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Almost Stochastic Dominance: Magnitude Constraints on Risk Aversion
(Private Enterprise Research Center, Texas A&M University, 2021-06-01) Liu, Liqun; Meyer, Jack
Almost stochastic dominance (ASD) extends conventional first and second degree stochastic dominance by placing restrictions on the variability in the first and second derivatives of utility. Such restrictions increase the number of random variables for which a unanimous ranking of one over the other occurs. This paper advances an alternative approach to ASD in which the magnitude of absolute or relative risk aversion is constrained with both an upper bound and a lower bound. Using the results of Meyer (1977b), the paper provides cumulative distribution function (CDF) characterizations of these forms of ASD. Simple closed-form necessary and sufficient conditions for these ASD relations are determined for the special cases where the absolute or relative risk aversion is only bounded on one end or where the pair of random variables under comparison have single-crossing CDFs.
Alternative Approaches to Comparative nth-Degree Risk Aversion
(Private Enterprise Research Center, Texas A&M University, 2018-07-30) Liu, Liqun; Neilson, William S.
Economists have used the risk premium and the probability premium that are revealed through individual choices to compare how risk averse two individuals are. These behavioral, or choice-based, measures of risk aversion â€“ such as the risk premium and the probability premium â€“ are important because they can be used in experimental investigations into individual characteristics like gender, age, or income that affect the strength of risk aversion. Higher- degree risk aversion (e.g. downside risk aversion or prudence) has recently been shown to play critical roles in decision making under uncertainty. Consequently, it is important to study how to measure the strength of higher-degree risk aversion. In working paper 1805, Alternative Approaches to Comparative nth-Degree Risk Aversion, PERC researcher Liqun Liu and co-author William S. Neilson generalize the three main existing behavioral approaches to measuring risk aversion â€“ including the probability premium approach, the risk premium approach, and the comparative statistics approach â€“ to measuring higher-degree risk aversion. Findings show that, within the expected utility framework, behavior patterns in these behavioral approaches to measuring higher-degree risk aversion are equivalent and can be characterized by the same set of conditions on the utility functions.
Am I the Big Fish? The Effect of Self-Perceived Ordinal Rank on Student Academic Performance in Middle School
(Private Enterprise Research Center, Texas A&M University, 2018-12-20) Yu, Han
In the educational setting, it is well known that relative achievement can affect individual outcomes. The ordinal academic rank of a student may affect the studentâ€™s academic achievement through a studentâ€™s self-confidence, parental expectations, effort provision, etc. In this paper, the author investigates the causal impact of the self-perceived ordinal rank of middle school students on their test scores in Mathematics, Chinese and English using a randomized sample from China. This paper provides the first direct evidence showing that middle school studentsâ€™ self-perceived ordinal rank has a positive and salient effect on their test scores in a later year in middle school. The results suggest that while students with a relatively better perceived academic performance benefit from perceiving a favorable relative position in study, students who believed that their ordinal rank is among the lowest in class suffer substantially more hurt with respect to future test scores. Moreover, the results suggest that perceiving a higher rank raises a studentâ€™s confidence in study and expectations on his/her own educational and occupational achievement in the future and more support from parents, teachers, and classmates in the present. Self-perceived rank also affects students' academic performance through effort provision and the quality of friends. The results also suggest a positive effect of female teachers on the self-perceived rank of female students.
Are Charters the Best Alternative?
(Private Enterprise Research Center, Texas A&M University, 2016-01-01) Gronberg, Timothy; Jansen, Dennis; Taylor, Lori
Texas has been part of the charter school movement since 1995, when the 74th Texas Legislature authorized the State Board of Education to establish open enrollment (OE) charter schools in the state. According to the Texas Education Agency, in 2010-11 there were 199 OE charter districts operating 482 campuses in Texas, serving 133,697 students, nearly 3% of public school students in the state. Despite the growing role of these alternative schools in the U.S. edcucational system, they are seldom studied. In Working Paper 1606, we provide the first careful empirical study of the costs of alternative education. Their results show charters to be more cost-efficient in providing alternative education compared to traditional public school districts.
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.
Cash for Corollas: When Stimulus Reduces Spending
(Private Enterprise Research Center, Texas A&M University, 2015-04-01) Hoekstra, Mark; Puller, Steven L.; West, Jeremy
The 2009 Cash for Clunkers program aimed to stimulate consumer spending in the new automobile industry, which was experiencing disproportionate reductions in demand and employment during the Great Recession. Exploiting program eligibility criteria in a regression discontinuity design, we show nearly 60 percent of the subsidies went to households who would have purchased during the two-month program anyway; the rest accelerated sales by no more than eight months. Moreover, the programâ€™s fuel efficiency restrictions shifted purchases toward vehicles that cost on average $5,000 less. On net, Cash for Clunkers significantly reduced total new vehicle spending over the ten month period
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.
Coronavirus Economics: The Impact of Shutting Down Meatpacking Plants
(Private Enterprise Research Center, Texas A&M University, 2020-06-25) Jansen, Dennis W.; Liu, Liqun; Rettenmaier, Andrew J.
Motivated by the observed beef and livestock market impacts of coronavirus-caused meatpacking plant shutdowns, this paper constructs a theoretical model to study the effects of closures among downstream producers on both consumers and upstream producers. It analyzes the pre-shock long-run equilibrium, the effects of firm shutdowns among the downstream producers, the effects of government subsidies, and the new long-run equilibrium if the underlying cause for firm shutdowns persists.
Corrupt Police
(Private Enterprise Research Center, Texas A&M University, 2020-08-21) Serra, Danila; Abbink, Klaus; Ryvkin, Dmitry
PERC Professor Danila Serra, along with Klaus Abbink and Dmitry Ryvkin employ laboratory experiments to examine the effects of corrupt law enforcement on crime within a society. The authors embed corruption in a social dilemma setting where citizens simultaneously choose whether to obey the law or to break the law and impose a negative externality on others. Police officers observe citizens' behavior and decide whether to impose fines on law-breakers or, in treatments with corruption, extort bribes from any citizen. In the first study, findings show that the presence of police substantially reduces crime, as compared to a baseline setting without police. This is true also when police officers are corrupt. This result is driven by corrupt police officers using bribes in a targeted manner as a substitute for official fines to punish law-breakers. In the second study, the authors test the effectiveness of two reward mechanisms aimed at reducing police corruption, both of which are based on society-wide police performance measures and not on the observation/monitoring of individual officers. Results show that both mechanisms make bribery more targeted toward law-breakers, and one of them leads to a moderate reduction in crime
The Impact of Teacher-Student Gender Matches: Random Assignment Evidence from South Korea
(Private Enterprise Research Center, Texas A&M University, 2016-01-01) Meer, Jonathan; Lim, Jaegeum
Subject-specific gender disparities appear and widen as students advance through school. In PERC Working Paper 1509, PERC Professor Jonathan Meer and Jaegeum Lim examine test scores for South Korean middle school students to investigate how teacher-student gender matches affect classroom achievement. To identify causal effects, the authors exploit random assignment of students into clsasrooms. Findings indicate that female students are positively influenced by a female teacher and that female students are significantly less likely to interact and participate in class activities when the teacher is male.
The Long Run Effects of De Jure Discrimination in the Credit Market: How Redlining Increased Crime
(Private Enterprise Research Center, Texas A&M University, 2019-10-10) Anders, John
Today in the United States, the welfare costs of crime are disproportionately borne by individuals living in predominately Black or Hispanic neighborhoods. Is there a historical cause behind these inequalities in crime? In working paper 1910, former PERC Graduate Student Fellow John Anders studies how Federal housing policies created in the wake of the Great Depression increased present-day crime levels in cities across the nation.
The Long-Run Effects of Disruptive Peers
(Private Enterprise Research Center, Texas A&M University, 2017-01-01) Hoekstra, Mark; Carrell, Scott E.; Kuka, Elira
There's a great deal of research on how classmates can affect test scores and discipline in school, but what about later in life? In Working Paper 1605, PERC's Rex Grey Professor of Economics Mark Hoekstra, Scott E. Carrell of UC Davis, and Elira Kuka of Southern Methodist University, look at the long-term impact of childhood peers, particularly with respect to labor market outcomes in adulthood.
A Model to Evaluate Vehicle Emission Incentive Policies in Japan
(Private Enterprise Research Center, Texas A&M University, 2014-06-01) Fullerton, Don; Gan, Li; Hattori, Miwa
Using three years of data from the 47 prefectures of Japan, the authors estimate behavior of households who simultaneously make discrete decisions about vehicle ownership and continuous decisions about driving distance. Estimated parameters are to calculate elasticities and to simulate the effects of alternative pollution control policies such as taxes on gasoline, on distance, or on particular cars. Given choices about cars and distance, we also calculate emissions. Since the author's model simultaneous choices, both the chosen distance and the chosen car can be affected either by a tax on distance or by a tax on car characteristics. Findings show expected signs for coefficients on price and income. Car choices are relatively inelastic, however, either to taxes on cars or to taxes on gas or distance. Thus emissions are more affected by taxes on gasoline than by taxes on particular vehicles. Given that the existing gas tax already achieves some abatement, mostly through driving reduction, this analysis suggests that further abatement from the use of distance-reducing taxes is more costly than achieving some marginal abatement from induced changes in car choices. The option with the lowest cost is to tax each car at a rate proportional to its emission rate.
The Probability Premium Approach to Comparative Risk Aversion
(Private Enterprise Research Center, Texas A&M University, 2015-05-01) Liu, Liqun; Neilson, William
Property Titles of Non-Renewable Natural Resources in Mexico: An Alternative to "Constitutional Nationalism"
(Private Enterprise Research Center, Texas A&M University, 2022-09-26) Salinas-Leon, Roberto; Rodriguez-Rodriguez, Martin; Navarro, Carlos I.
Here, the authors propose the benefits of instituting a Sovereign Mexican Fund (SMF), which emulates the Alaska Trust Fund, in order to reconcile the capital investment needs of the energy sector in Mexico with the strong sense of nationalism of its people. The main virtue of the Sovereign Mexican Fund as a public policy model is that it is inclusive - all citizens participate, and all, without exception, are recipients of their share of energy income. The SMF democratizes energy income by spreading ownership of capital among all Mexicans of the present and future generations. This case study presents a roadmap with a high degree of feasibility to make the people of Mexico the primary beneficiaries of the country's mineral and hydrocarbon wealth. The short-term challenges are also discussed.
The Relationship Between Health Insurance and Early Retirement: Evidence from the Affordable Care Act
(Private Enterprise Research Center, Texas A&M University, 2018-10-09) Aslim, Erkmen Giray
As the Affordable Care Act (ACA) recently expanded Medicaid coverage to low-income childless adults, the uninsured rate reached a record low in 2015. In contrast, large firms with 200 or more employees are continuing to cut retiree benefits. With Medicaid as a new alternative to early retiree health insurance, it is important to understand the effects of the ACAâ€™s Medicaid expansion on early retirement. This article summarizes working paper 1807, where PERC researcher Erkmen Giray Aslim studies the effect of the Affordable Care Actâ€™s Medicaid expansion on the decision to retire.
The Time Varying Effect of Monetary Policy Surprise on Stock Returns: Bursting Bubble Beating Forward Guidance
(Private Enterprise Research Center, Texas A&M University, 2015-09-01) Jansen, Dennis W.; Zervou, Anastasia S.
Generally, stock prices react negatively to unanticipated and restrictive monetary policies. In PERC Working Paper 1505, Jordan Professor of Economics, Dennis W. Jansen, and Anastasia S. Zervou test to what extent surprises in monetary policy affect stock price returns and analyze how this relationship has changed over time. They find that a one percentage point surprise federal funds rate increase reduces the one-day stock return, and that the size of this effect is markedly different depending on the time period under consideration.
Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision
(Private Enterprise Research Center, Texas A&M University, 2015-09-01) Liu, Liqun; Denuit, Michel; Eeckhoudt, Louis; Meyer, Jack
Agents who are averse to increases in downside risk are defined as being averse to changes that shift a certain amount of risk to a lower income level. For downside risk averse decision makers, there are several tradeoffs that must be considered. In PERC Working Paper 1503, PERC Research Scientist Liqun Liu and his coauthors Michel Denuit, Louis Eeckhoudt, and Jack Meyer introduce five new stochastic orders for studying these tradeoffs and show it is possible to make predictions regarding choices of downside risk averse decision makers.
Vehicle Miles (Not) Traveled: Fuel Economy Requirements, Vehicle Characteristics, and Household Driving
(Private Enterprise Research Center, Texas A&M University, 2017-01-01) Puller, Steven; West, Jeremy; Meer, Jonathan
Simply put, the less Americans drive, the less gas they use. More driving, more gas. The negative effects of gasoline consumption are well-documented, ranging from local effects of automobile pollution on individuals' health to the global impact of vehicle emissions on climate change. So what makes households drive less? In Working Paper 1607, PERC's Rex Grey Professor Mark Hoekstra, PERC's Professor of Free Enterprise Steven L. Puller, UC Santa Cruz's Jeremy West, and Texas A&M University's Jonathan Meer, examine the effects of drivers' behaviors on gasoline consumption.
The Vicious Circle of Blackouts and Revenue Collection in Developing Economies: Evidence from Ghana
(Private Enterprise Research Center, Texas A&M University, 2019-02-05) Puller, Steven; Street, Brittany; Yebuah-Dwamena, Belinda; Dzansi, James
As reliable electricity is needed to form and sustain successful businesses, power is critically important for economic growth, especially for developing countries in Sub-Saharan Africa. In urban areas where most residences and businesses are connected to the power grid, utilities that are hampered by revenue shortfalls must implement load shedding, or rolling blackouts, to meet rising demand. In working paper 1809, PERC Professor Steven Puller, PERC Graduate Fellow Brittany Street and co-authors Belinda Yebuah-Dwamena and James Dzansi investigate whether revenue shortfalls from low bill collection rates contribute to a negative feedback loop that results in power supply shortages and a weaker electric utility.

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