applying behavioral economics to public policy in canada behavioural economics incorporates ideas from psychology sociology and neuroscience to better predict how individuals make long term decisions often the ideas adopted include present or inattention bias both potentially leading to suboptimal outcomes but these models also point to opportunities for effective low cost government policies that can have meaningful positive effects on people s long term well being the last decade has been marked by a growing interest from governments the world over in using behavioural economics to inform policy decisions this is true of canada as well in this paper we discuss the increasingly important role behavioural economics plays in canadian public policy we first contextualize government policies that have incorporated insights from behavioural economics by outlining a collection of models of intertemporal choice we then present examples of public policy initiatives that are based upon findings in the field placing particular emphasis on canadian initiatives we also document future opportunities challenges and limitations

information school choice and academic achievement evidence from two experiments we examine a natural experiment and a field experiment that provided direct information on school test scores to lower income families in a public school choice plan receiving information significantly increases the fraction of parents choosing higher performing schools parents with high scoring alternatives nearby were more likely to choose nonguaranteed schools with higher test scores using random variation from each experiment we find that attending a higher scoring school increases student test scores the results imply that school choice will most effectively increase academic achievement for disadvantaged students when parents have easy access to test score information and good options from which to choose

behavioral aspects of regulation a discussion on switching and demand response in turkish electricity market electricity sector has been transformed from state owned monopolistic utilities to competitive markets with an aim to promote incentives for improving efficiency reducing costs and increasing service quality to customers one of the cardinal assumptions of the liberalized and competitive electricity markets is the rational actor and decision makers are assumed to make the best decisions that maximize their utility however a vast literature on behavioral economics has shown the weakness of economic theory in explaining and predicting individuals decision making behavior this issue is quite important for competition in electricity markets in which consumers preferences have a significant role despite its importance this issue has almost been neglected in turkey which has taken major steps in electricity sector restructuring therefore this paper aims to examine switching and demand response behavior in turkish electricity market by using multiple correspondence and panel data analysis and findings are discussed in light of the neoclassical and behavioral economics literature analyses results show that consumers switching and demand response behavior is consistent with the neoclassical literature to some extent however behavioral factors are also affecting consumers decisions furthermore there are systemic problems that hinder effective functioning of the electricity market and restrict competition

does adversity affect long term financial behaviour evidence from china s rustication programme abstract this paper examines the long term effects of adversity on financial behaviour it draws on the largest forced migration experiment in history china s rustication programme evidence from the chinese twins survey and chinese household income project shows that rusticated individuals behave conservatively with respect to finances over the long term compared with their age eligible but nonrusticated peers they reduce housing consumption and its share of total assets increase savings accumulate more safe assets and invest less in risky assets such patterns are consistent with evidence from manually collected county gazetteer data possible mechanisms include reduced productivity habit formation and psychological changes

quality matters the expulsion of professors and the consequences for phd student outcomes in nazi germany i investigate the effect of faculty quality on phd student outcomes to address the endogeneity of faculty quality i use exogenous variation provided by the expulsion of mathematics professors in nazi germany faculty quality is a very important determinant of short and long run phd student outcomes a one standard deviation increase in faculty quality increases the probability of publishing the dissertation in a top journal by 13 percentage points the probability of becoming a full professor by 10 percentage points the probability of having positive lifetime citations by 16 percentage points and the number of lifetime citations by 6 3

leaders followers and equity risk premiums in booms and busts abstract we study an investment problem in which two asymmetric firms face competition and the regime characterizing the economic condition follows a markov switching process we derive the value functions and investment thresholds of the leader and follower the option value of regime uncertainty is found to be quite important for the investment decision of firms we also show the relationship between the equity risk premium and the economic cycle that has not been done in previous studies which proxy economic conditions by the level of demand or other state variables

remedying education evidence from two randomized experiments in india this paper presents the results of a two year randomized evaluation of a large scale remedial education program conducted in mumbai and vadodara india the remedial education program hires young women from the community to teach basic literacy and numeracy skills to children who reach standard three or four without having mastered these competencies the program implemented by a ngo in collaboration with the government is extremely cheap it cost 5 dollars per child per year and is easily replicable it has been implemented in 20 indian cities and reached tens of thousands of children we find the program to be very effective on average it increased learning by 0 15 standard deviations in the first year and 0 25 in the second year the gains are the largest for children at the bottom of the distribution children in the bottom third gain 0 2 standard deviations in the first year and 0 32 in the second year in math they gain 0 51 standard deviation in the second year the results are similar in the two grade levels and in the two cities at the margin extending this program would be up to 12 16 times more cost effective than hiring new teachers authors

students today teachers tomorrow identifying constraints on the provision of education with an estimated 115 million children not attending primary school in the developing world increasing access to education is critical resource constraints limit the effectiveness of demand based subsidies this paper focuses on the importance of a supply side factor the availability of low cost teachers and the resulting ability of the market to offer affordable education the authors first show that private schools are three times more likely to emerge in villages with government girls secondary schools gss identification is obtained by using official school construction guidelines as an instrument for the presence of gss in contrast there is little or no relationship between the presence of a private school and girls primary or boys primary and secondary government schools in support of a supply channel the authors then show that for villages that received a gss there are over twice as many educated women and that private school teachers wages are 27 percent lower in these villages in an environment with poor female education and low mobility gss substantially increase the local supply of skilled women lowering wages locally and allowing the market to offer affordable education these findings highlight the prominent role of women as teachers in facilitating educational access and resonate with similar historical evidence from developed economies the students of today are the teachers of tomorrow

competition and irreversible investments abstract incumbent monopolists frequently claim that the introduction of competition will reduce future profits and therefore delay future investments in this paper we show that not only is this not generally true but in the oligopolistic industry model of dixit and pindyck investment under uncertainty 1994 this is never the case we extend this result to situations in which investments have positive externalities and situations in which the monopolist has multiple investment opportunities

comparison friction experimental evidence from medicare drug plans consumers need information to compare alternatives for markets to function efficiently recognizing this public policies often pair competition with easy access to comparative information the implicit assumption is that comparison friction the wedge between the availability of comparative information and consumers use of it is inconsequential because information is readily available and consumers will access this information and make effective choices we examine the extent of comparison friction in the market for medicare part d prescription drug plans in the united states in a randomized field experiment an intervention group received a letter with personalized cost information that information was readily available for free and widely advertised however this additional step providing the information rather than having consumers actively access it had an impact plan switching was 28 percent in the intervention group versus 17 percent in the comparison group and the intervention caused an average decline in predicted consumer cost of about 100 per year among letter recipients roughly 5 percent of the cost in the comparison group our results suggest that comparison friction can be large even when the cost of acquiring information is small and may be relevant for a wide range of public policies that incorporate consumer choice

the relationship between education and adult mortality in the united states prior research has uncovered a large and positive correlation between education and health this paper examines whether education has a causal impact on health i follow synthetic cohorts using successive u s censuses to estimate the impact of educational attainment on mortality rates i use compulsory education laws from 1915 to 1939 as instruments for education the results suggest that education has a causal impact on mortality and that this effect is perhaps larger than has been previously estimated in the literature copyright 2005 wiley blackwell

regime uncertainty and optimal investment timing abstract we construct a real options model in which a regime change is expected at a pre determined future time and study the effects of regime uncertainty on a firm s strategic investment decision taking into consideration the remaining time to the regime change and the probability of each regime state we show that just before the time of a regime change firms should act as if the worst case scenario was about to happen even if a good state is highly possible

investment with uncertain tax policy does random tax policy discourage investment we consider the impact of tax policy uncertainty on firm level and aggregate investment comparing investment behaviour when uncertainty is due to a shock following geometric brownian motion gbm versus when random discrete jumps in tax policy occur expectations of the likelihood of a tax policy switch have an important negative impact on the gain to delaying investment in the latter model and time to investment can fall with increasing tax policy uncertainty aggregate investment simulations indicate that capital formation is adversely affected by increases in uncertainty in the traditional gbm model but can be enhanced in the jump process model

investment under uncertainty and policy change in this paper the impact of a policy change on the investment behavior of the firm is studied in an incomplete information setting the policy change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger the firm has incomplete information about the trigger and knows only its probability distribution consequently both the firm s conjecture concerning the trigger value as well as the precision of this conjecture serve as input parameters we derive the optimal investment rule maximizing the value of the firm and show that the impact of the trigger value uncertainty on the optimal investment threshold is non monotonic the threshold decreases with uncertainty for its low levels while the reverse is true if uncertainty is high furthermore we provide results concerning the valuation of the firm s investment opportunity and present some policy implications

arrival of young talent the send down movement and rural education in china this paper estimates the effects on rural education of the send down movement during the cultural revolution when about 16 million urban youth were mandated to resettle in the countryside using a county level dataset compiled from local gazetteers and population censuses we show that greater exposure to the sent down youths significantly increased rural children s educational achievement this positive effect diminished after the urban youth left the countryside in the late 1970s but never disappeared rural children who interacted with the sent down youths were also more likely to pursue more skilled occupations marry later and have smaller families than those who did not

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

school subsidies for the poor evaluating the mexican progresa poverty program abstract this paper evaluates how the progresa program which provides poor mothers in rural mexico with education grants has affected enrollment poor children who reside in communities randomly selected to participate in the initial phase of the progresa are compared to those who reside in other control communities pre program comparisons check the randomized design and double difference estimators of the program s effect on the treated are calculated by grade and sex probit models are also estimated for the probability that a child is enrolled controlling for additional characteristics of the child their parents local schools and community and for sample attrition to evaluate the sensitivity of the program estimates these estimates of program short run effects on enrollment are extrapolated to the lifetime schooling and the earnings of adults to approximate the internal rate of return on the public schooling subsidies as they increase expected private wages

behavioral economics and public policy 102 beyond nudging the united states despite its affluence faces a number of daunting policy challenges we rank last among 16 wealthy peers in life expectancy infant mortality and obesity and have taken very little action on climate change despite the extremity of the threat it poses not only to future generations but even those alive today 1

education and human capital externalities evidence from colonial benin colonial benin we investigate the effect of education on living standards occupation and political participation since both school locations and student cohorts were selected with very little information treatment and control groups are balanced on observables we can therefore estimate the effect of education by comparing the treated to the untreated living in the same village as well as those living in villages where no schools were set up we find a significant positive treatment effect of education for the first generation of students as well as their descendants they have higher living standards are less likely to be farmers and are more likely to be politically active we find large village level externalities descendants of the uneducated in villages with schools do better than those in control villages we also find extended family externalities nephews and nieces directly benefit from their uncle s education and show that this represents a family tax as educated uncles transfer resources to the extended family

health insurance for humans information frictions plan choice and consumer welfare traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk in practice choosing an insurance plan is a complicated decision often made without full information in this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences information frictions and hassle costs our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates we study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro foundations for welfare analysis

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

investment under regime uncertainty impact of competition and preemption abstract in this study we analyze the investment timing problem and introduce a model of two firms competing for investment preemption each of which knows in advance the time at which the economic condition that will have an impact on the investment changes we qualitatively show how two firms strategically optimize their investment timing taking into account competition and preemption

developing real option game models by mixing concepts from both game theoretic analysis and real options theory an investment decision in a competitive market can be seen as a game between firms as firms implicitly take into account other firms reactions to their own investment actions we review two decades of real option game models suggesting which critical problems have been solved by considering game theory and which significant problems have not been yet adequately addressed we provide some insights on the plausible empirical applications or shortfalls in applications to date and suggest some promising avenues for future research

entry into the electricity market uncertainty competition and mothballing options the present paper analyzes the entry strategies into the electricity market of two firms that have power plants under price uncertainty and competition we consider the symmetric and asymmetric two firms which have either a thermal power plant or a nuclear power plant the differences between the thermal power plant and the nuclear power plant such as the cost structure and operational flexibility are modeled the threshold values of market entry are calculated for each firm with either the thermal power plant or the nuclear power plant as the leader or the follower we show the dependence of cost structures on entry thresholds of the leader and the follower into the electricity market for various market and cost conditions the diagrams of the leader are also shown

peer effects in science evidence from the dismissal of scientists in nazi germany this paper analyses peer effects among university scientists specifically it investigates whether the quality and the number of peers affect the productivity of researchers in physics chemistry and mathematics the usual endogeneity problems related to estimating peer effects are addressed by using the dismissal of scientists by the nazi government in 1933 as a source of exogenous variation in the peer group of scientists staying in germany to investigate localized peer effects i construct a new panel data set covering the universe of scientists at the german universities from 1925 to 1938 from historical sources i find no evidence for peer effects at the local level even very high quality scientists do not affect the productivity of their local peers

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

labor migration and returns to rural education in china this paper provides an answer to the following question why do empirical studies find low returns to schooling in rural china and yet the schooling rates are high i find that schooling played a significant role in raising the accessibility of urban formal employment to rural people in the late 1970s and early 1980s in the face of the government s restrictive policy on labor migration from rural to urban areas the large urban rural income difference provided a strong incentive for senior high school education the theory also explains the drop in the senior high school attendance in the mid 1980s

active vs passive decisions and crowd out in retirement savings accounts evidence from denmark using 41 million observations on savings for the population of denmark we show that the effects of retirement savings policies on wealth accumulation depend on whether they change savings rates by active or passive choice subsidies for retirement accounts which rely on individuals to take an action to raise savings primarily induce individuals to shift assets from taxable accounts to retirement accounts we estimate that each 1 of government expenditure on subsidies increases total saving by only 1 cent in contrast policies that raise retirement contributions if individuals take no action such as automatic employer contributions to retirement accounts increase wealth accumulation substantially we estimate that approximately 15 of individuals are active savers who respond to tax subsidies primarily by shifting assets across accounts 85 of individuals are passive savers who are unresponsive to subsidies but are instead heavily influenced by automatic contributions made on their behalf active savers tend to be wealthier and more financially sophisticated we conclude that automatic contributions are more effective at increasing savings rates than subsidies for three reasons i subsidies induce relatively few individuals to respond ii they generate substantial crowd out conditional on response and iii they do not increase the savings of passive individuals who are least prepared for retirement jel codes h2 h3

the power of tv cable television and women s status in india cable and satellite television have grown rapidly throughout the developing world the availability of cable and satellite television exposes viewers to new information about the outside world which may affect individual attitudes and behaviors this paper explores the effect of the introduction of cable television on gender attitudes in rural india using a three year individual level panel dataset we find that the introduction of cable television is associated with improvements in womens status we find significant increases in reported autonomy decreases in the reported acceptability of beating and decreases in reported son preference we also find increases in female school enrollment and decreases in fertility primarily via increased birth spacing the effects are large equivalent in some cases to about five years of education in the cross section and move gender attitudes of individuals in rural areas much closer to those in urban areas we argue that the results are not driven by pre existing differential trends these results have important policy implications as india and other countries attempt to decrease bias against women authors