Economics Department

Abstracts

Working Papers  |  Abstract  |  Authors

Working Paper # Author Title Date
29 Vasilios D. Kosteas Occupation Switching Behavior and the Wage Impact of Trade-Related Displacement

This paper investigates the cross-occupation effect of offshorability on wage rates by examining the occupation switching behavior of workers previously employed in highly offshorable occupations. Instead of looking at the labor market for occupations that are traditionally vulnerable to import competition, we study the destination occupations for the workers displaced from import-competing sectors. We observe the pattern of occupation switching using the data on participants of the Trade Adjustment Assistance (TAA) program of the U.S. Department of Labor. Using the NLSY dataset, we find that inflows of workers who were previously employed in highly offshorable occupations exerts significant downward pressure on wages for workers who are already employed in the receiving occupations.


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April, 2013
28 Vasilios D. Kosteas Worker Training and Foreign Competition: Evidence from the US Manufacturing Sector

Relatively little attention has been paid to the effect of trade on investment in human capital through job training. We examine the relationship between rising imports and the amount of time workers in the US manufacturing sector spend in training events. Using industry level exchange rates as an instrument for import shares, we find that rising imports lead workers to spend more time in training to upgrade their skills, consistent with firms responding to foreign competition by increasing their technology adoption. In contrast, rising imports lead to a lower probability of investing in training for the purpose of career advancement.


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27 Myong-Hun Chang Cyclical Industrial Dynamics in a Model of Schumpeterian Competition with Fluctuating Demand

This paper proposes a computational model of Schumpeterian competition with endogenous R&D when the size of the market demand is stochastic. The fluctuation in the market demand induces cyclical patterns in firms’ entry and exit behavior as well as their R&D intensities over time. Most significantly, we find that the industry concentration, market price, and the average pricecost margins are countercyclical, while the industry profits and the aggregate R&D spending are procyclical. These patterns are explained in terms of the cyclicalities in the degree of competition and the production efficiencies resulting from the endogenous entry, exit, and R&D activities of firms.

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April, 2013
26 Joseph E. Harrington, Jr. and
Myong-Hun Chang
Endogenous Antitrust Enforcement in the Presence of a Corporate Leniency Program

Constructing a birth and death model of cartels, this paper examines the impact of a corporate leniency program on the frequency of cartels in a population of industries.  An innovative feature of the model is taking account of how a leniency program impacts enforcement through non-leniency means, specifically, the effectiveness of a competition authority in prosecuting cases without a leniency applicant.  It is shown that a leniency program is assured of lowering the cartel rate when leniency cases take up sufficiently few competition authority resources or when enforcement was initially very weak.  When leniency cases are just as intensive to prosecute and penalties are sufficiently low then a leniency program is not only ineffective but actually raises the cartel rate because of its deleterious effect on non-leniency enforcement.  It is also found that the effect of a leniency program can vary significantly across industries.  Finally, measuring the performance of a leniency program using the number of leniency applications is shown to be problematic because a leniency program can lower the cartel rate while generating no applications and raise the cartel rate while generating many applications.

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November, 2012
25 Vasilios D. Kosteas Training and Foreign Competition: Evidence from the US Manufacturing Sector

While a substantial literature exists investigating the effects of foreign trade on wage levels, wage inequality and job displacement, relatively little attention has been paid to the effect of trade on investment in human capital through job training. This paper examines the relationship between rising imports, particularly those from low-wage countries and China, and the amount of time workers in the US manufacturing sector spend in training events. Controlling for industry and individual fixed effects, the analysis indicates that rising import shares are associated with more time spent in training due to the adoption of new technology, supporting the assertion

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July, 2012
24 Myong-Hun Chang A Note on the Dynamics of Firm Turnovers in the East Liverpool (Ohio)
Pottery Industry, 1825-2010

We examine the time series data on firm entries and exits in the East Liverpool (Ohio) pottery industry between 1825 and 2010. The purpose is to identify patterns in the movement of the firms as well as their spans of life over the course of the industry’s development. Two patterns emerge: 1) the numbers of entries and exits are positively correlated; 2) the life spans of all firms that existed over the industry’s life-cycle show significant “infant mortality.”

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May, 2012
23 Myong-Hun Chang Competition Policy

This article discusses competition policy in the United States and the European Union. A brief overview of the historical and institutional background is provided, followed by a review of the scholarly research on competition policy that has accumulated in the field of industrial organization. The emphasis is placed on the role that economic and strategic analyses have played in the development of competition policy in its modern form.

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February, 2012
22 Vasilios D. Kosteas

Health Insurance Cost and Premium Sharing

We develop a model of cost sharing for firms that offer multiple insurance plans. We assume that firms offer one low quality plan and one high quality plan. Under the assumption of wage rigidities we found the employee’s contribution schedules are a function of the premiums in the previous period as well as the changes in both premiums over time. We test our hypothesis using data from the Employer Health Benefit Survey. We restrict the analysis to firms that offer HMO and PPO plans. We find that the own premium elasticities are generally larger than 1, confirming that as the cost of health insurance goes up, employers shift the cost of insurance onto employees.

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January, 2012
21 Myong-Hun Chang Computational Industrial Economics: A Generative Approach to Dynamic Analysis in Industrial Organization

The field of modern industrial economics focuses on the structure and performance of the industry in equilibrium when firms make decisions in an optimizing way, typically with perfect foresight. The patterns that arise in the process of adjustment, induced by persistent external shocks, are often ignored for lack of a proper tool for analysis. This chapter offers a basic agent-based computational model of industry dynamics which allows us to study the evolving industry structure through entry and exit of heterogeneous firms. This approach allows turbulence in market structure through unpredictable shocks to the firms’ technological environment. The base model presented here enables the analysis of interactive dynamics between firms as they adapt to changing environments with limited rationality and foresight. Some possible extensions of the base model are also discussed.

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December, 2011
20 Myong-Hun Chang Muddling through the Gales of Creative Destruction: A Non-Equilibrium Computational Model of Schumpeterian Competition∗

I present a computational model of R&D dynamics in an oligopoly with endogenous entry and exit. It views R&D as myopic but adaptive search for solutions and the firm as boundedly rational agent motivated by experiential learning in its pursuit of R&D. The turnover of firms as well as their sizes, R&D intensities, and the production efficiencies are endogenously generated and numerically tracked over time. My approach allows detailed analyses of the intra-industry relationships between the size, age, and R&D of firms as well as the inter-industry relationships between industry concentration and the R&D investments by firms.

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November, 2011
19 Subhra B. Saha

Economic Effects of Universities and Colleges

Based on the success of Boston, Silicon Valley and the Research Triangle, policy makers are increasingly looking to universities and colleges as engines of technological innovation and economic growth. Using panel data on metropolitan areas from 1980 to 2000, this paper estimates the spillover effects of activities of universities and colleges on economic outcomes of individuals in a local economy. Per capita academic R&D, share of science degrees in total bachelors’ degrees and stock of college graduates in a metropolitan area are the measures of university activity. The panel structure of the data allows me to include fixed effects for metropolitan areas and time. To further investigate causality, I use deep lags of university activities and presence of land grant universities interacted with a dummy variable for decades, as instrumental variables. Per capita academic R&D and stock of college graduates in a metropolitan area have positive and significant effect on individual wages. The stock of college graduate in a metropolitan area is an important determinant of individual employment. In contrast, the effect of share of science degrees and per capita academic R&D appear to have more important effect on average employment. The results are also empirically important. One standard deviation increase in academic R&D increases wages by .8% and probability of individual employment probability by 0.02%. One standard deviation increase in share of science degrees increases wages by .4% and the probability of individual employment by 0.03%. One standard deviation increase in stock of college grads degrees increases wages by 4% and the probability of individual employment by 1%.

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June, 2011
18 Subhra B. Saha, Bruce A. Weinberg A Framework for Quantifying the Economic Spillovers from Government Activity Applied to Science

Governments invest heavily in science and those investments are increasingly being justified in terms of the economic spillovers they generate, such as “jobs created.” Yet there are no accepted methods for quantifying these benefits and their magnitude is widely disputed. We analyze the ways in which science generates economic benefits; lay out how to (and not to) quantify those benefits; and provide a range of estimates. While our estimates vary considerably across specifications, our baseline estimates indicate that a $1B increase in science spending might raise wages by $1.68B and that these wage effects are likely to understate the effects on productivity. We also find that a $1B increase in science might generate 92,500 jobs, with 90% of these jobs being missed even using state-of-the-art “job creation” methods. Our methods can be applied to measure the local productivity spillovers from other government activity as well.

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May, 2011
17 Laura Crispin, Subhra B. Saha, and Bruce A. Weinberg Innovation Spillovers in Industrial

Cities Older, industrial cities have suffered with the shift from manufacturing to services, but the increased importance of innovation as an economic driver may help industrial cities, which are often rich in the institutions that generate innovation. This paper studies how innovation is related to wages for different types of workers (e.g., more-educated versus less, and younger versus older) and to real estate prices for cities. We also study industrial and occupational employment shares. Our estimates indicate that innovation and aggregate education are associated with greater productivity in cities. They indicate that innovation and aggregate education impact wages less in industrial cities, but that they impact real estate prices more. We also find greater effects of innovation and aggregate education for more-educated and prime-aged workers. We pay particular attention to controlling for causality and adjustments of factor inputs.

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November 2010
16 Vasilios D. Kosteas

High School Clubs Participation and Earnings

This paper estimates the effect of participation in high school extracurricular activities on future earnings, making three important contributions to the existing literature: 1) it compares the earnings effects of participation in different types of clubs; 2) it investigates whether the effect of clubs participation is constant over time; and 3) it employs a new estimation strategy in order to identify a causal link between clubs participation and wages. Using the NLSY79 dataset, I find that participation in high school clubs leads to higher future earnings.  While previous studies have focused on athletics, I show that participation in both athletics and academic clubs have positive earnings effects.  These results are robust to various estimation routines and robustness checks.

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May 2010
15 Vasilios D. Kosteas

The Effect of Exercise on Earnings: Evidence from the NLSY

This paper investigates whether engaging in regular exercise leads to higher earnings in the labor market.  While there has been a recent surge of interest by economists on the issue of obesity, relatively little attention has been given to the economic effects of regular physical activity apart from its impact on body composition.  I find that regular exercise yields a six to nine percent wage increase.  The results also show that while even moderate exercise yields a positive earnings effect, frequent exercise generates an even larger impact.  These findings are fairly robust to a variety of estimation techniques.

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May 2010
14 Matthew D. Henry and Scott Cunningham

Do Statutory Rape Laws Work?

We exploit the differences in the laws among states and over time to examine whether the laws restricting the number of legal sexual partners delays the sexual debut of both males and females. We find that the laws are successful in accomplishing these goals. Overall, an additional one year of potential partners leads to about a 2.9% increase in the probability of sexual debut at any age for males and 2.3% for females, controlling for state-age heterogeneity. The cumulative effect disguises substantial differences in the deterrence effects on males and females of different races.

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May 2010
13

Myong-Hun Chang∗

Agent-Based Modeling and Computational Experiments in
Industrial Organization: Growing Firms and Industries in silico

This paper discusses the need for, the mechanics of, and some potential application of agent-based modeling and computational analysis in industrial organization.


∗ I wish to thank my colleagues, Jon Harford and Matthew Henry, for their insightful comments on an earlier version of this paper.

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March, 2010
12

Myong-Hun Chang

Emergent Social Learning Networks in Organizations with Heterogeneous Agents

Two distinct learning mechanisms are considered for a population of agents who engage in decentralized search for the common optimum. An agent may choose to learn via innovation (individual learning) or via imitation (social learning).  The agents are endowed with heterogeneous skills in engaging in the two modes of learning.  When the agents choose imitation, they also choose whom to learn from.  This leads to the emergence of a social learning network among agents in the population.  This paper focuses on the impact the endowed learning skills have on the individual’s choice of learning mechanism as well as the micro and macro structure of the evolving network.  Finally, it explores the impact the degree of environmental volatility has on the structure of such networks.

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January, 2010
11

Sebastien Buttet and
Veronika Dolar

A Simple Model of Eating Decisions and Weight with Rational and Forward-Looking Agents

Several empirical papers in the economics of obesity literature find that changes in aggregate food prices over time have little effect on the population body-mass index or obesity prevalence, while changes in the price of selected food items drastically affects what people eat. We propose a simple dynamic model with rational agents to further examine the impact of changes in food prices and household real income on eating decisions and weight of men and women between 1971 and 2006. We also introduce a new measure for food prices which considers the price per calorie consumed rather than prices of specific food items. After careful calibration of the model using evidence from medical research on obesity, we find that prices determine the allocation of calories across food types, while income determine the total number of calories consumed and thus individuals’ weight. Based on our results, we share the view that taxes on food will impact what people eat but will have limited effect on reducing the population body-mass index or the obesity prevalence.

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January, 2010
10

Sheldon Stein

Dollar for Dollar Crowding Out in the Textbook Keynesian Cross Model When the Economy Is Below Full Employment

In this paper, it will be demonstrated that a “dollar for dollar” crowding out of national investment caused by increased government spending is not just something that occurs within classical macroeconomic models. The reason for this is that in a closed economy Keynesian cross model which ignores money, national savings, or Y- C –G, is equal to national investment, or I.  Such an “equilibrium” does not provide the national savings needed to finance a purely fiscal increase in government spending in a closed economy. Any additional government spending would have to occur at the expense of an already low level of capital spending and thus make the government expenditures multiplier equal to zero.

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January, 2010
9

Yee Fei Chia

Bad Education?  College Entry, Health, and Risky Behavior

The year following the last year of high school is often a period of changes in the lives of young adults. For incoming college freshmen, the transition from high school to college often brings about major changes in environment. The main objective of this paper is to examine the effects of college entry on changes in body weight, general health status and risky behavior for American young adults using individual-level panel data from the National Longitudinal Survey of Youth 1997. I compare students who entered college in the year right after the final year of high school to other young adults in the sample who did not enter college in the year right after the final year of high school.  Since college entry is not randomly assigned, I implement a propensity score matching approach to correct for selection biases. The results suggest that college freshmen are more likely to report a gain in body weight and BMI
 and that they are less likely to report an improvement in health status. College entry also appears to be associated with increases in the number of days where alcohol was consumed and in the number of days where binge drinking occurred.

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December, 2009
8

Bill Kosteas and
Francesco Renna

Health Insurance Cost and Premium Sharing

Employer-based health insurance is the single most important form of insurance coverage in U.S.: nearly two-thirds of the population under 65 seeks coverage through their employer. Most employers have chosen to offer health insurance as a fringe benefit to attract employees. In fact, employment-based health insurance is likely to be less expensive than individually purchased coverage (for the same set of benefits). However, employees may have heterogeneous preferences with respect to the level of coverage desired. Employers may offer multiple health insurance plans and use employee premium sharing to sort workers according to how they value health insurance. Moreover, employees can use premium sharing as a strategy to push employees to seek alternative forms of insurance. The benefits of sorting workers increase with the cost of health insurance. Our simple model predicts that the employee contribution toward the cheaper plan should increase as the premium rate increases. Similarly, the employee contribution toward the more expensive plan should increase as the premium rate increases but decrease as the cheaper plan premium increases.  We use data from the “Employer Health Benefits Survey”, to analyze the effect of health insurance premiums on premium sharing for firms offering multiple plans, focusing on firms that offer HMO and PPO plans. We find that the worker’s contribution for family coverage increases as the premium rates increases. The contributions for single coverage increase as the own premium rate increases and decrease as the cross premium rate increases.

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December, 2009
7

Bill Kosteas

High School Clubs Participation and Future Supervisory Status

This paper examines the relationship between high school clubs participation and the probability a worker will become a supervisor and the types of responsibility she will have, using the NLSY79 dataset.  While other papers have tried to explain what affects a worker’s probability of being a supervisor, this paper focuses on the impact of participation in extracurricular activities during high school.  I adapt the estimation routine developed in Ashenfelter and Krueger (2004) which controls for family fixed effects and uses sibling data to instrument for own participation.  Clubs participation in high school is positively correlated with the probability that a worker will supervise others and associated with supervisors having greater responsibility for setting pay and determining promotions.  These results persist after adding controls for school quality. 

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November, 2009
6

Myong-Hun Chang

Entry, Exit, and the Endogenous Market Structure in Technologically Turbulent Industries

Empirical studies have found high correlation between entry and exit across industries, indicating that industries differ substantially in their degree of firm turnover.  I propose a computational model of dynamic oligopoly with entry and exit in a turbulent technological environment.  I examine how industry-specific factors give rise to across industries differences in turnover.  An analysis of the endogenous relationships between firm turnover, industry concentration, and the performance variables shows:  1) the rate of turnover and industry concentration are positively related; 2) industry concentration and market price are positively related; 3) no general relationship exists between industry concentration and price-cost margin.

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October, 2009
5

Bill Kosteas

Job Satisfaction and Promotions

This paper estimates the impact of promotions and promotion expectations on job satisfaction using the 1996-2006 waves of the NLSY79 dataset.  Having received a promotion in the past two years leads to increased job satisfaction, even while controlling for the worker’s current wage, wage relative to her peer group and wage growth. Workers who believe a promotion is possible in the next two years also report higher job satisfaction.  Additionally, past promotions have a lingering, but fading impact on job satisfaction.

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September, 2009
4

Yee Fei Chia

Dollars and Pounds:  The Impact of Household Income on Childhood Weight

This paper examines the impact of household income on childhood weight status for children in the United States using matched mother-child data from the National Longitudinal Survey of Youth (NLSY). Instrumental variable (IV) models, household fixed effects (FE) models and household fixed effects IV (FEIV) models are estimated in order to control for causality. The results suggest that although the prevalence of childhood obesity is higher in low-income families in the sample, household income might be acting primarily as a proxy for other unobserved characteristics that determine the child’s weight status rather having a major direct causative role in determining the child’s weight status.

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June, 2009
3

Myong-Hun Chang and
Joseph E. Harrington, Jr.

The Impact of a Corporate Leniency Program on Antitrust Enforcement and Cartelization

To explore the efficacy of programs designed to fight cartels, a Markov process is constructed which models the stochastic formation and demise of cartels.  Cartels are born when given the opportunity and market conditions are right, while cartels die because of internal collapse or they are caught and convicted by the antitrust authority.  The likelihood that a cartel, once identified, is convicted depends inversely on the caseload of the antitrust authority.  The antitrust authority also optimally chooses an enforcement policy in terms of how many cases it prosecutes.  With this model, the impact of a corporate leniency program on the steady-state cartel rate is investigated.  Holding the enforcement policy of the antitrust authority fixed, a leniency program lowers the frequency of cartels.  However, the additional caseload provided by the leniency program induces the antitrust authority to be less aggressive prosecuting cases outside of the program.  As a result, it is possible that the cartel rate is higher when there is a leniency program.

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February, 2009
2

Bill Kosteas

Skill Upgrading and Imports in US Manufacturing

Recent theoretical models show that international trade can induce within-industry skill-upgrading by raising R&D intensity and creating skill-biased technologies.  This paper tests this assertion by estimating the effect of rising import shares on wage shares for 4-digit SIC US manufacturing industries.  Using Arellano-Bond estimation to account for the endogeneity of imports, I find that neither rising import shares nor changes in outsourcing are correlated with rising skill intensity in US manufacturing between 1980 and 1988.  Between 1990 and 1996, however, it appears that rising import shares are associated with lower skill-intensity.  It does not appear that imports from low-wage countries have a stronger effect on skill intensity relative to non-low-wage imports.

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January, 2009
1

Yee Fei Chia

Weighty Problems:  An Examination of Childhood Weight and School Outcomes

This paper examines the effects of childhood overweight and obesity on the child’s school-related outcomes for children in Canada and the U.S. using data from the National Longitudinal Survey of Children and Youth (NLSCY) master files and the National Longitudinal Survey of Youth (NLSY) children files respectively. It also attempts to examine pathways that might mediate the relationships between the child’s weight and schooling outcomes. The results obtained suggest that there potentially exist some differences between Canada and the U.S. in terms of how the child’s weight affects his or her school performance.

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January, 2009