Discussion Paper No. 379
February 2, 2023
Trade and Regional Economic Development
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Abstract:
A central argument for trade liberalization is that when the `gains from trade' are shared, countries see large gains in economic development. In this paper, I empirically evaluate this argument and assess the impact of elite capture on regional development. Africa provides a unique study ground because the arbitrary placement of country borders during the colonial period partitioned hundreds of ethnic groups across borders. This partitioning is a source of variation in population heterogeneity and cross-country connectedness that is independent of economic considerations. Thus, African borders provide both a credible instrument for bilateral trade flows and enable the assignment of trade flows ---and their impacts--- to individuals. I find that while ethnic networks increase trade flows, increased trade activity decreases subnational economic development when measured by satellite data or individual wealth. I show that this counter-intuitive result comes from elite groups capturing the gains from trade, with detrimental impacts on trust and democratic progress in society.
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JEL-Classification:
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Discussion Paper No. 378
January 30, 2023
Mergers, Foreign Competition, and Jobs: Evidence from the U.S. Appliance Industry
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Policy choices often entail trade-offs between workers and consumers. I assess how foreign competition changes the consumer welfare and domestic employment effects of a merger. I construct a model accounting for demand responses, endogenous product portfolios, and employment. I apply this model to the acquisition of Maytag by Whirlpool in the household appliance industry. I compare the observed acquisition to one with a foreign buyer. While a Whirlpool acquisition decreased consumer welfare by $250 million, it led to 1,300 fewer domestic jobs lost. Jobs need to be worth above $220,000 annually for domestic employment effects to offset consumer harm.
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JEL-Classification:
F61; L13; L40;
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Discussion Paper No. 377
Confidence and College Applications: Evidence from a Randomized Intervention
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This paper investigates the role self-confidence plays in college applications. Using incentivized experiments, we measure the self-confidence of more than 2,000 students applying to colleges in France. This data reveals that the best female and low-SES students significantly underestimate their rank in the grade distribution compared to male and high-SES students. By matching our survey data with administrative data on real college applications and admissions, we show that miscalibrated confidence affects college choice on top of grades. We then estimate the impact of a randomized intervention that corrects students' under- and overconfidence by informing them of their real rank in the grade distribution. The treatment reduces the impact of under- and overconfidence for college applications, to the point where only grades but not miscalibrated confidence predict the application behavior of treated students. Providing feedback also makes the best students, who were initially underconfident, apply to more ambitious programs with stronger effects for female and low-SES students.
Keywords:
matching mechanism; confidence; information treatment; survey experiment;
JEL-Classification:
I24; J24; D91; C90;
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Discussion Paper No. 376
Improving Transparency and Verifiability in School Admissions: Theory and Experiment
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Students participating in centralized admissions procedures do not typically have access to the information used to determine their matched school, such as other students' preferences or school priorities. This can lead to doubts about whether their matched schools were computed correctly (the 'Verifiability Problem') or, at a deeper level, whether the promised admissions procedure was even used (the 'Transparency Problem'). In a general centralized admissions model that spans many popular applications, we show how these problems can be addressed by providing appropriate feedback to students, even without disclosing sensitive private information like other students' preferences or school priorities. In particular, we show that the Verifiability Problem can be solved by (1) publicly communicating the minimum scores required to be matched to a school ('cutoffs'); or (2) using `predictable' preference elicitation procedures that convey rich 'experiential' information. In our main result, we show that the Transparency Problem can be solved by using cutoffs and predictable procedures together. We find strong support for these solutions in a laboratory experiment, and show how they can be simply implemented for popular school admissions applications involving top trading cycles, and deferred and immediate acceptance.
Keywords:
school choice; matching; transparency; cutoffs; dynamic mechanisms; experiment;
JEL-Classification:
C78; C73; D78; D82;
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Discussion Paper No. 375
January 27, 2023
Taming Overconfident CEOs Through Stricter Financial Regulation
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A large body of literature finds that managerial overconfidence increases risk-taking by financial institutions. This paper shows that financial regulation can be effective at mitigating this type of risk. Exploiting regulatory changes introduced after the financial crisis as a natural experiment, I find that overconfidence-induced risk-taking decreases in financial institutions subject to stricter regulation. Following the easing of these regulations, overconfidence-induced risk-taking increases again. These findings confirm the effectiveness of financial regulation at correcting overconfident behavior, but also suggest that the impact fades away quickly once removed.
Keywords:
overconfidence; risk; regulation; financial sector;
JEL-Classification:
G28; G32; G38; G40;
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Discussion Paper No. 374
Testing Marx
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We study the dynamics of capital accumulation, income inequality, capital concentration, and voting up to 1914. Based on new panel data for Prussian regions, we re-evaluate the famous Revisionism Debate between orthodox Marxists and their critics. We show that changes in capital accumulation led to a rise in the capital share and income inequality, as predicted by orthodox Marxists. But against their predictions, this did neither lead to further capital concentration nor to more votes for the socialists. Instead, trade unions and strike activity limited income inequality and fostered political support for socialism, as argued by the Revisionists.
Keywords:
income inequality; concentration; top incomes; capital share; capital accumulation;
JEL-Classification:
D31; D63; J31; N30;
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Discussion Paper No. 373
January 23, 2023
Global Universal Basic Skills: Current Deficits and Implications for World Development
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How far is the world away from ensuring that every child obtains the basic skills needed to be internationally competitive? And what would accomplishing this mean for world development? Based on the micro data of international and regional achievement tests, we map achievement onto a common (PISA) scale. We then estimate the share of children not achieving basic skills for 159 countries that cover 98.1% of world population and 99.4% of world GDP. We find that at least two-thirds of the world's youth do not reach basic skill levels, ranging from 24% in North America to 89% in South Asia and 94% in Sub-Saharan Africa. Our economic analysis suggests that the present value of lost world economic output due to missing the goal of global universal basic skills amounts to over $700 trillion over the remaining century, or 11% of discounted GDP.
Keywords:
skills; student achievement; development goals; economic growth;
JEL-Classification:
I25; O15; O47;
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Discussion Paper No. 372
Causal Misperceptions of the Part-Time Pay Gap
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This paper studies if workers infer from correlation about causal effects in the context of the part-time wage penalty. Differences in hourly pay between full-time and part-time workers are strongly driven by worker selection and systematic sorting. Ignoring these selection effects can lead to biased expectations about the consequences of working part-time on wages (`selection neglect bias'). Based on representative survey data from Germany, I document substantial misperceptions of the part-time wage gap. Workers strongly overestimate how much part-time workers in their occupation earn per hour, whereas they are approximately informed of mean full-time wage rates. Consistent with selection neglect, those who perceive large hourly pay differences between full-time and part-time workers also predict large changes in hourly wages when a given worker switches between full-time and part-time employment. Causal analyses using a survey experiment reveal that providing information about the raw part-time pay gap increases expectations about the full-time wage premium by factor 1.7, suggesting that individuals draw causal conclusions from observed correlations. De-biasing respondents by informing them about the influence of worker characteristics on observed pay gaps mitigates selection neglect. Subjective beliefs about the part-time/full-time wage gap are predictive of planned and actual transitions between full-time and part-time employment, necessitating the prevention of causal misperceptions.
Keywords:
part-time pay gap; wage expectations; selection neglect; causal misperceptions;
JEL-Classification:
J31; D83; D84;
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Discussion Paper No. 370
Persecution and Escape
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We study the role of professional networks in facilitating emigration of Jewish academics dismissed from their positions by the Nazi government. We use individual-level exogenous variation in the timing of dismissals to estimate causal effects. Academics with more ties to early émigrés (emigrated 1933-1934) were more likely to emigrate. Early émigrés functioned as "bridging nodes" that facilitated emigration to their own destination. We also provide evidence of decay in social ties over time and show that professional networks transmit information that is not publicly observable. Finally, we study the relative importance of three types (family, community, professional) of social networks.
Keywords:
professional networks; high-skilled emigration; Nazi Germany; Jewish academics; universities;
JEL-Classification:
I20; I23; I28; J15; J24; N30; N34; N40; N44;
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Discussion Paper No. 369
January 20, 2023
The Limits of Social Recognition: Experimental Evidence from Blood Donors
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Does social recognition motivate prosocial individuals? We run large-scale experiments at Italy's main blood donors association, testing social recognition in social media and peer groups. We experimentally disentangle visibility concerns and peer comparisons, and study how exposure to different social norms affects giving. In three studies, we find that a simple ask to donate is at least as effective as offering social recognition. A survey experiment with blood donors indicates that social recognition backfires when offered to people that are already perceived as good citizens. Our results suggest that increasing visibility of good actions can backfire when perceived as image-seeking.
Keywords:
prosocial behavior; blood donations; social recognition; natural field experiment; social media; WhatsApp;
JEL-Classification:
C93; D91;