We investigate the consumption consequences of the 2006–9 housing collapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticity ...of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5–7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009.
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From 2007 to 2009, states without a judicial requirement for foreclosures were twice as likely to foreclose on delinquent homeowners. Analysis of borders of states with differing foreclosure laws ...reveals a discrete jump in foreclosure propensity as one enters nonjudicial states. Using state judicial requirement as an instrument for foreclosures, we show that foreclosures led to a large decline in house prices, residential investment, and consumer demand from 2007 to 2009. As foreclosures subsided from 2011 to 2013, the foreclosure rates in nonjudicial and judicial requirement states converged and we find some evidence of a stronger recovery in nonjudicial states.
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This article examines the relationship between the presence of foreign affiliates and product upgrading by Turkish manufacturing firms. The analysis suggests that Turkish firms in sectors and regions ...more likely to supply foreign affiliates tend to introduce more complex products, where complexity is captured using a measure developed by Hidalgo and Hausmann (2009). This finding is robust to controlling for omitted variables, sample selection and potential simultaneity bias. It is also in line with the view that inflows of foreign direct investment stimulate upgrading of indigenous production capabilities in host countries.
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This study examines the valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. We posit that carbon emissions affect firm valuation only to the ...extent that a firm's emissions exceed its carbon allowances under a cap-and-trade system and the extent of its inability to pass on carbon-related compliance costs to consumers and end-users. We measure a firm's ability to pass on the future costs by its market power and its carbon performance relative to its industry peers. The results show that firms' carbon allowances are not associated with firm valuation but the allocation shortfalls are negatively associated. We also find that the negative association between firm values and carbon emission shortfalls is mitigated for firms with better carbon performance relative to their industry peers and for firms in less competitive industry sectors. These findings, which suggest that the valuation impact of carbon emissions is unlikely to be homogenous across firms or industrial sectors, have important implications for future research design and for the disclosure and recognition of a firm's greenhouse gas liabilities.
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5.
Duration of Executive Compensation GOPALAN, RADHAKRISHNAN; MILBOURN, TODD; SONG, FENGHUA ...
The Journal of finance (New York),
December 2014, Volume:
69, Issue:
6
Journal Article
Peer reviewed
Extensive discussions on the inefficiencies of "short-termism" in executive compensation notwithstanding, little is known empirically about the extent of such shorttermism. We develop a novel measure ...of executive pay duration that reflects the vesting periods of different pay components, thereby quantifying the extent to which compensation is short-term. We calculate pay duration in various industries and document its correlation with firm characteristics. Pay duration is longer in firms with more growth opportunities, more long-term assets, greater R&D intensity, lower risk, and better recent stock performance. Longer CEO pay duration is negatively related to the extent of earnings-increasing accruals.
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6.
FUNGIBILITY AND CONSUMER CHOICE Hastings, Justine S.; Shapiro, Jesse M.
The Quarterly journal of economics,
11/2013, Volume:
128, Issue:
4
Journal Article
Peer reviewed
Open access
We formulate a test of the fungibility of money based on parallel shifts in the prices of different quality grades of a commodity. We embed the test in a discrete-choice model of product quality ...choice and estimate the model using panel microdata on gasoline purchases. We find that when gasoline prices rise, consumers substitute to lower octane gasoline, to an extent that cannot be explained by income effects. Across a wide range of specifications, we consistently reject the null hypothesis that households treat “gas money” as fungible with other income. We compare the empirical fit of three psychological models of decision making. A simple model of category budgeting fits the data well, with models of loss aversion and salience both capturing important features of the time series.
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We develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches—discontinuities in the choice sets of agents—introduced by tax and transfer ...policies. Notches create excess bunching on the low-tax side and missing mass on the high-tax side of a cutoff, and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world. By combining excess bunching (observed response attenuated by frictions) with missing mass in the dominated region (frictions), it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long-run behavior. We apply our framework to tax notches in Pakistan using rich administrative data. While observed bunching is large and sharp, optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives. The combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large, but the underlying structural elasticity driving this response is nevertheless modest. This highlights the inefficiency of notches: by creating extremely strong price distortions, they induce large behavioral responses even when structural elasticities are small.
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The Medicare Part D program relies on consumer choice to provide insurers with incentives to offer low-priced, high-quality pharmaceutical insurance plans. We demonstrate that consumers switch plans ...infrequently and search imperfectly. We estimate a model of consumer plan choice with inattentive consumers and show that high observed premiums are consistent with insurers profiting from consumer inertia. We estimate the reduction in steady state plan premiums if all consumers were attentive. An average consumer could save $1050 over three years; government savings in the same period could amount to $1.3 billion or 1% of the cost of subsidizing the relevant enrollees.
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This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the ...experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.
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This paper studies the impact of gender quotas for corporate board seats on corporate decisions. We examine the introduction of Norway's 2006 quota, comparing affected firms to other Nordic ...companies, public and private, that are unaffected by the rule. We find that affected firms undertake fewer workforce reductions than comparison firms, increasing relative labor costs and employment levels and reducing short-term profits. The effects are strongest among firms without female board members beforehand and are present even for boards with older and more experienced members afterward. The boards appear to be affecting corporate strategy in part by selecting like-minded executives.
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