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| 0401 |
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Comorbidities and the Willingness to Pay
for Reducing the Risk of a Targeted Disease:
Introducing Endogenous Effort for Risk Reduction
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Liqun Liu
Private Enterprise Research Center
Texas A&M University
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| Previous studies demonstrated that the willingness to pay (WTP) for reducing the
risk of a targeted disease increases with the severity of a comorbidity condition.
They evaluated the WTPs at positions where otherwise identical individuals who have
unequal comorbidity conditions all have the same consumption of wealth and the same
probability of getting a targeted disease. This paper endogenizes the individual
effort to reduce the risk of the targeted disease. It finds that individuals with
more severe comorbidity will spend more on reducing the risk of the targeted disease
and, therefore, have a lower probability of getting the targeted disease and a lower
net consumption of wealth at equilibrium. Nonetheless, we find that the previous
conclusion concerning the relationship between the WTP for the targeted risk reduction
and the comorbidity is robust. |
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Published in Health Economics, 2004
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| 0402 |
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Combining Distributional Weights
and the Marginal Cost of Funds: The Concept
of Person-Specific Marginal Cost of Funds
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Liqun Liu
Private Enterprise Research Center
Texas A&M University
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| Both distributional weights and the marginal cost of funds (MCF) play important
roles in cost-benefit analysis, and both are based on the premise that individual
lump-sum taxes are unavailable. Yet, the existing literature has largely treated
them separately. This paper proposes to combine these two concepts to form a set
of person-specific MCFs. The person-specific MCFs play both the role of distributional
weights and the role of the efficiency multiplier (i.e., the MCF). When using person-specific
MCFs, the simple Samuelson rule needs two adjustments when it comes to a distortionary
tax system. First, each individual's benefit from a public project's outputs should
be divided by his or her person-specific MCF to become a cost-comparable measure. Second,
an indirect revenue effect from the project's outputs, due to the output's impact on individuals'
behaviors and hence, on tax revenues collected, should be deducted from the project's
cost to arrive at the project's net revenue requirement. |
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Published in Public Finance Review, 2006 |
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| 0403 |
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Credible Assignments
Can Improve Efficiency
in Laboratory Public Goods Games
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John Van Huyck
Private Enterprise Research Center
Department of Economics
Texas A&M University
Raymond Battalio
Department of Economics
Texas A&M University
Beth Seely
Commodity Futures Trading Commission
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| This paper reports an experiment investigating how assignments improve economic
efficiency in a modified version of the standard voluntary-contributions mechanism.
The experiment uses a non-binding message that makes common information assignments
in the repeated game. A credible assignment is one actually followed by the participants.
It turns out to be difficult to credibly assign the symmetric efficient outcome
in four person cohorts, but we did discover one assignment that was credible in the
last match of the evolutionary repeated game. |
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Published in Journal of Public Economics, 2005
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| 0404 |
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Volatility of School Output Measures
and Implications for Use in School Funding Formulas and in Rankings
of School and Teacher Performance
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Timothy J. Gronberg
Private Enterprise Research Center
Department of Economics
Texas A&M University
Dennis W. Jansen
Private Enterprise Research Center
Department of Economics
Texas A&M University
T. Kevin Booker
Department of Economics
Texas A&M University
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In this paper we address a critical issue relevant to developing a student output
or student performance-based approach to ranking teacher and/or school performance.
We look at a variety of test-based measures of school performance, measures which
can be constructed from the annual standardized tests administered in Texas. We
identify some of the fundamental statistical properties of the alternative measures,
and highlight relative strengths or weaknesses of the competing choices. In particular,
we document that much of the observed variation in measured performance across schools
is attributable to nonpersistent or noisy effects. In other words, the signal-to-noise
ratio is low in many measures of school performance. Three consistent messages emerge
from our analysis. First, performance is more volatile among small schools than
among larger schools. Second, noise is a bigger problem for evaluating small schools.
Third, value-added performance measures are noisier than levels measures. The first
two observations suggest caution in applying significant rewards or punishments
to schools or teachers based upon commonly suggested performance criteria. The incentive
effects will be almost solely concentrated on small schools, and the effects will
be, at best, weak and, at worst, perverse. It may mainly be uncontrollable noise
which is rewarded/punished, rather than controllable policies. The third observation
creates a difficult tradeoff in choosing among performance measures. Level measures
are more reliable, but the stability of the level measures may largely reflect persistence
in the quality of student and parent inputs to the school/district. Mean gain scores,
or changes in mean test scores (changes in passing rates) may better capture the
desired value-added by the publicly provided school inputs, but they are relatively
unreliable measures. |
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Published in Papers and Proceedings of the Hawaii International Conference on Business, 2004
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| 0405 |
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State Tax Changes and Quasi-Experimental Price Elasticities of U.S. Cigarette Demand: An Update
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Badi H. Baltagi
Private Enterprise Research Center
Department of Economics
Texas A&M University
Rajeev K. Goel
Department of Economics
Illinois State University
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| This paper uses 336 state tax changes across the U.S. spanning 42 years (1956-1997)
to provide an updated look at the quasi-experimental price elasticities of cigarette
demand. It also studies the sensitivity of these elasticity estimates to changes
in the cigarette market over time as well as their sensitivity to border effect
purchases. Besides replicating earlier findings, the results show a downward trend
in these elasticities over time and sensitivity to border effect purchases. Policy
implications are discussed. |
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Published in Journal of Economics and Finance, 2004
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| 0406 |
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Testing for Linear and Log-Linear Models Against Box-Cox Alternatives With Spatial Lag Dependence
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Badi H. Baltagi
Private Enterprise Research Center
Department of Economics
Texas A&M University
Dong Li
Department of Economics
Kansas State University
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| Batalgi and Li (2001) derived Lagrangian multiplier tests to jointly test for functional
form and spatial error correlation. This companion paper derives Lagrangian multiplier
tests to jointly test for functional form and spatial lag dependence. In particular,
this paper tests for linear or log-linear models with no spatial lag dependence
against a more general Box-Cox model with spatial lag dependence. Conditional LM
tests are also derived which test for (i) zero spatial lag dependence conditional
on an unknown Box-Cox functional form, as well as, (ii) linear or log-linear functional
form given spatial lag dependence. In addition, modified Rao-Score tests are also
derived that guard against local misspecification. The performance of these tests
are investigated using Monte Carlo experiments. |
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Published in Advances in Econometrics, 2004
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| 0407 |
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Axiomatic Reference-Dependence in Behavior Toward Others and Toward Risk
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William S. Neilson
Private Enterprise Research Center
Department of Economics
Texas A&M University
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| This paper considers the applicability of the standard separability axiom for both
risk and other-regarding preferences, and advances arguments why separability might
fail. An alternative axiom, which is immune to these arguments, leads to a preference
representation that is additively separable in a reference variable and the differences
between the other variables and the reference variable. For other-regarding preferences
the reference variable is the decision-maker's own payoff, and the resulting representation
coincides with the Fehr-Schmidt model. For risk preferences the reference variable
is initial wealth, and the resulting representation is a generalization of prospect
theory. |
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Published in Economic Theory, August 2006
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| 0408 |
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Endogenous Private Health Investment and the Willingness to Pay
for Public Health Projects: The Effects of Income
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Liqun Liu
Private Enterprise Research Center
Texas A&M University
William S. Neilson
Private Enterprise Research Center
Department of Economics
Texas A&M University
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| A distinction is made between the WTP for health improvement and the WTP for health-improving
projects through endogenizing private health investment. While the former always
increases in income, income's effect on the latter depends on whether private and public
health inputs are substitutes or complements. |
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Published in Economics Letters, June 2005
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| 0409 |
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Endogenous Private Safety Investment and the Willingness to Pay for Mortality Risk Reductions
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Liqun Liu
Private Enterprise Research Center
Texas A&M University
William S. Neilson
Private Enterprise Research Center
Department of Economics
Texas A&M University
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When individuals cannot undertake safety-improving expenditures, the effect of an
increase in the initial risk on the willingness to pay (WTP) for mortality risk reduction is positive
because of the dead-anyway effect. When they can undertake safety-improving expenditures,
the effect of an increase in the initial risk is governed by two effects: the dead-anyway
effect which is positive and the high-payment effect which is negative. We treat
the two types of risk-reducing expenditures, endogenous and exogenous, as inputs
in a safety-improving technology function and find conditions that guarantee that
the high-payment effect dominates.
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Published in European Economic Review, 2006
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| 0410 |
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The Impact of Charter School Attendance on Student Performance
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Kevin Booker
Department of Economics
Texas A&M University
Scott M. Gilpatric
University of Tennessee at Knoxville
Timothy Gronberg
Private Enterprise Research Center
Department of Economics
Texas A&M University
Dennis Jansen
Private Enterprise Research Center
Department of Economics
Texas A&M University
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| We employ a panel of individual student data on math and reading test performance for five cohorts of
students in Texas to study the impact of charter school attendance. We control for school mobility effects
and distinguish movement to a charter school from movement within and between traditional public school
districts. We find students experience poor test score growth in their initial year in a charter school, but that
this is followed by recovery in the subsequent years. Failure to account for this pattern may lead to
potentially misleading estimates of the impact of charter attendance on student achievement. Students who
remain in charters largely recover from the initial disruption within approximately 3 years, and there is
weak evidence that there may be overall gains from charter attendance within this period. Furthermore,
students who return to traditional public schools after just 1 or 2 years in a charter do not appear to suffer a
lasting negative impact despite their poor average performance in their first year of charter attendance. |
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Published in Journal of Public Economics, 2007
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| 0411 |
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The Effect of Charter Competition On Traditional Public School Students In Texas
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Kevin Booker
Department of Economics
Texas A&M University
Scott M. Gilpatric
University of Tennessee at Knoxville
Timothy Gronberg
Private Enterprise Research Center
Department of Economics
Texas A&M University
Dennis Jansen
Private Enterprise Research Center
Department of Economics
Texas A&M University
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Texas has been an important player in the emergence of the charter school industry.
We test for a competitive effect of charters by looking for changes in student achievement
in traditional public schools following charter market penetration. We use an eight-year
panel of data on individual student test scores for public schools students in Texas
in order to evaluate the achievement impact of charter schools. We control for student
background in two ways. We estimate a model which includes campus fixed effects
to control for campus demographic and peer group characteristics, and student fixed
effects to control directly for student and student family background characteristics.
We find a positive and significant effect of charter school penetration on traditional
public school student outcomes.
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Click 0411 to view the paper in pdf format.
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| 0412 |
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Voluntary Pollution Abatement When Emissions Are Not Monitored
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William S. Neilson
Private Enterprise Research Center
Department of Economics
Texas A&M University
Geum Soo Kim
Department of Economics
Hoseo University
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| We analyze an infinitely-repeated game between a regulator and a polluting firm.
There exists an equilibrium with two alternating phases, one in which the firm is
unregulated and the regulator monitors ambient environmental quality and one in
which the firm is regulated, with regulatory episodes triggered when the ambient
environmental quality deteriorates too much. We show that the firm pollutes less
during unregulated episodes than it would if it were never regulated at all, and
that if periods are sufficiently short the regulator prefers the above equilibrium
to one in which the firm is regulated every period.
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Click 0412 to view the paper in pdf format.
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| 0413 |
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Turnaround Specialists: An Exploratory Study
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D. Scott Lee
Private Enterprise Research Center
Department of Finance
Texas A&M University
Gerald S. Martin
Department of Finance
Texas A&M University
Steven Byers
Idaho State University
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Much of the executive turnover literature has focused on the circumstances surrounding
and consequences of voluntary versus involuntary executive departure. Firms typically
do not publicly rebuke their departing executives, so researchers must invoke some
inescapably arbitrary algorithm to classify departures. Similarly, previous attempts
to study financial distress have relied on researchers' judgment as to appropriate,
but inescapably arbitrary, indicators of distress. We investigate the hiring and
tenure of turnaround specialists. By deliberately employing this title in announcing
the appointment, the hiring firm defines this unique sample of executives. Studying
firms that announce 293 appointments of a turnaround specialist between 1975 and
2000 allows us to address several questions. What circumstances lead a firm to hire
a turnaround specialist? What motive does a firm have for divulging its apparently
grave situation? What are the associated valuation and restructuring impacts of
these appointments? Do turnaround specialists improve shareholder wealth? These
issues are particularly relevant because of the upsurge in these appointments over
the last decade. |
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Click 0413 to view the paper in pdf format.
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| 0414 |
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Corporate Governance and the Likelihood of Litigation: Evidence from Directors' and Officers' Insurance
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D. Scott Lee
Private Enterprise Research Center
Department of Finance
Texas A&M University
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| We examine the value of governance characteristics from the perspective of D&O
insurers. We use panel data fixed effects methodology to estimate the sensitivity
of insurers' arms-length prices to changes in firms' governance characteristics.
D&O premiums are similar to stock returns because they offer an unambiguous
arms-length appraisal of the firm. Because insurance premiums are set at discrete
points rather than over extended intervals, they are synchronized with observable
firm characteristics as opposed to long-term stock returns, accounting returns,
or Tobin's q. In addition, D&O premiums are relatively small, so we contend
that premiums are unlikely to influence manager decisions. Thus, D&O premiums
are relatively free of endogeneity concerns. Fixed effects analysis identifies time-varying
relations between the insurer's premium and the governance and business risk explanatory
variables. More importantly, it controls for firm heterogeneity, including any time-invariant
omitted variables that are related to either the insurer's premium decision or the
manager's choice of coverage limit. We find that premiums rise: when insider holdings
decline, when outside blockholders depart, and when takeover deterrents are adopted.
However, insurers do not adjust premiums in response to changes in board characteristics.
Taken in conjunction with prior research that links corporate litigation to firm
performance, our evidence is consistent with corporate governance influencing firm
performance. |
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Click 0414 to view the paper in pdf format.
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| 0415 |
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Factors Influencing Prescription Drug Spending Among Medicare Beneficiaries
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Andrew J. Rettenmaier
Private Enterprise Research Center
Texas A&M University
Zijun Wang
Private Enterprise Research Center
Texas A&M University
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This paper takes a closer look at the factors which influence spending on prescription
drugs among the retired population. Using data from the 1998 Medicare Current Beneficiary
Survey, we found that beneficiaries with greater health risks are more likely to be covered by Medicaid, but the same is not necessarily true for those who are covered
by private plans. Higher income, higher education, and being married were significant
in leading to private insurance coverage, while the opposite was true for Medicaid
coverage. We also found that the 30 percent of beneficiaries who did not have prescription
drug coverage were more similar to beneficiaries with private insurance than those
covered by Medicaid. Further, we estimate that adding prescription drug coverage
to Medicare will increase total spending on prescription drugs between 5 to 7 percent,
assuming 75 to 100 percent, respectively, of those who do not currently have prescription
drug coverage purchase the new coverage. |
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Click 0415 to view the paper in pdf format.
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| 0416 |
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Fight or Flight: Managing Stigma in Executive Careers
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D. Scott Lee
Private Enterprise Research Center
Department of Finance
Texas A&M University
Albert A. Cannella, Jr.
A.B. Freeman School of Business
Tulane University
Donald R. Fraser
Department of Finance
Texas A&M University
Matthew B. Semadeni
Department of Management
Indiana University
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| Our study develops and tests theory about how executives manage the stigma associated
with organizational bankruptcy. We specifically examine the decision of whether
to stay and fight to avoid bankruptcy or to run away to avoid its stigma. Further,
we examine the consequences endured by executives post-bankruptcy, for both those
who stay and those who flee. Our study's contributions are twofold. First, we extend
the study of bankruptcy stigma to examine how that stigma might be managed ex ante
by jumping ship. Second, we evaluate the effectiveness of labor markets in ex post
settling up (Fama, 1980). We argue and find that by distancing themselves from a
stigmatizing event such as a bankruptcy, executives can avoid or reduce the stigma
that they suffer. |
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Forthcoming in Strategic Management Journal, 2008
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