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Comparative Risk Apportionment
(Private Enterprise Research Center, Texas A&M University, 2021-01-04) Liu, Liqun; Paan Jindapon; Neilson, William S.
A decision maker who would rather apportion an independent risk in a state with a good lottery than in a state with a bad lottery is said to have a preference for risk apportionment (Eeckhoudt & Schlesinger, 2006). In this paper, Liqun Liu and coauthors Paan Jindapon and William S. Neilson propose a measure for the strength of nth-degree risk apportionment preference based on Prattâ€™s probability premium (Pratt, 1964). Under expected utility theory, the authors analyze the relationship between a greater preference for risk apportionment and both the Ross and Arrow-Pratt versions of comparative risk aversion.
The Pandemic and Texas State Tax Revenue
(Private Enterprise Research Center, Texas A&M University, 2021-01-22) Jansen, Dennis W.; Rettenmaier, Andrew J.
Government budgets have undergone drastic changes due to the coronavirus pandemic. In this issue, authors Dennis W. Jansen and Andrew J. Rettenmaier share the state of Texasâ€™ tax collections compared to previous years. The role of sales taxes, oil and gas production taxes, hotel occupancy taxes, and alcoholic beverage taxes in filling state or city and county coffers is also discussed. The authors find that total tax collections in the first four months of fiscal year (FY) 2021 were 8.1% below total tax collections for the same months of FY 2020. Sales tax collections, the stateâ€™s biggest contributor, were 5.3% lower than the previous year for the same period. The plunge in oil and natural gas prices in FY 2020 led to vast declines in tax collections and in FY 2021 were running at 38% below the same months the previous year. Collections from both the hotel occupancy tax and the alcoholic beverage tax have also suffered substantial declines.
Economic Indicators of the College Station-Bryan MSA, January 2021
(Private Enterprise Research Center, Texas A&M University, 2021-01-25) Bullock, Ashley; Jansen, Dennis W.; Navarro, Carlos I.; Rettenmaier, Andrew J.
The Business-Cycle Index decreased by 1.6% from October to November 2020. The local unemployment rate increased to 5.9% in November from 4.8% in October but remained the second-lowest rate among Texas metros. Local nonfarm employment increased slightly by 0.23% in November and is 4.9% lower than it was in November 2019. Local real taxable sales increased 2% from October to November but were 6.7% lower than the same month last year. Real gross domestic product in the College Station-Bryan MSA grew 1.7% in 2019 and is almost double its size relative to 2001. The GDP estimate for 2020 will not be released by the Bureau of Economic Analysis until December 2021.
State Dependent Government Spending Multipliers: Downward Nominal Wage Rigidity and Sources of Business Cycle Fluctuations
(Private Enterprise Research Center, Texas A&M University, 2021-02-01) Zubairy, Sarah; Jo, Yoon J.
The recent period of low interest rates have shown that fiscal policies have become crucial for economic recovery. This paper shows that the source of business cycle fluctuations matters for determining the size of government spending multipliers. Here, the authors present a New Keynesian model with downward nominal wage rigidity (DNWR) and show that government spending is much more effective in stimulating output in a demand shock driven recession compared to a supply shock driven recession. Government spending multiplier is large when DNWR binds in a recession, but the nature of recession matters due to the opposing responses of inflation depending on the type of recession. In a demand-driven recession, inflation falls, preventing real wages from falling, leading to consequences for employment, while inflation rises in a supply-driven recession limiting the consequences of DNWR on employment. The authors also document supporting empirical evidence, using both historical time series data and cross-sectional data from U.S. states, that the government spending multiplier for output is larger in a demanddriven recession compared to a supply-driven recession.
Public Pension Reforms and Fiscal Foresight: Narrative Evidence and Aggregate Implications
(Private Enterprise Research Center, Texas A&M University, 2021-02-15) Zubairy, Sarah; Bi, Huixi
Many OECD countries have significantly increased spending on public pensions over the last half-century. As more retirees begin to draw benefits, policymakers have placed more focus on retrenchment reforms in order to keep the pension systems solvent. In this summary article of working paper 2008, Sarah Zubairy, along with coauthor Huixin Bi, construct a new data set that documents changes in pension policy spending since 1967, then studies the effects of long-term structural reforms on retirement decisions and pension spending.
Social Security Wealth and Federal Liabilities
(Private Enterprise Research Center, Texas A&M University, 2021-02-15) Rettenmaier, Andrew J.
In the U.S., wealth inequality has risen in recent years. However, past estimates of wealth inequality tend to ignore Social Security benefits â€“ even though these accrued benefits are almost 40% of the size of conventional measures of household wealth. In this summary article on working paper 2011, authored by Andrew J. Rettenmaier, accrued Social Security benefits are imputed to households in the 2016 Survey of Consumer Finances to determine the degree to which they reduce wealth inequality.
Economic Indicators of the College Station-Bryan MSA, February 2021
(Private Enterprise Research Center, Texas A&M University, 2021-02-22) Bullock, Ashley; Jansen, Dennis W.; Navarro, Carlos I.; Rettenmaier, Andrew J.
The Business-Cycle Index increased by 1.8% from November to December 2020. The local unemployment rate decreased to 5.4% in December from 5.9% in November and remained the second-lowest rate among Texas metros. Local nonfarm employment increased slightly by 1% in December and is 3.6% lower than it was in December 2019.Local real taxable sales increased 1.1% from November to December but were 4.3% lower than the same month last year.
Can Cryptocurrencies Successfully Compete in the Money Market?
(Private Enterprise Research Center, Texas A&M University, 2021-03-17) Saving, Thomas R.
The cryptocurrency revolution began with the introduction of Bitcoin in 2009. Today, there are now more than 4,000 cryptocurrencies and Bitcoin has a market capitalization of over $1 trillion. While these new digital entities are characterized as cryptocurrency, none actually circulate in day-to-day commerce. In policy study 2102, author Thomas R. Saving describes the necessary properties of money and compares them to cryptocurrency. As they are currently structured, cryptocurrencies are not going to compete in the privately produced money market but are better positioned to compete in the precious metals market.
The Pandemic Misery Index
(Private Enterprise Research Center, Texas A&M University, 2021-03-18) Jansen, Dennis W.; Navarro, Carlos I.; Rettenmaier, Andrew J.
The Covid-19 pandemic has brought with it both human and economic loss. The Pandemic Misery Index, or PMI, is a simple metric that measures the effectiveness of pandemic-related public policies by combining the unemployment rate with the number of deaths per 10,000 people. This policy study calculates the PMI for states and metropolitan statistical areas, or MSAs. Two variants of the PMI are also discussed. The first is based on average unemployment rates from the start of the pandemic in March and the cumulative number of deaths per 10,000 up to December 2020. As of the end of 2020, New Jersey and New York had the highest PMIs at 32.4 and 30.7 respectively. Vermont had the lowest PMI at 9.0 and Utahâ€™s 9.3 was second lowest in December. The second variant, the Relative Pandemic Misery Index, or RPMI, captures how an area is faring at a point in time relative to the hardest hit months of the pandemic by tracking an areaâ€™s monthly unemployment rate and death rates relative the total range of these two metrics over the course of the pandemic. New York had high initial RPMI values, but its values have since declined. In contrast, North and South Dakota had low initial RPMI values, but their values have risen in recent months
Economic Indicators of the College Station-Bryan MSA, March 2021
(Private Enterprise Research Center, Texas A&M University, 2021-03-29) Bullock, Ashley; Jansen, Dennis W.; Navarro, Carlos I.; Rettenmaier, Andrew J.
The Business-Cycle Index increased by 0.1% from December 2020 to January 2021. The local unemployment rate increased to 5.5% in January from 5.4% in December and is the third lowest rate among Texas metros. Local nonfarm employment increased slightly by 0.3% in January and is 5.5% lower than it was in January 2020. Local real taxable sales increased 5.2% from December to January and were 0.4% higher than the same month last year. While local employment numbers in most industries are within 5% of their pre-pandemic levels, as of January, Leisure and Hospitality employment is down 23% compared to February 2020.
Diversity In Economics Seminars: Who Gives Invited Talks?
(Private Enterprise Research Center, Texas A&M University, 2021-04-12) Doleac, Jennifer L.; Erin Hengel; Pancotti, Elizabeth
In economics, as in many other academic disciplines, it is common for departments to invite external speakers to give research talks in academic seminars. These invited seminars are a primary way that academic economists get feedback on their work, disseminate their work, and expand their professional networks. In this paper, authors Jennifer L. Doleac, Erin Hengel, Elizabeth Pancotti describe the characteristics of invited seminar speakers, using a balanced panel of 66 economics and economics-adjacent departments from August 2014 through December 2019. Our data are the result of a multi-year, ongoing effort to collect this information from the websites of a broad range of departments in the United States and abroad.
Misdemeanor Prosecution
(Private Enterprise Research Center, Texas A&M University, 2021-04-12) Doleac, Jennifer L.; Agan, Amanda; Harvey, Anna
Communities across the United States are reconsidering the public safety benefits of prosecuting nonviolent misdemeanor offenses. So far there has been little empirical evidence to inform policy in this area. In this paper, authors Jennifer L. Doleac, Amanda Agan, and Anna Harvey report the first estimates of the causal effects of misdemeanor prosecution on defendantsâ€™ subsequent criminal justice involvement. The authors leverage the as-if random assignment of nonviolent misdemeanor cases to Assistant District Attorneys (ADAs) who decide whether a case should move forward with prosecution in the Suffolk County District Attorneyâ€™s Office in Massachusetts. These ADAs vary in the average leniency of their prosecution decisions. Findings show that, for the marginal defendant, nonprosecution of a nonviolent misdemeanor offense leads to large reductions in the likelihood of a new criminal complaint over the next two years. These local average treatment effects are largest for first-time defendants, suggesting that averting initial entry into the criminal justice system has the greatest benefits. The authors also present evidence that a recent policy change in Suffolk County imposing a presumption of nonprosecution for a set of nonviolent misdemeanor offenses had similar beneficial effects: the likelihood of future criminal justice involvement fell, with no apparent increase in local crime rates.
Texas Pension Woes
(Private Enterprise Research Center, Texas A&M University, 2021-04-12) Jansen, Dennis W.; Liu, Liqun; Navarro, Carlos I.; Rettenmaier, Andrew J.
The unfunded liabilities from Texas many state and local defined benefit pension plans, or the amount a pension fund's assets cannot cover its liabilities, have snowballed over time and have recently reached unprecedented levels. In 2019, their collective assets were less than their liabilities by $86 billion and the funding ratio of their assets to liabilities was 77%. Although these numbers are concerning, they are based on governmental accounting methods that mask the true state of affairs. In policy study 2103, using data from 99 pension plans, authors Dennis W. Jansen, Liqun Liu, Carlos I. Navarro, and Andrew J. Rettenmaier analyze the pension funds in Texas though 2019. They calculate the pensions' liabilities and funding ratios using alternative discount rates and then discuss a range of potential reforms.
Economic Indicators of the College Station-Bryan MSA, April 2021
(Private Enterprise Research Center, Texas A&M University, 2021-04-19) Bullock, Ashley; Jansen, Dennis W.; Navarro, Carlos I.; Rettenmaier, Andrew J.
The Business-Cycle Index increased by 0.3% from January 2021 to February 2021. The revised local unemployment rate remained at its January 2021 level of 5.7% in February. Local nonfarm employment increased slightly by 0.4% in February and is 5.3% lower than it was in February 2020. The February winter storm negatively impacted local taxable sales. Real taxable sales decreased14.3% from January to February and were 14% lower than the same month last year. Nationally, the air travel in March 2021 was 52% of its March 2019 level and travel out of Easterwood Airport was 63% of its March 2019 level.
Great (Inflation) Expectations
(Private Enterprise Research Center, Texas A&M University, 2021-04-28) Jansen, Dennis W.; Rettenmaier, Andrew J.
As states have begun to ease pandemic-related restrictions, we enter a new economic period that has the potential for rapid economic growth, but also a period of rising inflation. In this edition of PERCspectives on Policy, authors Dennis W. Jansen and Andrew J. Rettenmaier discuss changes in personal income and its components, the M2 money supply, and assets held by the Federal Reserve have changed over the past year and whether inflation is on the horizon. Rather than suffer a decline as seen in a typical recession, personal income per capita rose 10% between February 2020 and April 2020. The largest component of personal income, employee compensation, fell over 10 percent during that period. Government transfer receipts were up substantially. Personal consumption expenditures fell sharply, while personal savings rose. The federal debt increased to $4.34 trillion - 25% - between February 2020 and February 2021. Assets held by the Federal Reserve and the broad measure of the M2 money supply both increased substantially, to $3.2 trillion and $4.2 trillion, respectively.
Business Cycle Implications of Firm Market Power in Labor and Product Markets
(Private Enterprise Research Center, Texas A&M University, 2021-05-06) Zubairy, Sarah; Alpanda, Sami
In this paper, Sarah Zubairy Sami Alpanda analyze the business cycle implications of firms having oligopsony power in labor markets, as well as oligopoly power in product markets, within the context of a New Keynesian dynamic stochastic general equilibrium model with firm entry and exit. Relative to the standard setup with monopolistic competition in both goods and labor markets, the strategic interaction between intermediate goods firms in the current setup results in larger price markups as well as wage markdowns, while the slopes of the aggregate price and wage Phillips curves become flatter. These effects are strengthened in a strongly non-linear fashion as the number of firms in each sector decline. Oligopsonistic labor markets also render wage shocks expansionary, unlike in the standard setup. Results indicate that a secular increase in industry concentration would not only reduce the labor share of income, but also weaken the pass-through from firmsâ€™ marginal costs to prices and from productivity increases to real wages.
Networking the Yield Curve: Implications for Monetary Policy
(Private Enterprise Research Center, Texas A&M University, 2021-05-06) Sekhposyan, Tatevik; Dahlhaus, Tatjana; Schaumburg, Julia
In this working paper, authors Tatevik Sekhposyan, Tatjana Dahlhaus, and Julia Schaumburg introduce a flexible, time-varying network model to trace the propagation of interest rate surprises across different maturities. First, the authors develop a novel econometric framework that allows for unknown, potentially asymmetric contemporaneous spillovers across panel units, and establish the finite sample properties of the model via simulations. Second, this innovative framework is employed to jointly model the dynamics of interest rate surprises and to assess how various monetary policy actions, for example, short-term, long-term interest rate targeting and forward guidance, propagate across the yield curve. Findings show that the network of interest rate surprises is indeed asymmetric, and defined by spillovers between adjacent maturities. Spillover intensity is high, on average, but shows strong time variation. Forward guidance is an important driver of the spillover intensity. Pass-through from short-term interest rate surprises to longer maturities is muted, yet there are stronger spillovers associated with surprises at medium- and long-term maturities. The authors illustrate how our proposed framework helps our understanding of the ways various dimensions of monetary policy propagate through the yield curve and interact with each other.
Disbursing Emergency Relief through Utilities: Evidence from Ghana
(Private Enterprise Research Center, Texas A&M University, 2021-05-06) Puller, Steven; Berkouwe, Susanna B.r; Biscaye, Pierre E.; Wolfram, Catherine D.
Government transfer programs to distribute food, water, or electricity at low or no cost have been widespread during the COVID-19 global health crisis. How does program design affect the efficiency and distributional implications of these policies? And what design features determine their political popularity? The authors study these questions in the context of a program to distribute relief through the electric utility in Accra, Ghana, using data from 1,200 households surveyed during the COVID-19 crisis. Findings show that distributing relief through electricity transfers has significant advantages. It enables an immediate government response to the crisis because it leverages the existing financial infrastructure between the government utility and households. Moreover, theoretical efficiency concerns about in-kind transfers are mitigated because the transfers are inframarginal for most households and electricity credit can be stored, with many even preferring electricity transfers over cash. These advantages do not preclude delays in transfer receipt and the exclusion of some eligible households, however, and the program is regressive in both design and implementation. The households least likely to receive relief are those who use less electricity, pay a landlord or other intermediary for electricity, or share an electricity meter with other usersâ€”all common among low-income electricity consumers in urban settings. Finally, transfer receipt increases support for the governing party but support for the program drops significantly if even a fraction of its costs are to be recovered through future electricity tariff increases. Concerns around disbursing relief through utility transfers in this context thus arise not from efficiency loss, but from regressivity, distributional challenges, and politicization.
Stochastic Superiority
(Private Enterprise Research Center, Texas A&M University, 2021-05-06) Liu, Liqun; Meyer, Jack
This paper introduces a definition of stochastic superiority. One random variable is stochastically superior to another whenever it stochastically dominates the other after the risk in each random variable has been optimally reduced. Stochastic superiority is implied by stochastic dominance, but the reverse is not true. Stochastic superiority allows more pairs of random alternatives to be ranked, and efficient sets to be smaller. A very strong sufficient condition for stochastic superiority is demonstrated to also be necessary when preferences are risk averse. This condition provides a relatively easy way to conduct stochastic superiority tests. As an alternative to â€œalmost stochastic dominanceâ€�, stochastic superiority also provides a naturalsolution to the â€œleft tail problemâ€� that arises often when comparing random alternatives.
The Effect of Open-Air Waste Burning on Infant Health: Evidence from Government Failure in Lebanon
(Private Enterprise Research Center, Texas A&M University, 2021-05-14) Hoekstra, Mark; Mouganie, Pierre; Ajeeb, Ruba
An estimated 40 percent of the world's garbage is burned in open-air fires, which are responsible for as much as half of the global emissions of some pollutants. However, there is little evidence on the health consequences of open-air waste burning, especially for infants. In this issue of PERCspectives on Research, PERCâ€™s Rex B. Grey Professor Mark Hoekstra, along with coauthors Pierre Mouganie and Ruba Ajeeb, estimate the effect of in-utero exposure to open-air waste burning on birth outcomes by examining the consequences of increased open-air waste burning due to the Lebanese garbage crisis of 2015.

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