NEW EVIDENCE ON INCOME AND THE VELOCITY OF MONEY

Time series and cross-country empirical results suggest that cash holding as a proportion of income rises, or equivalently that velocity falls, as income increases. Numerous cross sectional findings at many points in time, in several countries conclude oppositely. It is argued here that the former findings suffer from omitted variable bias by ignoring sociodemographic variables affecting the demand for cash balances. When one incorporates such demand shifters into the analysis the time series and cross-country findings are seen as consistent with the critically reexamined cross sectional result that velocity increases with income.     

NEW EVIDENCE ON THE RETIREMENT AND DEPRECIATION OF MACHINE TOOLS

This paper uses data from machinery dealers to estimate the retirement and depreciation patterns for a broad set of conventional machine tools. According to the dealers, the average service life of these machines at the survey date was about thirty years. Service lives were even longer in the mid-1970s, with the reduction over time likely caused by the diffusion of superior, computer controlled machines. Consistent with the relatively long average life, the conventional machines have depreciated slowly. I use the results to assess the average service life assumed by the Bureau of Economic Analysis to construct capital stocks for metalworking machinery.     

EXPERT OPINION AND PRODUCT QUALITY: EVIDENCE FROM NEW YORK CITY RESTAURANTS

We analyze whether consumers' quality perception and/or producer investment of New York City restaurants, measured by Zagat scores, responds to newly appearing expert opinion, measured by Michelin scores. Answering this question is of general economic interest as it applies to all markets with information asymmetries. Employing a difference‐in‐differences approach as well as a propensity score matching approach we find significant Michelin treatment effects on food and décor quality. Based on these changes, we find a Michelin‐induced price increase of approximately 30% per Michelin star. To examine whether the improved food and nonfood quality is based on restaurant investments or is merely imagined, we analyze nonfood investments by referring to Wine Spectator wine list awards. Our analysis suggests that Michelin‐reviewed restaurants are significantly more likely to invest in their wine list than others. As a result, Michelin reviewed restaurants are more likely to improve food and nonfood (esp. décor) quality leading to significant price increases. However, while restaurants that increase prices only due to décor and service improvements are more likely to go out of business, food improvements appear to secure a restaurant's survival. (JEL D11, L15, L66)     

THE EFFICACY OF STATE MANDATED MINIMUM QUALITY CERTIFICATION: THE CASE OF USED VEHICLES

This paper investigates whether the quality certification required by certain state used vehicle disclosure laws has been effective. Metzger concluded from a theoretical investigation of non-market responses to the lemons problem, that such laws may or may not be effective. We have been unable to find evidence that the currently mandated disclosure requirements in Wisconsin (known defects provision) and Iowa (safety certification) are effective in increasing the number of good quality vehicles traded in those used markets. These disclosure requirements do not seem to decrease a prospective buyer's risk of purchasing a lemon.     

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.     

NEW EVIDENCE ON CREDIT CARD BORROWING AND REPAYMENT PATTERNS

A new dataset allows researchers to examine patterns of credit card use for both borrowing and payoff. This article addresses changes in these behaviors for different birth cohorts by estimating cohort‐adjusted age profiles for debt and payoff rates based on a time series of cross sections. Younger consumers are found to be borrowing more heavily and repaying at lower rates than older generations. The accumulation of credit card debt is found to continue over the lifecycle. This has implications for recent changes in laws governing the credit card industry. Increases in minimum required payment rates are examined and are found to increase actual payoff rates more than proportionately. (JEL D12)     

THE DURABILITY OF HUMAN CAPITAL: SOME NEW EVIDENCE

This paper analyzes the effect of chronological aging, experience, job search, change of job and/or employer, and formal training on the wage growth of a sample of young men. Following the human capital literature, wage growth directly corresponds to human capital and the analysis allows for the assessment of the durability or rate of depreciation of human capital if further investments are not made. The findings suggest that human capital is not very durable, contrary to some previous estimates given in the literature.     

THE INFLUENCE OF CLASSROOM CHARACTERISTICS ON HIGH SCHOOL TEACHER TURNOVER

This paper examines the effect of class load and other factors on teacher turnover. Unlike previous studies, class load characteristics–class size, number of classes taught, and percentage of class time spent in areas outside a teacher's certification area–are included along with salary, personal characteristics, and district characteristics in a discrete time hazard model to simulate the effects of changing classroom characteristics on high school teacher turnover. The results indicate that class load characteristics are important correlates of job turnover. Policy implications for school districts, given a growing school-age population, are discussed.     

RESPONSE LATENCY AS A SIGNAL TO QUESTION PROBLEMS IN SURVEY RESEARCH

This research explores the potential utility of response latencyas an index of question problems in survey research. The timerespondents took to answer three types of bad questions wascompared to the time they took to answer the repaired versionsof the questions. Questions containing a superfluous negativeand double-barreled questions took longer to answer than nearlyidentical questions without these problems. Repaired versionsof questions soliciting frequency estimates, however, took longerto answer than their problematic counter parts. The resultsare discussed in the context of a model of question answering,and their implications for survey methodology are explored.     

THIRD‐PARTY CERTIFICATION AND THE EFFECTIVENESS OF VOLUNTARY POLLUTION ABATEMENT PROGRAMS: EVIDENCE FROM RESPONSIBLE CARE

We analyze whether third‐party certification has been successful in improving the performance of voluntary pollution abatement in the Responsible Care (RC) program which made certification mandatory from 2005 onward. We use facility‐level panel data from 821 plants between 1996 and 2010, and exploit the change in the program requirements to estimate the causal impact of third‐party certification on participating facility emissions compared to non‐RC plants in the U.S. chemical industry. We address endogenous selection into RC via instrumental variables, and explore heterogeneity in the treatment effect. We find that, on average, there is no statistically discernible effect of third‐party certification on facility emissions, and that this result is robust to a variety of models that correspond to different assumptions related to identification. (JEL Q53, Q58, L60)     

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)     

A MODEL and SOME EVIDENCE CONCERNING THE INFLUENCE OF DISCRIMINATION ON WAGES

The observed wage gap between men and women is widely attributed to discrimination in the workplace. Yet within the context of the standard neoclassical framework, discrimination is neither a necessary nor sufficient condition. This paper presents a modified neoclassical model which supports equilibrium wage differentials and which has testable implications. The paper also surmounts a difficulty that has plagued many earlier assessments–separating prejudice from other explanations of the wage gap. By directing attention away from wages to other implied effects of discrimination, our model offers cleaner tests of the impact of prejudice in labor markets. Results of such tests are reported.     

IDENTIFYING CHANGES IN THE SPATIAL DISTRIBUTION OF CRIME: EVIDENCE FROM A REFEREE EXPERIMENT IN THE NATIONAL FOOTBALL LEAGUE

Between the 2009–2010 and 2010–2011 seasons, the National Football League (NFL) repositioned one of its officials in order to prevent injuries among officials. This creates a quasi‐experiment for studying how a change in the extent of policing affects detection of offenses. Using play‐by‐play data from the 2009–2010 and 2010–2011 NFL season, I estimate how the detection of offensive holding changes when the positioning of an official changes. I find that there is approximately a 20 increase in the number of offensive holding penalties called after the NFL repositioned the official. Penalties called on defensive linemen fell as a result of the repositioning. Overall, there was no change in the total number of penalties called. Using the estimated change in the probability of a penalty, I estimate the probability of an official calling a penalty. I infer that NFL officials detect approximately 60% of crimes committed on the field. (JEL K4, Z0, D0)     

A MACROECONOMIC MODEL ON THE QUALITY OF GOVERNMENT AND ECONOMIC PERFORMANCE

We determine the relative rewards to producers, private rent‐seekers, and bureaucrats and allocation of talent between them in a general equilibrium model. Unproductive activity creates a negative externality on the relative rewards to producers. If the size of bureaucracy is exogenously given, among the multiple equilibria, the one with fewer private rent‐seekers yields higher welfare. By choosing a small size of bureaucracy, the government can establish the superior equilibrium as the unique outcome, which also achieves the constrained optimum. If the population of bureaucrats is endogenously determined, however, a larger bureaucracy enhances production and welfare. The size of government and economic performance are jointly determined, and their relationship depends on the quality of government. Our result supports the view that the size of government may not matter much; what is important is the quality of government. (JEL E60, E61, H00)     

ESTIMATING A NEW KEYNESIAN PHILLIPS CURVE WITH A CORRECTED MEASURE OF REAL MARGINAL COST: EVIDENCE IN JAPAN

We estimate a New Keynesian Phillips curve (NKPC) in Japan, focusing on the measurement of real marginal cost (RMC). Especially, we correct labor share by taking account of two kinds of labor market frictions: (1) labor adjustment costs and (2) real wage rigidity. Our results show that the consideration of these labor market frictions greatly improves the fit of Japan's NKPC. Furthermore, if we additionally incorporate materials prices in the calculation of RMC then the fit of the NKPC is further improved. The conventional backward-looking component is no more needed to explain Japan's inflation dynamics if we use a corrected measure of RMC. (JEL E31)     

INTERNATIONAL EVIDENCE ON FRIEDMAN'S THEORY OF THE BUSINESS CYCLE

Milton Friedman's theory of the business cycle implies two empirical regularities tested for here. One regularity is that business cycles are asymmetric: The size of a contraction affects the size of the following expansion, but not vice versa. The second regularity is that a supply-side ceiling to aggregate output limits the size of expansions. Friedman's correlation methods yield only very weak support for the asymmetry hypothesis when applied to real GNP data of eight OECD countries. A time series model with a ceiling component fits the data well for a majority of the countries.     

EMPIRICAL EVIDENCE ON FTC ENFORCEMENT OF THE MERGER GUIDELINES

The Justice Department's 1982/1984: merger guidelines identify various factors – concentration, entry barriers, ease of collusion, efficiency –that would thereafter determine whether the government will challenge a merger. Analysts have criticized enforcement agencies, however, for not following the guidelines, and criticize the guidelines themselves for not identifying the weights attached to the factors. Using a 1982-86 sample of seventy horizontal mergers, we examine which factors influenced Federal Trade Commission decisions to challenge mergers. The relative importance of the guidelines and other factors in merger challenges is measured, and related empirical issues are also explored.