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| 0901 |
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Projecting Long-term Health Care Expenditures: A Theoretically Consistent Demand System Approach
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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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Forecasts of future health care spending as a percentage of GDP are derived
based on parameter estimates from a five equation demand system model. The
forecasts are in line with other forecasts made by the Congressional Budget
Office (CBO) and the Centers for Medicare and Medicaid Services (CMS) for
the next three decades but are lower thereafter. All of the forecasts imply
reductions in the shares of other sectors of GDP. The approach taken here
explicitly forecasts the other sectors along with the forecasts of the health
care sector and produces an increase in the percentage of personal
consumption expenditures to 88 percent of GDP by 2082 from 70 percent today.
The crowding out of investment, government consumption, and net exports
implied by the forecasts calls into question the long-range compatibility of
the GDP forecasts and the consumption forecasts beyond a 10 to 12 year
horizon. Given that the approach taken here produces a smaller health care
sector in the long run than is projected by either the CBO or the CMS, the
sustainability of these forecasts is also uncertain.
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Click 0901 to view the paper in pdf format.
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| 0902 |
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How Much and How Often: A Model of Repeated Consumption with Endogenous consumption Frequency
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Liqun Liu
Andrew J. Rettenmaier
Thomas R. Saving
Private Enterprise Research Center
Texas A&M University
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We develop a model of consumption of “repeated goods” in which individuals
choose both consumption frequency and intensity in response to income,
per-unit price and setup cost. Our modeling produce some interesting results,
such as increased setup costs reduce frequency and increase intensity, and
the effects of a setup cost increase are qualitatively different from those of
a price increase or an income reduction.
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Click 0902 to view the paper in pdf format.
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| 0903 |
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Contributions and Crowd-Out of Public Goods: Competing Models and Experimental Evidence
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Timothy J. Gronberg
Texas A&M University
R. Andrew Luccasen
Mississippi State University
Theodore L. Turocy
Texas A&M University
John B. Van Huyck
Texas A&M University
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We report the results of a voluntary contributions mechanism (VCM) public
good game designed to distinguish among four major competing models of behavior.
A new user interface and implementation of a tax are introduced to focus
attention on the effect that a government contribution to a public good
financed by lump-sum taxes has on voluntary contributions. We observe
contributions greater than the individually rational and own-money motivated
amount, as well as incomplete crowd-out of the government policy. These
observations are consistent with a warm-glow model with a logit decision error.
Analysis of individual-level observations provides evidence of different
player types.
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Click 0903 to view the paper in pdf format.
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| 0904 |
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Forecasting Industrial Production: Gains from Disaggregating
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Dennis Jansen
Texas A&M University
Dandan Liu
Kent State University
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We investigate the idea of using information in subcomponents to improve forecasts
of aggregates, as applied to the growth rate of industrial production. Our work
is related to the recent macroeconomic forecasting literature that looks at the
usefulness of summarizing information in large datasets by estimating common
factors, but in our case we summarize information contained in a dataset of
subcomponents of the series to be forecast. We consider a number of alternative
models, and we conduct a simulated out-of-sample forecasting exercise to compare
forecasts to those of a benchmark univariate AR model at forecast horizons ranging
from 1 month to 24 months. We find that the best forecasting model is one that forecasts
the subcomponents of IP and aggregates them using the actual weights of the
subcomponents in IP from the date the forecasts are made. This result holds over all
horizons, and it holds not only in our preferred increasing-window forecasts but also
generally holds for our fixed-window forecasts as well.
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Click 0904 to view the paper in pdf format.
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| 0905 |
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Residential Mobility, Neighborhood Effects, and Educational Attainment of Blacks and Whites
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Li Gan
Texas A&M University
Yingning Wang
Texas A&M University
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This paper proposes a new model to identify if and how much the educational attainment
gap between blacks and whites is due to the difference in their neighborhoods. In this
model, individuals belong to two unobserved types: the endogenous type who may move in
response to the neighborhood effect on their education; or the exogenous type who may
move for reasons unrelated to education. The Heckman sample selection model becomes a
special case of the current model in which the probability of one type of individuals
is zero. Although we cannot find any significant neighborhood effect in the usual Heckman
sample selection model, we do find heterogeneous effects in our type-consistent model.
In particular, there is a substantial neighborhood effect for the movers who belong to
the endogenous type. No significant effects exist for other groups. We also find that
the endogenous type has more education and moves more often than the exogenous type.
On average, we find that the neighborhood variable, the percentage of high school graduates
in the neighborhood, accounts for about 37.7% of the education gap between blacks and whites.
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Click 0905 to view the paper in pdf format.
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| 0906 |
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The Adequacy of Educational Cost Functions: Lessons from Texas
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Timothy J. Gronberg
Department of Economics
Texas A&M University
Dennis W. Jansen
Department of Economics
Texas A&M University
Lori L. Taylor
The Bush School of Government and Public Service
Texas A&M University
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Adequacy studies based on cost functions have come under attack. A recent Texas court battle
featured two cost function studies that reached markedly different conclusions as to the required
level of public funding to meet required performance standards. Some critics see such disparities
as indicators of a general futility in the whole education cost function enterprise. We argue
that the more appropriate conclusion is that it is critically important to demand best-practice
techniques from any analyst of educational costs. This paper uses the Texas litigation studies as
a lens through which to explore best practices in the estimation of educational cost functions.
The analysis highlights five key decisions that researchers must make when using the cost function
methodology in an educational setting, and explores the implications of the various possible choices
using recent data on public schools in Texas. As the analysis demonstrates, some common practices in
cost function analyses of education are not best practices, and these deviations from best practice
can have a significant impact on the estimated cost of an adequate education.
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Click 0906 to view the paper in pdf format.
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| 0907 |
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Sectoral Effects of Monetary Policy: The Evidence from Publicly Traded Firms
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Dennis W. Jansen
Texas A&M University
Ruby P. Kishan
Texas State University-San Marcos
Diego E. Vacaflores
Texas State University-San Marcos
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This paper examines the impact of monetary policy on net sales of publicly traded firms in various
sectors of the U.S. economy. We explore the cross-industry heterogeneity of monetary policy effects
and investigate whether firm’s balance-sheet characteristics might explain these varied monetary policy
effects. We find that monetary policy has a heterogeneous impact on firms in different industries, with
the strongest effect on firms in Retail and in Wholesaling (both Durables and Non-Durables). We also find
evidence in support of the credit channel of monetary transmission mechanism. In particular, we find that
size of the firm matters. Larger firms in Manufacturing, Manufacturing of Durables, Retail, Wholesale
Durables, Construction, and possibly in Manufacturing of Non-Durables and Wholesale Non-Durables are able
to mitigate the adverse impact of contractionary monetary policy. The results also show that for some
industries the short term debt ratio, leverage, or the working capital ratio may explain better the
operation of the credit channel.
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Click 0907 to view the paper in pdf format.
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| 0908 |
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Relationship Banking and Escalation of Commitment
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Eugene Kang
Nanyang Technological University
Asghar Zardkoohi
Texas A&M University
Ramona L. Paetzold
Texas A&M University
Donald Fraser
Texas A&M University
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The relationship banking literature suggests that business relationships play an important role in the
loan decisions of small banks. We draw from three separate streams of literature (i.e., relationship
banking, escalation of commitment, and rural sociology) to hypothesize that county population size is
negatively associated with escalation of commitment to bad loans because of the relationships that small
banks develop with their customers. We assembled a cross-sectional panel data of small banks located in
Texas from 1994 to 2002. We used a random-effects model and found that small banks located in smaller
counties escalate their commitment to bad loans when compared with those located in larger counties. The
results highlight the need for small banks to trade-off the positive benefits of adopting a relationship
banking strategy against its unintended negative consequence. We provide some suggestions on how small banks
may lessen their escalation tendencies despite adopting a relationship banking strategy.
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Click 0908 to view the paper in pdf format.
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| 0909 |
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Eureka Learning: Heuristics and Response Time in Perfect Information Games
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C. Nicholas McKinney Jr.
Rhodes College
John B. Van Huyck
Texas A&M University
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This paper investigates behavior in two outcome, strictly competitive, extensive form games of perfect
information without chance moves. We find that subjects behave as if they use backwards induction to
solve games of around rank 5 or less, but rely on heuristics in order to solve more complicated games.
When playing against a procedurally rational algorithm in a game that cannot be solved using heuristics,
the response time is not correlated with the probability of winning. However, spending more time thinking
about a game that can be solved with a heuristic decreases the probability that a subject wins the game.
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Click 0909 to view the paper in pdf format.
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| 0910 |
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Incentives of Corporate Donations After the Wenchuan Earthquake in China
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Li Gan
Texas A&M University
Liwei Shan
Research Institute of Economics and Management
Southwestern University of Finance and Economics
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This paper suggests using a firm’s product type to distinguish the firm’s two incentives to donate. A
consumer-oriented firm is more likely to donate than other firms if the donation is value-enhancing, but
donations should not differ by product types if a firm maximizes its management utility. Further, the paper
proposes an empirical model that jointly considers a firm’s decisions on how much to donate and whether to
announce its donation, as well as the endogeneity problem caused by the possible errors when assigning the
firm to be consumer-oriented. The model is estimated using donation information from all publicly traded firms
in China after the Wenchuan Earthquake in May 2008. We find that consumer-oriented firms are much more likely
to donate, and donate more than twice as much as other firms.
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Click 0910 to view the paper in pdf format.
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