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Economics Working Papers, 2003

Copies may be downloaded on pdf, or hard copies may be requested from Joshua Hall, Working Paper Coordinator.

03 - 01: SOBEL, RUSSELL S. and Nesbit, Todd.

Automobile Safety Regulation and the Incentive to Drive Recklessly: Evidence from NASCAR.

Abstract: When safety regulation makes automobiles safer, drivers may drive more recklessly, creating partially or completely offsetting effects on the overall level of safety. Evidence of these offsetting effects has been hard to find, however, primarily because of the aggregate nature of accident data. In this paper we explore how changes in the safety of automobiles used in NASCAR has altered the incentive of drivers to drive recklessly. This unique data set allows more accurate and objective measurement of the necessary variables to test for these effects at a micro-level. Our results strongly support the presence of these offsetting behavioral effects.

03 - 02: Kreft, Steven and SOBEL, RUSSELL S.

Public Policy, Entrepreneurship, and Economic Growth.

Abstract: With the recognition that entrepreneurial activity is a key factor in economic growth, many local governments have begun to enact policies targeted at promoting entrepreneurship. One frequently cited strategy for promoting entrepreneurial activity is to attract large amounts of venture capital, in the hopes of inducing more entrepreneurial activity. In this paper we test the direction of causality between venture capital and entrepreneurial activity and find that it is the presence of entrepreneurial activity that draws venture funding to an area, and not vice versa. Thus, enacting policies consistent with economic freedom, which provide a good environment for attracting or developing individual entrepreneurs, are the appropriate economic development policies.

03 - 03: BANDYOPADHYAY, Subhayu and Abhra Roy.

Endogenous Fertility and Child Labor. - Not available at this time.

Abstract: We use a partial equilibrium two good trade model with endogenous fertility to analyze the impact of various policies on fertility and child labor. We find that an increase in educational subsidy increases child labor and may increase fertility .We also find that increase in the quality of schooling may increase or decrease child labor and is likely to increase fertility . We also show that there may be two types of equilibrium, characterized by high and low fertility. Increases in wage rate reduce fertility if the economy is in low fertility equilibrium otherwise the opposite result obtains. The effect of wages on child labor depends on the nature of the equilibrium .If the economy is characterized by high fertility then wage increase would increase fertility and child labor. We also try to look at the efficacy of government-financed endowments given to unskilled households. Fertility and child labor are negatively related to endowments if and only if endowments schemes reward families with smaller size.

03 - 04: Hu, Ou.

Forecasting Ability of the Fama and French Three-factor Model-Implications for Capital Budgeting.

Abstract: In the model-based estimation of the cost of capital, the common practice uses the average historical factor premiums as a proxy for the estimated factor premiums. But the evidence shows that the common practice generates very inaccurate estimates. I propose an alternative way to estimate factor premiums by using business cycle variables. Based on the out-of-sample results from a simple trading strategy, my estimation procedure beats the common practice for both the Fama and French three-factor model and the CAPM. Also, the Fama and French three-factor model performs better than the CAPM, at least in the short run. In the long run, neither asset-pricing model, using either estimation procedure, has good performance. As a result, at least in the short run, the Fama and French three-factor model with factor premiums estimated from business cycle variables should be recommended for capital budget decisions.

03 -05: Khaemasunun, Kamol.

Do Family Businesses Perform as Poorly as is Claimed? Evidence from Thai Firms In 1996.

Abstract: There have been claims in the popular press that family-centered "crony capitalism" significantly contributed to the Asian financial crisis of 1997. Small, tightly focused firms can, however, be well managed by family hierarchies. As firms grow and diversify, family management is often displaced by diffuse ownership and independent managers. Between these two extremes, a firm run by two or three families may find its assets subject to expropriation as a commons. This paper provides empirical support for this story of development with analysis of a data set from Thailand, where regulations facilitate accurate identification of family influence on boards of directors. Regression results show the single-family managed firms and "corporate"-style firms (in which directors are not related) have significantly higher Tobin's q than "family-partnership" managed firms (in which a small number of different families dominate the Board), and higher Tobin's q is associated in the data set with higher firm performance. Thus, family partnerships, not family firms, may create problems for emerging economies.