Economics Department

NEO Papers and Abstracts

2016 Northeast Ohio Economics Workshop Abstracts

Session 1A: Applied Microeconomics I, 9:30-10:50

Authors: David Clingingsmith (Case Western Reserve University) and Roman Sheremeta (Case Western Reserve University)

Title: Status and the Demand for Visible Goods: Experimental Evidence on Conspicuous Consumption

Abstract: Some economists argue that consumption of publicly visible goods is driven by social status. Making a causal inference about this claim is difficult with observational data. We conduct an experiment in which we vary both whether a purchase of a physical product is publicly visible or kept private and whether the income used for purchase is linked to social status or randomly assigned. Making consumption choices visible leads to a large increase in demand when income is linked to status, but not otherwise. We investigate the characteristics that mediate this effect and estimate its impact on welfare.

Authors: Charalambos Michael (College of Wooster)

Title: Determinants of Asset and Mortgage Backed Securities Market Spreads

Abstract: In this paper, I investigate the determinants of primary market spreads for fixed-rate asset (ABS) and mortgage backed securities (MBS). Spreads are defined as the difference between the coupon rate and the interest rate swap of closest maturity at the time of issuance. I examine deals issued in the US, Euro-area, and Japanese market places, in the period between 1999 and 2012. The dataset is from Thomson One Banker and comprises of 18,285 tranches. The regression analysis is closest to Fabozzi and Vink (2012) and Cuchra (2005) who study ABS spreads of floating-rate European ABS prior to 2008. Fabozzi and Vink (2012) find that credit ratings account for 68% of the explained variability of European ABS tranche spreads at issuance, while Cuchra (2005) finds that they account for up to 72%. Contrary to their results, I find that credit ratings account for only 10% of the variability of issuance spreads, and in contrast to the hypothesis of investor over-reliance on credit ratings. I find that other credit characteristics, such as the weighted average life to maturity and the number of credit ratings, and controls for time and collateral asset types, add 40% to the explained variability of spreads. On the other hand, proxies for liquidity, such as principal amount and number of tranches, do not add explanatory power. I also find strong currency risk premiums linked to the originator’s nationality. Japanese and European nationality originators enjoy a premium relative to US nationality originator institutions, while issues in the US marketplace have a lower premium than the issues in the Japanese and European marketplace. An investigation of currency denomination choices appears to be a fruitful avenue for future research.

Session 1B: Applied Theory I, 9:30-10:50

Authors: Toni Ahnert (Federal Reserve Bank of Cleveland) and Mahmoud Elamin (Federal Reserve Bank of Cleveland)

Title: The Effect of Safe Assets on Financial Fragility in a Bank-Run Model

Abstract: Risk-averse investors induce competitive intermediaries to hold safe assets, thereby lowering the probability of a run and reducing financial fragility. We revisit Goldstein and Pauzner (2005), who obtain a unique equilibrium in the banking model of Diamond and Dybvig (1983) by introducing risky investment and noisy private signals. We show that, in the optimal demand-deposit contract subject to sequential service, banks hold safe assets to insure investors against investment risk. Consequently, fewer investors withdraw prematurely, which reduces the probability of a bank run. Safe asset holdings increase investor welfare and may increase the bank’s provision of liquidity.

Authors: Francois Gourio (Federal Reserve Bank of Chicago) and Phuong Ngo (Cleveland State University)

Title: Risk premia at the ZLB: a macroeconomic interpretation

Abstract: Historically, inflation is associated with low stock returns, leading investors to fear inflation. We document that this correlation changes after 2008: inflation are now associated with high stock returns. We interpret this as a change in the conditional covariance of (news about) economic activity and inflation. We then show how the zero lower bound (ZLB) on nominal interest rates can explain this change of covariance owing to the changing propagation mechanisms at the ZLB. This has important implications for asset prices since covariances determine risk premia. A fairly standard New Keynesian macroeconomic model can generates positive term premia and inflation risk in normal times (far from the zero lower bound), but these premia fall as the economy becomes closer to the ZLB.

Session 2A: Applied Microeconomics II, 11:10-12:30

Authors: Justin Gallagher (Case Western Reserve University) and Paul J. Fisher (Case Western Reserve University)

Title: The Effect of Red Light Traffic Camera Programs on Vehicle Accidents: An Unexpected Consequence of Mixed Incentives

Abstract: We examine the impact of an exogenous removal of red light cameras by a voter referendum in the City of Houston to provide an estimate of the impact of red light cameras (RLC) on traffic safety. Overall, there is no evidence that RLCs led to fewer accidents. We find only weak evidence that RLCs reduce angle crashes (e.g. from running a red light). There is, however, strong support for the claim that RLCs led to an increase in other accidents (e.g. by attempting to stop suddenly). The results are broadly consistent for both a Houston control group of non-RLC intersections and a Dallas control group of RLC intersections that were not part of the referendum.

Authors: Xiaxi Zhao (University of Pittsburgh)

Title: Information Disclosure, Housing Markets and Public Health: Evidence from The Lead Paint Reduction Act

Abstract: To gauge the efficacy of managing environmental risk via information based environmental regulations, I investigate the effects of the Residential Lead Based Paint Hazard Reduction Act. Enacted in 1996, the lead hazard disclosure policy requires sellers and landlords to disclose known lead-based paint hazards to potential buyers or renters. Employing a difference-in-differences approach, I find evidence that the law may reduce the willingness to pay for houses at risk for lead, prompted some families with children to reallocate toward homes without significant lead risks, increased lead mitigation in rental properties, and reduced blood lead levels among children in rental properties. However, because white families appear to be more responsive to information disclosure than other groups, the information disclosure law might exacerbate racial disparities in lead exposure.

Session 2B: Applied Theory II, 11:10-12:30

Authors: Myong-Hun Chang (Cleveland State University) and Joseph E. Harrington Jr. (University of Pennsylvania)

Title: The Social Dynamics of Stigma

Abstract: We study the dynamics of social stigma in the context of social diffusion models, where stigma is defined as an attribute that signals a deviation from the social norm and can be a source of harmful discrimination. Our focus is on exploring the dynamic process through which the behavior of the individuals and the micro-social relationships among them influence the macrosocial attitude toward the stigma. Of particular interest is to understand the conditions that promote social acceptance and can trigger a shift to a norm of tolerance.

Authors: Kuzey Yilmaz (Cleveland State University)

Title: Decentralized School Finance and Metropolitan Suburbanization

Abstract: The residential patterns across the metropolitan areas have changed notably since 1950s; The population has suburbanized and the poor now live closer to the city center. The recent research by urban economists finds that the income elasticity of land demand is too low to explain the poor's urbanization, which mainly comes from better access to public transportation in cities. We take the new findings seriously and develop a new hybrid Tiebout-Alonso model by explicitly introducing (i) a public transportation as an alternative mode of commute to automobile, and (ii) a housing production function that allows us to work with the income elasticity of land demand directly. We later extend the model in several other directions, including an extended model with a decentralized employment centers. Our model finds that the neighborhood amenities (i.e education and property taxes) have substantial effect on the residential patterns across metropolitan areas that cannot be ignored, and produces some testable predictions.

Session 3A: Applied Microeconomics III, 1:30-2:50

Authors: Martin Saavedra (Oberlin College) and Tate Twinam (University of Washington Bothell)

Title: Should We Trust Occupational Income Scores?

Abstract: The primary variable economic historians use to measure labor market out-comes is occupational income score (OCCSCORE). Little attention has been given to how using OCCSCORE biases estimates if researchers are actually interested in income. This paper uses modern Census data and shows that using OCCSCORE biases results towards zero and can result in statistically significant results of the wrong sign. We show that adjusting OCCSCORE for race, sex, age, and region reduces this bias.

Authors: Irina Hayduk (Kent State University) and Maude Toussaint-Comeau (Federal Reserve Bank of Chicago)

Title: Parental Job Loss and Juvenile Delinquency

Abstract: The last great recession has exacerbated parent unemployment and negative labor demand-related shocks, and increased socio-economic outcome disparities among children. These inhibiting labor market trends in households with children have reinforced the importance of understanding the full scope of the effects of unexpected and lasting joblessness, including their effects on children’s behaviors and future labor market prospects. We conduct an empirical investigation which seeks to shed light on the causal relationship between parental sudden and involuntary joblessness and children outcome, by testing the effect on juvenile crime rates, incidences, which could fully impede a person’s future employment path, irrespective of education or health.

Session 3B: Health Economics, 1:30-2:50

Authors: Lulu Liu (University of Pittsburgh)

Title: The Labor Market Effect of Health Improvement: Evidence from a Randomized Control Trial in Rural China

Abstract: This paper explores the effect of alleviating hypertension on annual income. Health interventions can result in social welfare gains through improvement in both physical well-being and income. Previous literature encounters difficulties in estimating the impact due to the endogeneity of health and the prevalence of labor contract resulting in non-flexible income. By studying elderly farmers in rural China who need to perform un-mechanized farm work to make a living, we create an unusually tight link between health, productivity, and income that might be difficult to replicate in high income societies. We use the data from a randomized control trial designed to improve hypertension management and utilize the exposure to the interventions as instrumental variables. We find that one standard deviation decrease in systolic blood pressure can significantly increase annual income by 3%. There is also evidence that the increase in income results from an improvement of labor productivity, rather than an elongation of working hours.  Through cost-benefit analysis, we conclude that our interventions resulted in big welfare gains. ​

Authors: Aliaksandr Amialchuck (University of Toledo) and Kristen Keith

Title: Does Health Insurance affect Employee Productivity?

Abstract: Most of the empirical literature focuses on the tradeoff between employer-provided health insurance and wages and does not consider its potential effect on employee productivity. Using data from the 2008, 2010 and 2012 Annual Social and Economic Supplements of the Current Population Survey, we examine the magnitudes of the direct and the indirect (productivity) effects of employer-provided health insurance on wages. After adjusting for selection, Blinder-Oaxaca decomposition results by gender and marital status suggest that the positive indirect effect of health insurance is of the same or greater magnitude than the negative direct effect of health insurance on wages for all sub-groups of employees except married females, for whom a small negative effect of health insurance on productivity is detected. These results highlight the potential effect of health insurance on employee productivity and help reconcile conflicting findings about the relationship between employer-provided health insurance and wages in the literature.

Session 4A: Economics of Education, 3:10-4:30

Authors: Richard Svoboda (University of Pittsburgh)

Title: Grading Colleges: An Empirical Analysis of State College Performance-Based Funding

Abstract: More than 30 state governments have utilized performance-based funding to provide colleges with financial incentives to improve college outcomes.  However, the effects of these programs are hard to identify due to non-random adoption. I deal with the endogeneity problem by using a triple-difference model together with a unique dataset I construct, containing all implementations and the characteristics of state-level performance-based funding.  I evaluate how performance-based funding affects completion rates, research output, retention rates, efficiency measures, and other intermediate outcomes. I find that performance-based funding significantly increases the completion and retention rates. Performance funding programs based on progression are most effective at improving outcomes. Further, the improvements to outcomes increase with the amount of state funding allocated based on college performance. By evaluating college choices, I find that performance funding leads to an increase in the average SAT score. However, there is also evidence that colleges shift spending away from instruction towards institutional support, potentially to remain in compliance with the new funding program.

Authors: Wade Litt (University of Akron)

Title: Energy booms, the resource curse, and university enrollment

Abstract: Large deposits of natural gas and shale oil coupled with innovative drilling technologies have led to high levels of economic growth across pockets of the United States in the recent decade. Richness in natural resources, however, can have detrimental effects on economic growth in the long-run, often referred to as a resource curse. Human capital theory helps explain decreased educational attainment as one of the distinguishing characteristic of resource curses. Instead of pursuing post-secondary education, potential students may forgo higher education for high-paying jobs in the energy and supporting sectors. This human capital affect is shown to exist for high school students, resulting in a higher dropout rate among students in coal-rich regions during the coal boom of the 1970s (Black et al., 2005). The affect, however, has not been explored with post-secondary enrollment or during the recent period of oil and gas growth. As such, using state-level data, I explore the affect that recent surges in oil and gas activity has on enrollment in higher education institutions. The results have far-reaching implications for human capital accumulation and regional development.

Session 4B: Wage Inequality, 3:10-4:30

Authors: Roberto Pinheiro (Federal Reserve Bank of Cleveland) and Murat Tasci (Federal Reserve Bank of Cleveland)

Title: Organizations, Skills, and Wage Inequality

Abstract: We extend an on-the-job search framework in order to allow firms to hire workers with different skills and skills to interact with firm's total factor Productivity (TFP). Skills impact not only workers' productivity but how likely they are able to adapt to changing tasks. Consequently, firms' skill composition also impact labor turnover. Moreover, the model allows us to discuss not only within-firm and between-firm wage inequality, but also within-skill and between-skill wage inequality. We calibrate the model using five educational attainment levels as proxies for skills and estimate nonparametrically firm-skill productivity from the wage distributions for different educational levels.We calibrate the model for two periods in time (1980 and 2009) and consider three counter-factual economies in which we evaluate how the wage distribution would have evolved if we kept one of the following key characteristics at its 1980's levels: firm-skill productivity distribution, labor market frictions, and skill distribution. Our preliminary results show that most of the differences between the 1980's and 2009's distributions are mostly due to changes in firm-skill productivity.

Authors: Francesco Renna (University of Akron) and Amanda Weinstein (University of Akron)

Title: The Veteran Wage Differential

Abstract: There is some debate in the literature as to whether military service is rewarded in the economy and the extent to which veterans receive either a wage premium or penalty. In this paper, we take a new approach to this question by decomposing the entire wage distribution of veterans and civilians instead of focusing only on the wage gap at the averages. Consistent with the bridging hypothesis, we find that individuals in the lower bottom of the distribution benefit from the experience earned in the military, while those in the top of the distribution are penalized for the time served in the military.