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
Abstinence from Child Labor and Profit Seeking
(University of Oregon, Dept of Economics, 2000-07-01) Davies, Ronald B.
Some firms voluntarily abstain from using child labor, presumably in response to concerns about the welfare of overseas child workers. These firms do not, however, support banning the imports of competitors’ products manufactured with child labor. As an explanation of this seemingly contradictory behavior, I consider a setting in which two firms engage in Bertrand competition for consumers who vary in the value they place on goods made without child labor. When the firms differentiate themselves according to their labor input, both enjoy greater profits. If imports using child labor are banned, this reduces the profits of both firms. Similar results can also arise in a many firm setting. If charitable donations to education foundations raise the cost of child labor, this too can arise as a purely profitseeking activity by adult labor firms. Thus, while the adult-labor firms engage in seemingly altruistic behavior, they may do so not out of regard for children but rather for their own profits.
Open Access
Adaptive Expectations, Underparameterization and the Lucas Critique
(University of Oregon, Dept. of Economics, 2001-11-29) Evans, George W., 1949-; Ramey, Garey
A striking implication of the replacement of adaptive expectations by Rational Expectations was the "Lucas Critique," which showed that expectation parameters, and endogenous variable dynamics, depend on policy parameters. We consider this issue from the vantage point of a bounded rationality, where for transparency we model bounded rationality by means of simple adaptive expectations.We show that for a range of processes, monetary policy remains subject to the Lucas critique. However, there are also regimes in which the expectation parameter is locally invariant and the Lucas critique does not apply.
Open Access
Adaptive Learning and Monetary Policy Design
(University of Oregon, Dept. of Economics, 2002-11-08) Evans, George W., 1949-; Honkapohja, Seppo, 1951-
We review the recent work on interest rate setting, which emphasizes the desirability of designing policy to ensure stability under private agent learning. Appropriately designed expectations based rules can yield optimal rational expectations equilibria that are both determinate and stable under learning. Some simple instrument rules and approximate targeting rules also have these desirable properties. We take up various complications in implementing optimal policy, including the observability of key variables and the required knowledge of structural parameters. An additional issue that we take up concerns the implications of expectation shocks not arising from transitional learning effects.
Open Access
Adaptive Learning with a Unit Root: An Application to the Current Account
(University of Oregon, Dept of Economics, 2006-07-31) Davies, Ronald B.; Shea, Paul, 1977-
This paper develops a simple two-country, two-good model of international trade and borrowing that suppresses all previous sources of current account dynamics. Under rational expectations, international debt follows a random walk. Under adaptive learning however, international debt behaves like either a stationary or an explosive process. Whether debt converges or diverges depends on the model’s exact specification and the specific learning algorithm that agents employ. When debt diverges, a financial crisis eventually occurs to ensure that the model’s transversality condition holds. Such a financial crisis causes an abrupt decrease in the debtor country’s consumption and utility.
Open Access
Adaptive Learning, Endogenous Inattention, and Changes in Monetary Policy
(University of Oregon, Dept of Economics, 2006-06-22) Branch, William A.; Evans, George W., 1949-; Carlson, John; McGough, Bruce
This paper develops an adaptive learning formulation of an extension to the Ball, Mankiw and Reis (2005) sticky information model that incorporates endogenous inattention. We show that, following an exogenous increase in the policymaker’s preferences for price vs. output stability, the learning process can converge to a new equilibrium in which both output and price volatility are lower.
Open Access
Anticipated Fiscal Policy and Adaptive Learning
(University of Oregon, Dept of Economics, 2007-02-18) Evans, George W., 1949-; Honkapohja, Seppo, 1951-; Mitra, Kaushik
We consider the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations. To model this we assume that agents combine limited structural knowledge with a standard adaptive learning rule. We analyze these issues using two well-known set-ups, an endowment economy and the Ramsey model. In our set-up there are important deviations from both rational expectations and purely adaptive learning. Our approach could be applied to many macroeconomic frameworks.
Open Access
Appendices to Superfund Taint and Neighborhood Change: Ethnicity, Age Distributions, and Household Structure
(University of Oregon, Dept. of Economics, 2003-12) Cameron, Trudy Ann; Crawford, Graham D.
Certain sociodemographic groups often seem to be relatively more concentrated near environmental hazards than in the surrounding community. It is well-known that snapshot cross-sectional statistical analyses cannot reveal how residential mobility for these different groups reacts to changing public perceptions of environmental hazards. Decennial panel data over four census periods, for census tracts surrounding seven different urban Superfund localities, allow us to examine how ethnicities, the age distribution and family structure vary over time with distance from these major environmental disamenities. If the slope of the distance profile decreases over time, the group in question could be argued to be “coming to the nuisance.” We find a lot of statistically significant movement, including some evidence of minority move-in and increasing relative exposure of children, especially those in singleparent households. However, it appears to be hard to make generalizations, across localities, about the mobility patterns for different groups. This heterogeneity may account for the difficulty other researchers have experienced in identifying systematic effects in data that are pooled across different environmental hazards. Changes over time in the sociodemographic mix near Superfund sites may also help explain differences in the extent to which housing prices rebound after cleanup commences.
Open Access
Are Stationary Hyperinflation Paths Learnable?
(University of Oregon, Dept of Economics, 2003-03-17) Adam, Klaus; Evans, George W., 1949-; Honkapohja, Seppo, 1951-
Earlier studies of the seigniorage inflation model have found that the high-inflation steady state is not stable under adaptive learning. We reconsider this issue and analyze the full set of solutions for the linearized model. Our main focus is on stationary hyperinflationary paths near the high-inflation steady state. The hyperinflationary paths are stable under learning if agents can utilize contemporaneous data. However, in an economy populated by a mixture of agents, some of whom only have access to lagged data, stable inflationary paths emerge only if the proportion of agents with access to contemporaneous data is sufficiently high.
Open Access
Asset Return Dynamics and Learning
(University of Oregon, Dept of Economics, 2006-11-13) Branch, William A.; Evans, George W., 1949-
This paper advocates a theory of expectation formation that incorporates many of the central motivations of behavioral finance theory while retaining much of the discipline of the rational expectations approach. We provide a framework in which agents, in an asset pricing model, underparameterize their forecasting model in a spirit similar to Hong, Stein, and Yu (2005) and Barberis, Shleifer, and Vishny (1998), except that the parameters of the forecasting model, and the choice of predictor, are determined jointly in equilibrium. We show that multiple equilibria can exist even if agents choose only models that maximize (risk-adjusted) expected profits. A real-time learning formulation yields endogenous switching between equilibria. We demonstrate that a realtime learning version of the model, calibrated to U.S. stock data, is capable of reproducing many of the salient empirical regularities in excess return dynamics such as under/overreaction, persistence, and volatility clustering.
Open Access
Bank-based versus Market-based Financial Systems: A Growth-theoretic Analysis
(University of Oregon, Dept. of Economics, 2003-02-01) Chakraborty, Shankha; Ray, Tridip
We study bank-based and market-based financial systems in an endogenous growth model. Lending to firms is fraught with moral hazard as owner-managers may reduce investment profitability to enjoy private benefits. Bank monitoring partially resolves the agency problem, while market-finance is more ‘hands-off’. A bank-based or market-based system emerges from firm financing choices. It is not possible to say unequivocally which of the two systems is better for growth. The growth rate depends, crucially, on the efficiency of financial and legal institutions. But a bank-based system outperforms a market-based one along other dimensions. Investment and per capita income are higher, and income inequality lower, under a bank-based system. Bank-based systems are more conducive for broad-based industrialization. A temporary income redistribution, under both financial systems, results in permanent improvement in per capita income as well as income distribution.
Open Access
Bargaining by Children
(University of Oregon, Dept. of Economics, 2002-07-20) Liday, Steven G.; Harbaugh, William; Krause, Kate
We study the development of bargaining behavior in children age seven through 18, using ultimatum and dictator games. We find that bargaining behavior changes substantially with age and that most of this change appears to be related to changes in preferences for fairness, rather than bargaining ability. Younger children make and accept smaller ultimatum proposals than do older children, Even young children are quite strategic in their behavior, making much smaller dictator than ultimatum proposals. Boys claim to be more aggressive bargainers than girls do, but they are not. Older girls make larger dictator proposals than older boys, but among younger children the proposals differ much more by height than by sex. We argue that the existence of systematic differences in bargaining behavior across age and sex supports the argument that culture is a determinant of economic behavior, and suggests that people acquire this culture during childhood. We argue that the height differences indicate that forces other than culture, in the usual sense of the word, are also important. Publisher Info
Open Access
Base independence in the analysis of tax policy effects: with an application to Norway 1992–2004
(University of Oregon, Dept of Economics, 2005-10-27) Lambert, Peter J.; Thoresen, Thor Olav
The analysis contrasts results of two recently expounded micro-level data approaches to derive robust intertemporal characterizations of redistributional effects of income tax schedules; the fixed-income procedure of Kasten, Sammartino and Toder (1994) and the transplant-and-compare method of Dardanoni and Lambert (2002). Our study is normative in that the Blackorby and Donaldson (1984) index of tax progressivity is employed. This enables contributions from vertical redistribution and horizontal inequity also to be assessed, using for the latter one classical measure and one no reranking measure. When the competing methodologies are applied to Norwegian data for 1992–2004, their respective strengths and weaknesses are revealed. The transplant-and-compare procedure is found to have a number of advantages.
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
Can Perpetual Learning Explain the Forward Premium Puzzle?
(University of Oregon, Dept of Economics, 2006-08-28) Chakraborty, Avik, 1975-; Evans, George W., 1949-
Under rational expectations and risk neutrality the linear projection of exchange rate change on the forward premium has a unit coefficient. However, empirical estimates of this coefficient are significantly less than one and often negative. We investigate whether replacing rational expectations by discounted least squares (or “perpetual”) learning can explain the result. We calculate the asymptotic bias under perpetual learning and show that there is a negative bias that becomes strongest when the fundamentals are strongly persistent, i.e. close to a random walk. Simulations confirm that perpetual learning is potentially able to explain the forward premium puzzle.
Open Access
Capital Controls: An Evaluation
(University of Oregon, Dept of Economics, 2005-06-02) Magud, Nicolas; Reinhart, Carmen M.
The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a “success” and (iv) the empirical studies lack a common methodology—furthermore these are significantly “overweighted” by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to “standardize” the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies only in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia.
Open Access
Capital Controls: Myth and Reality, A Portfolio Balance Approach to Capital Controls
(University of Oregon, Dept of Economics, 2005-11) Magud, Nicolas; Reinhart, Carmen M.; Rogoff, Kenneth S.
The literature on capital controls has (at least) four very serious apples-to-oranges problems: (i) There is no unified theoretical framework to analyze the macroeconomic consequences of controls; (ii) there is significant heterogeneity across countries and time in the control measures implemented; (iii) there are multiple definitions of what constitutes a "success" and (iv) the empirical studies lack a common methodology-furthermore these are significantly "over-weighted" by a couple of country cases (Chile and Malaysia). In this paper, we attempt to address some of these shortcomings by: being very explicit about what measures are construed as capital controls. Also, given that success is measured so differently across studies, we sought to "standardize" the results of over 30 empirical studies we summarize in this paper. The standardization was done by constructing two indices of capital controls: Capital Controls Effectiveness Index (CCE Index), and Weighted Capital Control Effectiveness Index (WCCE Index). The difference between them lies only in that the WCCE controls for the differentiated degree of methodological rigor applied to draw conclusions in each of the considered papers. Inasmuch as possible, we bring to bear the experiences of less well known episodes than those of Chile and Malaysia. Then, using a portfolio balance approach we model the e®ects of imposing short-term capital controls. We find that there should exist country-specific characteristics for capital controls to be effective. From these simple perspective, this rationalizes why some capital controls were effective and some were not. We also show that the equivalence in effects of price- vs. quantity-capital control are conditional on the level of short-term capital flows.
Open Access
The Carrot or the Stick: Rewards, Punishments, and Cooperation
(University of Oregon, Dept. of Economics, 2002-08-20) Andreoni, James; Harbaugh, William; Vesterlund, Lise
We examine rewards and punishments in a simple proposer-responder game. The proposer first makes an offer to split a fixed-sized pie. According to the 2×2 design, the responder is or is not given a costly option of increasing or decreasing the proposer's payoff. We find substantial demands for both punishments and rewards. While rewards alone have little influence on cooperation, punishments have some. When the two are combined the effect on cooperation is dramatic, suggesting that rewards and punishments are complements in producing cooperation. Providing new insights to what motivates these demands is the surprising finding that the demands for rewards depend on the availability of punishments.
Open Access
CEO Turnover and Foreign Market Participation
(University of Oregon, Dept. of Economics, 2003-03) Blonigen, Bruce A.; Wooster, Rossitza B. (Rossitza Bouneva), 1971-
Anecdotal evidence suggests that new CEOs with foreign backgrounds direct their firms to become more international in their operations. We examine this hypothesis formally using data on U.S. S&P-500 manufacturing firms from1992 through 1997 and biographical information on CEO's birth and education locations that allow us to identify changes from U.S.- to foreign-connected CEOs. Robust to a variety of specifications, we find that a U.S. firm's switch from a U.S. to a foreign CEO leads to substantial increases in the firm's proportion of its foreign assets and foreign affiliate sales. In fact, our preferred specification indicates that foreign asset and affiliate sales proportions increase 25 and 40%, respectively, for the five years after there is CEO turnover to one with a foreign background. This is in contrast to U.S.-to-U.S. CEO switches in our sample that show no evidence of changes in a firms' foreign market participation. These large effects contrast with previous literature that finds little evidence for changes in firm performance with CEO turnover.
Open Access
Childbearing, marriage and human capital investment
(University of Oregon, Dept of Economics, 2006-02) Gray, Jo Anna; Stone, Joe A.; Stockard, Jean
This paper proposes and tests a simple joint explanation for i) increases in marital and nonmarital birth rates in the United States over recent decades, ii) the dramatic rise in the share of nonmarital births, and iii) the pronounced racial differences in the timing of childbearing. The explanation arises from differences across time and race in the attractiveness of marriage and opportunities for investment in human capital. For given preferences, a decline in the marriage rate necessarily causes both the marital and nonmarital birth rates to increase, with no change in the total birth rate. This model exhibits exceptional power in replicating salient features of childbearing behavior. Our results suggest that changes in marital and nonmarital birth rates, as well as in the share of nonmarital births, arose primarily from changes in marriage behavior, not from changes in fertility; and that racial differences in the timing of childbearing reflect early differences in human capital investment.
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.