REPUTATION EFFECTS IN THE MARKET OF CERTIFIERS: EVIDENCE FROM THE AUDIT INDUSTRY

Certifiers verify unobserved product characteristics for buyers and thereby alleviate informational asymmetries and facilitate trade. When sellers pay for the certification, however, certifiers can be tempted to bias their opinion to favor sellers. Indeed, accounting scandals and inflated credit ratings suggest sellers may prefer to select dishonest certifiers. I test this proposition by estimating the effect of adverse quality signals on audit demand. Exploiting the natural experiment of Arthur Andersen's demise, I find that auditors with worse quality signals experience a fall in demand. This suggests that reputation effects are at work even in the presence of conflicts of interest. (JEL L15, L8, M4)     

THE NATURE OF OUTSOURCING RELATIONSHIPS: EVIDENCE FROM OAP PRICES

This paper studies the extent and variation in production cost pass‐through for U.S. outsourcing imports. Data from 4,676 products imported through the U.S. overseas assembly program show that outsourcing imports were characterized by incomplete pass‐through of production and trade costs to import prices. Notably, pass‐through was higher for products assembled in high education countries while the response of outsourcing import prices to competing suppliers' prices was largest for products sold by firms in capital‐intense industries. The reasons for these cross‐country and cross‐industry differences, as they relate to theories of outsourcing and trade, are explored. (JEL F1, F2)     

PRICING ANOMALIES IN THE MARKET FOR DIAMONDS: EVIDENCE OF CONFORMIST BEHAVIOR

Some goods are consumed not just for their intrinsic utility but also for the impression their consumption has on others. We analyze the market for such a commodity—diamonds. We collect data on price and other attributes from the inventories of three large online retailers of diamonds. We find that people are willing to pay premiums upward of 18% for a diamond that is one‐half carat rather than slightly less than a half carat and between 5% and 10% for a one‐carat rather than a slightly less than one‐carat stone. Since a major portion of larger gem‐quality diamonds are used for engagement rings, such an outcome is consistent with Bernheim's model of conformism, where individuals try to conform to a single standard of behavior that is often established at a focal point. In this case, prospective grooms signal their desirability as a mate by the size of the diamond engagement ring they give their fiancées. (JEL A1, D4)     

A COMMENT ON COMPETITION AND BIDDING BEHAVIOR: SOME EVIDENCE FROM THE RICE MARKET

In testing agents' responses to increased competition in sealed-bid first price-rice auctions, Meyer [1988] makes two erroneous assumptions: (1) that agents know ex ante the number of bidders in the auction, and (2) that firms forecast resale prices with information unavailable at the time of the auction. These two misspecifications are identified and corrected. A probit model provides a forecast of market competition, and agents' bids are modeled as a function of expected competition and factors affecting the value of each rice lot. The bias toward zero in Meyer's estimated coefficient on market competition is reduced.     

MARKET ENTRY MODE: EVIDENCE FROM THE GOLDEN AGE OF HOLLYWOOD

I examine international market entry modal choice using novel data sources on the early years of the U.S. motion picture industry. These data detail how studios built out their international distribution networks and give unusual access to revenues generated across modes. Motion picture exporters used a variety of entry modes: exports, licensed agents, and offices. Studios opened offices in distant, large markets first and used these markets as platforms to build out their distribution network. This pattern indicates that directed search for export customers is important. Offices generated more total revenue than licensed agents. They allowed headquarters to monitor employees through strict control of financial assets, limiting the diversion of intellectual property. (JEL F14, F21, L22, L24, L82)     

SCHOOL QUALITY AND INFORMATION DISCLOSURE: EVIDENCE FROM THE HOUSING MARKET

In this article, we investigate the relationship between school quality and information disclosure in housing markets. When presented with the option of identifying their local public school in a real estate listing, we find that sellers with homes assigned to higher‐performing schools are more likely to provide this information. We find more evidence of selective disclosure in 2001–2002 than in 2006–2007, when the costs of gathering and disclosing information on school assignments and quality were lower. Furthermore, we find more evidence of strategic behavior among sellers of large single‐family units that presumably appeal to families with children. After controlling for school quality, information disclosure does not appear to affect housing prices. Taken together, our results support the findings of the education literature on the importance of school quality capitalization in residential real estate and they provide the first evidence of strategic information disclosure in housing markets. (JEL L15, I20, R31)     

COMPETITION AND BIDDING BEHAVIOR: SOME EVIDENCE FROM THE RICE MARKET

When objects have uncertain value, the net effect of competition in sealed-bid auctions is ambiguous. The risk of succumbing to the "winner's curse" generally causes bidders to exhibit a non-aggressive response in addition to the standard competitive effect. Sellers can influence the size of the nonaggressive effect by responding to the value uncertainty. This paper focuses specifically on individual bidding behavior in a rice auction market in which sellers issue a product-quality guarantee. The empirical evidence supports my hypothesis that such a guarantee negates the significance of the nonaggressive bidder response.     

WAR OF ATTRITION: EVIDENCE FROM A LABORATORY EXPERIMENT ON MARKET EXIT

We report an experiment designed to study whether inefficient firms are systematically driven from overcrowded markets. Our data set includes a series of 3,800 wars of attrition of a type modeled by Fudenberg and Tirole in 1986. We find that exit tends to be efficient and exit times conform surprisingly well to point predictions of the model. Moreover, subjects respond similarly to implementations framed in terms of losses as they do to those framed in terms of gains. (JEL D21, L11, C92)     

STRICT PRODUCT LIABILITY AND SAFETY: EVIDENCE FROM THE GENERAL AVIATION MARKET

This paper examines the impact of a strict product liability standard on the accident rate in the general aviation (GA) industry. Liability expenses increased by 775% between 1976 and 1986, reducing the sales of new GA aircraft by 90% and increasing the age of the GA fleet. Using both aggregate and model‐specific data, our results indicate that the increase in the age of the GA fleet increased the accident rate by 25%–35% during 1981–2000. In addition, the higher price of GA aircraft boosted sales of homebuilt planes, which have higher accident and fatality rates than GA aircraft. (JEL K13, L62, L15)     

EFFICIENCY EFFECTS OF EXCLUSIVE TERRITORIES: EVIDENCE FROM THE INDIANA BEER MARKET

The welfare effects of vertically imposed exclusive territories and the appropriate antitrust policy toward them have long been debated. This paper sheds light on the exclusive-territory controversy by examing the effects of Indiana's 1979 ban on the grant of exclusive territories to beer wholesalers. Using time-series data for 1948–1990 we find the ban reduced beer consumption in Indiana by 6 percent. Coupled with previous evidence that Indiana's ban reduced price, our results suggest that exclusive territories in the beer industry increase demand and enhance welfare by stimulating the provision of dealer services.     

ENGLISH PROFICIENCY AND LABOR MARKET PERFORMANCE: EVIDENCE FROM THE ECONOMICS PROFESSION

This article investigates whether the global spread of the English language provides an inherent advantage to native English speakers. This question is studied within the context of the economics profession, where the impact of being a native English speaker on future publishing success is examined. English speakers may have an advantage because they are writing in their native language, the quality of writing is a crucial determinant of publishing success, and all the top economics journals are published in English. Using a ranking of the world's top 2.5% of economists, this article confirms that native English speakers are ranked 100 spots higher (better) than similar non‐native English speakers. A variety of extensions examine and dispel many other potential explanations. (JEL A11, J44, F66)     

DURABLE GOODS PRICE CYCLES: THEORY AND EVIDENCE FROM THE TEXTBOOK MARKET

We study the pricing policy of a monopolist selling a durable good with the features of a textbook. We assume buyers differ in their valuation of the good and propensity to resell, and identify the possibility of a positive relationship between the quantity of used goods and the price of a new good, and also a higher price for new goods in the last period before a new edition is introduced. Our empirical analysis supports this model: textbook prices increase as the share of used textbooks increases and the end of the current edition approaches. (JEL D420, L120)     

THE LONDON BOMBINGS AND RACIAL PREJUDICE: EVIDENCE FROM THE HOUSING AND LABOR MARKET

This paper investigates the impact of the London bombings on attitudes toward ethnic minorities, examining outcomes in housing and labor markets across London boroughs. We use a difference‐in‐differences approach, specifying “treated” boroughs as those with the highest concentration of Asian residents. Our results indicate that house prices in treated boroughs fell by approximately 2% in the 2 years after the bombings relative to other boroughs, with sales declining by almost 6%. Furthermore, we present evidence of a rise in the unemployment rate in treated compared to control boroughs, as well as a rise in racial segregation. (JEL J15, J71, R21)     

LABOR CONTRACTS AND FLEXIBILITY: EVIDENCE FROM A LABOR MARKET REFORM IN SPAIN

This paper evaluates the effects of a labor market reform in Spain that removed restrictions on fixed‐term or temporary contracts. Our empirical results are based on longitudinal firm‐level data that cover observations before and after the reform. We posit and estimate a dynamic labor demand model with indefinite and fixed‐term labor contracts, and a general structure of labor adjustment costs. Experiments using the estimated model show important positive effects of the reform on total employment (i.e., a 3.5% increase) and job turnover. There is a strong substitution of permanent by temporary workers (i.e., a 10% decline in permanent employment). The effects on labor productivity and the value of firms are very small. In contrast, a counterfactual reform that halved all firing costs would produce the same employment increase as the actual reform, but much larger improvements in productivity and in the value of firms. (JEL J23, J32, J41)     

THE LAW OF ONE PRICE REVISITED: NEW EVIDENCE ON THE BEHAVIOR OF INTERNATIONAL PRICES

This paper is an empirical investigation of the long-run behavior of international prices at the microeconomic level. It analyzes the time-series behavior of a unique set of carefully matched, disaggregated export prices for manufactured goods from the U.S., Gemany, and Japan over the period 1974–90. The results provide little evidence of a long-run linear relationship between global prices of similar export goods from different sources, casting doubts on the empirical relevance of the law of one price.     

THE EXTENT OF THE MARKET AND INTEGRATION THROUGH FACTOR MARKETS: EVIDENCE FROM WHOLESALE ELECTRICITY

We document the influence of factor markets in determining the extent of the market, appealing to the Mundell hypothesis that trade in goods and factor markets are substitutes. We confirm this influence using the U.S. wholesale market for electric power. Although the Eastern, Western, and Texas regions cannot trade electricity, inputs such as natural gas move freely across these regions. Through a set of price transmission ratios, and a supply model for natural gas, we find regional electricity shocks do propagate across regions. We conclude output markets institutionally in autarky achieve modest degrees of economic integration through factor markets. (JEL C32, L94, Q41)     

GENDER PERFORMANCE GAPS: QUASI‐EXPERIMENTAL EVIDENCE ON THE ROLE OF GENDER DIFFERENCES IN SLEEP CYCLES

Sleep studies suggest that girls go to sleep earlier, are more active in the morning, and cope with sleep deprivation better than boys. We provide the first causal evidence on how gender differences in sleep cycles can help explain the gender performance gap. We exploit over 240,000 assignment‐level grades from a quasi‐experiment where students' schedules alternated between morning and afternoon start times each month. Relative to girls, we find that boys' achievement benefits from a later start time. For classes taught at the beginning of the school day, our estimates explain up to 16% of the gender performance gap. (JEL H52, I20, I21)     

IMPACT OF COMPETITION,INVESTMENT, AND REGULATION ON PRICES OF MOBILE SERVICES: EVIDENCE FROM FRANCE

In this paper, we assess the impact of competition, investment, and regulation on prices of mobile services in France. We estimate hedonic price regressions using data on tariff plans offered by the main mobile telecommunications operator in France between May 2011 and December 2014. In this time period, the obtained quality‐adjusted price index decreased by about 42.8% as compared to a decline in weighted average prices without quality‐adjustment of 8.7%. In a second step, we relate the quality‐adjusted prices to a set of competition, investment, and regulation variables and find that the launch of 4G networks by mobile operators was the main driver of price reductions for classic tariffs with commitment. Low‐cost tariffs without commitment which were introduced to pre‐empt the entry of low‐cost competitor declined at the time of entry. Moreover, we find that regulation, which is approximated by the level of mobile termination charges and international roaming price caps for voice and data, has a joint significant impact on quality‐adjusted prices. In percentage terms, competition is responsible for about 23.4% of total price decline and investments in 4G for 56.1%. We conclude that the reduction in quality‐adjusted prices in the last years was largely caused by competition between operators for a new 4G technology and by entry of a fourth low‐cost operator. (JEL L13, L50, L96)     

THE EFFECTS OF EDUCATION ON FERTILITY: EVIDENCE FROM TAIWAN

This study investigates the impact of women's education on fertility. For identification, we use the 1968 compulsory education law change in Taiwan, which generated a regression discontinuity design (RDD) setting. We use the whole population of women from the 1980 and 2010 Population Censuses. Results of our RDD estimation using the exact date of birth suggest that the law change was effective in boosting women's education, but it did not have any impact on fertility. This is in stark contrast to most previous studies using only the birth year as the running variable or using it to construct instruments, which find that women's education depresses fertility. This study demonstrates that using a discrete running variable in RDD may generate a false discontinuity for an otherwise continuous regression function. (JEL J13, C21, I2)     

IQ IN THE PRODUCTION FUNCTION: EVIDENCE FROM IMMIGRANT EARNINGS

We show that a country’s average IQ score is a useful predictor of the wages that immigrants from that country earn in the United States, whether or not one adjusts for immigrant education. Just as in numerous microeconomic studies, 1 IQ point predicts 1% higher wages, suggesting that IQ tests capture an important difference in cross‐country worker productivity. In a cross‐country development accounting exercise, about one‐sixth of the global inequality in log income can be explained by the effect of large, persistent differences in national average IQ on the private marginal product of labor. This suggests that cognitive skills matter more for groups than for individuals. (JEL J24, J61, O47)