book review feature public policy in an uncertain world by charles f manski cambridge ma harvard university press 2013 pp 224 39 95 isbn 978 0674066892

why is china different from eastern europe perspectives from organization theory we draw from recent work in organization theory to explain the differences in reform strategies between china and eastern europe an experimentation approach was adopted in china whereas a big bang approach was more favored in eastern europe the explanation is based on differences in the organizational structure of central planning u form in eastern europe and m form in china the m form is more flexible because it makes local experiments possible contrary to the u form where this would give rise to major complications in coordination

tariff and quota reform with international capital mobility in a small open economy with a convex production set international capital mobility raises the cost of tariff protection on one subset of imports if there are irremovable quotas on another given irremovable quotas on one subset of imports free trade is the optimal policy toward all other imports with or without international capital mobility further in the scalar case international capital mobility reduces the optimal implicit excess tariff on the quota constrained import if an irremovable tariff is in place on the other import

rising u s earnings inequality and family labor supply the covariance structure of intrafamily earnings this paper studies the labor supply contributions to individual and family earnings inequality during the period of rising wage inequality in the early 1980 s working couples have positively correlated labor market outcomes which are almost entirely attributable to permanent factors an intertemporal family labor supply model with this feature is used to estimate labor supply elasticities for husbands of 0 05 and wives of 0 40 this implies that labor supply explains little of the rising annual earnings inequality for married men but over 20 percent of the rise in family inequality and 50 percent of the modest rise in female inequality

protection and the harmful effects of endogenous capital flows abstract assume a country has in place a binding tariff and is a price taker on world markets in which capital is internationally mobile and unimpeded regardless of trade patterns possible specificity of capital or factor intensities an increase in the tariff harms the country if capital is frozen and harms the country even more when capital mobility brings rates of return into line among countries

instruments randomization and learning about development there is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development there is skepticism about the ability of econometric analysis to resolve these issues or of development agencies to learn from their own experience in response there is increasing use in development economics of randomized controlled trials rcts to accumulate credible knowledge of what works without overreliance on questionable theory or statistical methods when rcts are not possible the proponents of these methods advocate quasirandomization through instrumental variable iv techniques or natural experiments i argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding two key issues are the misunderstanding of exogeneity and the handling of heterogeneity i illustrate from the literature on aid and growth actual randomization faces similar problems as does quasi randomization notwithstanding rhetoric to the contrary i argue that experiments have no special ability to produce more credible knowledge than other methods and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority i illustrate using prominent experiments in development and elsewhere as with iv methods rct based evaluation of projects without guidance from an understanding of underlying mechanisms is unlikely to lead to scientific progress in the understanding of economic development i welcome recent trends in development experimentation away from the evaluation of projects and toward the evaluation of theoretical mechanisms jel c21 f35 o19

the structure of political institutions and effectiveness of corporate political lobbying this paper investigates how the structure of political institutions influences the effectiveness of corporate political lobbying by shaping the veto points and entry points that lobbying firms encounter and require respectively when attempting to influence public policies in so doing this study deepens our understanding of the strategic implications of institutional environments using large sample and cross country firm level data we find that the influence of firms lobbying activities on public policies is weakened when there are tighter constraints generated as a result of greater political partisan competition and more subnational government tiers we find that the negative association between the effectiveness of lobbying and political partisan competition is particularly pronounced in countries with lower electoral accountability and that the negative association between the effectiveness of lobbying and subnational government tiers is particularly pronounced in more centralized politi

an empirical model of labor supply in a life cycle setting this paper formulates and estimates a structural intertemporal model of labor supply using theoretical characterizations derived from an economic model of lifetime behavior a two step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life cycle wage growth and shifts in the lifetime wage path

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

longer term effects of head start specially collected data on adults in the panel study of income dynamics are used to provide evidence on the longer term effects of head start an early intervention program for poor preschool age children whites who attended head start are relative to their siblings who did not significantly more likely to complete high school attend college and possibly have higher earnings in their early twenties african americans who participated in head start are less likely to have been booked or charged with a crime there is some evidence of positive spillovers from older head start children to their younger siblings language en

a dynamic quantity adjustment process in a small open economy and welfare effects of tariff changes abstract considered an n good small open economy where the technology is strictly convex and ad valorem tariffs are imposed in this world it is known that the tariff utility relationship may be perverse the fact is known as the vanek bhagwati paradox the source of the perversity is found in aggregate income effects the present paper shows that d stability of our dynamic system implies non perverse aggregate income effects and hence the non perverse tariff utility relationship

estimating the effect of unearned income on labor supply earnings savings and consumption evidence from a survey of lottery players this paper provides empirical evidence about the effect of unearned income on earnings consumption and savings using an original survey of people playing the lottery in massachusetts in the mid 1980 s the effects of the magnitude of lottery prizes on economic behavior are analyzed the critical assumption is that among lottery winners the magnitude of the prize is randomly assigned it is found that unearned income reduces labor earnings with a marginal propensity to consume leisure of approximately 11 percent with larger effects for individuals between 55 and 65 years old after receiving about half their prize individuals saved about 16 percent

international capital mobility shadow prices and the cost of protection this paper studies the welfare losses from tariff protection in a small open economy when some factors are internationally mobile our principal result is that international fictor mobility must raise the cost of protection more specifically the welfare loss resulting from a uniform increase in tariffs in a competitive small open economy is greater when tariff induced international factor movements take place than when factors are internationally immobile by contrast an exogen1ous inflow of factors in the presence of tariffs may increase or reduce the welfare loss associated with protection depending on whether or not the protected commodities use the foreign owned factors intensively relative to domestically owned factors these results are proven for a very general specification of the economy s technology in particular no restrictions are placed on the degree of vertical integration in production on the sectors into which factors are internationally mobile or on the number of goods and factors our main result holds whether or not an increase in tariff rates leads the economy to specialise in addition we show how our results relate to earlier work on immiserising capital inflows and on negative shadow prices for factors of production thus synthesizing a number of recent results within a common framework the paper is organised as follows in section 2 we explain our framework and derive expressions for the welfare effects of tariffs when all factors are domestically owned and when some factors are foreign owned but not internationally

how to reform a planned economy lessons from china the countries of eastern europe and the former soviet union have been flooded with advice from the west on how to liberalize their planned econo mies this advice is unfortunately offered in an empirical vacuum no one knows how these econo mies will react to the proposed liberalization meas ures there exists however a neglected source of information china offers a long time series of data over a decade s worth on the effects of reforms on a planned economy china s reforms were gradual but their cumulative effect has been large and they have been remarkably successful china s experiments provide some practical les sons on what kinds of reforms can work elsewhere the dominant school of thought among economists favours the big bang policy of reforming quickly and according to a comprehensive plan partial reforms in this view are useless they will be negated by the remnants of the planning system the proponents of big bang reform have been influential with poland czechoslovakia and rus sia announcing plans for a rapid transition to capi talism

political conditions for reform china vs eastern europe revisited the long literature of former socialist systems concludes that any effort to reform the economy without drastic political change is believed to be doomed to fail because tight political control and nonmarket coordination mechanisms are intertwined with each other indeed the history of economic reform in eastern european countries has confirmed this logic so far however the experiences of china and vietnam seem to have defied this logic we argue that the puzzle of china or vietnam can be explained by the ruling party s strong initial and more efficient control which allow the party to reform the economy without losing political control jel p20 p26 p51

reshaping institutions evidence on aid impacts using a pre analysis plan this brief summarizes the results of a gender impact evaluation study entitled reshaping institutions evidence on aid impacts using a pre analysis plan conducted between 2005 and 2009 in sierra leone the study observed the impact of pre analysis plan pap on local institutions by imposing participation requirements for marginalized groups including women and test for learning by doing effects in sierra leone on the individual and village level requiring women and young adults to take on leadership positions participate in project meetings and sign off on project finances does not have any persistent effect on their participation in local decision making or attitudes regarding leadership ability the project successfully established village organizations and tools to manage the project the distributions of the project s benefits were equitable and leakage was minimal there was a significant positive impact on the stock and quality of local public infrastructure however there are no detectible changes in the ability to raise funds for local public goods decision making process or social norms and attitudes funding for the study derived from the gobifo project the institutional reform and capacity building project ircbp the world bank development impact evaluation dime the horace w goldsmith foundation the international growth center 3ie and the national bureau of economic research nber african successes project

the success and failure of reforms in transition economies this paper argues that an important reason why russia s performance and china s performance under capitalism have differed dramatically is that different arrangements governing the determination of prices and work practices evolved during the transition process in russia the arrangement which conferred monopoly rights to industry groups leftover from socialism prevented the adoption of better technology in china the arrangement that evolved contained no such monopoly elements the key factor in determining which arrangement evolved was the strength of the central government we put forth a model that implements these ideas and provide evidence in support of this theory

the oregon health insurance experiment evidence from the first year in 2008 a group of uninsured low income adults in oregon was selected by lottery to be given the chance to apply for medicaid this lottery provides an opportunity to gauge the effects of expanding access to public health insurance on the health care use financial strain and health of low income adults using a randomized controlled design in the year after random assignment the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected we find that in this first year the treatment group had substantively and statistically significantly higher health care utilization including primary and preventive care as well as hospitalizations lower out of pocket medical expenditures and medical debt including fewer bills sent to collection and better self reported physical and mental health than the control group

the design of reform packages under uncertainty the authors present a model of large scale economic reforms modeled on the transition process in eastern europe with aggregate and individual uncertainty concerning the outcome of reforms the government is assumed to choose the speed and sequencing of reforms the authors compare big bang strategies with gradualist reform packages they show that gradualist reform packages may be easier to get started optimal sequencing of reforms should aim at creating constituencies for further reforms and gradualism may generate a higher investment response because of a lower option value of waiting than would a big bang approach copyright 1995 by american economic association

sensitivity to exogeneity assumptions in program evaluation in many empirical studies of the effect of social programs researchers assume that conditional on a set of observed covariates assignment to the treatment is exogenous or unconfounded aka selection on observables often this assumption is not realistic and researchers are concerned about the robustness of their results to departures from it one approach e g charles manski 1990 is to entirely drop the exogeneity assumption and investigate what can be learned about treatment effects without it with unbounded outcomes and in the absence of alternative identifying assumptions there are no restrictions on the set of possible values for average treatment effects this does not mean however that all evaluations are equally sensitive to departures from the exogeneity assumption in this paper i explore an alternative approach developed by paul rosenbaum and donald rubin 1983 where the assumption of exogeneity is explicitly relaxed by allowing for a limited amount of correlation between treatment and unobserved components of the outcomes the starting point of the sensitivity analysis is the assumption that the exogeneity assumption is satisfied only conditional on an additional unobserved covariate making assumptions about the effect of the unobserved covariate on the outcome and its correlation with the treatment i trace out the set of possible values for the treatment effect of interest by considering a sufficiently large set of possible correlations with outcomes and treatment one can recover the bounds on the treatment effect derived by manski 1990 the approach here in the spirit of rosenbaum and rubin 1983 and rosenbaum 1995 is to allow only a limited amount of correlation and to judge the sensitivity of average treatment effect estimates to such correlations there are two novel features of the proposed analysis first rather than formulate the sensitivity in terms of coefficients on the unobserved covariate the sensitivity results are presented in terms of partial r values which may be easier to interpret second the partial r values of the unobserved covariates are compared to those for the observed covariates in order to facilitate judgments regarding the plausibility of values necessary to substantially change results obtained under exogeneity the proposed sensitivity analysis is conceptually related to the practice of assessing sensitivity of estimates by comparisons with results obtained by discarding one or more observed covariates james heckman and v joseph hotz 1989 rajeev dehejia and sadek wahba 1999 jeffrey smith and petra todd 2001 the attraction of the sensitivity analysis is that it is more directly relevant one is not interested in what would have happened in the absence of covariates actually observed but in biases that are the result from not observing all relevant covariates

how does your kindergarten classroom affect your earnings evidence from project star in project star 11 571 students in tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade this article evaluates the long term impacts of star by linking the experimental data to administrative records we first demonstrate that kindergarten test scores are highly correlated with outcomes such as earnings at age 27 college attendance home ownership and retirement savings we then document four sets of experimental impacts first students in small classes are significantly more likely to attend college and exhibit improvements on other outcomes class size does not have a significant effect on earnings at age 27 but this effect is imprecisely estimated second students who had a more experienced teacher in kindergarten have higher earnings third an analysis of variance reveals significant classroom effects on earnings students who were randomly assigned to higher quality classrooms in grades k 3 as measured by classmates end of class test scores have higher earnings college attendance rates and other outcomes finally the effects of class quality fade out on test scores in later grades but gains in noncognitive measures persist

dynamic hours of work functions for husbands wives and single females hours of work equations are derived from the constrained maximization of a utility function that is not separable over time and that varies with a household s demographic structure these equations are fitted to observations on wage rates nonlabor income and other variables for husbands wives and unmarried women the dependence of each household s current work and consumption behavior upon its work and consumption behavior in the past is examined closely and different interpretations of the relationship are confronted with the data

liberalization endogenous institutions and growth a comparative analysis of agricultural reforms in africa asia and europe thirty years ago a vast share of low and middle income countries was heavily state controlled the liberalizations of the 1980s and 1990s had greatly different effects on growth in countries in africa asia and europe a comparative framework is used to document these differences and a model is developed to formally analyze how liberalization affects production and income distribution when the institutions that govern production and exchange are also affected hypotheses are derived for how endogenous institutional adjustments affect the growth response to liberalization these insights motivate a series of explanations for the differences in performance across regions and commodities following liberalization

international factor mobility minimum wage rates and factor price equalization a synthesis this paper examines the behavior of a small open economy facing perfectly elastic supply curves for some of its productive factors in particular the paper derives some comparative statics properties of such economies compares them with the properties of otherwise identical economies in which all factor prices are determined endogenously and investigates the relationship between factor price rigidities factor price equalization and the pattern of specialization among the new results which are proved it is shown that as more and more factor price rigidities are imposed on an economy it comes closer to a state of factor price equalization

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

growth in transition what we know what we don t and what we should abstract this essay surveys macroeconomic issues that marked the transition from planned to market economy in central and eastern european and former soviet union countries we first establish stylized facts of the transition so far we then critically survey the theoretical literature on transition discussing explanations for the initial output fall and mediumterm issues such as optimal speed of transition disorganization institutions and sectoral reallocation as source of output dynamics we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts we conclude with suggestions for future research

tariffs quotas and voluntary export restraints with and without internationally mobile capital this paper presents a general framework for comparing the effects of tariffs quotas and vers voluntary export restraints both with and without international capital mobility expressions for the shadow price of foreign exchange and the shadow price of capital under each type of trade restriction are derived and it is shown that although international capital mobility raises the welfare cost of tariff protection it lowers the welfare cost of quantitative restrictions in most cases the effects of exogenous shocks in the presence of quotas are intermediate between those in the presence of tariffs and those in the presence of vers tarifs douaniers contingentements et restrictions volontaires d l exportation quand le capital est ou n est pas mobile internationalement l auteur presente un cadre general d analyse qu il utilise pour comparer les effets de tarifs douaniers de contingentements et de restrictions volontaires a l exportation dans des contextes ofu le capital est ou n est pas mobile internationalement l auteur derive le prix fictif du change etranger et le prix fictif du capital sous l un et l autre types de restrictions au commerce et montre que meme si la mobilite internationale du capital augmente le cofut en terme de bien etre de la protection tarifaire elle reduit le cofut en terme de bien etre des restrictions sur les quantites echangees dans tous les cas les effets de chocs exogenes quand des contingentements existent sont toujours dans la fourchette entre ceux qu on observe quand des tarifs douaniers existent et ceux qui prevalent quand des restrictions volontaires i l exportation existent

external increasing returns and the shadow price of foreign exchange abstract this paper shows that under external increasing returns to scale and a strictly concave production possibilities frontier the shadow price of foreign exchange in the presence of a tariff is the same as that in an economy with purely constant returns to scale however with a quota or a voluntary export restraint this shadow price is in general quite different from that in a purely constant returns to scale economy

market structure and multiple equilibria in airline markets we provide a practical method to estimate the payoff functions of players in complete information static discrete games with respect to the empirical literature on entry games originated by bresnahan and reiss 1990 and berry 1992 the main novelty of our framework is to allow for general forms of heterogeneity across players without making equilibrium selection assumptions we allow the effects that the entry of each individual airline has on the profits of its competitors its competitive effects to differ across airlines the identified features of the model are sets of parameters partial identification such that the choice probabilities predicted by the econometric model are consistent with the empirical choice probabilities estimated from the data we apply this methodology to investigate the empirical importance of firm heterogeneity as a determinant of market structure in the u s airline industry we find evidence of heterogeneity across airlines in their profit functions the competitive effects of large airlines american delta united are different from those of low cost carriers and southwest also the competitive effect of an airline is increasing in its airport presence which is an important measure of observable heterogeneity in the airline industry then we develop a policy experiment to estimate the effect of repealing the wright amendment on competition in markets out of the dallas airports we find that repealing thewright amendment would increase the number of markets served out of dallas love

should a team be homogeneous abstract should an organization hire people with similar backgrounds or with different backgrounds we formulate this question within the framework of team theory the team is formed by n agents the type of each agent is endogenous and determines his information structure and his cost for the team we show that the sign of complementarity between jobs determines workforce homogeneity with positive complementarities the team should be composed of agents of the same type while with negative complementarities workforce heterogeneity is optimal these results do not rely on the restrictions on the way uncertainty is modeled or on the feasible set of agent types they can be explained in terms of correlation between errors committed by different agents

protection and the shadow price of foreign exchange with increasing returns and international capital mobility in an economy with an external increasing returns technology and a convex pro duction set international capital mobility reduces the shadow price of foreign exchange if quotas or vers are in force but leaves this shadow price unaltered if tariffs are in place protection et prix de reference des devises etrangeres quand il y rendements croissants et mobilite internationale du capital dans une economie dot6e d une technologie a rendements croissants et d un ensemble de production convexe la mobilit6 internationale du capital r6duit le prix de ref6rence des devises 6trangeres quand on a des contingentements ou des restrictions volontaires a 1 exportation mais laisse le prix de r6f6rence inchange quand on a des droits de douane

learning dynamics and support for economic reforms why good news can be bad support for economic reforms has often shown puzzling dynamics many reforms that began successfully lost public support this paper shows that learning dynamics can rationalize this paradox because the process of revealing reform outcomes is an example of sampling without replacement this concept challenges the conventional wisdom that one should begin by revealing reform winners it may also lead to situations in which reforms that enjoy both ex ante and ex post majority support will still not come to completion the framework can be used to explain why gradual reforms worked well in china where successes in special economic zones facilitated further reform whereas this was much less the case for latin american and central and eastern european countries

measuring the restrictiveness of trade policy this article provides an introduction to the trade restrictiveness index tri which equals the uniform tariff that is welfare equivalent to a given pattern of trade protection unlike standard measures of trade restrictiveness the tri has a solid theoretical basis can incorporate both tariffs and quantitative restrictions and can be adapted to construct the trade policy equivalent of domestic distortions the article compares a number of applications and describes procedures for operationalizing the tri on a personal computer the authors conclude that the tri has considerable potential in empirical work