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2016

Economics Working Papers, 2016

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

16-01

Author(s): Gregory DeAngelo, R. Kai Gittings, Amanda Ross and Annie Walker
Title:  "Police Bias in the Enforcement of Drug Crimes: Evidence from Low Priority Laws"
Abstract: We consider the impact of adoption of a low priority initiative in some jurisdictions within Los Angeles County on police behavior. Low priority initiatives instruct police to make the enforcement of low level marijuana possession offenses their “lowest priority.” Using detailed data from the Los Angeles County Sheriff’s Department and a difference-indifferences strategy, we show that the mandate resulted in a lower arrest rate for misdemeanor marijuana possession in adopting areas. However, the lower relative arrest rate is driven by a spike in the arrest rate in areas not affected by the mandate rather than a reduction in adopting areas.

16-02

Author(s): Hyunwoong Pyun and Joshua Hall
Title:  "Does the Presence of Professional Football Cause Crime in a City? Evidence from Pontiac, Michigan"
Abstract: We empirically explore the relationship between the National Football League (NFL) and crime using daily panel data from Detroit. We exploit the natural experiment of the Detroit Lions movement from Pontiac MI to downtown Detroit in 2002 to examine the impact of NFL games on crime in a jurisdiction. Pontiac is used as a treatment city and other suburban cities are used as a comparison group. Employing a triple difference-in-difference approach, we find little to no change in crime on a home game day in Pontiac compared to other suburban cities. There is no difference in crime between the football season and off-season, among the groups, after the Lions moved. While not conclusive, our results are suggestive that professional football does not create additional crime except for larceny.

16-03

Author(s): Joshua Hall, Donald Lacombe and Joylynn Pruitt
Title:  "Collective Bargaining and School District Test Scores: Evidence from Ohio Bargaining Agreements"
Abstract: We revisit the relationship between collective bargaining by teachers unions and school performance. The empirical literature in this area has found mixed results at both the state and district levels. We contribute to this literature in two ways. First, rather than simply dummy union status, we proxy for the restrictiveness of collective bargaining agreements with the number of pages per agreement. Second, we employ Bayesian spatial methods to deal with spatial dependence in school district activities. Our reduced-form results indicate that collective bargaining directly lowers scores on high school math scores, but that the total effect is zero.

16-04

Author(s): Carlianne Patrick, Amanda Ross and Heather Stephens
Title:  "Designing Policies to Spur Economic Growth: How Regional Scientists Can Contribute to Future Policy Development and Evaluation"
Abstract: Policymakers at all levels of government try to design policies to promote economic growth. Many of these policies have a goal of attracting new businesses to an area, as new businesses are considered a key driver of local economic growth. An emerging literature suggests that such policies have heterogeneous effects on economic growth, both in terms of how the effect of the same policy may vary across locations as well as how different policies spur different types of growth. In this chapter, we discuss the insights provided by the existing literature on the effect of government policy on local economic growth. We pose questions that have not been fully answered, and for which the evidence is mixed, and discuss methodologies that future work should consider utilizing in order to answer these pressing issues. We also discuss the importance of data and the ideal types of data that should be collected and analyzed in the future. Evaluating the features and outcomes of policies will continue to be an important role for regional scientists over the next several decades, as government officials seek guidance when designing policy and allocating scarce resources.

16-05

Author(s): Joshua Hall
Title:  "Investment in Education: Private and Public Returns"
Abstract: There is a strong consensus among economists that formal education is an important determinant of individual earnings as well as economic growth. The importance of formal education has been magnified by recent economic trends underlying U.S. labor market demand for skilled workers. The following is an analysis of the importance of education to both the individuals acquiring education and of the benefits received by society resulting from increased educational attainment.

16-06

Author(s): Joshua Hall
Title:  "The Roots of Broadened Stock Ownership"
Abstract: This analysis examines recent trends in stock ownership and explains the reasons for the dramatic increase in stock ownership among a broader and increasingly diverse number of Americans. The key reasons for this democratization of the stock market include: the popularization of the mutual fund; the general reduction in the multiple taxation of savings and investment that resulted from the genesis of the IRA and 401(k) plan; and the emphasis of the Federal Reserve on price stability which has lowered interest rates, stabilized financial markets, and acted as a de facto tax cut.

16-07

Author(s): Joshua Hall
Title:  "Tax Expenditures: A Review and Analysis"
Abstract: This study examines a feature of the budget process called the tax expenditure budget. The tax expenditure concept relies heavily on a normative notion that shielding certain taxpayer income from taxation deprives government of its rightful revenues. This view is inconsistent with the proposition that income belongs to the taxpayers and that tax liability is determined through the democratic process, not through arbitrary, bureaucratic assumptions. Furthermore, the methodology of the tax expenditure budget is problematic as its expansive tax base treats the multiple taxation of saving as the norm. By using an expansive view of income as the underlying assumption of the tax expenditure concept, this viewpoint institutionalizes a particular bias into the decision-making process.

16-08

Author(s): Gregory DeAngelo, Hannes Lang and Bryan McCannon
Title:  "Do Psychological Traits Explain Differences in Free Riding?"
Abstract: We explore the relationship between common psychological traits, such as Theory of the Mind, Rational‐Experiential Inventory, and Big Five Personality styles, and willingness to contribute to public goods. Then, motivated by research that has indicated a relationship between past social interactions and cooperativeness, we consider the interaction between past game outcomes and psychological traits on free riding. We show that psychological traits of individuals have both a direct effect on free riding behavior, as well as an indirect effect as it enhances the correlation between past strategic behavior and public goods giving. Thus, the measurement tools of social psychology and management can be beneficial in understanding individual‐level differences in free riding.

16-09

Author(s): Joshua Hall and Shree Baba Pokharel
Title:  "Does the Median Voter or Special Interests Determine State Highway Expenditures? Recent Evidence"
Abstract: Using cross-sectional data from fifty states of the United States and the District of Columbia for two different time periods, this paper examines the degree to which special interests or the median voter determines state highway expenditures. In addition to finding that previous estimates of the determinants of state highway expenditures are robust, we find that that special interests that were important in 1984 were no longer significant nearly 20 years later. Like the previous literature, we conclude that the reduced form median voter model performs well in explaining state highway expenditures.

16-10

Author(s): Bryan C. McCannon and Zachary Rodriguez
Title:  "A Lasting Effect of the HIV/AIDS Pandemic: Orphans and Pro-Social Behavior"
Abstract: The HIV/AIDS pandemic has caused numerous deaths. One unfortunate consequence of this is the deterioration in family structure and the prevalence of orphanhood. We investigate whether individuals who were orphaned as a child suffer long-term consequences through a underinvestment in their social capital. We conduct a framed field experiment in rural, southern Uganda where the HIV/AIDS pandemic hit hardest. In the experiment, subjects made decisions to contribute to a public good. Results indicate that adults who were orphaned as a child free ride more contributing less to the public good. We explore the mechanism through which their background operates. We provide evidence that an important channel is through social norms. Subjects orphaned when young tend to have lower expectations regarding typical behavior of others. A strong interaction effect is identified where those with the lowest expectations who were also orphaned contribute the least to the public good. Thus, we document long-term consequences to a community of the adverse health event.

16-11

Author(s): Joshua C. Hall, Elham Erfanian and Caleb Stair
Title:  "Voting Behavior on Carbon Pollution from Power Plants"
Abstract: Environmental regulation is a polarizing issue. In 2014, a bill came to a vote in the U.S. House of Representatives that would limit the powers of the Environmental Protection Agency. This empirical note identifies the characteristics that influenced the voting behavior of House Representatives on this bill. Political party, educational background, the location quotient of the mining industry in the representative’s state, and the amount of emissions in the Representative’s state are considered. A member’s political party is the primary factor influencing voting behavior but the location quotient of the mining industry also plays an important role.

16-12

Author(s): Bryan C. McCannon and Paul Walker
Title:  "Endogenous Competence and a Limit to the Condorcet Jury Theorem"
Abstract: The seminal contribution, known as the Condorcet Jury Theorem, observes that under a specific set of conditions an increase in the size of a group tasked with making a decision leads to an improvement in the group's ability to make a good decision. An assumption under-appreciated is that the competency of the members of the group is assumed to be exogenous. In numerous applications, members of the group make investments to improve the accuracy of their decision making (e.g. pre-meeting efforts). We consider the collective action problem that arises. We show that if competence is endogenous, then increases in the size of the group encourages free riding. This trades off with the value of information aggregation. Thus, the value of increased group size is muted. Extensions illustrate that if committee members are allowed to exit/not participate, then the equilibrium committee size is reduced. Additionally, (non-decisive supermajority voting rules encourage the investments and, consequently, individual competence.

16-13

Author(s): Bryan C. McCannon and Zachary Rodriguez
Title:  "The Impact of Microfinance on Pro-Social Behaviors: Experimental Evidence of Public Goods Contributions in Uganda"
Abstract: We ask whether access to microfinance loans by the poor has a spillover effect on their pro‐social behaviors. An experimental field study in southern, rural Uganda is conducted using free riding in public goods contributions as an assessment. We document higher levels of contributions by those who have previously received a microloan. This effect cannot be explained by changes in social norms, income effects, or sample selection bias. The results suggest that exposure to microfinance promotes social preferences.

16-14

Author(s): Gregory DeAngelo and Bryan C. McCannon
Title:  "Honest Abe or Doc Holliday? Bluffing in Bargaining"
Abstract: We consider a bargaining environment where there is asymmetric information regarding whether the two players have common preferences or conflicting preferences. If the cost of strategic communication is independent of the state, then signaling is not expected to be effective. If the uninformed agent believes, though, a (cheap‐talk) signal has been sent, then the informed agents are incentivized to engage in deceptive bluffing. Alternatively, if bluffing is not too prevalent, honest communication can be worthwhile. We explore this theoretically and experimentally. We present a bargaining model where state‐dependent mixed strategies arise as equilibria. Thus, bluffing occurs in equilibrium. In the model, players who experience a disutility to engaging in deceptive behavior are then introduced. The set of equilibria are refined and we show, ironically, that the introduction of honest players increases the overall level of deception. We then design an experimental game to assess the validity of the predictions from the theoretical model. We show that agents attempt to strategically transmit information even when (costly) signaling is not possible. Across rounds of the game honest, but cheap talk, signaling and bluffing co‐move in that as the former becomes more prevalent so too does the latter. Furthermore, we document a contagion effect in the laboratory. Bluffing not only creates deadweight loss in a particular dyad, but leads the agent who was bluffed to engage in more bargaining conflict in future rounds against a new, randomly‐selected opponent. Aggregate wealth is higher prior to the introduction of deception in the group.

16-15

Author(s): Joshua C. Hall and Shree B. Pokharel
Title:  "Barber Licensure and the Supply of Barber Shops: Evidence from US States"
Abstract: Occupational licensure is on the rise. According to Kleiner (2014), over 29 percent of the U.S. workforce required some form of license. While a number of studies estimate the wage effects of occupational licensure, few studies look at the impact of licensure on entry into new business formation. In this paper we focus on the impact on barber shops, since many barber shops are sole proprietorships. Using state-level data on the occupational licensure of barbers from the Institute for Justice, we find that the number of exams required to become a barber is negatively related to the number of barber shops. We find no evidence that other state-level regulations of barbering such as average fees or the minimum age necessary to practice are associated with fewer barber shops.

16-16

Author(s): Gregory DeAngelo and Bryan C. McCannon
Title:  "Theory of Mind Predicts Cooperative Behavior"
Abstract: Explanations for cooperation in Prisoner’s Dilemma games (PD) have generated significant interest. While institutional explanations, such as the role of repeated interactions and communication, have offered considerable explanatory ability, a psychological measure of Theory of the Mind (ToM) – Reading the Mind in the Eyes – of an individual’s ability to process social and emotional cognition offers new insights. Using this measure, we examine how ToM explains (un)cooperative behavior in a standard PD game. We find that subjects who have higher ToM are less cooperative in PD games and extract higher payoffs.

16-17

Author(s): Taggert J. Brooks, Brad R. Humphreys and Adam Nowak
Title:  "Strip Clubs, 'Secondary Effects,' and Residential Property Prices"
Abstract: The "secondary effects" legal doctrine allows municipalities to zone, or otherwise regulate, sexually oriented businesses. Negative "secondary effects" (economic externalities) justify limiting First Amendment protection of speech conducted inside strip clubs. One example of a secondary effect, cited in no fewer than four United States Supreme Court rulings, is the negative effect of strip clubs on the quality of the surrounding neighborhood. Little empirical evidence that strip clubs do, in fact, have a negative effect on the surrounding neighborhood exists. To the extent that changes in neighborhood quality are reflected by changes in property prices, property prices should decrease when a strip club opens up nearby. We estimate an augmented repeat sales regression model of housing prices to estimate the effect of strip clubs on nearby residential property prices. Using real estate transactions from King County, Washington, we test the hypothesis that strip clubs have a negative effect on surrounding residential property prices. We exploit the unique and unexpected termination of a 17 year moratorium on new strip club openings in order to generate exogenous variation in the operation of strip clubs. We find no statistical evidence that strip clubs have "secondary effects" on nearby residential property prices.

16-18

Author(s): Emily Chamlee-Wright, Joshua C. Hall, Laura E. Grube
Title:  "Cultivating the Liberally Education Mind Through A Signature Program"
Abstract: In this paper we describe the Miller Upton Programs, launched by the Department of Economics at Beloit College in 2008. The Miller Upton Programs aim to advance student understanding of the nature and causes of wealth and well-being. After describing core elements of the program, we discuss the ways in which they leverage economic discourse as a means to advance liberal learning. We argue that programs of this kind advance liberal learning by cultivating the skills required to engage the great questions of human flourishing, by fostering the development of a students’ economic imagination, and by enhancing students’ ability to engage in genuine intellectual discovery. So that readers can identify specific elements of the program that may be appropriate to replicate at their home institutions, we provide details on the history and resource commitments associated with various aspects of the program.

16-19

Author(s): Joshua C. Hall, Alex Peck, Marta Podemska-Mikluch
Title:  "Bringing Active Learning into High School Economics: Some Examples from The Simpsons"
Abstract: In this brief educational note, we provide several examples of directed classroom activities for the high school economics classroom using the long-running television show The Simpsons. In doing so, we provide an overview of the scholarly literature on using popular culture to teach economics. Our examples highlight how popular culture can be successfully employed at the secondary level to engage and teach students through active learning. We conclude with some thoughts for secondary social studies teachers looking to enhance economic instruction.

16-20

Author(s): Joshua C. Hall, Joshua Matti, Yang Zhou
Title:  "Regionalization and Consolidation of Municipal Taxes and Services"
Abstract: The United States has a rich history of local government taxation and good provision. The last fifty years, however, have seen increasing calls for the regionalization of municipal taxes and services from policymakers. Arguments for greater regionalization emphasize improved efficiency, enhanced equity, mitigation of spillovers, and improved economic development. A number of localist scholars have responded to regionalists’ concerns. This review articulates regionalists’ arguments, the localists’ response, and then summarizes the relevant empirical literature to see which side’s theories hold forth in the data.

16-21

Author(s): Umair Khalil, Sulagna Mookerjee, Ryan Tierney
Title:  "Social Interactions in Voting Behavior: Evidence from India"
Abstract: Using the unique staggered nature of the Indian General Elections, where voting takes place in several different phases spanning several weeks, we investigate how spatial variation in electoral dynamics affects subsequent voter turnout. Exploiting quasirandom assignment of constituencies to electoral phases each election, we assess the impact of average voter turnout in a given phase, on turnout in the subsequent phase. Standard endogeneity concerns in the estimation of social interactions are dealt by employing two distinct instrumental variables: 1) constituency specific average historical turnout in elections from the pre-staggered era, 2) voter density as measured by number of voters per polling location in a given constituency. Our estimates from both IVs, show that a 1 percentage point (pp) increase in turnout in a given phase depresses turnout in the subsequent phase by 0.3-0.5 pp. Crucially, falsification tests examining the effect on turnout in the current phase, of constituencies in the same phase or in future phases in the same election, produce no such effect. We find the data broadly support an ethical voter model, in which each agent acts as if setting an example for all and seek to maximize social welfare.

16-22

Author(s): Trey Malone and Joshua Hall 
Title: "Can Liberalization of Local Food Marketing Channels Influence Local Economies? A Case Study of West Virginia’s Craft Beer Distribution Laws"
Abstract: Over the past decade, local food systems have been identified as having a significant influence on regional economies. Using a recent change in West Virginia’s craft beer distribution laws as a case study, we show that although employment might not experience a statistically significant change due to additional legalized marketing channels, wages did experience a significant increase. Our findings suggest that state economies might benefit from reducing restrictions on small, local producers.

16-23

Author(s): Joshua C. Hall, Serkan Karadas and Minh Tam T. Schloskyz
Title:  "Spatial Spillover Effects of Debt Relief from the Heavily Indebted Poor Countries (HIPC) Initiative" 
Abstract: The impacts of various economic and institutional factors transcend the borders of a nation and flow over to adjacent countries. Past research has found that there are spatial spillovers in economic growth, development of institutions, governance quality and institutional quality. This paper conducts a study on the direct and indirect effects of debt relief from the Heavily Indebted Poor Country (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) programs. The IMF and the World Bank provide debt relief to the member countries that have passed the Decision Point of the HIPC Process. Using the Spatial Durbin Model (SDM) model, this study shows that there are negative spatial spillovers of the impacts of being a HIPC member on neighboring countries.

16-24

Author(s): Joshua C. Hall, Serkan Karadas and Minh Tam T. Schloskyz
Title:  "Is There Moral Hazard in the Heavily Indebted Poor Countries (HIPC) Initiative Debt Relief Process?"  
Abstract: The Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) were created by the IMF and World Bank to help low-income countries reduce their debt burden and to facilitate reaching the Millennium Development Goals. After entering he decision point of the HIPC Initiative stage, countries receive interim aid while following a strategic path to improve their macroeconomic stability via structural reforms. Many countries reached the completion point of the HIPC Initiative stage within a few years, receiving a substantial amount of debt relief. Other countries remained in the interim period for almost a decade. We explore the relationship between the level of corruption in HIPC countries and the length of time between the decision and the completion point. We use survival-time models to estimate the effect of various characteristics of the countries on the probability that each country will exit the interim period. The results show that countries with lower corruption and better rule of law complete the HIPC process faster.

16-25

Author(s): Joshua C. Hall, Serkan Karadas and Minh Tam T. Schloskyz
Title:  "Abnormal Returns from Joining Congress? Evidence from New Members"  
Abstract: Past research shows that members of Congress are informed traders, i.e., that they earn abnormal returns while in office. This important research does not identify whether being elected leads to informed trading or whether informed traders are selected into office. We try to provide a partial answer to this question by looking at whether new members of Congress were informed traders prior to being elected and how their portfolio performance changes after election and appointment to different types of committees. Due to data limitations our analysis focus on the pre-congressional (i.e., election) and congressional (i.e., post-election) common stock trades made by newly elected members of Congress from 2004-2010. We find weak evidence of informed trading for the pre-Congress period, suggesting that informed traders are not being selected into office. When combined with our finding that the portfolios of members serving on powerful committees outperform the market during their second term in office, this provides additional evidence that serving on influential committees is the mechanism by which members of Congress earn abnormal returns.

16-26

Author(s): Brad Humphreys and Thomas Miceli
Title:  "Outcome Uncertainty, Fan Travel, and Aggregate Attendance"  
Abstract: The classical Uncertainty of Outcome Hypothesis (UOH) informs economists’ understanding consumer decisions to attend sporting events and models of team revenue generation. Coates, Humphreys and Zhou (2014) developed a reference dependent preference based consumer choice model under uncertainty to motivate the UOH in which loss-averse consumers prefer games with certain outcomes. We develop an alternative model based on a standard expected utility model of fan behavior which incorporates fans’ decisions to travel to away games and aggregates decisions across local and visiting fans. This model generates predictions consistent with the classical UOH and concave team and league-wide total revenue functions.

16-27

Author(s): Brad R. Humphreys, Adam Nowak and Yang Zhou
Title:  "Cultural Superstitions and Residential Real Estate Prices: Transaction-level Evidence from the US Housing Market"
Abstract: In Chinese culture, the number 8 is considered lucky and 4 is considered unlucky. We analyze the relationship between the presence of 8 s and 4 s in addresses and transaction prices paid by Chinese home buyers and sellers in a novel setting, Seattle, Washington, from 1990 to 2015. In the absence of explicit identiers for Chinese individuals, we develop a probabilistic model for identifying ethnicity based on name alone. The results indicate Chinese buyers pay a 1-2% premium for addresses that include an 8 and 1% less for properties with a 4 in the address. These results are not related to unobserved property quality as there is no premium when Chinese sell properties with an 8 in the address. These results suggest that some Chinese home buyers in Seattle retain their Chinese cultural superstitions.

16-28

Author(s): Brad R. Humphreys, John A. Nyman and Jane E. Ruseski
Title:   "The Effect of Recreational Gambling on Regional Health Outcomes: Evidence from Canadian Provinces" 
Abstract: The relationship between gambling and health has important economic and public policy im- plications. We develop causal evidence on this relationship using data from the Canadian Community Health Survey and exploiting regional variation in access to legal gambling. Empir- ical models treat gambling as an endogenous regressor in explaining regional variation in health outcomes. Results from instrumental variable and bivariate probit models show recreational gambling has no or a negative impact on the probability of having certain chronic conditions and a positive impact on life satisfaction, diering from past studies that nd a positive associ- ation between problem gambling and adverse health outcomes.

16-29

Author(s): Patrick Reilly
Title:   "Bank Branching Deregulation and High School Graduation" 
Abstract: This paper utilizes variation in timing of deregulation to investigate the relationship between bank branching deregulation and educational outcomes for individuals in 39 states over the period 1977 - 1999. In order to investigate the labor market channel, this paper focuses on the relationship between deregulation and high school graduation, as opposed to recent studies focusing on the relationship between deregulation and college attendance via the credit market channel. Results indicate increases in the likelihood of graduating high school after deregulation. Results also suggest heterogeneity in effects due to race and age at deregulation. Finally, models testing the relationship between bank deregulation and post-secondary education outcomes generate similar results to findings from previous studies.

16-30

Author(s): Ryan M. Yonk, Landon Stevens, Arthur R. Wardle and Joshua C. Hall
Title:   "The Renewable Fuel Standard’s Effect on Corn Belt Income and Unemployment"