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17 июля, 17:49

Executive Compensation: A Survey of Theory and Evidence -- by Alex Edmans, Xavier Gabaix, Dirk Jenter

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This paper reviews the theoretical and empirical literature on executive compensation. We start by presenting data on the level of CEO and other top executive pay over time and across firms, the changing composition of pay; and the strength of executive incentives. We compare pay in U.S. public firms to private and non-U.S. firms. We then critically analyze three non-exclusive explanations for what drives executive pay -- shareholder value maximization by boards, rent extraction by executives, and institutional factors such as regulation, taxation, and accounting policy. We confront each hypothesis with the evidence. While shareholder value maximization is consistent with many practices that initially seem inefficient, no single explanation can account for all facts and historical trends; we highlight major gaps for future research. We discuss evidence on the effects of executive pay, highlighting recent identification strategies, and suggest policy implications grounded in theoretical and empirical research. Our survey has two main goals. First, we aim to tightly link the theoretical literature to the empirical evidence, and combine the insights contributed by all three views on the drivers of pay. Second, we aim to provide a user-friendly guide to executive compensation, presenting shareholder value theories using a simple unifying model, and discussing the challenges and methodological issues with empirical research.

Выбор редакции
17 июля, 17:49

Margins of Labor Market Adjustment to Trade -- by Rafael Dix-Carneiro, Brian K. Kovak

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We use both longitudinal administrative data and cross-sectional household survey data to study the margins of labor market adjustment following Brazil's early 1990s trade liberalization. We document how workers and regional labor markets adjust to trade-induced changes in local labor demand, examining various adjustment margins, including earnings and wage changes; interregional migration; shifts between tradable and nontradable employment; and shifts between formal employment, informal employment, and non-employment. Our results provide insight into the regional labor market effects of trade, and have important implications for policies that address informal employment and that assist trade-displaced workers.

Выбор редакции
17 июля, 17:49

Educational Impacts and Cost-Effectiveness of Conditional Cash Transfer Programs in Developing Countries: A Meta-Analysis -- by Sandra Garcia, Juan Saavedra

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We meta-analyze for impact and cost-effectiveness 94 studies from 47 conditional cash transfer (CCT) programs in low- and middle-income countries worldwide, focusing on educational outcomes that include enrollment, attendance, dropout and school completion. To conceptually guide and interpret the empirical findings of our meta-analysis, we present a simple economic framework of household decision-making that generates predictions, all else constant, for the association between certain program context and design characteristics, and impact estimates. We also present a simple model for the analysis of program costs, using it to compute cost-effectiveness estimates for a subsample of CCT programs. For all schooling outcomes, we find strong support for heterogeneity in impact, transfer-effectiveness, and cost-effectiveness estimates. Our meta-analytic results of impact and transfer-effectiveness estimates provide support to some - but not all - of the predictions from the household decision-making model.

Выбор редакции
17 июля, 17:49

Towards a Political Theory of the Firm -- by Luigi Zingales

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Neoclassical theory assumes that firms have no power of fiat any different from ordinary market contracting, thus a fortiori no power to influence the rules of the game. In the real world, firms have such power. I argue that the more firms have market power, the more they have both the ability and the need to gain political power. Thus, market concentration can easily lead to a "Medici vicious circle," where money is used to get political power and political power is used to make money.

Выбор редакции
17 июля, 17:49

Productivity, Taxes, and Hours Worked in Spain: 1970-2015 -- by Juan Carlos Conesa, Timothy J. Kehoe

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In the early 1970s, hours worked per working-age person in Spain were higher than in the United States. Starting in 1975, however, hours worked in Spain fell by 40 percent. We find that 80 percent of the decline in hours worked can be accounted for by the evolution of taxes in an otherwise standard neoclassical growth model. Although taxes play a crucial role, we cannot argue that taxes drive all of the movements in hours worked. In particular, the model underpredicts the large decrease in hours in 1975-1986 and the large increase in hours in 1994-2007. The lack of productivity growth in Spain during 1994-2015 has little impact on the model's prediction for hours worked.

17 июля, 17:49

Even the Representative Agent Must Die: Using Demographics to Inform Long-Term Social Discount Rates -- by Eli P. Fenichel, Matthew J. Kotchen, Ethan T. Addicott

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We develop a demographically-based approach for estimating the utility discount rate (UDR) portion of the Ramsey rule. We show how age-specific mortality rates and life expectancies imply a natural UDR for individuals at each age in a population, and these can be aggregated into a population-level social UDR. We then provide empirical estimates for nearly all countries and for the world as a whole. A striking part of the analysis is how the estimated UDRs fall within the range of those currently employed in the macroeconomics and climate change literatures. We use our results to derive heterogenous social discount rates across countries and explore the consequences for an integrated assessment model of climate change. We find that introducing regional heterogeneity of UDRs into the RICE model has little impact on the business-as-usual trajectory of global emissions. It does, however, change the trajectory of optimal emissions, the corresponding optimal carbon tax, and the distribution of emission reductions across countries.

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17 июля, 17:49

Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan -- by Joshua Blumenstock, Michael Callen, Tarek Ghani

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We report on an experiment examining why default options impact behavior. Working with one of the largest private firms in Afghanistan, we randomly assigned each of 949 employees to different variants of a new default savings account. Employees assigned a default contribution rate of 5% are 40 percentage points more likely to contribute than employees assigned to a default contribution rate of zero; to achieve this effect through financial incentives alone would require a 50% match from the employer. Our design permits us to rule out several common explanations for default effects, including employer endorsement, employee inattention, and a lack of awareness about how to switch. Instead, we find evidence that the default effect is driven largely by a combination of present-biased preferences and the cognitive cost of calculating alternate savings scenarios. Default assignment also causes employees to develop savings habits that outlive our experiment: they are more likely to believe that savings is important, less likely to report being too financially constrained to save, and more likely to make an active decision to save at the end of our trial.

17 июля, 17:49

Vulnerability and Clientelism -- by Gustavo J. Bobonis, Paul Gertler, Marco Gonzalez-Navarro, Simeon Nichter

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Political clientelism is often deemed to undermine democratic accountability and representation. This study argues that economic vulnerability causes citizens to participate in clientelism. We test this hypothesis with a randomized control trial that reduced household vulnerability through a development intervention: constructing residential water cisterns in drought-prone areas of Northeast Brazil. This exogenous reduction in vulnerability significantly decreased requests for private benefits from local politicians, especially by citizens likely to be involved in clientelistic relationships. We also link program beneficiaries to granular voting outcomes, and show that this reduction in vulnerability decreased votes for incumbent mayors, who typically have more resources to engage in clientelism. Our evidence points to a persistent reduction in clientelism, given that findings are observed not only during an election campaign, but also a full year later.

17 июля, 17:49

What Sets College Thrivers and Divers Apart? A Contrast in Study Habits, Attitudes, and Mental Health -- by Graham Beattie, Jean-William P. Laliberte, Catherine Michaud-Leclerc, Philip Oreopoulos

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Students from 4-year colleges often arrive having already done very well in high school, but by the end of first term, a wide dispersion of performance emerges, with an especially large lower tail. Students that do well in first year (we call the top 10 percent Thrivers) tend to continue to do well throughout the rest of their time in university. Students that do poorly (we call the bottom 10 percent Divers) greatly struggle and are at risk of not completing their degree. In this paper we use a mandatory survey with open ended questions asking students about their first-year experience. This allows us to explore more closely what sets Thrivers and Divers apart, in terms of study habits, attitudes, and personal experiences. We find that poor time management and lack of study hours are most associated with poor academic performance, and that those who struggle recognize these weaknesses. Divers also report feeling more depressed and unhappy with their lives. We posit an 'academic trap', whereby initial poor performance is related to poor time management which in turn lowers expectations, which in turn leads to lower study time, and so on. Thrivers, in contrast, study significantly more and meet with course instructors.

Выбор редакции
17 июля, 17:49

A Welfarist Role for Nonwelfarist Rules: An example with envy -- by Matthew Weinzierl

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I propose and formalize an argument for why economists working in the welfarist normative tradition should include nonwelfarist principles in how they judge economic policy. The key idea behind this argument is that the world is too complex, and our ability to model it too limited, for us to fully trace a policy's effects on welfare. Nonwelfarist principles can be valuable to a welfarist facing this limitation if they act as informational proxies, carrying accumulated knowledge about the effects of policy that otherwise cannot be considered. This argument can be seen both as extending a familiar logic for rule utilitarianism beyond the realm of individual ethics and as a specific version of a broader argument made for centuries by theorists from Hume to Hayek. I also provide evidence of an example in which real-world policy judgments are consistent with this theoretical argument. Results from a novel U.S. opinion survey show that approximately half of respondents reject redistribution driven by envy even though it generates direct utilitarian gains. That share rises as the role of envy is made more salient, consistent with respondents using nonwelfarist principles to encode concerns about the unobservable consequences of policy.

Выбор редакции
17 июля, 17:49

Optimal Regulation of Financial Intermediaries -- by Sebastian Di Tella

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I characterize the optimal financial regulation policy in an economy where financial intermediaries trade capital assets on behalf of households, but must retain an equity stake to align incentives. Financial regulation is necessary because intermediaries cannot be excluded from privately trading in capital markets. They don't internalize that high asset prices force everyone to bear more risk. The socially optimal allocation can be implemented with a tax on asset holdings. I derive a sufficient statistic for the externality/optimal policy in terms of observable variables, valid for heterogenous intermediaries and asset classes, and arbitrary aggregate shocks. I use market data on leverage and volatility of intermediaries' equity to measure the externality, which co-moves with the business cycle.

Выбор редакции
17 июля, 17:49

Check Up Before You Check Out: Retail Clinics and Emergency Room Use -- by Diane Alexander, Janet Currie, Molly Schnell

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Retail clinics are an innovation that has the potential to improve competition in health care markets. We use the universe of emergency room (ER) visits in New Jersey from 2006-2014 to examine the impact of retail clinics on ER usage. We find significant effects of retail clinics on ER visits for both minor and preventable conditions; Residents residing close to an open clinic are 4.1-12.3 percent less likely to use an ER for these conditions. Our estimates suggest annual cost savings from reduced ER usage of over $70 million if retail clinics were made readily available across New Jersey.