Working Papers Series

Papers below are in pdf.

2012

WP 12-02
The Impact of Childhood Health on Adult Educational Attainment: Evidence from Modern Mandatory School Vaccination Laws
Dara Lee

This paper evaluates the economic consequences of mandatory school vaccination laws that were passed from the mid-1960s to late-1970s. After the invention of a number of key vaccines, states began to require proof of immunization against certain infectious diseases for children entering school for the first time. I exploit the staggered implementation of the laws across states to identify both the short-run impacts on health and long-term effects on educational attainment. First, I show that the mandatory school vaccination laws were very successful in reducing the incidence rates of the targeted diseases. There is less evidence that mortality rates were affected. Finally, I find sizable and positive effects on educational outcomes as measured by years of schooling and high school completion. The effect on educational attainment is twice as large for non-whites relative to whites.

JEL Codes: I18, I2, J13
Keywords: value added models, value added, teacher value added, test measurement error, teacher evaluation

WP 12-01
Test Measurement Error and Inference from Value-Added Models
Cory Koedel, Rebecca Leatherman & Eric Parsons

It is widely known that standardized tests are noisy measures of student learning, but value added models (VAMs) rarely take direct account of measurement error in student test scores. We examine the extent to which modifying VAMs to include information about test measurement error (TME) can improve inference. Our analysis is divided into two parts – one based on simulated data and the other based on administrative micro data from Missouri. In the simulations we control the data generating process, which ensures that we obtain accurate TME metrics with which to modify our value-added models. In the real-data portion of our analysis we use estimates of TME provided by a major test publisher. We find that inference from VAMs is improved by making simple TME adjustments to the models. This is a notable result because the improvement can be had at zero cost.

JEL Codes: I20
Keywords: value added models, value added, teacher value added, test measurement error, teacher evaluation

2011

WP 11-24
Systematic Differences in How Mothers Assess Their Children and Implications for Developmental Research
Cory Koedel & Teerachat Techapaisarnjaroenkit

Researchers often depend on maternal assessments to measure children's non-cognitive development. But the use of maternal assessments can be problematic if mothers differ in how they assess their children in systematic ways. We examine the consistency of maternal assessments across different subgroups of mothers for a large sample of age-4 children. We identify non-negligible differences in maternal assessments by race, and introduce the concept of endogenous maternal assessment bias. Maternal assessments have the potential to be endogenous whenever the intervention of interest is determined, at least in part, by maternal behavior. We illustrate the bias using an application taken from the family-structure literature, and show that developmental differences between children raised in different family structures are understated by maternal assessments.

JEL Codes: I20, J24
Keywords: Maternal Assessment, Maternal Assessment Bias, Maternal Assessment Validity, Endogenous Assessment, Family Structure

WP 11-23
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 a static model 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. Under certain circumstances, the dynamic model resolves problems of indeterminacy implicit in the static model due to multiple equilibria. On the other hand, we also find that there may be multiple sets of equilibrium flows corresponding with alternative expectations. We consider institutional arrangements that may facilitate preferred paths.

JEL Codes: H23, J61, R13, R5
Keywords: Local taxation, Population externalities, Migration

WP 11-22
Large-Scale Evaluations of Curricular Effectiveness: The Case of Elementary
Mathematics in Indiana
Cory Koedel & Rachana Bhatt

We use data from one of the few states where information on curriculum adoptions is available – Indiana – to empirically evaluate differences in performance across three elementary-mathematics curricula. The three curricula that we evaluate were popular nationally during the time of our study, and two of the three remain popular today. We find large differences in effectiveness between the curricula, most notably between the two that held the largest market shares in Indiana. Both are best-characterized as traditional in pedagogy. We also show that the publisher of the least-effective curriculum did not lose market share in Indiana in the following adoption cycle; one explanation is that educational decision makers lack information about differences in curricular effectiveness.

JEL Codes: I21, I28 and H75
Keywords: curricular effectiveness, math curricula, non-experimental methods, matching methods, education policy

WP 11-21
Behavioral Efficiency II: A Simple Laboratory Demonstration
Ronald M. Harstad

Laboratory experiments reporting on shortfalls from allocative efficiency of allocation mechanisms depend on the induced-values methodology, which cannot be extended to the field. Harstad [2011] proposes to observe efficiency of allocation mechanisms without knowing motivations via behavior in appropriately designed aftermarkets. This paper demonstrates the approach in a highly simplified economy: allocation of a single unit of an abstract commodity. In the context studied, second-price auctions are observed to yield significantly greater behavioral inefficiencies than first-price auctions, both in terms of frequency of behaviorally inefficient outcomes, and in terms of the expected size of gains from aftermarket trade missed by the auction itself. The design is shown to be field-ready.

JEL Codes: C9, C93, D01, D61, D03, D46
Keywords: behavioral efficiency, field experiment methodology, allocative efficiency, efficiency of auctions, aftermarkets

WP 11-20
Behavioral Efficiency I: Definition, Methodology and Demonstration
Ronald M. Harstad

Economic experiments conducted in laboratories employing an induced-values methodology can report on allocative efficiencies observed. This methodology is limited by requiring the experimenter to know subjects' motivations, an impossibility in field experiments. Allocative efficiency implies a hypothetical costless aftermarket would be inactive. An outcome of an allocation mechanism is herein defined to be behaviorally efficient if an appropriate aftermarket is actually appended to the allocation mechanism and at most a negligible aggregate size of mutually beneficial gains is observed on the aftermarket. Methodological requirements for observation of behavioral efficiency or inefficiency are put forward. A simple field demonstration indicates when an increase in public good output can cover marginal cost in a mutually beneficial decentralization, without knowing valuations. Several empirical issues that arise with the methodology are noted.

JEL Codes: C9, C93, D01, D61, D03, D46
Keywords: behavioral efficiency, field experiment methodology, allocative efficiency, revelation of valuations, aftermarkets

WP 11-19
Do Traffic Tickets Reduce Motor Vehicle Accidents? Evidence from a Natural Experiment
Dara Lee

This paper analyzes the effect of traffic tickets on motor vehicle accidents. OLS estimates may be upward-biased because police officers tend to focus on areas where and periods when there is heavy traffic and thus higher rates of accidents. This paper exploits the dramatic increase in tickets during the Click-it-or-Ticket campaign to identify the causal impact of tickets on accidents using data from Massachusetts. I find that tickets significantly reduce accidents and non-fatal injuries. However, there is limited evidence that tickets lead to fewer fatalities. I provide suggestive evidence that tickets have a larger impact at night and on female drivers.

JEL Codes: K32, K42, I18, R41
Keywords: traffic tickets, motor vehicle accidents, natural experiment

WP 11-18
The Digital Scarlet Letter: The Effect of Online Criminal Records on Crime
Dara Lee

How does public access to criminal records affect crime? Economic theory suggests that expanding access to criminal information may increase the cost of crime to potential criminals by endangering their future work prospects and thus act as a deterrent. However, increased provision of information could also obstruct ex-convicts from finding legal employment and lead to higher recidivism rates. I exploit the state and time variation in the introduction of state-maintained online criminal databases – which represent a sharp drop in the cost and effort of gaining criminal background information on another person – to empirically investigate the trade-off between deterrence and recidivism. I find that online criminal records lead to a small net reduction in property crime rates, but also a marked increase of approximately 11 percent in recidivism among ex-offenders.

JEL Codes: K14, K4
Keywords: crime, recidivism, criminal records

WP 11-17
The Impact of Repealing Sunday Closing Laws on Educational Attainment
Dara Lee

Adolescents face daily trade-offs between human capital investment, labor, and leisure. This paper exploits state variation in the repeal of Sunday closing laws to examine the impact of a distinct and plausibly exogenous rise in the quantity of competing diversions available to youth on their educational attainment. The results suggest that the repeals led to a significant decline in both years of education and the probability of high school completion. I explore increased employment opportunities and risky behaviors as potential mechanisms. Further, I find a corresponding decline of the repeals on adult wages.

JEL Codes: I21, J13, J22
Keywords: educational investment, youth labor supply, blue laws

WP 11-16
On The Cyclicality of Real Wages and Wage Di¤erentials
Christopher Otrok and Panayiotis M. Pourpourides

In this paper we investigate the cyclicality of real wages. The approach we take is to search for the largest possible common cyclical component in a statistical sense. This contrasts with the existing literature which uses observable variables to proxy for a common cycle. We do so by using a Bayesian dynamic latent factor model and longitudinal microdata. We find that the comovement of real wages can be related to a common factor that exhibits a significant but far from perfect correlation with the national unemployment rate. Our findings indicate that (i) the common factor explains, on average, no more than 9% of wage variation, (ii) the common factor accounts for 20% or less of the wage variability for 88% of the workers in the sample and (iii) roughly half of the wages move procyclically while half move countercyclically. These facts are inconsistent with claims of a strong systematic relationship between real wages and the business cycle. We show that these results are inconsistent with models of Walrasian labor markets typically used in DSGE models. We also confirm findings of previous studies in which skilled and unskilled wages exhibit roughly the same degree of cyclical variation.

JEL Codes: C11, C13, C22, C23, C81, C82, J31
Keywords: Wages, Wage Di¤erentials, Business Cycles, Bayesian Analysis

WP 11-15
Pension-Induced Rigidities in the Labor Market for School Leaders
Cory Koedel, Jason A. Grissom, Shawn Ni & Michael Podgursky

Educators in public schools in the United States are typically enrolled in defined-benefit pension plans, which penalize across-plan mobility. We use administrative data from Missouri to examine how the mobility penalties affect the labor market for school leaders. We show that pension borders greatly affect leadership flows across schools – for two groups of schools separated by a pension border, our estimates indicate that removing the border will increase leadership mobility between them by 97 to 163 percent. We consider the implications of the pension-induced rigidities in the leadership labor market for schools near pension borders in Missouri. Our findings are of general interest given that thousands of public schools operate near pension boundaries nationwide.

JEL Codes: H5, I2, J3
Keywords: Educator pensions, backloaded compensation, principal quality, leadership quality, compensation in education

WP 11-14
Unconventional Optimal Repurchase Agreements
Chao Gu and Joe Haslag

We build a model in which verifiability of private debts, timing mismatch in debt settlements and borrowing leverage lead to liquidity crisis in the financial market. Central bank can respond to the liquidity crisis by adopting an unconventional monetary policy that resembles repurchase agreements between the central bank and the lenders. This policy is effective if the timing mismatch is nominal (i.e., a settlement participation risk). It is ineffective if the timing mismatch is driven by a real shock (i.e., preference shock).

JEL Codes: E44, E52, G01
Keywords: liquidity problem, timing mismatch, leveraging, liquidity shock, settlement risk,
repurchase agreement, consumption shock

WP 11-13
Health Insurance and Mortality in US Adults: A Cautionary Tale
Jenny Kim and Jeffrey Milyo

A 2009 observational study reported that private insurance status is associated with decreased mortality risk compared to no insurance. Employing the same statistical model but with more recent data, we observe a weaker and statistically insignificant relationship. However, Medicaid coverage is associated with increased mortality risk; the adjusted hazard ratio for Medicaid compared to no insurance is 1.32 (95% CI = 1.01, 1.72). These findings bolster concerns about using observational studies to understand the health consequences of insurance.

JEL Codes: I12, I18
Keywords: Health, Insurance, Mortality

WP 11-12
Sincere Versus Sophisticated Voting When Legislators Vote Sequentially
Tim Groseclose and Jeffrey Milyo

Elsewhere (Groseclose and Milyo, 2010), we examine a game where each legislator has preferences over (i) the resulting policy and (ii) how he or she votes. The latter preferences are especially important when the legislator is not pivotal. We show that when the game follows the normal rules of legislatures - most important, that legislators can change their vote after seeing how their fellow legislators have voted - then the only possible equilibrium is one where all legislators ignore their policy preferences. That is, each legislator votes as if he or she is not pivotal. The result, consistent with empirical studies of Congress, suggests that legislators should tend to vote sincerely, rather than sophisticatedly. In this paper we examine how outcomes change if we change the rules for voting. Namely, instead of a simultaneous game, we consider a game where legislators vote sequentially in a pre-determined order. We show that, opposite to the simultaneous game, an alternative wins if and only if a majority of legislators' policy preferences favor that alternative. Our results suggest that if Congress adopted this change in rules, then sophisticated voting would become frequent instead of rare.

JEL Codes: A1, C7
Keywords: Sophisticated Voting

WP 11-11
Teacher Pension Incentives and the Timing of Retirement
Shawn Ni and Michael Podgursky

The rising costs and large unfunded liabilities of defined benefit (DB) teacher retirement systems raise questions about their efficacy and viability. Reform of teacher pension plans depends critically on reliable predictions of behavioral responses to alternative pension rules. We estimate an option-value model of individual teacher retirement using administrative data for Missouri teachers. The model fits the observed aggregate retirement behavior very well. We use the estimated structural parameters to simulate retirement behavior under alternative pension rules. Our simulations show that on net the enhancements of Missouri teacher pension benefits in the 1990's lowered the average retirement age for teachers. Conversion from the current DB plan to a defined contribution (DC) plan would have the opposite effect, and would dampen "spikes" in teacher retirement timing. The 1990's enhancements raised welfare for all teachers, however, the DC plan that we simulate has a mixed welfare impact, raising welfare for teachers near retirement but reducing it for teachers with less experience.

JEL Codes: H30, I22, J26, J38
Keywords: teacher pensions, school staffing, school finance.

WP 11-10
Estimation of partial effects in non-linear panel data models
Jason Abrevaya and Yu-Chin Hsu

Nonlinearity and heterogeneity complicate the estimation and interpretation of partial effects. This paper provides a systematic characterization of the various partial effects in non-linear panel-data models that might be of interest to empirical researchers. The estimation and interpretation of the partial effects depends upon (i) whether the distribution of unobserved heterogeneity is treated as fixed or allowed to vary with covariates and (ii) whether one is interested in particular covariate values or an average over such values. The characterization covers partial-effects concepts already in the literature but also includes new concepts for partial effects. A simple panel-probit design highlights that the different partial effects can be quantitatively very different. An empirical application to panel data on health satisfaction is used to illustrate the partial-effects concepts and proposed estimation methods.

JEL Codes: C01, C33
Keywords: Non-linear panel data models; partial efects; correlated random effects.

WP 11-09
Teacher Pension Systems, the Composition of the Teaching Workforce,
and Teacher Quality
Cory Koedel & Michael Podgursky

Teacher pension systems impose large penalties on individuals who separate too soon or remain employed too long. The penalties result in the retention of some teachers who would otherwise choose to leave, and the premature exit of some teachers who would otherwise choose to stay. We examine how these compositional effects of teacher pension systems influence the quality of the teaching workforce, conditional on individuals who initially select into teaching. We find no evidence that the pull and push incentives raise teacher quality, and if anything, we find modest negative effects. Our results support future experimentation with compensation schemes for educators that are not so heavily backloaded.

JEL Codes: I20, J30, J45
Keywords: Educator Pensions, Teacher Pensions, Backloaded Compensation, Teacher Pensions and Teacher Quality, Teacher Compensation, Selection into Teaching

WP 11-08
Advance Selling in the Presence of Experienced Consumers
Oksana Loginova , X. Henry Wang & Chenhang Zeng

The advance selling strategy is implemented when a firm offers consumers the opportunity to order its product in advance of the regular selling season. Advance selling reduces uncertainty for both the firm and the buyer and enables the firm to update its forecast of future demand. The distinctive feature of the present theoretical study of advance selling is that we divide consumers into two groups, experienced and inexperienced. Experienced consumers know their valuations of the product in advance. The presence of experienced consumers yields new insights. Specifically, pre-orders from experienced consumers lead to a more precise forecast of future demand by the firm. We show that the firm will always adopt advance selling and that the optimal pre-order price may or may not be at a discount to the regular selling price.

JEL Codes: C72, D42, L12, M31
Keywords: advance selling, the Newsvendor Problem, demand uncertainty, experienced consumers, inexperienced consumers.

WP 11-07
Consistent Tests for Conditional Treatment Effects
Yu-Chin Hsu

We construct a Kolmogorov-Smirnov test for the null hypothesis that the average
treatment effect is non-negative conditional on all possible values of the covariates. The
null hypothesis of interest can be characterized as a conditional moment inequality under
the unconfoundedness assumption, and we employ the instrumental variable method
to convert the conditional moment inequality into an infinite number of unconditional
moment inequalities without information loss. A Kolmogorov-Smirnov test is constructed
based on these unconditional moment inequalities. It is shown that our test can control
the size asymptotically, is consistent against fixed alternatives and is unbiased against
some N^−1/2 local alternatives. Furthermore, our test is more powerful than Lee and
Whang's (2009) against a broad set of N^−1/2 local alternatives. Monte-Carlo simulation
results confirm our theoretical findings. Several interesting extensions are also discussed.

JEL Codes: C01, C12, C21
Keywords: Hypothesis testing, treatment effects, test consistency, propensity score.

WP 11-06
Estimation and Inference for Distribution Functions and Quantile Functions in Treatment
Effect Models
Stephen G. Donald and Yu-Chin Hsu

In this paper, we propose inverse probability weighted estimators for the distribution functions of the potential outcomes of a binary treatment under the unconfoundedness assumption. We also apply the inverse mapping on the distribution functions to obtain the quantile functions. We show that the proposed estimators converge weakly to zero mean Gaussian processes. A simulation method based on the multiplier central limit theorem is proposed to approximate these limiting Gaussian processes. The estimators in the treated subpopulation are shown to share the same properties. To demonstrate the usefulness of our results, we construct Kolmogorov-Smirnov type tests for stochastic dominance relations between the potential outcomes and Monte-Carlo simulation results confirm the theoretical findings of our tests. The proposed stochastic dominance tests are applied to evaluate the effect of a job training program on incomes, and we find that job training has a positive effect on real earnings.

JEL Codes: C01, C12, C21
Keywords: Hypothesis testing, stochastic dominance, treatment effects, propensity score.

A previous version was circulated under the title "Testing for Stochastic Dominance in Treatment Effects."

WP 11-05
A New Test for Linear Inequality Constraints When the Variance Covariance Matrix Depends on the Unknown Parameters
Stephen G. Donald and Yu-Chin Hsu

We extend Hansen' (2005) superior predictive ability test to testing hypotheses involving general inequality constraints where the variance-covariance matrix of the functions in the constraints depends on the unknown parameters. The test can be applied to a wider class of problems than considered in Wolak (1991).

JEL Codes: C01, C12
Keywords: Hypothesis testing, multivariate nonlinear one-sided tests, nonlinear inequality constraints tests

Forthcoming in Economic Letters

WP 11-04
Cointegrating MiDaS Regressions and a MiDaS Test
J. Isaac Miller

This paper introduces cointegrating mixed data sampling (CoMiDaS) regressions, generalizing nonlinear MiDaS regressions in the extant literature. Under a linear mixed-frequency data-generating process, MiDaS regressions provide a parsimoniously parameterized nonlinear alternative when the linear forecasting model is over-parameterized and may be infeasible. In spite of potential correlation of the error term both serially and with the regressors, I find that nonlinear least squares consistently estimates the minimum mean-squared forecast error parameter vector. The exact asymptotic distribution of the difference may be non-standard. I propose a novel testing strategy for nonlinear MiDaS and CoMiDaS regressions against a general but possibly infeasible linear alternative. An empirical application to nowcasting global real economic activity using monthly covariates illustrates the utility of the approach.

JEL Codes: C12, C13, C22
Keywords: cointegration, mixed-frequency series, mixed data sampling

WP 11-03
Conditionally Efficient Estimation of Long-run Relationships Using Mixed-frequency Time Series
J. Isaac Miller

I analyze efficient estimation of a cointegrating vector when the regressand is observed at a lower frequency than the regressors. Previous authors have examined the effects of specific temporal aggregation or sampling schemes, finding conventionally efficient techniques to be efficient only when both the regressand and the regressors are average sampled. Using an alternative method for analyzing aggregation under more general weighting schemes, I derive an efficiency bound that is conditional on the type of aggregation used on the regressand. This conditional bound differs from the unconditional bound defined by the full-information high-frequency data generating process. I modify a conventionally efficient estimator, canonical cointegrating regression (CCR), to accommodate cases in which the aggregation weights are either unknown or known. In the unknown case, the correlation structure of the error term generally confounds identification of the conditionally efficient weights. In the commonly assumed known case, the correlation structure may be utilized to offset the potential information loss from aggregation, resulting in a conditionally efficient estimator.

JEL Codes: C13, C22
Keywords: cointegration, temporal aggregation, mixed-frequency series, mixed data sampling

WP 11-02
Strategic Choice of Channel Structure in an Oligopoly
Lin Liu, X. Henry Wang & Bill Z. Yang

The traditional wisdom holds that the benefits of a decentralized channel structure arise from downstream competitive relationships. In contrast, Arya and Mittendorf (2007) showed that the value of decentralization can also arise from upstream interaction when the downstream firm conveys internal strife (decentralization) to an upstream external supplier. This paper extends the single firm centralization-decentralization choice model of Arya and Mittendorf (2007) to a strategic choice model in which all downstream competitors play a strategic centralization-decentralization game. We demonstrate that whether the main conclusions in the context of non-strategic choice of channel structure continue to hold when all firms play a centralization-decentralization game depends critically on the market structure of the upstream input market. Specifically, the conclusions are valid if all firms have exclusive upstream input suppliers but not so if the upstream input market is monopolized. Thus, whether the value of decentralization can arise from upstream interaction depends critically on the market structure of the upstream market.

JEL Codes: L22, D21
Keywords: Strategic Choice, Channel Structure, Oligopoly

WP 11-01
Raising the Barcode Scanner: Technology and Productivity in the Retail Sector
Emek Basker

Barcode scanners were introduced in the 1970s as a way to reduce labor costs in stores, particularly at checkout. This paper is the first to estimate their effect on productivity. I use store-level data from the 1972, 1977, and 1982 Census of Retail Trade, matched to data on store scanner installations, to estimate scanners' effect on labor productivity. I find that early scanners increased a store's labor productivity, on average, by approximately 4.5 percent in the first few years, with a larger effect in stores carrying more packaged products likely to bear barcodes. Setup costs significantly offset the short-run productivity effect.

JEL Codes: L81, D22, O33
Keywords: Barcode scanners, Retail, Supermarkets, Technology, Productivity

forthcoming in American Economic Journal: Applied Economics