Issues

  • Two decades ago, 90% of the National Basketball Association (NBA) college draftees had completed their senior year of college. Today that number is only 30%. College basketball players are making the jump to the NBA earlier on, after their freshman, sophomore, or junior seasons. This paper uses both empirical and theoretical frameworks to study a player ’s decision of when to "go pro." I estimate returns to schooling by comparing the earnings of two groups of NBA players: those who went pro out of high school or immediately after freshman year of college from 1989 to 2005 versus those who went pro immediately after freshman year from 2006 to 2012. A new rule was implemented in 2005 that forced players to wait at least one year after their high school graduation before going pro. Thus, 2005 was the last year when players could move directly from high school to the NBA, and the latter group contains players who were forced to complete an additional year of school. I find no significant difference in earnings between the two groups.
  • Fall 2013 Vol. 2 Iss. 1
  • Run on Guardian Trust Company and National City Bank in 1933
    David Hu
    Yale
    Fall 2013 Vol. 2 Iss. 1
    As the only nationwide bank to have its deposits fully backed by the government, the U.S. postal savings system exerted a significant influence on the banking system. In addition to providing a safe haven for deposits, the postal bank was designed to redeposit its holdings with commercial banks so as to prevent government competition with the private sector. Previous research suggests that these features caused the postal savings system to have a negative impact during bank runs: savers would seek refuge with the postal bank, but the postal deposits would not be redeposited with local banks. However, these analyses fail to account for potential endogeneity and regional variation. To resolve these issues and establish causality, I construct instruments from the unique institutional features of the postal savings system. There are three main results that refute previous hypotheses in the literature. First, there is a negative correlation between postal deposits and bank failures. Second, I obtain evidence that redepositing by the postal bank helped to prevent bank runs. Third, I find that the contagion effect of bank failures on the demand for postal deposits is highly localized. Altogether, these results help to refine the existing framework used to understand the relationship between the postal savings system and bank runs.
  • Figure: Counterfactual Interest Payments with Zero-Coupon Securities
    Jacob Berman
    U. Chicago
    Fall 2013 Vol. 2 Iss. 1
    This paper explores how the maturity structure of public debt affects the evolution of debt/GDP and net interest/GDP in the United States. I construct a model to simulate counterfactual debt management strategies, and then extend the model forward to estimate how changes in the maturity structure can be expected to influence debt management outcomes in the future. In my preferred strategy, I find that the Treasury could save as much as $424 billion in borrowing costs over the next 10 years by rapidly increasing the maturity of new issues.
  • Stefano Giulietti
    Yale University
    Spring 2014 Vol. 2 Iss. 2
    Since the end of 2009, the Eurozone has faced a severe sovereign debt crisis, which had its roots in Greece and gradually spread to other countries. This paper estimates an autoregressive conditional heteroskedasticity (ARCH) model of credit default swap (CDS) spreads in order to analyze whether contagion effects are identifiable during the crisis—equivalently, whether the financing difficulties faced by several European countries were due to investor panic, herding, or speculation, or actual fundamental problems. The analysis shows the presence of Greek contagion effects on Spain, Italy, Belgium, France, and Portugal, both through CDS markets and credit rating downgrades. Further contagion is documented among Portugal, Spain, Italy, and France in later stages of the crisis.
  • Table: OLS Estimates of the Effect of Bank Failures on Postal Deposits
    Erica Segall
    Yale
    Fall 2013 Vol. 2 Iss. 1
    To test for the existence of generational or “cohort” effects in U.S. spending behavior, I incorporate Age-Period-Cohort (APC) modeling, which disentangles three distinct time-related effects on changes in behavior, into Deaton and Muellbauer’s (1980) Almost Ideal Demand System (AIDS). The result is an empirical model that accounts for these nuanced time effects but is also consistent with the principles of consumer theory. Estimation of the model using data from the Consumer Expenditure Survey suggests that household budget allocations exhibit significant cohort effects, and that including cohort effects significantly improves demand models that account only for age. The existence of these effects suggests that cohort membership can influence an individual’s preferences and spending patterns across the life course.
  • Disha Verma
    Harvard University
    Spring 2014 Vol. 2 Iss. 2
    This paper uses a regression discontinuity approach based on panel data from the 28 states of India and the union territories of Delhi and Puducherry during the period 1994-2012 to study the association between political fragmentation in the State Legislatures and growth, debt, and social spending. Political fragmentation is judged along three different measures. The first is the re-election of the incumbent, the second is the margin of victory, and the third is Herfindahl’s index. This study demonstrates that the effects of the incumbent winning and the margin of victory are different between coalition and majority governments. On the whole, coalition governments grow faster, undertake more social spending, and incur less debt. Results are considered across several different margins of victory to better estimate the relationships under consideration.
  • Table: Linear Probability Regression of Healthcare, Full Sample
    Jisoo Han
    Princeton
    Fall 2013 Vol. 2 Iss. 1
    Immigrants and their children are a growing segment of the American population. Despite the importance of the immigrant population in policy considerations, immigrants have worse access to health care than natural-born citizens and are more likely to be uninsured. I analyze the relationship between language use at home and access to health care for the children of immigrants. I use a dataset containing demographic and health characteristics of children in the state of California. Using survey data from 2009, I estimate how language spoken at home affects measures of access to care and how these effects vary with parental citizenship status. I find that two factors, coming from households speaking an Asian language and having non-citizen parents, are most significantly associated with decreases in access to health care.
  • Dounia Saeme
    University of California, Berkeley
    Spring 2014 Vol. 2 Iss. 2
    In 2011, the Federal University of São Carlos (UFSCar) in São Paulo, the most populous state in Brazil, created a 40% quota for black and public school applicants. This study investigates whether the introduction of affirmative action at the university level creates an incentive for the targeted underrepresented applicants to perform better on their qualifying exams in a state where public universities admit one out of 25 students on average. Using data provided by the standard Brazilian entrance exam (ENEM) and its mandatory socioeconomic survey from 2010 and 2011, I employ a difference-in-differences (DID) methodology in order to exploit the characteristics of this quasi-experiment. I use the favored group’s counterparts from comparable states in Brazil that had not introduced any type of affirmative action during those years as a comparison group. I find that, on average, black students from public schools in São Paulo scored 1.54% higher on the ENEM as a result of the introduction of quotas in UFSCar admissions, and the scores of public school students (unconditional on race) in São Paulo were 1.16% higher on average. I find no change among private school test-takers.
  • Figure: time series for aggregate dispersion of analyst forecasts and average first-day IPO return
    Aditya Rajagopalan
    Princeton
    Fall 2013 Vol. 2 Iss. 1
    I model the effect of disagreement on short-term IPO underpricing and long-term IPO under-performance. Given the existence of short-sales constraints and momentum traders, sufficiently high disagreement amongst investors triggers short-term over-performance and long-term under-performance as momentum traders magnify the effect of short-term disagreement. I verify these predictions empirically using data for aggregate disagreement and various measures of IPO abnormal returns, turnover, and frequency. I find that aggregate disagreement has an increasingly positive effect on initial post-IPO abnormal returns and turnover, and a negative effect on long-term post- IPO abnormal returns. My results also indicate that the effect of aggregate disagreement is amplified by gradual information diffusion in both the short- and long-term. This paper provides a new model combining the disagreement and information cascades hypotheses of the IPO Puzzle, and new empirical evidence explaining the IPO Puzzle through aggregate disagreement.
  • Adin Lykken
    Yale
    Spring 2014 Vol. 2 Iss. 2
    This paper seeks to explain the performance of governments who complete externally financed development projects. Previous research on the effectiveness of development efforts has analyzed macro-level indicators and overall project outcomes. Less research has explored the dynamics of how well recipient governments implement specific projects. I construct a principal-agent framework that explains government performance in terms of the execution skills of governments and their alignment to the objectives of financing organizations. To isolate the primary drivers of performance, I analyze project- level assessment data from the World Bank and country-level indicators of political risk from the Political Risk Services Group. Across both linear and probit specifications, results suggest the overwhelming importance of project supervision in improving government performance. I examine projects indicative of these results and discuss policy options to further improve government performance.

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