indiana and a passively managed lake in Connecticut. The results indicate that valuation is quite sensitive to model specification,and that omitting either the waterview or waterfront variables from the hedonic function likely results in a misspecified model. The findings from this study are important for researchers and public agencies charged with managing water resources to bear in mind as the external benefits from existing or man-made lakes anr reservoirs are estimated. Therefore, while it requires considerably more effort to determine which properties are in waterfront locations and which properties have a view, the potential misspecification of distance-only models likely justifies these extra research costs. Further, the findings in this analysis callinto question results from distance-only models in the literature.

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Paul Sommers

Mark J. Shimrock

Peter M. Lefeber

Christian Hansen

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In many environments, tournaments can elicit more effort from workers, except perhaps when workers can sabotage each other. Because it is hard to separate effort, ability and output in many real workplace settings, the empirical evidence on the incentive effect of tournaments is thin. There is even less evidence on the impact of sabotage because real world acts of sabotage are often subtle manifestations of subjective peer evaluation or offce politics. We discuss a real effort experiment in which effort, quality adjusted output and o?ce politics are compared under piece rates and tournaments. Our results suggest that tournaments increase e?ort only in the absence of offce politics. Competitors are more likely to sabotage each other in tournaments and, as a result, workers actually provide less e?ort simply because they expect to be the victims of sabotage. Adjusting output for quality with the rating of an independent auditor shrinks the incentive effect of the tournament even further since output tends to become more slipshod. "The person who says Im not political is in great danger... Only the fittest will survive, and the fittest will be the ones who understand their offces politics." Jean Hollands, quoted in Playing Offce Politics, Newsweek, 16 September 1985

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Data from a recent ?eld experiment suggests that differences in participation rates are responsible for much of the variations in revenues across formats in charity auctions. We provide a theoretical framework for the analysis of this, and other related, results. The model illustrates the limits of previous "?xed" results and introduces some new considerations to the choice of auction mechanism. It also implies, however, that the data cannot be explained in terms of participation costs alone: there must exist mechanism-speci?c obstacles to participation.

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Paul Sommers

Stefan G. Hrdina

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Paul Sommers

Robert M. Marcoux

Filip Marinkovic

George A. Mayer

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This paper presents the results of an empirical study of price dispersion in homogeneous goods markets. Modern economic theory suggests that inevitable asymmetries of information in markets lead to an equilibrium in which price dispersion is present even when goods are perfectly homogenous. In this paper we present an empirical analysis in which we employ both cross-sectional and time-series data gathered directly from Pricegrabber.com, one of the most popular and comprehensive online shopping/price-comparison sites on the Internet. In particular our analysis focuses on (i) the effect that the number of firms offering a good has on price dispersion, (ii) the informational value to the consumer of using the Pricegrabber website, and (iii) the persistency of price dispersion over time.

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Thierry Warin

Daniel B. Leiter

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A MiddLab Project

Tee Tests: Playing with Tiger

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Paul Sommers

Brett P. Shirreffs

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A MiddLab Project

What Norms Trigger Punishment

Many experiments have demonstrated the power of norm enforcement-peer monitoring and punishment-to maintain, or even increase, contributions in social dilemma settings, but little is known about the underlying norms that monitors use to make punishment decisions. Using a large sample of experimental data, we empirically recover the set of norms used most often by monitors and show ?rst that the decision to punish should be modeled separately from the decision of how much to punish. Second, we show that absolute norms often ?t the data better than the group average norm often assumed in related work. Third, we ?nd that di?erent norms seem to in?uence the decisions about punishing violators inside and outside ones own group.

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Volunteering plays a prominent role in the charitable provision of goods and services, yet we know relatively little about why people engage in such prosocial acts. The list of possible motivations is long, but recent research has focused on altruism, reputational concerns, and material incentives. We present an analysis of a unique data set that combines an experimental measure of altruism, surveyed measures of other factors including reputational concerns, and call records from volunteer firefighters that provide an objective measure of the hours volunteered. Controlling for a variety of other explanations, we find that altruism and reputational concerns are positively associated with the decision to volunteer. Moreover, by utilizing variation in the presence and level of small stipends paid to the firefighters, we find that the positive effect of monetary incentives declines with reputational concerns, supporting a prediction that extrinsic incentives can crowd out prosocial behavior.

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Despite anecdotal and survey evidence suggesting the presence of discrimination against customers in stores, restaurants, and other small transaction consumer markets, few studies exist that identify or quantify the nature of any unequal treatment. We provide evidence from a ?eld study of wait times in Boston-area coffee shops that suggests that female customers wait an average of 20 seconds longer for their orders than do male customers even when controlling for gender differences in orders. We ?nd that this differential in wait times is inverse to the proportion of employees who are female and directly related to how busy the coffee shop is at the time of the order. This supports the conclusion that the observed differential is driven at least in part by employee animus and/or statistical discrimination rather than unobserved heterogeneity in the purchasing behavior of female customers.

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Paul Sommers

Ryan M. Keohane

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Paul Sommers

David L. Campbell

Benjamin O. Hanna

Conor A. Lyons

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The career batting profile of a regular starting major league ballplayer typically rises, at least up to a point, and then falls as skills diminish with age. The career batting profiles are derived for all regular starting players in the National and American Leagues for each of five different years: 1966, 1976, 1986, 1996, and 2006. The profiles have changed dramatically since the 1960s, with arguably stronger ballplayers reaching a higher peak several years after the batting average reached a peak for regulars in 1966. The profiles for 2006 show what might be early manifestations of baseballs tougher steroids policy.

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This paper argues that Robbins famous definition of economics was of economic science which he saw as only a narrow branch of the field of economics. Moreover, it was descriptive, not prescriptive, and was simply a statement that that was what economists were then doing in the science of economics. His prescriptive message was that policy belonged in the political economy branch of economics, and that the science of economics should avoid value judgments, but that political economy should include value judgments. That prescriptive message has been lost.

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This paper provides some background for considering the future of these two traditions by looking at global Latin American graduate economic programs. It reports the findings of a survey of Latin American global economics programs and discusses the debate between global economics and traditional economics, arguing that there is a role for both, with global economics concentrating on the science of economics, and traditional economics concentrating on the applied policy "political economy" branch of economics--which is much broader than the applied policy training that graduate students get in global economics.

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David Colander

Hugo Nopo

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This paper reports on the ?ndings of a survey of top economics graduate schools as they relate to women and men. The results provide strong evidence that at these top graduate schools, women graduate students are less integrated in their economic disciplines than are male graduate students. In the second part of the paper, this paper relates those ?ndings to alternative theories as to why this is the case. This paper concludes by suggesting that the emphasis on theoretical studies in the current core of the graduate economics program can be seen as a type of hazing process that seems to have a signi?cant cost since many women (and men) with great creative promise are discouraged from continuing in economics and do not bene?t nearly as much as they would have from more policy-driven core courses.

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We attempt to clarify divisions made by us in previous work (Colander et al., 2004a,b) between orthodox, mainstream, and heterodox in economics, following very useful remarks in Dequech (2007), whom we thank. We also provide specific advice for heterodox economists, namely: worry less about methodology, focus on being economists first and heterodox economists second, and prepare ideas to leave the incubator of heterodoxy to enter the mainstream economic debate.

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David Colander

Richard P.F. Holt

J. Barkley Rosser, Jr.

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This article explores the inter-relationship of collective action within the business community, the nature of the political regime and the security of firms property rights. Drawing on a pair of surveys recently administered in Russia, we present evidence that post-communist business associations have begun to coordinate business influence over state actors in a manner that is sensitive to regional politics. A firms ability to defend itself from government predation and to shape its institutional environment as well as its propensity to invest in physical capital are strongly related to both its membership in a business association and the level of democratization in its region. Of particular note, the positive effect of association membership on securing property rights increases in less democratic regions. The evidence, that is, suggests that collective action in the business community substitutes for democratic pressure in constraining public officials.

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After the fuzziness in Europe that surrounded the implementation of the excessive deficit procedure foreseen by the Stability and Growth Pact (SGP), the European Union had to restore the credibility of the weakened fiscal rule. On March 2005, the 25 members amended the SGP. The constraint was to keep alive the Treaty of Amsterdam, which instituted the SGP. Indeed, an attempt to make major changes to the SGP would have necessitated a new Treaty, and hence a ratification by the 25 countries. This could have meant no more Europe-wide fiscal rule. But are minor changes enough? This paper addresses this question by deciphering the amended version of the SGP, and finds that, in the case countries still breach the SGP, another minor change is possible: an la carte version of the SGP.

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Open source is often presented as a very promising governance structure for the development of software in the Internet world. One of its greatest advantages is that it enables and integrates the flow of innovation coming from many unrelated developers. We extend previous inquiries by showing that, due to information communication problems, this governance structure is in fact more efficient for the development of incremental innovations rather than radical innovations. Implications are drawn in terms of the future of the open source system, the economics of innovation and public policy.

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Thierry Warin

Jean-Philippe Bonardi

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This paper surveys the roots of the modern literature on monetary policy, and illustrates the convergence that occurs between open-economy approaches and the micro foundations of monetary policy. From the Banking School versus Currency School debate to the credibility versus flexibility refinement, monetary policy has a long history of scholarly works. Although it may be hard to imagine that there is still room for innovations, the current developments of the literature on open-economy monetary policy seem to spawn a new and essential branch.

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Explanations of poverty, growth and development more generally depend on the assumptions made about individual preferences and the willingness to engage in strategic behaviour. Economic experiments, especially those conducted in the field, have begun to paint a picture of economic agents in developing communities that is at some variance from the traditional portrait. We review this growing literature with an eye towards preference-related experiments conducted in the field. We rely on these studies, in addition to our own experiences in the field, to offer lessons on what development economists might learn from experiments. We conclude by sharing our thoughts on how to conduct experiments in the field, and then offer a few ideas for future research.

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Juan Camilo Cardenas

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Most investigations of the importance of and the determinants of adult cognitive skills assume that (a) they are produced primarily by schooling and (b) schooling is statistically predetermined. But these assumptions may lead to misleading inferences about impacts of schooling and of pre-schooling and post-schooling experiences on adult cognitive skills. This study uses an unusually rich longitudinal data set collected over 35 years in Guatemala to investigate production functions for adult (i) reading-comprehension and (ii) nonverbal cognitive skills as dependent on behaviorally-determined pre-schooling, schooling and post-schooling experiences. Major results are: (1) Schooling has significant and substantial impact on adult reading comprehension (but not on adult nonverbal cognitive skills)but estimates of this impact are biased upwards substantially if there are no controls for behavioral determinants of schooling in the presence of persistent unobserved factors such as genetic endowments and/or if family background factors that appear to be correlated with genetic endowments are included among the first-stage instruments. (2) Both pre-schooling and post-schooling experiences have substantial significant impacts on one or both of the adult cognitive skill measures that tend to be underestimated if these pre- and post-schooling experiences are treated as statistically predeterminedin contrast to the upward bias for schooling, which suggests that the underlying physical and job-related components of genetic endowments are negatively correlated with those for cognitive skills. (3) The failure in most studies to incorporate pre- and post-schooling experiences in the analysis of adult cognitive skills or outcomes affected by adult cognitive skills is likely to lead to misleading over-emphasis on schooling relative to these pre-and post-schooling experiences. (4) Gender differences in the coefficients of the adult cognitive skills production functions are not significant, suggesting that most of the fairly substantial differences in adult cognitive skills favoring males on average originate from gender differences in schooling attainment and in experience in skilled jobs favoring males. These four sets of findings are of substantial interest in themselves. But they also have important implications for broader literatures, reinforcing the importance of early life investments in disadvantaged children in determining adult skills and options, pointing to limitations in the cross-country growth literature of using schooling of adults to represent human capital, supporting hypotheses about the importance of childhood nutrition and work complexity in explaining the Flynn effect of substantial increases in measured cognitive skills over time, and questioning the interpretation of studies that report productivity impacts of cognitive skills without controlling for the endogeneity of such skills.

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Jere R. Behrman, University of Pennsylvania

John Hoddinott

Erica Soler-Hampejsek

Emily L. Behrman

Reynaldo Martorell

Manuel Ramirez-Zea, Institute of Nutrition for Central America and Panama

Aryeh D. Stein, Emory University

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Paul Sommers

Elizabeth T. Knopman

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Paul Sommers

Andreas J. Apostolatos

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Paul Sommers

Brandon M. Avrutin

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Early childhood nutrition is thought to have important effects on education, broadly defined to include various forms of learning. We advance beyond previous literature on the effect of early childhood nutrition on education in developing countries by using unique longitudinal data begun during a nutritional experiment during early childhood with educational outcomes measured in adulthood. Estimating an intent-to-treat model capturing the effect of exposure to the intervention from birth to 36 months, our results indicate significantly positive, and fairly substantial, effects of the randomized nutrition intervention a quarter century after it ended: increased grade attainment by women (1.2 grades) via increased likelihood of completing primary school and some secondary school; speedier grade progression by women; a one-quarter SD increase in a test of reading comprehension with positive effects found for both women and men; and a one-quarter SD increase on nonverbal cognitive tests scores. There is little evidence of heterogeneous impacts with the exception being that exposure to the intervention had a larger effect on grade attainment and reading comprehension scores for females in wealthier households. The findings are robust to an array of alternative estimators of the standard errors and controls for sample attrition

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John Hoddinott

Jere R. Behrman

Reynaldo Martorell

Agnes R. Quisumbing

Aryeh D. Stein

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Market productivity is often greater, and leisure and other household activities more enjoyable, when people perform them simultaneously. Beyond pointing out the positive externalities of synchronicity, economists have not attempted to identify exogenous determinants of timing. We develop a theory illustrating conditions under which synchronicity will vary and identify three factors the amount of daylight, the timing of television programming, and differences in time zones that can alter timing. Using the American Time Use Survey for 2003 and 2004, we first show that an exogenous shock to time in one area due to non-adherence to daylight-saving time leads its residents to alter their work schedules to continue coordinating their activities with those of people elsewhere. With time use data from Australia, we also demonstrate the same response to a similar shock there. We then show that both television timing and the benefits of coordinating across time zones in the U.S. generally affect the timing of market work and sleep, the two most time-consuming activities people undertake. While these impacts do not differ greatly by people's demographic characteristics,workers in industries where we would expect more coordination outside of their local areas are more responsive to the effects of time zones.

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Caitlin Knowles Myers

Daniel S. Hamermesh

Mark L. Pocock

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Monitoring by peers is often an effective means of attenuating incentive problems.

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Samuel Bowles

Herbert Gintis

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The existing literature on political budget cycles looks at the temptation for incumbent governments to run a greater deficit before an election by considering the characteristics of the incumbent. We propose here to look at the signals the incumbent receives from the voters. For this purpose, we consider the votes from the previous national elections and see whether they may influence the incumbent government to run a sound fiscal policy or an expansionary fiscal policy. However, since 1993 Europe has been equipped with two fiscal rules: a deficit and a debt ceiling. In this context, can we find evidence of a political budget cycle before 1993, and did the fiscal rules prevent the existence of a political budget cycle afterwards? To address these questions, we use a cross-sectional time series analysis of European countries from 1979 to 2005.

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Thierry Warin

Kenneth Donahue

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In nascent markets with relatively immature institutions, do depositors have the capacity to discipline banks with poor fundamentals? If so, what information specifically guides their response? Using a database from post-communist, pre-deposit-insurance Russia, we present evidence for quantity-based sanctioning of weaker banks by both firms and households, particularly after the 1998 financial crisis. More notably, the discipline that we observe is surprisingly sophisticated. Specifically, our evidence is consistent with the proposition that depositors interpret a banks deposit rate and capital as jointly reflecting its subsequent stability. In estimating a deposit supply function, we show that, particularly for poorly capitalized banks, interest rate increases run into diminishing, and eventually negative, returns in terms of deposit attraction.

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William Pyle

Alexei Karas

Koen Schoors

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This paper provides a challenging view to the tax harmonization issue. The literature often proposes tax harmonization to avoid free-riding behaviors in free-trade areas, and more particularly in monetary unions. Countries may decrease their tax rates in order to develop tax competitive advantage and attract capital. Without tax harmonization, tax autonomy may lead to a race to the bottom. The model proposed here uses a game-theoretical approach to analyze this question. It shows that tax competition may lead to stability. The mechanism leading to this outcome rests upon the impact of the signal given by both players. If a country gives the signal that friendly taxation behavior is not its priority, the result can be a race to the bottom. Conversely, if both countries signal their ability to conduct such a war, this war will not occur, and the stability of the system will be ensured.

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Thierry Warin

Andr Fourans

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This paper addresses the question of the likelihood of a race to the bottom in a monetary union, like the Euro-zone, that could result from tax competition between countries. This fear of a race to the bottom is used both in the economic literature and the political arena to promote tax harmonization. Using a game theoretical approach with the costs of changing tax policies to analyze the conditions of a race to the bottom, this paper shows that countries may not choose such an extreme strategy. In other words, the extreme case scenario of a race to the bottom is unlikely, and proponents of tax harmonization should base their reasoning upon other assumptions.

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Thierry Warin

Andr Fourans

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We report the results of a field experiment with bicycle messengers in Switzerland

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Stephen Burks

Lorenz Gtte

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Our experiment challenges the standard, social preference, interpretation of choices in the double blind dictator game. In our bilateral treatment both groups are endowed with $20, any fraction of which can be passed to a randomly determined player in the

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On its face, unemployment seems to be a concept easy to grasp. But when one looks closer, the intricacies are numerous and assump-tions are multiple. Nowadays, the New Classical School is a bit closer to New Keynesianism than ever before. It still has a strong footprint in Monetarism, since in the long run, there is no interest in stabilizing an economy. But unlike the Classical school, the New Classical School concedes that in the short run things are much more complicated. If Keynes was right when he said, in the long run, we are all dead, one may even conclude that the New Classi-cal School is far more Keynesian than it first appears.

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In this paper I discuss economists tendency to do abstract theory, and suggest an alternative way of relating theory and policy that I provides a much more positive spin on mainstream economists tendency toward abstract theorizing than that given it by most heterodox economists. The gist of the argument is that we should think of economic theory not as a precise map, but as a general pattern generator, which is useful to keep in the back of our minds and we approach policy problems.

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Economic theory, of necessity, presents an abstraction to the reader. Abstraction is required to achieve the perspective that allows for theory, that is to say, understanding and interpretation, to occur. If the abstraction is done well only inessential details are set aside -- details that would otherwise divert the theorist from grasping the essential or fundamental elements of the process under examination. For example a study of the mechanisms that cause a moving automobile to stop can reasonably abstract from the vehicle's color scheme.

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Local news offers a unique look not only at customer preferences but also at the strategic

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Scholars who have studied local environmental groups and their effects in the United States have

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Jonathan Isham

Christopher McGrory Klyza

Andrew Savage

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What determines the mechanism chosen to resolve a commercial dispute? To what

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The purpose of this note is to propose a breakdown of the European concept into different sub-categories, based upon the different stages of the European integration process. In doing so, it is easier to understand the political differences and debate between an allegedly Anglo-Saxon approach and a Continental one. This note challenges the usual definition of the Anglo-Saxon and Continental approaches, and highlights the usual misconceptions and misunderstandings of the European economic goal.

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Drawing on a unique set of surveys, this article explores the question of whether

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We exploit panel data from the second phase of the Russian Longitudinal Monitoring Survey

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William Pyle

Mark C. Foley

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The collapse of the inter-war gold standard has frequently been studied in economic his-tory.

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A common criticism of antipoverty programs is that the high share of administrative (nontransfer) costs substantially reduces their effectiveness. Yet, there is surprisingly little rigorous empirical evidence on program costs. Improved information and a better understanding of the costs of such programs are crucial for effective policymaking. This study proposes and implements a replicable methodology for a comparative cost analysis of three similar poverty alleviation programs in Latin America, and assesses their cost efficiency. The findings underscore that any credible assessment of cost-efficiency requires a detailed analysis of program cost structures that goes well beyond simply providing aggregate cost information.

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We conduct a vignette study of the propensity to commit the sunk cost fallacy with 106 undergradu-ates.

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Proposition 209, enacted in California in 1996 and made effective the following year, ended

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The paper proposes an overview of the literature in fiscal policies as well as a comparative assessment in an international context. A large section addresses the specific question of the European fiscal rule, namely the Stability and Growth Pact (SGP).

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Paul Sommers

Kellan M. Florio

Jacob A. Whitcomb

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We use actual loan applications submitted to a community development credit union (CDCU) and a traditional community bank to examine the role of relationship lending in the automobile loan market. We first show that the community bank relies upon credit scoring, not relationship lending; low-income households with poor credit histories are very unlikely to receive car loans from this traditional bank. We then show that relationship lending is a critical factor in the loan decision at the CDCU; low-income households with strong ties to the institution are likely to receive loans, despite poor credit histories. We conclude that as consolidation, deregulation and technology move mainstream financial institutions away from relationship lending and toward credit scoring, CDCUs will occupy an increasingly critical niche for low-income households.

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Paul Sommers

Lorna Gifis

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Models of job tournaments and competitive workplaces more generally predict that while individual effort may increase as competition intensifies between workers, the incentive for workers to cooperate with each other diminishes. We report on a field experiment conducted with workers from a fishing community in Toyama Bay, Japan. Our participants are employed in three different aspects of fishing. The first group are fishermen, the second group are fish wholesalers (or traders), and the third group are staff at the local fishing coop. Although our participants have much in common (e.g., their common relationship to the local fishery and the fact that they all live in the same community), we argue that they are exposed to different amounts of competition on-the-job and that these differences explain differences in cooperation in our experiment. Specifically, fisherman and traders, who interact in more competitive environments are significantly less cooperative than coop staff who face little competition on the job. Further, after accounting for the possibility of personality-based selection, perceptions of competition faced on-the-job and the treatment effect of job incentives explain these difference in cooperation to a large extent.

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Brett Shirreffs

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Paul Sommers

Jason M. Bloch

Kieran M. Coe

James K. Ebberson

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We provide a reason for the wider economics profession to take social preferences, a concern for the outcomes achieved by other reference agents, seriously. Although, we show that student measures of social preference elicited in an experiment have little external validity when compared to measures obtained from a field experiment with a population of participants who face a social dilemma in their daily lives (i.e. team production), we do find strong links between the social preferences of our field participants and their productivity at work. We also find that the stock of social preferences evolves endogeously with respect to how widely team production is utilized.

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A MiddLab Project

Chemical Bonds

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Paul Sommers

Adam R. Posner

Thomas J. Sullivan

Katherine B. Chambers

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The paper proposes an overview of the literature on monetary policy. It shows the influence of the debates in the theoretical literature on the actual implementation of policies, as well a the counter effect. The European Economic and Monetary Union (EMU) is largely studies a an exampe of this counter effect with regard to the study of the credibility concept in an open economy setting.

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Paul Sommers

Evan C. Holden

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Along with the traditional primitives of economic development (material preferences, technology, and endowments), there is a growing interest in exploring how psychological and sociological factores (e.g., bounded rationality, norms, or social preferences) also influence economic decisions, the evolution of institutions, and outcomes. Simultaneously, a vast literature has arisen arguing that economic experiments are important tools in identifying and quantifying the role of institutions, socialnorms and preferences on behavior and outcomes. Reflecting on our experience conducting experiments in the field over more than five years, we survey the growing literature at the intersection of these two research areas. Our review has four components. In the introduction we set the stage identifying a set of behavioral factors that seem to be central for understanding growth and economic development./ We then divide the existing literature in two piles: standard experiments conducted in the field and on how to econometrically identify sociological factors in experimental data. We conclude by suggesting topics for future research.

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Jeffrey Carpenter

Juan Camilo Cardenas

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The enforcement of social norms often requires that unaffected third parties sanction offenders. Given the renewed interest of economists in norms, the literature on third party punishment is surprisingly thin, however. In this paper, we report on the results of an experiment designed to evaluate two distinct explanations for this phenomenon, indignation and group reciprocity. We find evidence in favor of both, with the caveat that the incidence of indignation-driven sanctions is perhaps smaller than earlier studies have hinted. Furthermore, our results suggest that second parties use sanctions to promote conformism while third parties intervene primarily to promote efficiency.

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David Colander

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This paper addresses the question of a technical change in one the components of the Stability and Grown Pact (SGP). Indeed, the SGP is composed of (1) a political commitment, (2) a preventive element, and (3) a dissuasive element, and an improvement of the SGP efficacy can come from any of these three components. In this paper the author proposes a new early warning procedure, part of the preventive element. The ideal situation would be for the European Commission to be able to identify countries at risk as soon as they vote their national budgets. Although this is not possible, as the measures of the deficit are based on GDP forecasts, the conclusion this paper makes is that the EC should avoid relying on GDP forecasts by calculating a reference index.

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The introduction of "effort inducible" and non-effort" workers into an otherwise standard model of labor discipline produces a paradox of sorts: when firms cannot tell the difference, the predictable reductions in both output and real wages are sometimes accompanied by an increase in profits. The resolution of this paradox is found in the difference in expected productities of workers with and without jobs, the source of a reputation effect that alters the balance of labor market power. When, as a consequence of the acquisition and depreciation of productive skills, the relative proportions of such workers are then endogenized, the model exhibits multiple equilibria for plausible parameter values. One of these equilibria can be understood as a new sort of "underemployment trap" with an atrophied primary sector.

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A MiddLab Project

The Social Cost of Labor

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Using cross-sectional household-level data from seven provincial Cambodian towns, we estimate a water demand equation for households connected to the network, and provide an empirical measurement of the economic value of tap water connection. The use of a two-step econometric procedure allows us to analyse issues relating to household access to water and to the volume of household water consumption. We estimate that the connection elasticity with respect to the one-off initial cost of connection is -0.39; the price elasticity of water demand for the connected households lies in a range between -0.4 and -0.5; and the welfare effects of water connection are approximately 17 percent of the actual expenditure of the poor unconnected households. Furthermore, providing a network connection to all households in the sample would have the distributional consequences of decreasing the estimated Gini coefficient by three percentage points and the poverty head-count ratio by six percentage points.

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Jonathan Isham

Marcello Basani

Barry Reilly

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This paper provides a non-technical and illustrated introduction to the econometric contributions of the 2003 Nobel Prize winners, Robert Engle and Clive Granger, with special emphasis on their implications for heterodox economists.

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A MiddLab Project

The Making of an Economist II

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Auctions are a popular way to raise money for charities, but relatively little is known, either theoretically or empirically, about the properties of charity auctions. The small theoretical literature suggests that the all-pay auction should garner more money than winner-pay auctions. We conduct field experiments to test which sealed bid format, first price, second price or all-pay raises the most money. Our experiment suggests that both the all-pay and second price formats are dominated by the first price auction. Our design also allows us to identify differential participation as the source of the difference between existing theory and the field. To conclude, we show that a model of charity auctions augmented by an endogenous participation decision predicts the revenue ordering that we see in the field.

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The paper addresses the question of the abolition of the Stability and Growth Pact. More and more authors and policymakers are arising the negative impacts of the European deficit rule on te countries and their ability to respond an asymmetric economic shock. Some others are asking for a redefinition of the Pact. If the focus is only fiscal and in light of the non-respect of the Pact by two of the biggest countries in Europe since its implementation, it could be demonstrated that the SGP needs at least a reexamination. To the converse, if we introduce into the analysis its impacts on the European structural policies, things are different and getting rid of the SGP could hinder the still up-to-date convergence prospective. Indeed, this paper proposed a theoretical analysis of the SGP that emphasizes a new feature of the SGP: a strong incentive to structural reforms.

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A MiddLab Project

The Many Roads to Serfdom

The paper considers the planning/laissez faire debate discussed in the Hayek symposium, and offers three comments. The first is that all debates are contextual and Hayek's Road to Serfdom needs to be considered in its contextual setting. The second is that there are many roads to serfdom, not just the one outlined by Hayek, and the Hayek/Lerner debate today would probably focus a different road than it did in the 1930s. The third is that modern economists' focus on technical issues has in large part removed them from the role that Hayek and other top economists played in their time.

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This paper explains why trade-policy makers may prefer reciprocal trade negotiations (RTN) to unilateral tariff reductions (UTR) for economic reasons. It answers puzzles like "Why WTO reciprocity?" and strengthens the unncecessarily weak case made for the WTO by those who downplay or dismiss benefits from foreign tariff reductions (FTR).

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Paul Wonnacott

Ronald Wonnacott

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A MiddLab Project

What We Teach and What We Do

Fifty years ago what we taught in the principles of economics course reflected reasonably well what we did in our research. That, however, is no longer the case; today what we teach has a more nuanced relation to what we do. The reason is that the economics profession and the texts have evolved differently. This paper deals with the implications of the changes that have occurred in the profession for the way economics is taught and the way economics is presented in the micro principles textbooks. First, it summarizes the changes I see happening in the profession. Second, it discusses the stories that the principles texts tell in micro. Third, it discusses how those stories might change to better reflect what economists currently do.

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A MiddLab Project

Who is Post-Walrasian Man?

This paper, written for a conference volume on "post-Walrasian macro-economics," reviews what we have learned, and perhaps not learned, about the character of economic man over the last few decades, and discusses some of the macroeconomic implications of this research.

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David Colander

Harry Landreth

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In a recent article Smith and Yates (Smith and Yates, 2003) argued that regulators could gain additional information about the optimal number of permits to issue from two-sided markets. This paper argues that they are incorrect in their assertion because the market they refer to is an asymmetric two-sided market in which individuals are only allowed to decrease the number of permits. When a symmetric two-sided market is considered, the public good nature of the problem makes it unlikely that any useful information can come from a two-sided market.

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As membership in traditional civic organizations declines in the United States (Putnam, 2000), could volunteering for nonprofit organizations be an alternative source of social capital formation? We use an updated household production framework (Becker, 1996) to theoretically connect volunteering with two forms of social capital: social connections and civic capacity. Using a unique statewide data set from Vermont, we then use the Cragg (1971) model to estimate the determinants of the probability of receiving a social capital benefit, and the level of such a benefit. We first show that the probability of receiving a social connection or a civic capacity benefit from one's most important nonprofit organization is increased: (a) if it is a religious or social service organization; (b) if one increases their volunteering for the organizations; and (c) if one is female, college educated or in a two-parent family. However, the relative magnitude of volunteering is similar, or relatively small, compared to the other significant determinants. We then show that an increase of volunteer hours does increase the levels of social connection and civic capacity, but the magnitude of this effect is also relatively small.

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Jonathan Isham

Jane Kolodinsky

Garret Kimberly

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Many scholars have documented the important role of national environmental groups in affecting environmental policies in the United States. The role of local environmental groups, however, has not been thoroughly documented. Using data from a complete census of all environmental groups in two Vermont counties, we :(1) offer a set of conceptual categories for local environmental groups; (2) analyze how civic engagement in these groups is creating different forms of social capital through stewardship activities, education and communication, partnerships with other organizations, and alliances with public agencies; and (3) explore how these groups are affecting the policy process, illustrated with two case studies. We argue that the prevalence and contribution of local environmental groups, particularly local autonomous groups, has been underappreciated. We conclude that the greeining of social capital is significantly affecting environmental outcomes in the United States.

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Jonathan Isham

Christopher McGrory Klyza

Andrew Savage

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Many oil, mineral, and plantation crop-based economies experienced a substantial deceleration of growth since the commodity boom and bust of the 1970s and early 1980s. Rodrik (1999) has demonstrated that the magnitude of a country's growth deceleration since the 1970s is a function of both the magnitude of the shocks and a country's "social capability" for adapting to shocks. In this paper, we demonstrate that in this respect countries, with what we term "point source" natural resource exports are doubly disadvantaged. Not only are countries with these types of exports exposed to terms of trade shocks, but the institutional capability for responding to shocks is itself endogenous and negatively related to export composition. Using two different sources of export data and classifications of export composition, we show that point source and coffee/cocoa exporting countries do worse across an array of governance indicators (controlling for a wide array of other potential determinants of governance). This is not just a function of being a "natural resource" exporter, as countries with natural resource exports that are "diffuse" do not show the same strong differences-and have had more robust growth recoveries.

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Jonathan Isham

Lant Pritchett

Michael Woolcock

Gwen Busby

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A MiddLab Project

Social Reciprocity

We define social reciprocity as the act of demonstrating one's disapproval, at some personal cost, for the violation of widely-held norms (e.g., don't free ride). Social reciprocity differs from standard notions of reciprocity because social reciprocators intervene whenever a norm is violated and do not condition intervention on potential future payoffs, revenge, or altruism. Instead, we posit that social reciprocity is a triggered normative reponse. Our experiment confirms the existence of social reciprocity and demonstrates that more socially efficient outcomes arise when reciprocity can be expressed socially. Too provide theoretical foundations for social reciprocity, we show that generalized punishment norms survive in one of the two stable equilibria of an evolutionary game with selection drift.

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Without access to reliable transportation, the welfare-to-work transition for low-income households is nearly impossible, yet very little is known about the effectiveness of targeted loan programs designed to improve their access to credit. Since 1998, Vermont's TANF funds have been used to provide automobile loans to low-income residents through the "Working Wheels" program of the Vermont development Credit Union. In this paper, we take advantage of unique micro-level data on Working Wheels loan applications and loan performance to explore how such programs can cost-effectively provide car loans to those who are unable to obtain affordable loans elsewhere. Our results verify the importance of relationship lending, particularly among those without documented credit histories. In the presence of pronounced information asymmetries about credit history, our results justify a loan officer's increased trust in a client with whom the bank has had a stronger relationship; such clients, ceteris paribus, are less likely to default. We conclude that in the current climate of welfare reform, policymakers should consider programs that encourage welfare recipients to establish and maintain relationships with financial institutions in order to facilitate access to affordable credit and to minimize the risk of loan default.

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Jessica Holmes

Jonathan Isham

Jessica Wasilewski

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In this paper we study the relationship between ethnic exclusion and earnings in Urban Peru. Our approach to the concept of ethnicity involves the usage of instruments in many of its several dimensions: mother tongue, parental background, religion, migration events and race. In order to approximate what can be called racial differences in a context like the Peruvian in which "racial mixture" is the main characteristic of the population, we use a score-based procedure to capture both the differences and the mixtures. By means of this procedure each individual is assigned intensities by pollsters in each of the four categories that correspond to the most easily recognized distinct racial groups in the Peruvian society: Asiatic, White, Indigenous, and Black.

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Jaime Saavedra

Maximo Torero

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By undertaking a census of all agricultural, outdoor recreational, and environmental groups (land-based groups) in two adjacent counties in Vermont, we demonstrate the dramatic increase of local environmental groups in the last 15 years. Building on the methodologies of Kempton et al. (2001), we first show that official lists of nonprofit groups-from the Vermont Secretary of State, the Internal Revenue Service, and local grassroots directories-significantly undercount local environmental groups. Second, we show that since the mid-1980s, the number and membership roles of local autonomous environmental groups have grown rapidly relative to all other types of local and non-local land-based groups in these counties. This article provides preliminary evidence of the recent "greening of social capital."

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Jonathan Isham

Andrew Savage

Christopher McGrory Klyza

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Paul Sommers

James Nicholson

Ekaterina Nikolova

Shahan Mufti

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Paul Sommers

Andrew Barriger

John Sharpe

Brendan Sullivan

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Paul Sommers

Brian Vickery

Nicholas Digani

Caitlin Toombs

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This paper expands on my earlier discussion of Post Walrasian macroeconomics policy. (Colander and van Ess 1996) First, it defines what I mean by Post Walrasian macroeconomics. Second, it discusses some of the theoretical differences between Post Walrasian and Walrasian macro theorizing as they relate to policy. Finally, it discusses how an acceptance of Post Walrasian economics might change the focus of macro policy discussions.

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We replicate previous results showing that stakes do not affect offers in the Ultimatum Game and show that stakes also have no effect on allocations in the Dictator Game. Both results are robust to the inclusion of demographic factors.

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Jeffrey Carpenter

Eric Verhoogen

Stephen Burks

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In this paper I present a methodology that uses matching comparisons to explain gender differences in wages. The approach emphasizes gender differences in the supports of the distributions of observable characteristics and provides useful insights about the distribution of the unexplained gender differences in pay.

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In this paper, we adapt the audit studies methodology to analyze gender and racial differences in hiring for a particular segment of the market of three selected occupations in Metropolitan Lima: salespersons, secretaries and (accounting and administrative) assistants. The adapted pseudo-audit study methodology allow us to reduce the room for existence of statistical discrimination. The results suggest the existence of no significant differences in hiring rates for different gender-race groups but some systematic (and significant) differences in the aimed wages of the individuals in their job search processes.

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Martin Moreno

Jaime Saavedra

Maximo Torero

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David Colander

Ric Holt

Barkley Rosser

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This paper addresses the question of the social policy harmonization in the European Union. In adopting a common monetary policy Europe is faced with structural and fiscal concerns, as national growth levels differ. Another possible factor in output shocks are the levels of various social expenditures in the member countries. OECD data on the level of social program expenditures in four EU countries will wb compared to fluctuations in GDP growth to identify existing relationships. Significant relationships between independent social expenditure policy and GDP growth shocks portends structural harmonization as an improvement if Europe is to take full advantage of the common market. However, the effects of expenditure levels may be easier to identify and predict than the dynamic effects of policy change. As the effects of future policy changes are more difficult to ascertain, harmonization may not consistently appear to be a Pareto-optimum solution to asymmetric shocks.

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Thierry Warin

Peter Hennessy

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In a recent article Smith and Yates (Smith and Yates, 2003) argued that regulators could gain additional information about the optimal number of permits to issue from two-sided markets. This paper argues that they are incorrect in their assertion because the market they refer to is an asymmetric two-sided market in which individuals are only allowed to decrease the number of permits. When a corrct two-sided market is considered, the public good nature of the problem makes it unlikely that any useful information can come from a two-sided market.

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Paul Sommers

Richard B. Barfuss

Robert C. Howard

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A MiddLab Project

The Real Curse of the Bambino

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Paul Sommers

Christopher J. Brown

Lyon Carter III

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Recently economists have become interested in why people who face social dilemmas in the experimental lab use the seemingly incredible threat of punishment to deter free riding. Three theories with evolvutionary microfoundations have been developed to explain punishment. We survey these theories and use behavioral data from surveys and experiments to show that the theory called social reciprocity in which people punish norm violators indiscriminately explains punishment best.

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Okomboli Ong'ong'a

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Differences in group affiliation may affect the level of cooperation in global commons situations such as programs for the conservation of resources which generate benefits that transcend state boundaries. We design a real-time, cross-cultural common pool resource (CPR) experiment purposely using participants from cultures that derive different benefits from biodiversity (extraction versus conservation) to analyze the effect of group affiliation on cooperative behavior. In addition, we elicit real donations to local and international conservation funds to augment our CPR results. In the CPR environment, we find evidence that group affiliation affects hehavior such that heterogeneity contributes to over-extraction in the commons. In the donation stage, we show that nationality affects the distribution of donated earnings between the local and global funds. We also examine the possibility that altruistic preferences to donate to a conservation fund are endogenous, in that they reflect the level of cooperation in the CPR game.

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Jeffrey Carpenter

Juan Camilo Cardenas

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This paper explores a possible connection between two behavioral anomalies in economics, the observed responsiveness of individual decision-makers to sunk costs, and the apparent failure of backward induction to predict outcomes in experimental bargaining games. In particular, we show that under some conditions, a "sunk cost sensitive" fairness norm can evolve in such environments. Under this norm, a fair distribution allows all parties to recoup whatever each has invested in their relationship before the net surplus is then divided into equal shares. The establishment of such a norm would have important consequences for the hold-up problem, which we characterize in terms of ultimatum bargaining in the presence of an outside option. We then conclude with a brief discussion of the possible labor market implications of our results.

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Paul Sommers

Marc P. Scheuer

Woo Y. Chang

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A MiddLab Project

George Brockway: A Remembrance

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Following the World Cup in 1991, the International Rugby Foundation recommended that one more point be awarded for a try. Although the average number of points per match increased in the subsequent World Cup, the scoring change had no discernable impact on the relative number of tries or successful penalty kicks.

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Paul Sommers

Elizabeth A. Ransom

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We conduct experiments in the field with people who live in urban slums to measure trust and cooperation and to see how behavior varies with demographic factors and associational measures of social capital. Overall, we find high rates of contributions among Thai and Vietnamese participants in a voluntary contribution game and we see that many participants are willing to socially sanction other participants who free ride. At the individual level, we find that behavior varies with many demographic factors (e.g., sex, schooling, age) and with many associational factors (e.g., home ownership and community homogeneity). However, many of these correlations differ significantly between our Thai participants and our Vietnamese participants indicating the role of culture.

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Jeffrey Carpenter

Amrita Daniere

Lois Takahashi

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A MiddLab Project

The Art of Teaching Economics

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Many oil, mineral, and plantation crop-based economies experienced a substantial deceleration of growth since the commodity boom and bust of the 1970s and early 1980s. Rodrik (1999) has demonstrated that the magnitude of a countrys growth deceleration since the 1970s is a function of both the magnitude of the shocks and a countrys social capability for adapting to shocks. In this paper, we demonstrate that in this respect countries, with what we term point source natural resource exports are doubly disadvantaged. Not only are countries with these types of exports exposed to terms of trade shocks, but the institutional capability for responding to shocks is itself endogenous and negatively related to export composition. Using two different sources of export data and classifications of export composition, we show that point source and coffee/cocoa exporting countries do worse across an array of governance indicators (controlling for a wide array of other potential determinants of governance). This is not just a function of being a natural resource exporter, as countries with natural resource exports that are diffuse do not show the same strong differencesand have had more robust growth recoveries.

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Jonathan Isham

Gwen Busby

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A MiddLab Project

The Aging of an Economist

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Aspiration-based evolutionary dynamics have recently been used to model the evolution of fair play in the ultimatum game showing that incredible threats to reject low offers persist in equilibrium. We focus on two extensions of this analysis: we experimentally test whether assumptions about agent motivations (aspiration levels) and the structure of the game (binary strategy space) reflect actual play, and we examine the problematic assumption embedded in the standard replicator dynamic that unhappy agents who switch strategies may return to a rejected strategy without exploring other options. We find that the resulting "no switchback" dynamic predicts the evolution of play better than the standard dynamic and that aspirations are a significant motivator for our participants. In the process, we also construct and analyze a variant of the ultimatum game in which players can adopt conditional (on their induced aspirations) stategies.

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We use the household production framework to theoretically connect sociability and purposive incentives for volunteering and two forms of social capital: social connections and civic capacity. Then, using a unique statewide data set, we estimate the determinants of (a) the probability of receiving social capital benefits and (b) the level of such benefits. We show that: religious and social service organizations have a large impact on social capital formation; the probability of being socially and civically engaged increases with volunteering; and two-adult families are more likely to feel socially and civically engaged. These results are consistent with recent aggregate evidence on the decline of social capital in the United States: social capital formation declines with less religious and altruistic orientation at the community level, and as families move away from a two-adult family structure. By contrast, through volunteering, one can increase the likelihood of being socially and civically engaged.

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We compare Colman's proposed "psychological game theory" with the existing literature on psychological games (Geanakoplos, Pearce and Stachetti 1989), in which beliefs and intentions assume a prominent role. We also discuss the experimental evidence on intentions, with a particular emphasis on reciprocal behavior, as well as some recent efforts to show that such behavior is consistent with social evolutions.

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A MiddLab Project

Is Geography Destiny?

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Paul Sommers

Anton T. Koychev

Erbor Kulla

Ignas Brasauskas

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A MiddLab Project

"Consumption" and "Earnings"

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This study analyzes the role of relationship lending in the automobile credit market among a population generally perceived to be high risk - and thereby 'unlendable'. Using a unique dataset from the Vermont Development Credit Union's "Working Wheels" low-income car loan program, we find that the strength of the relationship between creditor and higher risk borrowers significantly raises the probability of loan approval, and that such borrowers who receive loans are relatively creditworthy. Specifically, for applicants without credit scores, we find that -- in addition to income and debt ratio -- age and the nature of the established relationship with the lender significantly affect the probability of loan approval. By contrast, for applicants with credit scores, only income, debt ratio and the credit score are the significant determinants. In addition, despite the greater information asymmetry associated with applicants whose credit histories are unknown, we find no significant difference in delinquency rates between those with and without credit scores. In the current climate of welfare reform, we conclude that policymakers should consider programs that encourage welfare recipients to establish relationships with traditional financial institutions and establish more programs like "Working Wheels" that facilitate access to affordable credit for automobiles.

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Jessica Holmes

Jonathan Isham

Jessica Wasilewski

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This paper analyzes the effect of quality and accessibility of health services and other public infrastructure on the health of children in rural Pakistan. It also explores whether local infrastructure substitutes or complements mothers education and household wealth in the production of child health. The analysis is done separately for boys and girls since there are known to be large gender disparities in human capital investment in Pakistan. The results suggest that access and quality of community health facilities tends to substitute for household wealth and mothers education in the production of child health. On the other hand, public health infrastructure such as piped water and sanitation tends to complement mothers education in the production of child health.

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Reputation Flows

This paper exploits a survey of manufacturing firms in five transitioning countries to evaluate the factors that affect whether or not information on contractual disputes between firms is disseminated to other market participants. We find that these reputation flows are channeled both through informal communication among firms as well as through third party organizations; in addition, they are sensitive to firms' perceptions of the macro-institutional environment and specific features of the bilateral relationship in which the dispute occurs. The finding that some trade associations play a meaningful role in coordinating these flows suggests that their private and social value is significant.

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The Demand for Punishment

While many experiments demonstrate that the actual behavior is different than predicted behavior, they have not shown that economic reasoning is necessarily incorrect. Instead, these experiments illustrate that the problem with homo economicus is that his preferences have been mis-specified. Modeled with social preferences, agents who forgo material gains can often be called rational. The current experiment illustrates this point with an example. Assuming self-interested agents, punishment is not credible in social dilemmas, yet people are often willing to incur costs to punish free riders. Despite this seeming irrationality, we show that these same people react to changes in the price of punishing and income as if punishment was an ordinary and normal good.

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This paper explores the demand for child schooling in Pakistan, using the Pakistan Integrated Household Survey (1991). There have been few such studies for Pakistan, a country with relatively low enrollment rates and education levels, high illiteracy, and large disparity between male and female education. Additionally, this study focuses on two potential sources of bias in the estimation of the demand for schooling. First, studies that do not distinguish between currently enrolled children and those who have completed their schooling subject their estimates fo a form of censoring bias. Second, studies that exclude children who have left the household from their samples may introduce sample selection bias if the decisions to leave home and to attend school are related. This study finds evidence of both "censoring" and "sample selection" bias in the demand for child schooling in Pakistan.

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This paper examines the extent to which public health insurance crowds out purchases of private insurance. Specifically, the effect of Medicaid's medically needy program on the probability that an individual will buy private insurance is investigated. Evidence presented here suggests that the presence of the medically needy program and more specifically, its relative generosity significantly reduces the likelihood that an individual will purchase private insurance. For individuals living in more generous medically needy states, the crowd out is particularly evident for individuals whose family incomes lie closest to the eligibility thresholds. This does suggest that expansions of public coverage not only provide a "net" for the targeted uninsured, but also may attract individuals into the "net" who would otherwise seek private insurance. Such crowding out has serious implications for the net benefits of such public expansions.

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The authors report on the results of a survey of current undergraduate instruction on the socialist economic system and post-socialist economies. Based on responses from eighty colleges and universities, they evaluate how course offerings and content have changed in light of the momentous developments of the past decade. The evidence is then used to comment on trends and potential future developments in classes on comparative economic systems and transition economies. Although undergraduate offerings in these areas have arrived at a short-run equilibrium, there are good reasons to believe that the structure of the courses should soon be re-thought.

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Social Reciprocity

We conduct a survey and find that 47% of respondents state they would sanction free riders in a team production scenario even though the respondent was not personally affected and no direct benefits could be expected to follow an intervention. To understand this phenomenon, we define social reciprocity as the act of demonstrating ones disapproval, at some personal cost, for the violation of a widely-held norm (for example, dont free ride). Social reciprocity differs from reciprocity because social reciprocators punish all norm violators, regardless of group affiliation or whether or not the punisher bears the costs. Social reciprocity also differs from altruism because, while the latter is an outcome-oriented act benefiting someone else, the former is a triggered response not conditioned on future outcomes. To test the robustness of our survey results, we run a public goods experiment that allows players to punish each other. The experiment confirms the existence of social reciprocity and additionally demonstrates that more socially efficient outcomes arise when reciprocity can be expressed socially. Further we find that most subjects who punish do so to discipline transgressors and helping others is largely a positive externality. Finally, to provide some theoretical foundations for social reciprocity, we show that generalized punishment norms survive in one of the two stable equilibria of an evolutionary public goods game with selection drift.

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This research is concerned with identifying the differing responses of union and nonunion wages to shocks to real output growth, inflation, and the stance of monetary policy. Aggregate measures of union and nonunion wages and salaries are used to construct a time series of the wage differential for several major industrial sectors over the 1976-2001 period. The literature documents the existence of a union wage premium; however, previously the focus has primarily been at the micro-level, and on whether or not a union worker receives greater compensation than an otherwise comparable nonunion worker [e.g., Wunnava and Ewing (1999, 2000)]. Research also links the wage differential to the stage of the business cycle [Wunnava and Okunade 1996] and to the industrial sector [Okunade, Wunnava, and Robinson (1992)]. Theoretical macroeconomic models imply that wages will respond in certain ways to unanticipated changes in aggregate measures of economic activity [e.g., Romer (1996)]. Given the differences in compensation level of union and nonunion workers, and the link to the stage of the business cycle and industry, it is expected that the aggregate wage differentials both for the entire private sector and by industry will respond to macroeconomic shocks in a predictable manner. The relationship among these wage differentials and the macroeconomy is examined in the context of a vector autoregression. In addition, the paper employs the newly developed technique of generalized impulse response analysis [Koop, et al. (1996), Pesaran and Shin (1998)], a method that does not impose a priori restrictions on the relative importance that each of the macroeconomic variables may play in the transmission process. The results show the extent and the magnitude of the relationship between the union-nonunion wage differentials and several key macroeconomic factors. Finally, the paper documents how the responses of these wage differentials vary by industrial sector.

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This note argues that the most commonly used estimates of the size of the unofficial economies in the former Soviet Republics are flawed. Most important, they are based on calculations that disregard the variation in unofficial economic activity across space in the pre-transition Soviet Union. In addition, these estimates appear to understate the size of the unofficial economies in these countries. We propose alternative estimates and find that they are more strongly related to the institutional factors commonly used to explain the size of the unofficial sector. Our estimates also show that the size of a country's pre-transition unofficial economy is an important predictor of its size during the transition. This suggests that the size of the unofficial economy is to a large extent a historical phenomenon only partly determined by contemporary institutional factors.

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The study adds to the literature by providing new empirical evidence consistent with efficiency wage theory, and by providing estimates of the average cost of supervising a worker by industry. This research uses the 1996 wave of the NLSY and incorporates estimates of supervision cost computed from industry classifications. We further detect presence of no gender differences neither in risk-averseness nor in productivity gains associated with cost of Supervision and performance-based pay.

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Globalization and Economics

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Paul Sommers

Steven E. Hulce

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Paul Sommers

Christopher E. Fanning

Kyle H. Pilkington

Tyler A. Conrad

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This paper develops a life cycle model for agricultural households in which social capital is a fixed input into household production. The intertemporal solutions of the model yield four results that are consistent with recent empirical and qualitative literature on social capital and consumption among agricultural households: commodity consumption will rise for an agricultural household in a village where public social capital is increasing - even if the household itself has invested little in their own accumulation of social relations; increased inequality within villages is associated with lower social capital; public social capital will decrease significantly in the presence of migration of young from rural communities; and current consumption levels will be less sensitive to increases in income uncertainty when social capital is increasing. The paper uses information on agricultural households in Tanzania to illustrate the model.

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Using data from community-based water services in Sri Lanka and India, this paper shows first that: (a) improved household health and reduced water collection times are associated with better service design and construction: (b) well-designed services involve more community members in the design process and final decision-making about service type; and (c) well-constructed services have effective mechanisms to monitor household contributions to construction. The paper then shows that these service-level institutions are endogenously determined: in communities with higher levels of social capitalin particular, with more active community groups and associationsdesign participation is more likely to be high and monitoring mechanisms are more likely to be in place. This suggests a way to place an economic value on this form of social capital in the context of water projects: as the net present value of the marginal increase in health associated with active critic associations. These results suggest that designers and supervisors of community-based water projects need to pay special attention to the prevailing levels of social capital as one of the factors that will influence performance. When targeting a range of communities, the allocation of investment resources for water services programs may need to be adjusted to take into account the lack of this form of social capital in some villages: possible adjustments include increased investments in social mobilization efforts (for example, through the strengthening of local organizations) and in more direct supervision to oversee system performance.

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Jonathan Isham

Satu Kahkonen

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This paper extends the now familiar Shapiro-Stiglitz (1984) model of labor market behavior to reconsider the controversial proposition that some forms of innovation have persistent displacement effects. In particular, it finds that when distinctions between random production failures and reduced effort level are difficult to draw, the adoption f new methods of production that compel more effort, break down more often and/or allow for closer supervision will sometimes induce technological joblessness. The possible magnitude of such dislocation, its welfare effects and the possibilities for invention are then discussed in detail.

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"Shotgun!"

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Paul Sommers

Aaron T. Copeland

David J. Greiner

Brian D. McGregor

Laura W. Woodward

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"DOO-WOPoly"

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Endogenouse Social Preferences

A long-standing discussion in economics has developed around the issue of whether institutions (specifically markets) affect people social preferences. One theory posits that markets force people to interact repeatedly, and in doing do reduce anonymity, curtail opportunistic behavior, and make agents more socially minded. The opposing view contends that markets are alienating because they make interactions more (not less) anonymous and competition erodes peoples preferences to engage in selfless, group-beneficial acts. This paper presents the results of an experiment designed to quantify the extent to which different aspects of markets affect peoples social preferences by varying the level of anonymity, the incentive to reciprocate friendly acts, and the degree of competition. We find that reducing anonymity does make people more social, but mostly because reducing anonymity reduces peoples ability to engage in opportunistic acts. More importantly, we find that market competition erodes social preferences through two mechanisms. First, market competition encourages opportunistic behavior which creates a less friendly atmosphere and second, controlling for the first effect the market institution itself decreases the other-regardingness of our participants.

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Recent panel data is used to reconsider the determinants of interstate differences in the ratio of insured to total unemployment. We conclude that previous research on the influence of replacement rates, duration of jobless spells and female labor force participation is robust, but find that political affiliations and attitudes could be more important, and unionization rates less important, than once believed.

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Ivan T. Kandilov

Bradford Maxwell

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Paul Sommers

Saad Kamal

Fahim Ahmed

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Screen Tests

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The notion that Marx neither understood nor advocated the use of mathematics is a persistent one. His interest in both commercial and abstract mathematics spanned more than two decades however, and culminated in two "contributions" to the foundations of the calculus: "On the Concept of the Differential" (1881). A detailed examination of these and other technical notebooks suggests that Marx's economics both motivated and informed his studies in mathematics and that these, in turn, influenced his understanding of economic phenomena.

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Do the characterisitics of local social structures affect fertilizer adoption among rural households? This paper extends the model of technology adoption of Feder and Slade (1984) to incorporate social capital, and then tests the model with household data from two agro-ecological zones in rural Tanzania. Probit estimates of the model show that the probability of adoption of improved fertilizer in 1994-95 in the Central Plateau region in increasing in land under cultivation, cumulative adoption patterns, ethnically-based social affiliations, the adoption of improved seeds, the availability of credit and extension services, and the average years of residence in the village. In the Plains region, this probability is increasing in land under cultivation, ethnically based social affiliations and consultative norms. Overall, these results, which are robust after testing for the likely reverse causality of land under cultivation, support the finding that ethnically based and participatory social affiliations act as forms of social capital in the adoption decision.

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The Writing on the Wall

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Following Ehrenberg and Bognanno (1990a, b), this paper explores the role of incentives on the 2000 LPGA Tour. Overall, it finds them to have limited effectiveness. Several possible explanations are considered, including unmeasured differences in both abilities and courses and variations in the distribution of prizes across tournaments. The existence of a superstar effect is also considered.

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Paul Sommers

Francisco Peschiera

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The stylized facts of ultimatum bargaining in the experimental lab are that offers tend to be near an equal split of the surplus and low, near perfect offers are routinely rejected. Bimmore et al (1995) use aspiration-based evolutionary dynamics to model the evolution of fair play in a binary choice version of this game, and show that incredible threats to reject low offers persist in equilibrium. We focus on two possible extensions of this analysis: (1) the model makes assumptions about agent motivations (aspiration levels) and the structure of the game (binary strategy space) that have not yet been tested experimentally, and (2) the standard dynamic is based on the problematic assumption that unhappy games who switch strategies may end up using the same strategy that was just rejected. To examine the implications of not allowing agents to switch back to their original strategy, we develop a no switchback dynamic and run a new, binary choice, experiment with induced aspirations. We find that the resulting dynamic predicts the evolution of play better than the standard dynamic and that aspirations are a significant motivator for our participants.

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Is public or private sector provision of water more likely to succeed in urban areas of Cambodia? Using quantitative and qualitative data from a range of surveys and technical assessments, this paper compares consumer satisfaction and technical performance of four private and four public utilities in Cambodia. The results indicate that households served by private utilities are significantly more satisfied with the piped water than customers of public utilities: the daily availability and quality of piped water is better and service interruptions are less frequent. This has not happened by accident. Private utilities hire more educated staff whom they pay higher salaries; maintain their facilities on a more regular basis; and implement quality control programs more diligently. Private sector operators seem to face stronger incentives than public utilities to keep their customers satisfied. However, this improved service does not come for free and, consequently, does not yet reach all the available households. Households served by private utilities pay significantly more for piped water services, and some lower-income households that are not served by private utilities are partially limited by the high connection fees (as opposed to the regular monthly payments). Overall, while this recent effort to introduce private sector involvement in the water sector in Cambodia is encouraging, the full gains have not yet been realized. The commercial incentive for improved performace will likely be stronger if the privatization option used is a lease or concession arrangement; if there is more competition in the water market; and if the regulatory structure in Cambodia encourages commercial incentives to be more demand-responsive and cost conscious. Under these conditions, the private sector is a good bet.

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Jonathan Isham

Mike Garn

Satu Kahkonen

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The introduction of effort inducible and no effort: workers into a standard labor discipline model results in a paradox of sorts: if firms/capitalists cannot tell the difference, the predictable reductions in both output and workers compensation lead to an increase in profits. The resolution is found in the difference in expected productivities of workers woth and without contracts, which creates a reputation effect. When the relative proportions of workers are made variable the consequence of the acquisition and depreciation of productive skills, and a source of positive feedback the model exhibits multiple equlibria for plausible parameter values.

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Recently economists have become interested in why people who face social dilemmas in the experimental lab use the seemingly incredible threat of punishment to deter free riding. Three theories have evolved to explain punishment. We survey each theory and se behavioral data from surveys and experiments to show that the theory called social reciprocity in which people punish norm violators indiscriminately explains punishment best. We also show that social reciprocity can evolve in a population of free riders and contributors if the initial conditions are favorable.

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Experimental studies of two-person sequential bargaining demonstrate that the concept of subgame perfection is not a reliable point predictor of actual behavior. Alternative explanations argue that 1) fairness influences outcomes and 2) that bargainer expectations matter and are likely not to be coordinated at the outset. This paper examines the process by which bargainers in two-person dyads coordinate their expectations on a bargaining convention and how this convention is supported by the seemingly empty threat of rejecting positive but small subgame perfect offers. To organize the data from this experiment, we develop a Markov model of adaptive expectations and bounded rationality. The model predicts actual behavior quite closely.

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We ask whether conformity, copying the most observed behavior in a population, can affect free riding in a public goods situation. Our model suggests that, if free riding is sufficiently frequent at the start of a public goods game, conformity will increase the growth rate of free riding. We confirm this prediction in the experimental lab by showing that more free riding occurs when players have information about the distribution of contributions than when players know only the aggregate contribution level. As a stricter test, we econometrically estimate the dynamic on which the model is based and find that, controlling for the payoff incentive to free ride, players react significantly to the number of free riders in their groups. Further, conformity is significantly stronger when players have more information about the choices of others.

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Standard game theoretic models predict, based on subgame perfection, that public goods will not be provided even if agents are allowed to monitor free riders at some cost. Further, because punishment is not credible in these environments, this prediction is invariant to the size of groups. However, there is now substantial evidence that people are reciprocally motivated and will punish free riders, regardless of the material costs of doing so. To examine the implications of reciprocally-minded agents, we simulate an environment populated with the behavioral strategies often seen in the experimental lab and use the simulation to develop hypotheses that are more specific about why group size should matter when sanctions are allowed. We then test these hypotheses experimentally using the voluntary contribution mechanism. We examine whether the effect of group members or if information about other group members is what is important. We find large groups provide public goods at levels no less than small groups because punishment does not fall in large groups. However, hindrances to monitoring do reduce the provision of the public good.

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