Economics Working Papers

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https://hdl.handle.net/1794/49

This collection contains papers in the University of Oregon Economics Department Working Papers series. Papers in this series are also available on the department's web site at: http://econpapers.repec.org/paper/oreuoecwp/

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Now showing 1 - 20 of 159

Open Access
Unexpected Utility: Experimental Tests of Five Key Questions about Preferences over Risk
(University of Oregon, Dept of Economics, 2009-12) Andreoni, James; Harbaugh, William
Experimental work on preferences over risk has typically considered choices over a small number of discrete options, some of which involve no risk. Such experiments often demonstrate contradictions of standard expected utility theory. We reconsider this literature with a new preference elicitation device that allows a continuous choice space over only risky options. Our analysis assumes only that preferences depend on the probability p and prize x; U = u(p; x): We then allow subjects to choose p and x continuously on a linear budget constraint, r1p + r2x = m, so that all prospects with a nonzero expected value are risky. We test five of the most importantly debated questions about risk preferences: rationality, prospect theory asymmetry, the independence axiom, probability weighting, and constant relative risk aversion. Overall, we find that the expected utility model does unexpectedly well.
Open Access
Differential Attention to Attributes in Utility-theoretic Choice Models
(University of Oregon, Dept of Economics, 2008-10) Cameron, Trudy Ann; DeShazo, J. R.
We show in a theoretical model that benefits of allocating additional attention to evaluating the marginal attribute with in choice set depend upon the expected utility loss from making a suboptimal choice as a result of ignoring that incremental attribute. Guided by this analysis, we then develop a very general and practical empirical method for measuring the individual's propensity to attend to attributes. As a proof of concept, we offer an empirical example of our method using a conjoint analysis of demand for programs to reduce health risks. Our results suggest that respondents differentially allocate attention across attributes, as a function of the mix of attribute levels in a choice set. This behavior can cause researchers who fail to model attention allocation to incorrectly estimate the marginal utilities derived from selected attributes. This illustrative example is a first attempt to implement an attention-corrected choice model with a sample of field data from a conjoint choice experiment.
Open Access
Revisiting the Evidence on Trade Policy Preferences
(University of Oregon, Dept of Economics, 2010-11) Blonigen, Bruce A.
Past literature has found evidence that labor market attributes affect individuals’ trade policy preferences in a manner consistent with theories of international trade. This paper shows that, with the exception of education, these relationships between labor market attributes and trade policy preferences are not robust in US survey data. This suggests that either our proxies of labor market attributes are poor or our theories for what drives trade policy preferences need to be revisited.
Open Access
Battling Infection, Fighting Stagnation
(University of Oregon, Dept of Economics, 2010-09) Chakraborty, Shankha; Papageorgiou, Chris
Why are some countries mired in poverty and ill health? Can policy facilitate their transition to sustained growth and better living standards? We offer answers using a dynamic model of disease and development. Endogenous transmission of infectious disease generates non-ergodic growth where income alone cannot push a country out of a low-growth development trap. Policy interventions, for example external aid, can successfully accelerate growth only when directed towards improving health and eliminating the burden of infectious disease. Prioritizing improvements to adult mortality over morbidity is better for development.
Open Access
Scenario Adjustment in Stated Preference Research
(University of Oregon, Dept of Economics, 2009-11-22) Cameron, Trudy Ann; DeShazo, J. R.; Johnson, Erica H.
Stated preference (SP) survey methods have been used increasingly to assess willingness to pay for a wide variety of non-market goods and services, including reductions in risks to life and health. Poorly designed SP studies are subject to a number of well-known biases, but many of these biases can be minimized when they are anticipated ex ante and accommodated in the study’s design or during data analysis. We identify another source of potential bias, which we call “scenario adjustment,” where respondents assume that the substantive alternative(s) in an SP choice set, in their own particular case, will be different than the survey instrument describes. We use an existing survey, developed to ascertain willingness to pay for private health-risk reduction programs, to demonstrate a strategy to control and correct for scenario adjustment in the estimation of willingness to pay. This strategy involves data from carefully worded follow-up questions and ex post econometric controls for each respondent’s subjective departures from the intended choice scenario. Our research has important implications for the design of future SP surveys.
Open Access
Stagnation Regime of the New Keynesian Model and Current US Policy
(University of Oregon, Dept of Economics, 2010-10-30) Evans, George W., 1949-
In Evans, Guse, and Honkapohja (2008) the intended steady state is locally but not globally stable under adaptive learning, and unstable deflationary paths can arise after large pessimistic shocks to expectations. In the current paper a modified model is presented that includes a locally stable stagnation regime as a possible outcome arising from large expectation shocks. Policy implications are examined. Sufficiently large temporary increases in government spending can dislodge the economy from the stagnation regime and restore the natural stabilizing dynamics. More specific policy proposals are presented and discussed.
Open Access
Expectations, Deflation Traps and Macroeconomic Policy
(University of Oregon, Dept of Economics, 2009-07-06) Evans, George W., 1949-; Honkapohja, Seppo, 1951-
We examine global economic dynamics under infinite-horizon learning in a New Keynesian model in which the interest-rate rule is subject to the zero lower bound. As in Evans, Guse and Honkapohja (2008), we find that under normal monetary and fiscal policy the intended steady state is locally but not globally stable. Unstable deflationary paths can arise after large pessimistic shocks to expectations. For large expectation shocks pushing interest rates to the zero lower bound, temporary increases in government spending can be used to insulate the economy from deflation traps.
Open Access
Monetary Policy and Heterogeneous Expectations
(University of Oregon, Dept of Economics, 2010-04-30) Branch, William A.; Evans, George W., 1949-
This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expec- tations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the best-performing statistical models. We demonstrate that, even when monetary policy rules satisfy the Taylor principle by adjusting nominal interest rates more than one for one with inflation, there may exist equilibria with Intrinsic Heterogeneity. Under certain conditions, there may exist multiple misspecification equilibria. We show that these findings have important implications for business cycle dynamics and for the design of monetary policy.
Open Access
Does Ricardian Equivalence Hold When Expectations are not Rational?
(University of Oregon, Dept of Economics, 2010-08-04) Evans, George W., 1949-; Honkapohja, Seppo, 1951-; Mitra, Kaushik, 1969-
This paper considers the Ricardian Equivalence proposition when expectations are not rational and are instead formed using adaptive learning rules. We show that Ricardian Equivalence continues to hold provided suitable additional conditions on learning dynamics are satisfied. However, new cases of failure can also emerge under learning. In particular, for Ricardian Equivalence to obtain, agents’ expectations must not depend on government’s financial variables under deficit financing.
Open Access
Menstrual Cycle and Performance Feedback Alter Gender Differences in Competitive Choices
(University of Oregon, Dept of Economics, 2010-10-28) Wozniak, David; Harbaugh, William; Mayr, Ulrich, 1962-
Economic experiments have shown that in mixed gender groups women are more reluctant than men to choose tournaments when given the choice between piece rate and winner-take-all tournament style compensation. These gender difference experiments have all relied on a framework where subjects were not informed of their abilities relative to potential competitors. We replicate these findings with math and word tasks, and then show that feedback about relative performance moves high ability females towards more competitive compensation schemes, moves low ability men towards less competitive schemes such as piece rate and group pay, and removes the average gender difference in compensation choices. We also examine between and within-subjects differences in choices for females across the menstrual cycle. We find women’s relative reluctance to choose tournaments comes mostly from women in the low hormone phase of their menstrual cycle. Women in the high hormone phase are substantially more willing to compete than women in the low phase, though still somewhat less willing to compete than men. There are no significant differences between the choices of any of these groups after they receive relative performance feedback.
Open Access
Impact of Transitory Income on Birth Weights: Evidence from a Blackout in Zanzibar
(University of Oregon, Dept of Economics, 2010-11-02) Burlando, Alfredo
Do transitory income shocks affect infant health? I find evidence that birth weights fell following a temporary income reduction caused by an unexpected, month-long blackout in Zanzibar. Relying on 350 household surveys collected during field work, I show that the 2008 blackout reduced labor supply of workers in electricity-dependent jobs by an average of 25%, with no effect on workers in other sectors. The income shock was temporary. Using over 20,000 birth records from a maternity ward, I document a reduction in the average birth weight of children exposed to the blackout while in utero, and an increase in the probability of low birth weight. Supporting a causal interpretation of these results, the reduction in weights is correlated with measures of maternal exposure to the blackout. In particular, reductions in birth weights were largest among children from wards with intermediate levels of employment in electrified sectors. The two causes that are most consistent with these results are a blackout-induced decline in maternal nutrition, and maternal stress. Alternative explanations are examined, including the possible effects of a temporary fertility shift. It is shown that the blackout increased births, but that selection into pregnancy cannot explain the drop in birth weights.
Open Access
The rising share of nonmarital births: A response to Ermisch, Martin, and Wu
(University of Oregon, Dept of Economics, 2008-09) Gray, Jo Anna; Stockard, Jean; Stone, Joe A.
Open Access
Race Differences in Cohort Effects on Nonmarital Fertility in the United States
(University of Oregon, Dept of Economics, 2008-01) Stone, Joe A.; Gray, Jo Anna; Stockard, Jean; O'Brien, Robert
We employ newly developed methods to disentangle age, period and cohort effects on nonmarital fertility ratios (NFRs) from 1972 to 2002 for black and white women aged 20-44 in the United States. We focus on three cohort factors: family structure, school enrollment, and the sex ratio. For both blacks and whites, cohorts with less traditional family structures have higher NFRs. Other results differ by race. The impact of school enrollment on NFRs is significantly negative for whites, but significantly positive for blacks. The impact of sex ratio is significantly negative for blacks, but insignificant for whites. If black women and white women had cohort characteristics typical of the other group, age-specific NFRs for black women would decline markedly, while those for whites would increase markedly.
Open Access
Ranking State Fiscal Structures using Theory and Evidence
(University of Oregon, Dept of Economics, 2007-06) Bania, Neil; Stone, Joe A.
This paper offers unique rankings of the extent to which fiscal structures of U.S. states contribute to economic growth. The rankings are novel in two key respects: they are well grounded in established growth theory, in which the effect of taxes depends both on the level of taxes and on the composition of expenditures; and they are derived from actual estimates of the link between fiscal structures and economic growth. Estimates for the latter yield a growth hill, in which the incremental effect of taxes spent on productive services and infrastructure initially rises, reaches a peak, and then declines. Rankings derived from these estimates differ sharply from typical rankings based on levels of taxation alone. Two hypothetical policy experiments highlight both the growth-hill effects of tax investments in productive services and infrastructure and the short- and long-term tradeoffs in attempting to fund strong social services.
Open Access
Democratic Errors
(University of Oregon, Dept of Economics, 2008-04-01) Fender, John; Ellis, Christopher J.
In this paper we combine Acemoglu's model of the economic origins of democracy with Lohmann's model of political mass protest. This alllows us to provide an analysis of the economic causes of political regime change based on the microfoundations of rebellion. We are able to derive conditons under which democracy arises peacefully, when it occurs only after a violent rebellion, and when oligarchy persists. We model these posibilities in a world of asymmetric information where information cascades are possible, and where these cascades may involve errors in a paratian sense.
Open Access
Learning and Macroeconomics
(University of Oregon, Dept of Economics, 2008-07-11) Honkapohja, Seppo, 1951-; Evans, George W., 1949-
Expectations play a central role in modern macroeconomic theories. The econometric learning approach models economic agents as forming expectations by estimating and updating forecasting models in real time. The learning approach provides a stability test for rational expectations and a selection criterion in models with multiple equilibria. In addition, learning provides new dynamics if older data is discounted, models are misspecified or agents choose between competing models. This paper describes the E-stability principle and the stochastic approximation tools used to assess equilibria under learning. Applications of learning to a number of areas are reviewed, including the design of monetary and fiscal policy, business cycles, self-fulfilling prophecies, hyperinflation, liquidity traps, and asset prices.
Open Access
The Rising Share of Nonmarital Births Fertility Choice or Marriage Behavior? Response to Ermisch, Martin, and Wu*
(Department of Economics, University of Oregon, 2008-09) Stone, Joe A.; Stockard, Jean; Gray, Jo Anna
In a 2006 article in Demography, Jo Anna Gray, Jean Stockard and Joe Stone (GSSi)observe that among black women and white women ages 20 to 39, birth rates increased sharply for unmarried women over the period 1974 to 2000. But they also increased for married women, as well, and yet the total birth rate for married and unmarried women combined was essentially unchanged; ii)conclude that's since the total birth rate did not change, it seems obvious by inspection that the rises in unmarried and married birth rates could not have come from a general rise in fertility among women 20-39; iii)argue that these patterns are an example of a phenomenon called "Simpson's paradox", often illustrated by a joke, as told at Harvard, that when a student transfers from Harvard to Yale, mean intelligence rises at both places. Both means rise not because the average intelligence of the combined student bodies changed, but because the composition of the student body changed at each school; iv) conclude that between 1974 and 2000, sharp increases in the proportion of women who were single, termed the single share, or Su, changed the composition of the pools of married and unmarried women. The rising single share had a selection effect on the pools of married and unmarried women akin to the hypothetical student transfer from Harvard to Yale. Women with target fertility below the average for married women, but above the average for unmarried women, became less likely to marry than previously, so that mean birth rates for both groups rose over the period, and iv) using age/race-specific panel data, find parameter values strikingly consistent with those predicted by their illustrative model, and a dominant role for the selection effect of the single share in determining NFR on this. Recently Ermisch Martin and Wu (EMW) have challenged the GSS findings and conclusions. In this response GSS respond to the EMW challenges, and reaffirm the GSS results and conclusions.
Open Access
Learning about Risk and Return: A Simple Model of Bubbles and Crashes
(University of Oregon, Dept of Economics, 2008-01-31) Branch, William A.; Evans, George W., 1949-
This paper demonstrates that an asset pricing model with least-squares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices. When agents are risk-averse they generate forecasts of the conditional variance of a stock’s return. Recursive updating of the conditional variance and expected return implies two mechanisms through which learning impacts stock prices: occasional shocks may lead agents to lower their risk estimate and increase their expected return, thereby triggering a bubble; along a bubble path recursive estimates of risk will increase and crash the bubble.
Open Access
Rock-Paper-Scissors; A New and Elegant Proof
(University of Oregon, Dept of Economics, 2007-09-12) Nouweland, Anne van den
I provide an elegant proof identifying the unique mixed Nash equilibrium of the Rock-Paper-Scissors game. The proof is based on intuition rather than elimination of cases. It shows that for any mixed strategy other than the one that puts equal probability on each of a player’s actions, it holds that this strategy is not a best response to any mixed strategy that is a best response to it.
Open Access
Cohort Effects on Nonmarital Fertility
(University of Oregon, Dept of Economics, 2007-05) Stockard, Jean; Gray, Jo Anna; O'Brien, Robert; Stone, Joe A.
The authors employ a newly developed method to disentangle age, period and cohort effects on nonmarital fertility ratios (NFR) from 1972 to 2002 for U.S. women aged 20-44 – with a focus on three specific cohort factors: family structure, school enrollment, and the ratio of men to women. All play significant roles in determining NFR and vary substantially for whites and blacks. Indeed, if black women and white women had cohort characteristics typical of the other group, age-specific NFRs for black women would decline markedly, while those for whites would increase markedly. Hence, cohort related variables contribute substantially to black-white differences in NFR in adulthood. Early family structure and education are particularly crucial in the racial differences. Most distinctively, while the impact of school enrollment on NFR is significantly negative for whites, the impact is significantly positive for blacks, perhaps due to the dominance of the “independence” effect.