Working Papers Series
Papers below are in pdf.
2008
WP 08-07
Value-Added to What? How a Ceiling in the Testing Instrument Influences Value-Added Estimation
Cory Koedel and Julian Betts
Value-added measures of teacher quality may be sensitive to the quantitative properties of the testing instruments upon which they are based. This paper focuses on the sensitivity of value-added to a particularly relevant testing-instrument property – test-score-ceiling effects. Test-score ceilings are likely to be increasingly common in testing instruments across the country as education policy continues to emphasize proficiency-based reform. Encouragingly, we show that over a wide range of test-score- ceiling severity, teachers’ value-added estimates are only negligibly influenced by ceiling effects. However, as ceiling conditions approach those found in minimum-competency testing environments, value-added results are significantly altered.
JEL Codes: I20, I21 and J24
Keywords: Value Added, Test Score Ceiling, Ceiling Effects, Teacher Quality, Teacher Value Added
WP 08-06
Exposure Order Effects and Advertising Competition
Oksana Loginova
This paper applies the theories of exposure order effects, developed in the psychology literature, to an industrial organization model to explore their role in advertising competition. There are two firms and infinitely many identical consumers. The firms produce a homogeneous product and distribute their brands through a common retailer. Consumers randomly arrive at the retailer and buy their most preferred brands. The order in which a consumer sees the advertising messages affects his brand preferences. Under the primacy effect the consumer prefers the brand he first saw advertised, under the recency -- the last encountered brand. The equilibrium of the advertising game is characterized separately under the primacy and the recency effects. In the first setting all consumers are initially unaware of the product existence. The equilibrium advertising intensities, remarkably, do not depend on the type of exposure order effect. In the other two settings some consumers have already formed their brand preferences. The primacy and the recency effects give rise to different equilibrium outcomes.
JEL Codes: C73, D11, D43, L13, M37
Keywords: Advertising Order Effects, Primacy, Recency
WP 08-05
Does Wal-Mart Sell Inferior Goods?
Emek Basker
I estimate the aggregate income elasticity of Wal-Mart's and Target's revenues using quarterly data for 1997-2006. I find that Wal-Mart's revenues increase during bad times, whereas Target's revenues decrease, consistent with Wal-Mart selling "inferior goods" in the technical sense of the term. An upper bound on the aggregate income elasticity of demand for Wal-Mart's wares is -0.5.
JEL Codes: L81, D12
Keywords: Retail, Wal-Mart, Target, Inferior Goods
WP 08-04
Imports "R" Us: Retail Chains as Platforms for Developing-Country Imports
Emek Basker and Pham Hoang Van
Wal-Mart, Toys "R" Us, and other larger retail chains are often identified with cheap imports. We use data from the Census of Retail Trade and the International Trade Commission to test the theory that big retail chains serve as a platform for imports from LDCs. Controlling for overall sector growth, Chinese and other LDC imports have increased disproportionately in retail sectors with the largest consolidation into chains over the period 1997–2002. Our estimation results imply that between 1997 and 2002 the marginal propensity to import from China was 3.3 times larger for the largest firms than for smaller retailers. The disproportionate growth of large retailers over this period explains 19% of the growth in consumer goods imports from China.
JEL Codes: F12, F14, L11, L81
Keywords: Imports, Retail Chains
WP 08-03
Testing the Bounds: Empirical Behavior of Target Zone Fundamentals
J. Isaac Miller
Standard target zone exchange rate models are based on a nonlinear function of an unobserved economic fundamental, which is defined as the log of the domestic money stock plus exogenous velocity shocks that are generally assumed to follow a random walk. A critical and widespread assumption in the literature is that this fundamental is bounded, similarly to the target zone exchange rates themselves. We use seven techniques to estimate the unobserved fundamentals driving a wide variety of exchange rates that have traded under target zone regimes at different times over the past two decades. Two of these techniques involve a nonlinear filter that is not well-known to econometricians, but which has clear advantages over more well-known filters. We then test the estimated fundamentals for unboundedness, using non-standard unit root tests that have recently been shown to have good power against bounded, nonlinear alternatives. Finally, we use maximum deviations of the estimated fundamentals to show that de facto empirical bands on these estimates generate implausible elasticities. Our empirical results cast serious doubt on the theoretical assumption that such fundamentals are bounded.
JEL Codes: C13, C32, F31
Keywords: target zone exchange rates, economic fundamental, Kalman filter, unscented Kalman filter, rescaled range statistic
WP 08-02
Population Movements in the Presence of Agglomeration and Congestion Effects: Local Policy and the Social Optimum
David M. Mandy, Peter R. Mueser & Eric Parsons
We investigate the efficiency properties of population mobility when localities compete in an environment with local amenities and local externalities. Our model is dynamic, incorporating land and labor markets in a context where firms and workers form rational expectations. Concern focuses on whether and under what conditions the substantive conclusions from static models can be reinterpreted to apply in a dynamic context where moving is costly. In the spirit of Tiebout (1956), it can be shown in static models that taxes or subsidies developed by each local jurisdiction representing the interests of landowners can induce an efficient population allocation even in the presence of local externalities. We show that, in a dynamic model, efficiency of mobility requires that localities represent the interests of other local stakeholders, including residents and firms, as well as landowners. There may be multiple sets of equilibrium flows corresponding with alternative expectations. We consider institutional arrangements that may facilitate preferred paths.
JEL Codes: H21, J61
Keywords: geographic mobility, optimal population distribution
WP 08-01
Nonlinearity, Nonstationarity, and Thick Tails: How They Interact to Generate Persistency in Memory
J. Isaac Miller and Joon Y. Park
We consider nonlinear transformations of random walks driven by thick-tailed innovations that may have infinite means or variances. These three nonstandard characteristics: nonlinearity, nonstationarity, and thick tails interact to generate a spectrum of asymptotic autocorrelation patterns consistent with long-memory processes. Such autocorrelations may decay very slowly as the number of lags increases or may not decay at all and remain constant at all lags. Depending upon the type of transformation considered and how the model error is speci- fied, the autocorrelation functions are given by random constants, deterministic functions that decay slowly at hyperbolic rates, or mixtures of the two. Such patterns, along with other sample characteristics of the transformed time series, such as jumps in the sample path, excessive volatility, and leptokurtosis, suggest the possibility that these three ingredients are involved in the data generating processes of many actual economic and financial time series data. In addition to time series characteristics, we explore nonlinear regression asymptotics when the regressor is observable and an alternative regression technique when it is unobservable. To illustrate, we examine two empirical applications: wholesale electricity price spikes driven by capacity shortfalls and exchange rates governed by a target zone.
JEL Codes: C22, C16
Keywords: persistency in memory, nonlinear transformations, random walks,
thick tails, stable distributions, wholesale electricity prices, target zone exchange rates