DYNASTIC POLITICAL PRIVILEGE AND ELECTORAL ACCOUNTABILITY: THE CASE OF U.S. GOVERNORS, 1950–2005

This paper examines the impact of dynastic political privilege on the behavior of incumbents. Incumbents have opportunities to serve themselves at the expense of voters, but society can design political institutions to mitigate these principal‐agent problems. Dynastic political privilege may be one such mechanism. We argue that the possibility that opportunistic behavior in office may damage family members' political prospects disciplines incumbents. We test this hypothesis using data for 1950–2005 on U.S. governors, including a new data set on the family relationships of politicians, and find that dynastic political privilege increases incumbent accountability. (JEL H71, H10)     

WHO QUITS NEXT? FIRM GROWTH IN GROWING ECONOMIES

We document novel facts about the relationship between aggregate growth and firm dynamics using a large set of countries. We argue that firm employment patterns are not necessarily informative about cross‐country differences in aggregate growth because they are induced by changes in the productivity of a firm relative to others. In contrast, aggregate growth is linked to average firm‐level productivity growth and firm age. We formalize this intuition through a tractable model of endogenous aggregate growth and firm dynamics where firms realize positive returns to investment with some probability. We find that cross‐country disparities in this probability can account for two‐thirds of the variation in aggregate growth. (JEL D21, D22, E23, O4)     

QUANTIFYING BIAS IN DRIVING‐UNDER‐THE‐INFLUENCE ENFORCEMENT

As the marginal suspect and propensity to commit crime are unobserved across racial categories, it is difficult to quantify racial bias with law enforcement outcomes data. We test for racial bias in driving‐under‐the‐influence of alcohol enforcement. The assessment outcome variable, blood alcohol content (BAC), provides information about motorist's choices and allows for a more refined test for racial bias compared with other law enforcement outcome data. We find no evidence of racial bias in the relevant range where our model applies. However, we do find differences in find rates at the lowest levels of BAC, where there should be no impairment. (JEL J7, K42)     

MINIMUM WAGES,IMPORT STATUS,AND FIRMS' INNOVATION: THEORY AND EVIDENCE FROM CHINA

This study explores the heterogeneous effects of minimum wage on innovation of different types of firms. We develop an open‐economy R&D‐based growth model and obtain the following result: raising the minimum wage reduces innovation of firms that use domestic inputs but increases innovation of firms that import foreign inputs. We test this result using city‐level data on minimum wages and firm‐level patent data in China. In accordance with our theory, we find that raising the minimum wage is associated with more innovation by importing firms and less by non‐importing firms. This result survives a battery of robustness checks. (JEL E24, F43, O31)     

IMPACT OF CORRUPTION ON FIRM‐LEVEL EXPORT DECISIONS

This article examines the impact of corruption on the self‐selection of firms into domestic and export markets. A heterogeneous firm model predicts that corruption decreases the probability that a firm only sells domestically, increases the probability that a firm exports indirectly through an intermediary, and decreases the probability that a firm exports directly. The propositions of the model are tested using a comprehensive dataset of over 23,000 firms in 80 developing countries. The results confirm both the self‐selection of firms according to their productivity and the anticipated impact of corruption. This indicates that in developing countries where corruption is especially severe, intermediaries provide a crucial link to global markets. (JEL F1, O1)     

FIRMS AND FLEXIBILITY

The United States and France have very similar labor productivity levels while there are considerable differences between the firm‐size distributions and firm dynamics in the two countries. To reconcile these observations we introduce a joint model of endogenous entrepreneurship and firm‐size dynamics with firing costs, unemployment benefits, entry costs, and a tax wedge between wages and labor costs. We use our model to analyze the role of these rigitidies in explaining firm dynamics and productivity patterns in the United States and France. We find that our model with all rigidities goes a long way in accounting for firm‐size differentials between the United States and France while generating similar labor productivity outcomes. (JEL C78, D21, E24, J6)     

OPTIMAL ENFORCEMENT OF NONCOMPETE COVENANTS

Noncompete covenants or covenant not to compete (CNC) are clauses in employment contracts in which the employee agrees not to gain employment with a competitor firm. In this article, we study the efficiency aspects of such contracts by incorporating the effect of labor mobility restrictions on knowledge transfer across firms, investment decisions by firms, and investment by workers. Following research that shows state‐wise variations in the degree of CNC enforcement, we allow the strength of CNC enforcement to vary as a matter of regulatory policy and derive the optimal strength of enforcement. We also look at how regulations around CNCs should be optimally designed when employers can use collusive agreements, such as “no poaching” agreements, as an alternative to noncompete clauses. Given recent allegations of employer collusion among large Silicon Valley firms, we argue for a cautious approach in designing policies on CNC enforcement. (JEL J24, J41, J63, K31)     

MEASURING THE INTERDEPENDENCE OF MULTINATIONAL FIRMS' FOREIGN INVESTMENTS

Earlier work found evidence for geographic linkages of aggregate foreign direct investment across countries and country‐pairs. From a theoretical point of view, such linkages at the macroeconomic level may root in between‐firm as well as within‐firm linkages and originate from information spillovers across or within firms in exploring unknown markets, and vertical linkages between production plants across different locations within the firm. We use data on the universe of German multinational enterprises (MNEs) to empirically explore how marginal investments at one foreign affiliate depend on investments at other affiliates within the same MNE. The empirical approach employs two channels or modes of cross‐affiliate interdependence: mere geography (capturing horizontal linkages through correlated learning and horizontal competition within the firm) and input–output relationships within or across industries (which capture vertical linkages). Adding to earlier findings at the aggregate level, we find evidence of a significant interdependence of investments within the firm. In the firm‐level data at hand, vertical linkages appear to be more important than horizontal ones. Investments at one location tend to stimulate investments at other locations of the same MNE, particularly if input linkages are strong. The opposite seems to be true for output linkages. Beyond vertical linkages, mere geographic proximity matters only to a minor extent. This suggests that evidence of linkages through geographic closeness at aggregate data levels accrue mainly to reasons of vertical linkages within networks of affiliates. (JEL C31, D22, F21, F23, F68, G31, H32)     

RENT‐SEEKING AND CAPITAL ACCUMULATION

A general model incorporating rent‐seeking activities in the standard neoclassical model of capital accumulation is presented. The welfare of the representative agent is negatively affected by the efficiency of rent‐seeking activities. Although intuitive, this result is not obvious because long‐run income can be positively affected by more efficient rent‐seeking activities. The model is used to provide explanations for some recent experiences in developing countries, including the relative poor performance of economies that experience a move to a more decentralized system and the observed path of total factor productivity (TFP) in countries like Ireland and Venezuela. (JEL D23, D74, O40, O41, O47)     

CONTRACT DESIGN AND SELF‐CONTROL WITH ASYMMETRIC INFORMATION

We study optimal contracting by a monopolistic seller of investment goods to a time‐inconsistent consumer and, in doing so, introduce asymmetric information to the model of DellaVigna and Malmendier (2004) . We find (1) the below‐marginal‐cost‐pricing rule may fail for a low‐value consumer; (2) the firm's profit is no longer unaffected by the consumer's short‐run impatience, as the latter is sophisticated. We find that there is an important threshold value of short‐run patience. When the consumer's short‐term patience is below this level, then, as the patience increases, the firm suffers. When the consumer's short‐run patience is above this threshold, then, as it increases, the firm benefits. Finally, we show that unlike monopoly, perfect competition with asymmetric information achieves the first‐best outcome. (JEL D03, D82, D91)     

INTERNATIONAL NARCOTICS TRADE,FOREIGN AID,AND ENFORCEMENT

Using a general equilibrium model of a developing narcotics‐producing and ‐exporting economy, we analyze the economic effects of policies designed to restrict the production and trade of narcotics: foreign aid tied to anti‐narcotics law enforcement activities, demand reduction policies, and alternative development policies. We characterize the problem as one of serious factor market distortions introduced by illicit production and enforcement. While aid to enforcement generally reduces the production and export of narcotics, it is less effective for economies with market power, and under plausible conditions may raise narcotics output and have negative welfare implications for the recipient. (JEL F1)     

THE IMPACT OF MERGERS ON FARES STRUCTURE: EVIDENCE FROM EUROPEAN LOW‐COST AIRLINES

This paper examines mergers that lead to an almost immediate replacement of the target firm's business model in favor of that of the acquiring firm. We examine the post‐merger behavior of the two leading European dedicated low‐cost airlines, EasyJet and Ryanair, each acquiring another low‐cost airline, Go Fly and Buzz, respectively. We find that both takeovers had an immediate and sustained impact on both the pricing structures and the extent of intertemporal price schedules used on the acquired routes, with early booking fares noticeably reduced and only very late booking fares increased. The analysis suggests that the takeovers had a net beneficial effect for consumers, at least in price terms, as a consequence of the introduction of the acquiring firms' business models and associated yield management pricing systems. (JEL L11, L13, L93)     

A SIMPLE MODEL OF OPTIMAL HATE CRIME LEGISLATION

We present a simple model of the effects of hate crime legislation. We show that even if the direct harm to victims of hate crime is the same as for other crimes, because of other differences in the effects it may still be optimal to exert a different level of law‐enforcement effort to deter or prevent hate crime. These differences also have previously unrecognized effects on the optimal level of effort by potential hate crime victims to avoid being victimized, thus affecting the efficiency of government policies that encourage or discourage such effort. In some cases, the optimal level of government effort may be lower for hate crimes than for other crimes. Our analysis suggests a role for policy tools that influence individual avoidance effort directly. We discuss the implications of our results for similar types of crime, including terrorism. (JEL K42, K14, D02)     

Adolescent Deliberate Self‐Harm: Linkages to Emotion Regulation and Family Emotional Climate

Parents' responses to their children's emotional expressivity have been shown to significantly influence children's subsequent psychosocial functioning. This study hypothesized that adolescents' deliberate self‐harm (DSH) may be an outcome associated with poor emotion regulation as well as an invalidating family environment. The mediational role of specific emotion processes (i.e., poor awareness of emotion, difficulties expressing emotions) between family emotional environment and the frequency of DSH was examined with 131 psychiatrically hospitalized adolescents (M age=14.84 years, SD=1.75 years). Results indicated that adolescents who self‐injured reported that this behavior reduced their negative emotional states. Structural equation modeling provided support for the proposed model that family climate influences frequency of DSH through emotion regulation skills but the model held for girls only. A direct model effect was not supported. Emotion regulation partially mediated the relationship between family climate and DSH, and direct effects were also observed.     

Delinquency,School Context,and Risk Factors in India,Australia, and the United States: Implications for Prevention

There is a dearth of research on delinquency, school context, and risk factors across developed and developing nations. Using representative samples and matched surveys, we examined delinquency among cohorts in Mumbai, India (N = 3,717); Victoria, Australia (N = 1,842); and Washington State (WA), United States (N = 1,828). We used multivariate Poisson hierarchical linear modeling. Risk factor and delinquency levels varied across sites. Delinquency clustered within certain schools, particularly in Mumbai. Community disorganization exhibited an association with delinquency as a school‐level context effect in Mumbai and Victoria. Peer delinquency, sensation seeking, and poor family management exhibited cross‐nationally consistent associations with delinquency. Programs that target schools, the clustering of problem behaviors, and cross‐nationally consistent risk factors should be considered internationally.     

THE DURATION OF FIRM‐DESTINATION EXPORT RELATIONSHIPS: EVIDENCE FROM SPAIN, 1997–2006

This article uses survival analysis to investigate the duration of Spanish firms' trade relationships by destination over 1997–2006. Whereas firm export status is highly persistent, firms' destination portfolio is very dynamic: a typical firm‐country exporting relationship has a median duration of 2 years. Yet, if a firm manages to export to a country beyond 2 years the risk of exiting that market sharply falls afterwards. The results indicate that not only firm heterogeneity but also destination heterogeneity are crucial to explain survival in export markets. In particular, country (political) risk heavily shapes the effect of firm, product, and other destination characteristics on the length of trade relationships. Whereas firm productivity, comparative advantage, partners' GDP, and proximity enhance duration of trade with low‐risk countries, they have no effect on trade survival with high‐risk countries. On the contrary, information spillovers are particularly relevant to enhance survival of trade relationships with high‐risk countries. (JEL C41, F10, F14)     

QUALITY DIFFERENCES,THIRD‐DEGREE PRICE DISCRIMINATION,AND WELFARE

We propose a model with two markets to analyze the welfare implications of price discrimination with quality differences. In each market a local firm that operates in that market only competes against a global firm that operates in both markets. Local firms produce higher‐quality goods than the global firm. If the quality levels of the local firms' products are the same, price discrimination is never welfare‐decreasing. If they differ, discrimination is welfare‐increasing if quantity increases. Because of a positive allocation effect of price discrimination, there are parameter values such that welfare increases while total output decreases with price discrimination. (JEL D43, D60)     

WHY CANNOT POOR COUNTRIES UTILIZE EXISTING KNOWLEDGE? EXPANSION OF FIRMS AND HUMAN CAPITAL ACCUMULATION BY TRAINING

Current growth literature does not explain the inability of poor countries to utilize existing knowledge. This study presents a stylized development model based on firms' expansion through on‐the‐job training. Since trained workers can supervise and train more workers, a development process in which output and productivity increase up to a full utilization of existing technology is generated. Unlike schooling‐based models, which require an assumption regarding a smaller local stock of knowledge, this study relies on the size of the industrial sector and the limited supply of training opportunities, therefore highlights barriers to development, even when technology and capital are available. (JEL O1, O4, J2)     

DOES OFFSHORING PAY? FIRM‐LEVEL EVIDENCE FROM JAPAN

This article explores the impact of offshoring on productivity using firm‐level data for the Japanese manufacturing industries during the period 1994–2000. We find that intrafirm offshoring, that is, sourcing of intermediate inputs to foreign affiliates within a particular multinational firm, has generally a positive effect on productivity of the offshoring firm, while arm’s‐length offshoring, that is, sourcing to unaffiliated foreign firms, does not have such an effect. In addition, the impact of arm’s‐length offshoring is negative for nonmultinationals and nonexporters but nonnegative for multinationals and exporters. These results suggest that the costs of searching foreign firms suitable for offshoring are nonnegligible. (JEL F14, L23)     

PARTIES,POLITICS, AND REGULATION: EVIDENCE FROM CLEAN AIR ACT ENFORCEMENT

Does local Federal regulation respond to the preferences of local Congressional representatives? For example, do Republican Congressmen reduce local enforcement of Clean Air laws in their districts? We use facility‐level panel data on Clean Air Act inspections over 1989–2005 to study the causal effect of a Congressman's party affiliation on local enforcement. Random assignment of electoral outcomes is obtained with a Regression Discontinuity design. We find that new Republican (vs. Democratic) Representatives significantly depress inspection rates for local polluting facilities in the first year after their election. (JEL D73, Q52, Q53)