Education More Benficial to the Less Able? Econometric Evidence
(file size: 273K, last updated: 04/2003)
Abstract: The paper investigates whether returns to schooling in Ethiopia vary according to the ability of individuals. To do so it adopts an instrumental variables quantile regression framework that allows for both endogeneity of schooling resulting from unmeasured ability, and possible heterogeneity in the impact of schooling. The empirical estimates indicate that education contributes more to the earnings of the less able individuals, consistent with the notion that education and ability are substitutes. By contrast, the relatively low (but still economically significant) returns to education at the higher end of the conditional earnings distribution suggest the importance of inherent ability or personal connections in securing high paying jobs.
Welfare Cost of Means-Testing: Pensioner Participation in Income
(file size: 504K, last updated: 10/2002)
Abstract: We estimate parametric and semi-parametric binary choice models of benefit take-up by British pensioners and develop methods, based on the compensating variation, of inferring the cash-equivalent value of disutility arising from stigma or complexity of the claims process, taking account of the self-selection induced by take-up. We extend this to incorporate the claim costs borne by welfare-recipients into the measurement of pensioner poverty. We find that allowing for implicit claim costs in this way has a non-negligible impact on poverty measurement.
Use of Self-Report and Drugs Tests in the Measurement of Illicit
(file size: 570K, last updated: 03/2003)
Abstract: We use data from the New England and Wales Arrestee Drug Abuse Monitoring (NEW-ADAM) programme to assess the validity of self-report measures of illicit drug use and to evaluate the use of alternative drug testing strategies within survey enquiries. Our analysis of the NEW-ADAM data reveals that bio-assay measurements of drug use tend not to be very sensitive to the cut-off levels selected for screening tests, a result that holds for cannabis, cocaine and opiates. We also show that a self-reported history of previous drug use can be used as a way of identifying individuals who are potential under-reporters of current drug use. This suggests a selective drug testing strategy which can reduce dramatically the cost of drug testing without comprising the accuracy of measurements of illicit drug use.
Supply Response in the Presence of Technical Inefficiency Using
the Profit Function: An Application to Ethiopian Agriculture
(file size: 127K, last updated: 04/2003)
Abstract: Studies of supply response using the profit function have typically maintained the neo-classical assumption of efficiency. Using farm-level data from Northern Ethiopia, this study examines the impact of technical inefficiency on the response of small holder farmers. Two systems of output supply and input demand functions are estimated and compared: one the standard model in which technical efficiency is assumed and another in which technical inefficiency is explicitly incorporated into the profit function. While the results from non-nested hypotheses tests are inconclusive, the model with technical inefficiency is preferred to the other model for theoretical consistency. Incorporation of inefficiency has generally increased the magnitudes and the statistical significance of own price elasticities, substantially so in the case of teff and fertilizer. The results indicate that farmers in Ethiopia do respond positively and significantly to price incentives. The results also underscore the need to improve farmer’s access to better quality land, farm inputs and credit, and public investment in roads and irrigation.
and financial expectations: an individual and household level analysis
(file size: 317K, last updated: 02/2004)
Abstract: In this paper we show that optimistic financial expectations impact positively on both the quantity of debt and the growth in debt, at the individual and household levels. Our theoretical model shows that this association is predicted under a variety of plausible scenarios. In the empirical analysis we explore the determinants of debt and of growth in debt using British data. We find convincing support for our theoretical priors and show that it is optimistic financial expectations per se that are important in influencing debt, rather than the accuracy of individuals’ predictions regarding their future financial situation.
cascades elicit private information
(file size: 381K, last updated: 06/2003)
Abstract: We introduce cheap talk in a dynamic investment model with information externalities. We first show how social learning adversely aects the credibility of cheap talk messages. Next, we show how an informational cascade makes thruthtelling incentive compatible. A separating equilibrium only exists for high surplus projects. Both an investment subsidy and an investment tax can increase welfare. The more precise the sender’s information, the higher her incentives to truthfully reveal her private information.
of multiple means-tested benefits by British pensioners. Evidence
from the Family Resources Survey
(file size: 347K, last updated: 06/2003)
Abstract: Non take-up of means-tested benefits among pensioners is of longstanding concern. It will assume increased importance from 2003 with the introduction of the new means-tested Pension Credit, which will subsume Income Support and to which about half of all pensioners are expected to be entitled. In this paper we use Family Resources Survey data spanning the period April 1997 to March 2000 to investigate patterns of take-up of the three main means-tested benefits to which pensioners may be entitled – Income Support (IS), Housing Benefit (HB) and Council Tax Benefit (CTB). We find that although 36% of pensioners in our sample are failing to claim their entitlements to at least one of these benefits, only 16% of non claimants are failing to claim amounts worth more than 10% of their income. The proportions by which claiming all entitlements would increase non-claimants’ incomes are more useful indicators than individual benefit take-up rates, of the effectiveness of means-tested benefits. In general take-up is high where entitlement is high. But there are exceptions to this which may reflect the claims process and/or a greater degree of social stigma associated with IS than with HB or CTB.
Integration in West Africa: Does the CFA Make a Difference?
(file size: 379K, last updated: 04/2003)
Abstract: In this paper we use data from 17 African nations in order to investigate the hypothesis that monetary union – represented in this case by the CFA Franc Zone – augments the extent of macroeconomic integration in developing countries. The paper covers a number of dimensions of integration including the volume of bilateral trade, real exchange rate volatility and the magnitude of cross-country business cycle correlation.
Unions Deliver More Economic Integration than Fixed Exchange Rates?
Evidence from the CFA and the ECCU
(file size: 335K, last updated: 03/2003)
Abstract: In this paper we develop a model to identify determinants of macroeconomic integration in the African CFA Franc Zone and in Dollar-pegging Caribbean countries (including members of the East Caribbean Currency Union). These two groups of countries each comprise states using several different local currencies: on the one hand the BCEAO-CFA Franc and the BEAC-CFA Franc (both pegged to the Euro), on the other the ECCU Dollar and other national Dollar-pegged currencies. The purpose of the analysis is to distinguish the effect of monetary union on macroeconomic integration from the effect of pegging to a common OECD currency.
Civil War Affect the Magnitude of Capital Flight? Evidence from Israel
during the Intifada
(file size: 353K, last updated: 06/2003)
Abstract: We use time-series data from Israel to investigate the dynamics of the causal links between the intensity of civil conflict and capital flight. The fraction of Israeli capital wealth held outside the country exhibits considerable variation over time. So also do indicators of the intensity of the Palestinian-Israeli conflict. Using quarterly time-series data, the paper shows that there is a high correlation between the two, conditional on economic conditions. This correlation is a consequence of a causal link that runs in both directions: more violence leads to more capital flight, but more capital flight is also a predictor of higher future levels of violence.
Monetary Policy Affect the Poor? Evidence from the West African Economic
and Monetary Union
(file size: 376K, last updated: 08/2003)
Abstract: The West African Economic and Monetary Union (UEMOA) has a history of monetary stability and low inflation. Nevertheless, there is substantial variation in relative prices within some UEMOA countries, in particular in the price of food relative to other elements of the retail price index (IHPC). Using monthly time-series data for cities within the region, we analyze the impact of changes in monetary policy instruments on the relative prices of components of the IHPC. We are then able to explore how the burden of monetary policy innovations is likely to be shared between the rich and poor.
public sector too large in a democracy?
(file size: 218K, last updated: 08/2003)
Abstract: The public sector supplies a club good financed by either a head tax or proportional taxation on exogenous incomes in a democracy. For a class of utility functions and club quality functions, the optimal club quality is independent of the income distribution, and hence of the identity of the median voter. With ”uniform and universal” public provision , the median voter chooses the head tax or proportional tax rate. This can result in lower levels of club goods in either financing regime than would occur in the first best. However, provision in all the latter three regimes can be lower than would occur via market supply by a ”not for profit” organisation.
Remuneration And Firm Performance: Evidence From A Panel Of Mutual
(file size: 200K, last updated: 09/2003)
Abstract: The empirical relationship between the remuneration of: the highest paid director (HPD), mean Board remuneration (Director), and the Chairperson of the Board (Chair) and firm-level performance is examined on a panel of mutual building societies over the 1991 to 1996 period. Two measures of performance are employed: profitability and the change in total factor productivity (TFP). A strong positive relationship between profitability and pay is found for the HPD but not for the Director or Chair. The relationship between pay and TFP change is generally weak for all three measures of executive remuneration. A strong relationship between size and the executive remuneration measures is found, particularly for the Director. Although there is evidence of pay being used as a governance device, the pay-size relationship is consistent with managerial theories of the firm. Surprisingly, our results are similar to those reported for joint stock firms.
Crime in the United States of America: A Time-Series Analysis Between
(file size: 125K, last updated: 03/2004)
Abstract: This paper empirically assesses the effect of socio-economic and demographic variables on violent crime in the United States. Using national-level time-series data over the period 1960-2000, I estimate an unrestricted vector autoregressive (VAR) model individually for overall violent crime, murder, rape and assault. The results indicate that there is no long-run relationship among the examined variables, but a significant short-run relationship holds. Imprisonment growth, income inequality, alcohol consumption, and racial composition of the male youth population are shown to influence the short-run behaviour of violent crime.
and Growth: What We Know and What We Need To Know
(file size: 270K, last updated: 11/2003)
Abstract: The paper reviews recent literature on the relationship between finance and growth, highlighting areas where we need to know more. The paper argues that institutions, such as financial regulation, have a first-order effect on financial development and growth, and that their effectiveness could determine the success or failure of policies like bank privatisation or financial liberalisation. It concludes that a better understanding of the obstacles to financial development, which include institutional, legal and political economy constraints, is needed.
and Education: Evidence from the National Child Development Study
(file size: 175K, last updated: 11/2003)
Abstract: In this paper, we explore the determinants of one aspect of religious behaviour – church attendance – at the individual level using British data derived from the National Child Development Study (NCDS). To be specific, we focus on the relationship between education and church attendance, which has attracted some attention in the existing literature. In contrast to the previous literature in this area, our data allows us to explore the dynamic dimension to religious activity since the NCDS provides information on church attendance at three stages of an individual’s life cycle. The findings from our cross-section and panel data analysis, which treats education as an endogenous variable, support a positive association between education and church attendance. In addition, our findings suggest that current participation in religious activities is positively associated with past religious activities. Furthermore, our findings suggest that levels of religious activity tend to vary less over time suggesting that factors such as habit formation may be important.
Food Engel Curves with Measurement Error: Evidence from a Budget Survey
(file size: 276K, last updated: 12/2003)
Abstract: In this paper we estimate quadratic food Engel curves with measurement error using the 1994 Ethiopian Urban Household Budget Survey. In sharp contrast to the findings from developed countries, food share is found to increase with expenditure, and only starts to decline after some threshold level of expenditure. We establish the robustness of this inverted-U relationship by estimating a more flexible semiparametric model that corrects for the endogeneity of expenditure. The potential policy distortion that may result from neglecting the problem of measurement error in the estimation of Engel curves is also discussed.
Why Do People
Pay Taxes? An Explanation Based On Loss Aversion And Overweighting
of Low Probabilities
(file size: 244K, last updated: 12/2003)
Abstract: Given actual probabilities of audit and penalty rates observed in the real world, tax evasion should be an extremely attractive gamble to an expected utility maximizer. However, in practice, one observes too much compliance relative to the predictions of expected utility. This paper considers an alternative theoretical model that is based on Kahneman and Tversky's cumulative prospect theory. The model predicts empirically plausible magnitudes of tax evasion despite low audit probabilities and penalty rates. An increase in the tax rate leads to an increase in the amount evaded- a result, which is both, intuitive, and factual, but is contrary to the prediction made by expected utility theory. Furthermore, the optimal tax rates predicted by prospect theory, in the presence of tax evasion behaviour, are consistent with actual tax rates.