does early child care affect children s development we study how early child care ecc affects children s development in a marginal treatment effect framework that allows for rich forms of observed and unobserved effect heterogeneity exploiting a reform in germany that induced school districts to expand ecc at different points in time we find strong but diverging effects on children s motor and socio emotional skills children who were most likely to attend ecc benefit in terms of their motor skill development children who were least likely to attend ecc gain in terms of their socio emotional skill development especially boys and children from disadvantaged families such as those with low education or migration backgrounds simulating expansions of ecc we find that a moderate expansion fosters motor skills for all children and language skills for boys and immigrant children a progressive expansion of ecc improves all children s socio emotional development but neither their motor skills nor their language skills

educational assortative mating and household income inequality we use data from denmark germany norway the united kingdom and the united states to document the degree of educational assortative mating how it evolves over time and the extent to which it d

evaluating education programs that have lotteried admission and selective attrition we study the effectiveness of magnet programs in an urban district that ration excess demand by admission lotteries differential attrition arises since students who lose the lottery are more likely to pursue options outside the school district than students who win the lottery when students leave the district important outcome variables are often not observed the treatment effects are not point identified we exploit known quantiles of the outcome distribution to construct informative bounds on treatment effects we find that magnet programs improve behavioral outcomes but have no significant effect on achievement

firm size wage differentials in the netherlands an unsolved problem in modern labor economics is the positive relation between the size of the firm in which a worker is employed and his wage one line of research that has been developed quite recently in this field is the application of endogenous switching regression models in this paper we utilize such a model to investigate firm size wage differentials in the netherlands the principal findings are that larger firms pay higher returns on schooling whereas smaller firms tend to reward iq combined with the finding that high iq workers are sorted into the largest firms the results are consistent with a model of job screening furthermore we find that employed sons of self employed fathers are more likely to work in small firms and that wage prospects for all types of workers are indeed most favorable in larger firms

default effect versus active decision evidence from a field experiment in los alamos abstract we examine how consumers respond to distinct combinations of preset defaults and subsequent economic incentives a randomised controlled trial is implemented to investigate the demand reduction performance of two electricity pricing programmes opt in and opt out critical peak pricing both the intention to treat and the treatment on the treated are more pronounced for customers assigned to the opt in group and the opt in treatment effects are relatively more persistent over repeated interventions this result suggests that the opt in type active enrolment itself had an impact on customers subsequent behaviour and made them more responsive to the treatment interventions moreover only the opt in treatment has significant effects beyond the treatment time window our results therefore highlight the important difference between an active and a passive decision making process we also estimate a marginal treatment effect model to inform the external validity of our experiment

schools skills and synapses american society is polarizing proportionately more american youth are graduating from college than ever before at the same time american born youth are graduating from high school at lower rates than 40 years ago this paper reviews and interprets these trends the origins of inequality are examined and policies to alleviate it are analyzed families play a powerful role in shaping adult outcomes the accident of birth is a major source of inequality recent research by cunha and heckman 2007a 2008b shows that about half of the inequality in the present value of lifetime earnings is due to factors determined by age 18 compared to 50 years ago relatively more american children are being born into disadvantaged families where investments in children are smaller than in advantaged families policies that supplement the child rearing resources available to disadvantaged families reduce inequality and raise productivity

financial intermediation business failures and real business cycles in this paper a general equilibrium business cycle model is construct ed that when subjected to real disturbances mimics observed qualita tive comovements among real output money business failures risk pr emia intermediary loans and prices in contrast monetary disturban ces generate cycles that have several inconsistencies with empirical evidence thus providing support for real business cycle theory at th e expense of monetary theories of the business cycle financial inter mediation arises endogenously in the model and intermediation matters for business cycle behavior a credit supply mechanism acts in tande m with an intertemporal substitution effect in propagating stochastic disturbances copyright 1987 by university of chicago press

mother s education and the intergenerational transmission of human capital evidence from college openings we examine the effect of maternal education on birth outcomes using vital statistics natality data from 1970 to 1999 we also assess the importance of four channels through which maternal education may improve birth outcomes use of prenatal care smoking marriage and fertility in an effort to account for the endogeneity of education attainment we use data about the availability of colleges in the womans country in her 17th year as an instrument for maternal education we find that higher maternal education improves infant health as measured by birth weight and gestational age it also increases the probability that a new mother is married reduces parity increases use of prenatal care and reduces smoking suggesting that may be important pathways for the ultimate effect on health our results add to the growing body of literature which suggests that estimates of the returns to education which focus only on increases in wages understate the total return

compulsory education and the benefits of schooling causal estimates of the benefits of increased schooling using u s state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts differential changes across states during this period such as relative school quality improvements suggest that this assumption may fail to hold across a number of outcomes including wages unemployment and divorce we find that statistically significant causal estimates become insignificant and in many instances wrong signed when allowing year of birth effects to vary across regions

conscription and the returns to education evidence from a regression discontinuity in 1997 the french government put into effect a law that permanently exempted young french male citizens born after jan 1 1979 from mandatory military service while still requiring those born before that cutoff date to serve this paper uses a regression discontinuity design to identify the effect of peacetime conscription on education and labor market outcomes results indicate that conscription eligibility induces a significant increase in years of education which is consistent with conscription avoidance behavior however this increased education does not result in either an increase in graduation rates or in employment and wages additional evidence shows conscription has no direct effect on earnings suggesting that the returns to education induced by this policy was zero

eliciting and utilizing willingness to pay evidence from field trials in northern ghana we utilize the becker degroot marschak 1964 mechanism to estimate the willingness to pay for clean drinking water technology in northern ghana the bdm mechanism has attractive properties for empirical research allowing us to directly estimate demand compute heterogeneous treatment effects and study the screening and causal effects of prices with minor modifications to a standard field experiment setting we demonstrate the implementation of bdm along these three dimensions compare it to the standard take it or leave it method for eliciting willingness to pay and discuss practical issues for implementing the mechanism in true field settings jel classifications c93 d12 d82 l11 l31

marital status and earnings of young men a model with endogenous selection it is a matter of course in applied labor economics to presume that marital status is a predetermined contributor to earnings among young males we find no evidence to support that proposition we estimate a model of earnings determination that permits endogenous selection of marital status our estimates are based on a sample of young employed males from the michigan panel survey of income dynamics they indicate that marital status viewed in this manner does not significantly shift the mean earnings profile our sensitivity tests indicate that this conclusion is robust with respect to a variety of alternative specifications excerpt

estimates of the economic returns to schooling from a new sample of twins this paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling the data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent a higher estimate of the economic returns to schooling than has been previously found copyright 1994 by american economic association

estimating marginal returns to education this paper estimates marginal returns to college for individuals induced to enroll in college by different marginal policy changes the recent instrumental variables literature seeks to estimate this parameter but in general it does so only under strong assumptions that are tested and found wanting we show how to utilize economic theory and local instrumental variables estimators to estimate the effect of marginal policy changes our empirical analysis shows that returns are higher for individuals with values of unobservables that make them more likely to attend college we contrast our estimates with iv estimates of the return to schooling

estimating the ex ante expected returns to college rather than estimating the returns to obtaining a college degree this paper treats the college education decision as an uncertain investment involving varying likelihoods of successful graduation we predict earnings conditional on both graduating and not graduating from both selective and non selective institutions and incorporate estimated individual specific graduation rates in calculating the ex ante expected returns from college attendance for individuals across the ability distribution our results suggest that especially for lower ability students ex ante returns may differ substantially from typical estimates of the returns to a college degree and typical estimates of the selectivity premium may be underestimated

selection on moral hazard in health insurance economic analysis of market failure in insurance markets tends to analyze selection and moral hazard as distinct phenomena in this paper we explore the potential for selection on moral hazard in insurance markets by this we mean the possibility that moral hazard effects are heterogenous across individuals and that individuals selection of insurance coverage is affected by their anticipated behavioral response to coverage we examine these issues empirically in the context of employer provided health insurance in the united states specifically we break down the general

news droughts news floods and u s disaster relief this paper studies the influence of mass media on u s government response to approximately 5 000 natural disasters occurring between 1968 and 2002 these disasters took nearly 63 000 lives and affected 125 million people per year we show that u s relief depends on whether the disaster occurs at the same time as other newsworthy events such as the olympic games which are obviously unrelated to need we argue that the only plausible explanation of this is that relief decisions are driven by news coverage of disasters and that the other newsworthy material crowds out this news coverage

tight average revenue regulation can be worse than no regulation price regulation of a multi market monopolist with the cap based on average revenue can cause welfare to be below the unregulated level in a model with linear demands and constant but unequal marginal costs a sufficient condition for this welfare effect is that the cap equals the average revenue that would be earned with marginal cost pricing relaxation of the price cap can lower all prices welfare with uniform pricing at the level of the price cap can be above or below the average revenue welfare level

public and private sector wages in the netherlands there is much debate in the netherlands about underpayment of public sector workers relative to private sector workers in this paper we analyze the wage structures in both sectors using an endogenous switching regression model unlike previous dutch studies we find that the earnings prospects of public sector workers are better in the public sector than in the private sector for private sector workers we find the exact opposite their earnings prospects are better in the private sector moreover the allocation over sectors points to comparative advantages

weighting recent performance to improve college and labor market outcomes abstract there is a great deal of policy interest in reducing college dropout rates increasing graduation rates and improving labor market outcomes to this end individual colleges and state university systems use high school grade point averages and class rankings in an effort to offer admission and scholarships to students who are most likely to achieve long run success however a significant fraction of students exhibit steep positive or negative performance trends during high school this study shows that academic performance in later grades is given no greater weight in admissions but is the best predictor of college and labor market outcomes greatly exceeding prior grades and entrance exam scores placing greater weight on later grades and extending application deadlines to allow the consideration of 12th grade performance is shown to significantly alter which students are admitted to college and to improve their expected long run outcomes importantly weighting recent performance does not appear to affect college diversity evidence is presented that the predictive power of later grades is driven primarily by students who experience large negative performance trajectories during high school

the rising college premium in the eighties return to college or return to unobserved ability the changes in the distribution of earnings during the 1980s have been studied extensively the two most striking characteristics of the decade are a a large increase in the college high school wage gap and b a substantial rise in the variance of wage residuals while this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium in its simplest form if higher ability individuals are more likely to attend college then the increase in the college wage premium may be due to a increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college this paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation the results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium the changes in the distribution of earnings during the 1980s have been studied extensively the two most striking characteristics of the decade are a a large increase in the college high school wage gap and b a substantial rise in the variance of wage residuals while this second phenomenon is typically implicitly attributed to an increase in the demand for unobserved skill most work in this area fails to acknowledge that this same increase in demand for unobserved skill could drive the evolution of the measured college premium in its simplest form if higher ability individuals are more likely to attend college then the increase in the college wage premium may be due to an increase in the relative demand for high ability workers rather than an increase in the demand for skills accumulated in college this paper develops and estimates a dynamic programming selection model in order to investigate the plausibility of this explanation the results are highly suggestive that an increase in the demand for unobserved ability could play a major role in the growing college premium there are at least two reasons to be interested in this topic first for policy makers intent on helping the american workforce adjust to the changing wage structure this distinction is crucial if the value added of attending college truly rises they may consider policies aimed at subsidizing the skills learned in college however if it results from an increase in the payoff to other types of skills then policies focused on skill acquisition earlier in life would be more appropriate second it will also aid in understanding the

the contribution of associate s degree holders to u s earnings labor quality productivity and overall economic growth there is substantial evidence on the importance of education as a driver of earnings productivity and economic growth however knowledge of the specific role of associate s degrees in u s economic growth is limited we analyze the sources of u s economic growth and identify the contribution of associate s degree holders to improvements in earnings labor quality productivity and overall economic growth we find evidence that substitution toward workers with associate s degrees has increased u s earnings aggregate labor quality and productivity and that these effects are concentrated in the health care trade and government sectors while the average educational attainment of people entering the labor force has plateaued our results suggest that shifting workers from some college to associate degrees could improve earnings the quality of the workforce productivity and growth potentially without more time spent in school

the demand for and return to education when education outcomes are uncertain this article treats education as a sequential choice that is made under uncertainty a simple model is used to explore the effects of ability high school preparation preferences for schooling the borrowing rate and ex post payoffs to college on the probability of various post secondary college outcomes and the ex ante return to starting college the model motivates an empirical method of accounting for uncertainty about educational outcomes and for nonlinearity in the relationship between years of education and earnings when estimating the expected return to the first year of college

field of study earnings and self selection why do individuals choose different types of post secondary education and what are the labor market consequences of those choices we show that answering these questions is difficult because individuals choose between several unordered alternatives even with a valid instrument for every type of education instrumental variables estimation of the payoffs require information about individuals ranking of education types or strong additional assumptions like constant effects or restrictive preferences these identification results motivate and guide our empirical analysis of the choice of and payoff to field of study our context is norway s post secondary education system where a centralized admission process covers almost all universities and colleges this process creates credible instruments from discontinuities which effectively randomize applicants near unpredictable admission cutoffs into different fields of study at the same time it provides us with strategy proof measures of individuals ranking of fields taken together this allows us to estimate the payoffs to different fields while correcting for selection bias and keeping the next best alternatives as measured at the time of application fixed we find that different fields have widely different payoffs even after accounting for institutional differences and quality of peer groups for many fields the payoffs rival the college wage premiums suggesting the choice of field is potentially as important as the decision to enroll in college the estimated payoffs are consistent with individuals choosing fields in which they have comparative advantage we also test and reject assumptions of constant effects or restrictive preferences suggesting that information on next best alternatives is essential to identify payoffs to field of study

wages experience and seniority in this paper we study the sources of wage growth we identify the contribution to such growth of general sector specific and firm specific human capital our results are interpretable within the context of a model where the returns to human capital may be heterogeneous and where firms may offer different combinations of entry level wages and firm specific human capital development we allow for the possibility that wages are match specific and that workers move jobs as a result of identifying a better match to estimate the average returns to experience sector tenure and firm specific tenure within this context we develop an identification strategy which relies on the use of firm closures our data source is a new and unique administrative data set for germany that includes complete work histories as well as individual characteristics we find positive returns to experience and firm tenure for skilled workers the returns to experience for unskilled workers are small and insignificant after 2 years of experience their returns to sector tenure are also zero however their returns to firm tenure are substantial in this paper we study the growth of wages of young workers in germany knowing the extent and reasons for individual wage growth over the life cycle is important for a number of areas in economics just to mention two examples first it is a key element to understanding and designing active labour market programmes many such programmes offer temporary and often subsidized work opportunities examples are the new deal in the u k and the swedish programmes as well as a number of programmes in germany these programmes are based on the assumption that general skills are sufficiently enhanced while working so as to render the workers employable without a wage subsidy thus the success of these programmes depends on how skills improve on the job for the target population and whether this skill enhancement is transferable across jobs second it is a key to understanding the benefits and costs of job mobility this in turn matters for a number of policy issues including the design of pension policies relating for example to final salary schemes as a result of this widespread interest a large body of empirical research has focused on obtaining estimates for the returns of experience and seniority 1 our study uses a new and unique administrative data set with a number of features that are important for our analysis and allow us to avoid many problems encountered in earlier work in this field in our model wages grow due to learning by doing which may be heterogeneous across individuals moreover since firms offer different career profiles and because we allow for match specific effects on wages investments take the form of searching for the firm with the most desirable learning by doing characteristics career structure 2

the distribution of lifetime earnings returns to college i use swedish registry data to estimate lifetime earnings returns to college and how they vary with observed and unobserved characteristics the richness of the data also allows me to examine heterogeneity with respect to cognitive and noncognitive ability and parental earnings local instrumental variable analysis is used to recover marginal and average treatment effects under selection on gains the findings support the notion of self selection but mainly on observed characteristics returns vary little with parental earnings but substantially with respect to both cognitive and noncognitive ability thus suggesting important complementarities between formal schooling and informal skills

can training and employment subsidies combat european unemployment active policy evaluation problems methods and results european countries with poorly performing labour markets and labour market institutions conducive to high unemployment also feature considerable expenditures on active labour market policy and such policies are emphasized by the european union s employment strategy however the practice of these programmes evaluation is much less well developed in europe than in the united states we outline key issues facing such evaluation and offer a review and formal assessment of european evaluation studies over the last three decades we find that programme effects are very heterogeneous across types of interventions and target groups that training and job search assistance can be effective and that the young among the unemployed are typically difficult to assist jochen kluve and christoph m schmidt

third party certification and the effectiveness of voluntary pollution abatement programs evidence from responsible care we analyze whether third party certification has been successful in improving the performance of voluntary pollution abatement in the responsible care rc program which made certification mandatory from 2005 onward we use facility level panel data from 821 plants between 1996 and 2010 and exploit the change in the program requirements to estimate the causal impact of third party certification on participating facility emissions compared to non rc plants in the u s chemical industry we address endogenous selection into rc via instrumental variables and explore heterogeneity in the treatment effect we find that on average there is no statistically discernible effect of third party certification on facility emissions and that this result is robust to a variety of models that correspond to different assumptions related to identification jel q53 q58 l60

hybrid revenue caps and incentive regulation abstract this paper analyzes the incentive effects of a hybrid revenue cap on a regulated monopolistic firm using non discriminatory two part pricing it is shown that the fixed and the variable part of the cap have different meanings in terms of regulation the fixed part of a hybrid revenue cap should be used to control the profit level of the regulated firm while the variable part should be used to control the social efficiency level since detailed information about the firm s cost function is required to determine the revenue cap parameters the overall conclusion is that revenue caps are a rather bad idea in the area of incentive regulation

monotone instrumental variables with an application to the returns to schooling for fifty years econometric analyses of treatment response have made extensive use of instrumental variable iv assumptions holding that mean response is constant across specified subpopulations of a population of interest 2 yet the credibility of mean independence conditions and other iv assumptions has often been a matter of considerable disagreement with much debate about whether some covariate is or is not a valid instrument in an application of interest there is therefore good reason to consider weaker but more credible assumptions to this end we introduce monotone instlumental variable miv assumptions holding that mean response varies weakly monotonically across specified subpopulations we study the identifying power of these miv assumptions and give an empirical application the findings reported here add to the literature developing nonparametric bounds on treatment effects 3 this paper uses the same formal setup as manski 1997 there is a probability space j x2 p of individuals each member j of population j has observable covariates xi e x and a response function yj t y mapping the mutually exclusive and exhaustive treatments t e t into outcomes yj t e y person j has a realized treatment zj e t and a realized outcome y 1 y zi both of which are observable the latent outcomes yj t

upper secondary school completion and the business cycle previous evidence suggests that enrollment in post compulsory education increases decreases in cyclical downturns upturns however little evidence exists on whether enrollment is successfully transformed into completed education this paper adds to the literature by analyzing the relationship between completion of upper secondary education and regional unemployment using norwegian regional panel data on students graduating from compulsory school between 1981 and 2004 we find robust evidence that completion rates are countercyclical our results suggest that poor labor market conditions when starting upper secondary education have a lasting effect and motivate students to stay in school and graduate

juvenile incarceration human capital and future crime evidence from randomly assigned judges over 130 000 juveniles are detained in the united states each year with 70 000 in detention on any given day yet little is known about whether such a penalty deters future crime or interrupts social and human capital formation in a way that increases the likelihood of later criminal behavior this article uses the incarceration tendency of randomly assigned judges as an instrumental variable to estimate causal effects of juvenile incarceration on high school completion and adult recidivism estimates based on over 35 000 juvenile offenders over a 10 year period from a large urban county in the united states suggest that juvenile incarceration results in substantially lower high school completion rates and higher adult incarceration rates including for violent crimes in an attempt to understand the large effects we found that incarceration for this population could be very disruptive greatly reducing the likelihood of ever returning to school and for those who do return significantly increasing the likelihood of being classified as having an emotional or behavioral disorder jel codes k140 i210

investment over the business cycle insights from college major choice this paper examines the relationship between individuals personal exposure to economic conditions and their investment choices in the context of human capital focusing on bachelor s degree recipients we find that birth cohorts exposed to higher unemployment rates during typical schooling years select majors that earn higher wages that have better employment prospects and that more often lead to work in a related field much of this switching behavior can be considered a rational response to di erences in particular majors labor market prospects during a recession however higher unemployment leads to other meaningful changes in the distribution of majors conditional on changes in lifetime expected earnings recessions encourage women to enter male dominated fields and students of both genders pursue more dicult majors such as stem fields these findings imply that the economic environment changes how students select majors possibly by encouraging them to consider a broader range of possible degree fields finally in the absence of this compensating behavior we estimate that the average estimated costs of graduating in a recession would be roughly ten percent larger jel e32 i23 j22 j24

heterogeneous economic returns to post secondary degrees evidence from chile we analyze the economic returns to post secondary degrees in chile we posit a schooling decision model with unobserved ability degree specific tuition costs and earnings we use administrative records to carry out our empirical analysis our results show positive average returns to post secondary education especially for five year degrees however we also uncover significant heterogeneity we document how unobserved characteristics ability determine the economic benefits of first and second best choices even leading to negative returns to post secondary degrees our findings illustrate the importance of allowing for heterogeneous treatment effects and individuals choices when examining the returns to education

growth effects of currency mismatches evidence from emerging economies this article investigates empirically the effects of currency mismatches on economic growth and volatility of growth in emerging market economies using the arellano bond dynamic panel data approach the analyses provide evidence on the presence of adverse growth effects of currency mismatches this illustrates the crucial role played by foreign currency denominated debts in the propagation mechanism of contractionary depreciations in emerging economies in the last decade further evidence from estimations implies that the adverse effects of mismatches on growth and growth volatility are more pronounced with higher exchange rate fluctuations

correlation consumption confusion or constraints why do poor children perform so poorly the economic and social mobility of a generation may be largely determined by the time it enters school given early developing and persistent gaps in child achievement by family income and the importance of adolescent skill levels for educational attainment and lifetime earnings after providing new evidence of important differences in early child investments by family income we study four leading mechanisms thought to explain these gaps an intergenerational correlation in ability a consumption value of investment information frictions and credit constraints in order to better determine which of these mechanisms inf uence family investments in children we evaluate the extent to which these mechanisms also explain other important stylized facts related to the marginal returns on investments and the effects of parental income on child investments and skills

the use of nonlinear hedging strategies by us oil producers motivations and implications abstract this paper investigates the motivations and value effect of nonlinear hedges using a new dataset on the hedging activities of 150 u s oil producers we present empirical evidence that nonlinear hedging strategies are motivated by sensitivities of firm s investment expenditures and revenues to oil price fluctuations and quantity price correlation we also find a non monotonic relationship between the use of nonlinear hedges and financial constraints investment opportunities production uncertainty and changes in oil prices and volatilities also play a significant role in hedging strategy choice controlling for bias related to omitted variables and self selection in the estimation of marginal treatment effects of hedging strategy choice we find that oil producers with a higher propensity to use pure nonlinear hedging strategies tend to have higher marginal firm value

asymmetric information incentives and price cap regulation a regulatory incentive mechanism is presented in which the regulated firm has superior information about both cost and demand compared to the regulator the mechanism leads to truthful revelation of the demand function and extracts all rents due to private demand information in a nondistorting way the scheme assumes that the regulator can observe lagged expenditures by the firm this mechanism leads to efficient pricing operating and investment behavior by the firm finally it is shown that the mechanism is closely related to recent proposals for price cap regulation and that under certain assumptions simple modifications of these proposals will lead to the mechanisms discussed herein

estimating the benefits of targeted r d subsidies we study the expected welfare effects of targeted r d subsi dies using project level data from finland we model the application and r d investment decisions of firms and the subsidy granting decision of the public agency in charge of the program our model and institutional environment allow us to identify different benefits and costs of the r d subsidy program we find that expected effects of subsidies are very het erogeneous and estimated application costs low on average the social rate of return on targeted subsidies is 30 to 50 but spillover effects of subsidies are smaller than effects on firm profits

evaluating marginal policy changes and the average effect of treatment for individuals at the margin this paper develops methods for evaluating marginal policy changes we characterize how the effects of marginal policy changes depend on the direction of the policy change and show that marginal policy effects are fundamentally easier to identify and to estimate than conventional treatment parameters we develop the connection between marginal policy effects and the average effect of treatment for persons on the margin of indifference between participation in treatment and nonparticipation and use this connection to analyze both parameters we apply our analysis to estimate the effect of marginal changes in tuition on the return to going to college

decomposing economic mobility transition matrices the intergenerational mobility literature has consistently found that the distribution of adult economic outcomes differ markedly depending on parental economic status yet much remains to be understood about the drivers or determinants of this relationship existing literature on potential drivers focuses primarily on mean effects to help provide a more complete picture of the potential forces driving economic persistence we propose a method to decompose transition matrices and related indices specifically we decompose differences between an estimated transition matrix and a benchmark transition matrix into portions attributable to differences in characteristics between individuals from different households a composition effect and portions attributable to differing returns to these characteristics between individuals from different households a structure effect we also incorporate a detailed decomposition based on copula theory that decomposes the composition effect into portions attributable to specific covariates and their interactions we illustrate our method using data on white men from the 1979 national longitudinal survey of youth estimation is based on an extended mincer equation that includes cognitive and non cognitive measures to address the potential endogeneity of education we implement an iv strategy that allows us to estimate causal effects and investigate the role of unobserved ability

a little paradox in the design of regulatory mechanisms several incentive mechanisms have been suggested in the literature to induce regulated monopolists to choose welfare maximiz ing prices and cost levels for their services among the desirable pr operties of such mechanisms is that their application should be contr ollable by third parties verifiability a mechanism recently de signed by sappington and sibley 1988 incremental surplus subsidy which is otherwise ideal in its properties fails to be verifiable a verifiable crude first order approximation to this mechanism retains some but lacks other of the nice properties possessed by increment al surplus subsidy this paper therefore analyzes closer second orde r approximations to incremental surplus subsidy paradoxically thes e approximations in a crucial sense are shown to perform worse than t he cruder approximation copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

policy relevant treatment effects accounting for individual level heterogeneity in the response to treatment is a major development in the econometric literature on program evaluation a substantial body of empirical evidence demonstrates that econometric models fit on individual level data manifest heterogeneity in treatment effects that is present even after conditioning on observables an important distinction is the one between evaluation models where participation in the program being evaluated is based at least in part on unobserved idiosyncratic responses to treatment and models where participation is not based on unobserved idiosyncratic responses this is the distinction between selection on unobservables and selection on observables the validity of entire classes of evaluation estimators hinges on whether or not they allow agents to act on unobserved idiosyncratic responses in a wide variety of applications the available evidence suggests that not only are ex post postenrollment responses heterogeneous but that ex ante decisions to participate in programs are based in part on these heterogeneous responses heckman and vytlacil 2000b 2001

the returns to criminal capital human capital theory posits that individuals increase their labor market returns through investments in education and training this concept has been studied extensively across several disciplines an analog concept of criminal capital the focus of some speculation and limited empirical study remains considerably less developed theoretically and methodologically this article offers a formal theoretical model of criminal capital indicators and tests for greater illegal wage returns using a sample of serious adolescent offenders many of whom participate in illegal income generating activities our results reveal that consistent with human capital theory important illegal wage premiums are associated with investments in criminal capital notably an increasing but declining marginal return to experience and a premium for specialization furthermore as in studies of legal labor markets we find strong evidence that if left unaccounted for nonrandom sample selection causes severe bias in models of ille

labor market returns to two and four year college the paper examines labor market returns to a two and four year college education analysis of the 1972 national longitudinal survey of youth observation that the average person who attended a two year college earned about 10 percent more than those without any college education comparison with the wages of those who attended a four year college education

micro data heterogeneity and the evaluation of public policy nobel lecture this paper summarizes the contributions of microeconometrics to economic knowledge four main themes are developed 1 microeconometricians developed new tools to respond to econometric problems raised by the analysis of the new sources of micro data produced after the second world war 2 microeconometrics improved on aggregate time series methods by building models that linked economic models for individuals to data on individual behavior 3 an important empirical regularity detected by the field is the diversity and heterogeneity of behavior this heterogeneity has profound consequences for economic theory and for econometric practice 4 microeconometrics has contributed substantially to the scientific evaluation of public policy

the estimation of wage gains and welfare gains in self selection models the authors modify the basic self sele ction model for the effects ofeducation training unions and other activities on wages by including heterogeneity of rewards to the activity i e diffe rences across individuals in the rate of return to the activity the authors sho w that such heterogeneity creates a new form of selectionbias they provide tes ts for its presence and draw out its implications for the wage and welfare gains to the activity an empirical application provides strong support for such hete rogeneityin one particular training program copyright 1987 by mit press

currency crises and the real economy the role of banks abstract this paper attempts to explain the divergent output effects of currency crises through a very simple and intuitive model that relates the effects of a devaluation not only to the financial fragility of banks but also to the degree of financial market imperfection the model shows that countries with higher degrees of financial market imperfection and or a banking sector whose balance sheets are weak in terms of having low net worth and high foreign currency exposure are much more likely to suffer a contraction in the wake of a currency crisis

viewpoint estimating the causal effects of policies and programs estimation inference and interpretation of the causal effects of programs and policies have all advanced dramatically over the past 25 years we highlight three particularly important intellectual trends an improved appreciation of the substantive importance of heterogeneous responses and of their methodological implications a stronger focus on internal validity brought about by the credibility revolution and the scientific value that follows from grounding estimation and interpretation in economic theory we discuss a menu of commonly employed partial equilibrium approaches to the identification of causal effects emphasizing that the researcher s central intellectual contribution always consists of making an explicit case for a specific causal interpretation given the relevant economic theory the data the institutional context and the economic question of interest we also touch on the importance of general equilibrium effects and full cost benefit analyses

social spillovers in the classroom identification estimation and policy analysis i present a method to jointly estimate social spillovers in the classroom and the distributions of teacher and student effects this method is based on the covariance and higher order moments restrictions of the test scores requiring the random assignment of teachers and students to classrooms using the tennessee project star dataset i estimate sizeable spillovers in kindergarten classrooms and departures from normality of the teacher and student ability distributions the estimates also show that reducing class size has a positive effect on mean performance but it increases the inequality based on these estimates i perform several input neutral policy counterfactuals involving teachers and students assignment rules and changing the distribution of class sizes for the latter i derive an optimal class size distribution rule which increases mean test scores and reduces the overall variance

measuring heterogeneity in the returns to education using an education reform abstract in this paper we explore the impact of a mandatory education reform as well as pre reform availability of schools above the mandatory level on educational attainment and returns to education in norway we contribute to the existing literature by focusing on the heterogeneity of the impact of reforms our results indicate that increased compulsory education from seven to nine years increased the general level of education beyond the compulsory education we also find that the effect of family background on educational attainment was weaker after the reform the average treatment effect on returns to education is surprisingly high for education of intermediate duration this means that increasing the general level of education potentially generates high returns in the form of wages we also find that the effect of treatment on the treated on the returns to education is 1 4 percentage points higher than the average treatment effect

two step estimation and inference with possibly many included covariates we study the implications of including many covariates in a first step estimate entering a two step estimation procedure we find that a first order bias emerges when the number of included covariates is large relative to the square root of sample size rendering standard inference procedures invalid we show that the jackknife is able to estimate this many covariates bias consistently thereby delivering a new automatic bias corrected two step point estimator the jackknife also consistently estimates the standard error of the original two step point estimator for inference we develop a valid post bias correction bootstrap approximation that accounts for the additional variability introduced by the jackknife bias correction we find that the jackknife bias corrected point estimator and the bootstrap post bias correction inference perform excellent in simulations offering important improvements over conventional two step point estimators and inference procedures which are not robust to including many covariates we apply our results to an array of distinct treatment effect policy evaluation and other applied microeconomics settings in particular we discuss production function and marginal treatment effect estimation in detail

behavior of output during currency crises abstract this paper documents the behavior of output and its association with other macroeconomic variables in 195 episodes of currency crises in developing countries during 1970 2000 we find that about 60 of the crises are contractionary while the rest are expansionary crises are one and a half times more likely to be contractionary in emerging markets than in other developing economies the number of contractionary crises or their severity does not increase in the 1990s economies which experience capital inflows in the years prior to the crisis or an increase in external debt burden during the crisis are more likely to slow down during crises while those with restrictions on capital flows prior to the crisis or are more open to international trade are less likely to do so the results are robust to different ways of measuring changes in output during crises

the effect of male migration on employment patterns of women in nepal what is the impact of male migration on the labor market behavior of women in nepal the instrumental variable full information maximum likelihood method is applied to data from the 2004 nepal household survey to account for unobserved factors that could simultaneously affect men s decision to migrate and women s decision to participate in the labor market the results indicate that male migration has a negative impact on the level of the labor market participation by women in the migrant sending household there is evidence of substantial heterogeneity based on both observable and unobservable characteristics in the impact of male migration the findings highlight the important gender dimension of the impact of predominantly male migration on the well being of sending households strategies for economic development in nepal should take into account such gender aspects of the migration dynamics

forecasting marketing mix responsiveness for new products abstract before a new product launch marketers need to infer how demand will respond to various levels of marketing mix variables to set an appropriate marketing plan a critical challenge in estimating marketing mix responsiveness from historical data is that the observed decisions were affected by private information possessed by managers about the heterogeneous effects of marketing mix variables on sales the authors refer to this as the slope endogeneity problem such endogeneity differs from the intercept endogeneity problem which has been widely acknowledged in the literature to correct for the slope endogeneity bias the authors develop a conceptually simple control function approach that is amenable to multiple endogenous variables and marketing mix carryover effects the method is applied to forecasting advertising responsiveness in the u s dvd market the results suggest that advertising responsiveness varies substantially across dvd titles and that estimated marketing mix elasticities w

combining matching and nonparametric instrumental variable estimation theory and an application to the evaluation of active labour market policies summary we show how instrumental variable and matching estimators can be combined in order to identify a broader array of treatment effects instrumental variable iv estimators are known to estimate effects only for the compliers representing a subset of the entire population by combining iv with matching we can estimate the treatment effects for the always and never takers as well since in many cases these groups are the endogenous outcome of some assignment process such estimates also help in judging the implications of such a selection process in our application to the effects of participation in active labour market programmes in switzerland we find large and lasting positive employment effects for the compliers whereas the effects for the always and never participants are small in addition the compliers have worse employment outcomes without treatment than those who participate in the programme with or without the intervention under investigation this suggests that the earlier assignment policy of the caseworkers was inefficient in that the always participants were neither those unemployed who would experience the highest expected treatment effects nor those unemployed who had the largest need for assistance copyright 2014 john wiley sons ltd

the long run educational cost of world war ii an important component of the long run cost of a war is the loss of human capital suffered by school age children who receive less education austrian and german individuals who were 10 years old during the conflict or were more directly involved through their parents received less education than comparable individuals from nonwar countries such as switzerland and sweden we also show that these individuals experienced a sizable earnings loss some 40 years after the war which can be attributed to the educational loss caused by the conflict the implied consequences in terms of gross domestic product loss are calculated

tighter average revenue regulation can reduce consumer welfare a monopolist producing for two markets is subject to an average revenue constraint a form of regulation which is relevant to some u k utilities where marginal costs of serving the two markets differ tighter regulation may cause one of the prices to rise as shown by i bradley and c price 1988 a simple linear example demonstrates that total consumer surplus may fall as regulation becomes more stringent copyright 1995 by blackwell publishing ltd

life cycle schooling and dynamic selection bias models and evidence for five cohorts of american males this paper examines an empirical regularity found in many societies that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education we examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it we show that the implicit economic model assumes myopia the intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data we produce an alternative choice theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions

trends in quality adjusted skill premia in the united states 1960 2000 this paper presents new evidence that increases in college enrollment lead to a decline in the average quality of college graduates between 1960 and 2000 resulting in a decrease of 8 percentage points in the college premium the standard demand and supply framework katz and murphy 1992 card and lemieux 2001 can qualitatively account for the trend in the college and age premia over this period but the quantitative adjustments that need to be made to account for changes in quality are substantial furthermore the standard interpretation of the supply effect can be misleading if the quality of college workers is not controlled for to illustrate the importance of these adjustments we reanalyze the problem studied in card and lemieux 2001 who observe that the rise in the college premium in the 1980s occurred mainly for young workers and attribute this to the differential behavior of the supply of skill between the young and the old our results show that changes in quality are as important as changes in prices to explain the phenomenon they document

voting education and the great gatsby curve abstract high inequality goes hand in hand with low intergenerational earnings mobility across countries little is known about why the us is characterized by high inequality and low mobility while the opposite tends to hold for scandinavian countries in an overlapping generations model calibrated to the us education policies are endogenized via probabilistic voting by exploiting cross country variation in the bias in voter turnout towards the educated and elderly the model replicates the negative relation between inequality and public education expenditures and accounts for more than a quarter of the variation in inequality and mobility for the us i find that compulsory voting could foster mobility whereas inequality would be hardly affected

better late than nothing some comments on deaton 2009 and heckman and urzua 2009 two recent papers deaton 2009 and heckman and urzua 2009 argue against what they see as an excessive and inappropriate use of experimental and quasi experimental methods in empirical work in economics in the last decade they specifically question the increased use of instrumental variables and natural experiments in labor economics and of randomized experiments in development economics in these comments i will make the case that this move towards shoring up the internal validity of estimates and towards clarifying the description of the population these estimates are relevant for has been important and beneficial in increasing the credibility of empirical work in economics i also address some other concerns raised by the deaton and heckman urzua papers

the mixing problem in programme evaluation a common concern of evaluation studies is to learn the distribution of outcomes when a specified treatment policy or assignment rule determines the treatment received by each member of a specified population recent studies have emphasized evaluation of policies providing the same treatment to all members of the population in particular experiments with randomized treatments have this objective policies mandating homogenous treatment of the population are of interest but so are ones that permit treatment to vary across the population this paper examines the use of empirical evidence on programs with homogenous treatments to infer the outcomes that would occur if treatment were to vary across the population experimental evidence from the perry preschool project is used to illustrate the inferential problem and the main findings of the analysis

essays in social experimentation what experiments are needed for manpower policy experiments where prospective participants are randomly assigned into experimental and control groups are often regarded as the ideal approach to evaluation of manpower policies this examination shows that such experimental designs can yield misleading and incomplete information about program impacts in cases where program effects vary among individuals when individual heterogeneity is present such designs at best provide unbiased estimates of average program effects not of marginal effects the latter are often more important for policy than the former this paper proposes alternative experimental designs that permit estimation of the marginal as well as average program impacts

the varied economic returns to postsecondary education new evidence from the class of 1972 this paper estimates the returns to postsecondary education using the national longitudinal survey of the class of 1972 with earnings measured at about age 32 the results are based on transcripts rather than self reports about the amount of education allowing postsecondary education to be more precisely described than usual the results confirm the well known returns to b a degrees other credentials associate degrees and certificates for women also lead to higher earnings and wage rates though indirectly these credentials gain individuals access to jobs where they accumulate more experience and on the job training but provide no further advantage once experience and ojt are controlled most individuals who enroll in postsecondary education but fail to complete credentials have no higher earnings than high school graduates the effects of experience high school achievement and family background are familiar the results indicate a fundamental difference between labor markets for college graduates and the sub baccalaureate labor market

coase lecture human capital inequality and tax reform recent past and future prospects even before the financial crisis many developed economies were facing growing inequality and struggling to maintain employment and earnings this paper addresses two key questions what has happened to inequality where will tax and welfare reforms have most impact the uk is used as a running example the analysis suggests that the pattern of sluggish real wages at the bottom looks set to continue and longer term earnings growth will come mainly from high skilled occupations growing earnings inequality will bring increasing pressure on the tax and welfare system a blueprint for a coherent tax policy reform is presented

interpreting instrumental variables estimates of the returns to schooling this article synthesizes economic insights from theoretical models of schooling choice based on individual benefits and econometric work interpreting instrumental variables estimates as weighted averages of individual specific causal effects linkages are illustrated using college proximity to instrument for schooling after characterizing groups differentially affected by the instrument according to family background i directly compute weights underlying estimation of the overall return in analyzing the level of schooling at which individuals change their behavior in response to the instrument i demonstrate that this instrument has its greatest impact on the transition from high school to college specification robustness is also examined

heterogeneity in informal salaried employment evidence from the egyptian labor market survey summary this paper contributes to the continuing debates on the mechanisms driving labor market informality in developing countries by proposing an innovative way to discriminate between segmented and competitive markets an empirical analysis is applied to egyptian paid employment in the highly dynamic context of 1998 2006 the study is based on recent nonparametric methods applied to estimate the model with essential heterogeneity the model is extended to decomposing the treatment effects into unobserved and observed components the results show triple heterogeneity of workers on the egyptian labor market offering support to both segmented and competitive views on informal labor

effects of the change from rate of return to price cap regulation this article focuses on the use of incentive regulation in the telephone industry in the united states we first characterize some of the difficulties that have led regulators to move away from traditional rate ofreturn cost based regulation and toward systems of regulation that provide incentives for increasingly efficient production allowing firms to share in the social gains from efficiency with increased profits we then discuss the basic structure of incentive regulation as it has most commonly been adopted in the telephone industry in the united states the first is price cap pc regulation which typically allows the firm to

education policy and intergenerational transfers in equilibrium this paper compares partial and general equilibrium effects of alternative financial aid policies intended to promote college participation we build an overlapping generations life cycle heterogeneous agent incomplete markets model with education labor supply and consumption saving decisions altruistic parents make inter vivos transfers to their children labor supply during college government grants and loans as well as private loans complement parental transfers as sources of funding for college education we find that the current financial aid system in the u s improves welfare and removing it would reduce gdp by two percentage points in the long run any further relaxation of government sponsored loan limits would have no salient effects the short run partial equilibrium effects of expanding tuition grants especially their need based component are sizeable however long run general equilibrium effects are 3 4 times smaller every additional dollar of government grants crowds out 20 30 cents of parental transfers

experimental identification of asymmetric information evidence on crop insurance in the philippines abstract i study asymmetric information in crop insurance in the philippines using a two level randomized field experiment and incentivized preference elicitation in this first experimental study of moral hazard in non health insurance preventable damages double on randomly insured plots among farmers with high trust in the insurance provider farmers prefer insurance on plots that are at risk of floods and crop diseases a sign of classic adverse selection and plots that are far away from home a sign of selection on anticipated moral hazard behavior resulting in 72 higher payouts on preferred plots overcoming these challenges requires leveraging new technologies

rewarding schooling success and perceived returns to education evidence from india this paper tests two specific mechanisms through which individuals can form expectations about returns to investments in education recognition for schooling performance and exposure to successful students through family or social networks using a regression discontinuity design we study the impact of two fellowship programs recognizing educational performance in secondary schools in india we find that the fellowship award is associated with a significant increase in the perceived value of education by both increasing the perceived mean of earnings 0 74 standard deviations sd and decreasing the perceived variance in earnings 1 03 sd associated with additional years of schooling the effects spill over only selectively to social and family networks peers exposed to successful students do not update their beliefs but parents of fellows report higher perceived returns to education peers of fellows are however more informed about fellowship opportunities and report a higher intention to apply for the fellowship thus contributing to the persistence of the potential impact of the fellowship across different cohorts

the economics of financing higher education different arguments exist pro and contra tax financed subsidies in higher education it has been argued that private incentives to study are sufficiently high while the financing of those subsidies can be deemed regressive as they are co financed by relatively poorer non students alternatively several arguments have been put forward why higher tax financed subsidies are desirable such as externalities and credit constraints this study scrutinizes these different arguments and discusses the implications for the different ways in which higher education can be financed calculations of private returns across the oecd confirm that private incentives to invest in higher education are high however economic theory poses that it is the marginal social return that must guide policy which will reflect both equity and efficiency considerations we assess the potential regressivity of higher education subsidies using different perspectives and assess the different efficiency arguments for government intervention in higher education tax financed subsidies turn out to be regressive in most cases but depending on the perspective and the country under examination discussion of the efficiency arguments is focused on those that are most relevant in light of the empirical evidence and their relevance for the different financing modes externalities uninsurable risk credit constraints and misprediction we conclude that to deal with the more credible failures in higher education tax financed subsidies are blunt instruments for a large share of the countries under consideration shifting towards income contingent loans or graduate taxes appears more appropriate when taking into account both efficiency and equity considerations

regulating without cost information the incremental surplus subsidy scheme the authors propose a regulatory mechanism called the incremental surplus subsidy iss scheme that can be implemented even when the regulato r has no knowledge of the monopolist s cost structure the regulator need only share the firm s knowledge of demand which may be imperfec t and be able to observe with a lag the firm s expenditures the i ss scheme induces the firm to set marginal cost prices to minimize p roduction costs and to undertake efficient investment levels it als o severely limits the firm s rents and eliminates them altogether if the firm s discount rate is known copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

alternative approaches to evaluation in empirical microeconomics four alternative but related approaches to empirical evaluation of policy interventions are studied social experiments natural experiments matching methods and instrumental variables in each case the necessary assumptions and the data requirements are considered for estimation of a number of key parameters of interest these key parameters include the average treatment effect the treatment on the treated and the local average treatment effect some issues of implementation and interpretation are discussed drawing on the labour market programme evaluation literature

accounting for heterogeneity diversity and general equilibrium in evaluating social programmes this paper considers the merits and limitations of alternative criteria proposed to evaluate social programmes in the modern welfare state and the information required to implement them when individual responses to programmes are heterogeneous participation in programmes is based in part on this heterogeneity and the programmes have general equilibrium impacts on the economy particular attention is devoted to the voting criterion used in modern positive political economy and the ranking of alternative social states based on anonymity postulates evidence on heterogeneity is presented conflicts among the criteria are revealed in two empirical studies partial equilibrium approaches are shown to be misleading

the generalized roy model and the cost benefit analysis of social programs the literature on treatment effects focuses on gross benefits from program participation we extend this literature by developing conditions under which it is possible to identify parameters measuring the cost and net surplus from program participation using the generalized roy model we nonparametrically identify the cost benefit and net surplus of selection into treatment without requiring the analyst to have direct information on costs we apply our methodology to estimate the gross benefit and net surplus of attending college

life cycle earnings education premiums and internal rates of return using norwegian population panel data with nearly career long earnings histories we provide a detailed picture of the causal relationship between schooling and earnings over the life cycle to address selection bias we apply three commonly used identification strategies we find that additional schooling gives higher lifetime earnings and a steeper age earnings profile in line with predictions from human capital theory our preferred estimates imply an internal rate of return of around 11 suggesting that it was highly profitable to acquire additional schooling our analysis reveals that mincer regressions dramatically understate the returns to schooling because key assumptions are violated

cap prices or cap revenues the dilemma of electric utility networks abstract in this paper i analyse the behaviour of a monopoly electricity provider that serves three distinct markets under a price cap or revenue cap plan i make comparisons in terms of their effects on price setting energy conservation and social welfare in addition to contravening the ramsey pricing rule i find that under conditions of information asymmetry when demand becomes more elastic or marginal cost increases revenue cap price increases are larger relative to price cap regulation in this specific setting revenue cap price increases can encourage energy conservation but is less likely to do so when marginal cost is large in a market that is more elastic relative to others in contrast to a price cap plan these overall results show that revenue cap schemes are welfare reducing for public policy decision making purposes price cap regulation is more desirable especially in developing economies that often experience substantial inflationary pressures from global oil market developments but is less suitable than revenue cap regulation when electricity supply constraints and climate change are major policy concerns