The B.E. Journal of Economic Analysis & Policy

Published by De Gruyter

Volume 20 Issue 2 -

April 2020

Issue of The B.E. Journal of Economic Analysis & Policy

Contents
Journal Overview

Research-Articles

February 1, 2020

The Wage Response to a Reduction in Income Tax Rates: The Israeli Tax Reform

Roni Frish, Noam Zussman, Sophia Igdalov

Article number: 20190043

Abstract

This study examines the effect of an income tax reform on wages. An Israeli reform implemented in 2003–2009 reduced individuals’ marginal income tax rate by 7–17 percentage points. We utilized the differential and non-monotonic marginal tax rate reduction, and used Israel Tax Authority panel data of wage earners, merged with Labor Force Surveys. We found that in the business sector, the elasticity of reported gross wages relative to the net-of-tax rate is about 0.1. The wage earners in the lowest wage quintile were not affected by the tax reform, those in the second and third quintiles did not respond to the tax cut, but elasticity increased with wage, reaching about 0.4 in the upper decile. We did not find statistically significant differences in elasticity by gender, ethnicity, or education.

January 18, 2020

Employee Choice and the Demand for Health Insurance Coverage: Evidence from Random Coefficients Models

Nour Kattih, Franklin G. Mixon

Article number: 20190153

Abstract

This study examines the effects of deductibles, employee premium contributions, and the availability of tax-sheltered health savings accounts on employee selection into health insurance plans after passage of the Affordable Care Act , and particularly after implementation of the individual mandate. In doing so, a utility-based structural demand model is applied to market-level macro data from the Kaiser Family Foundation and the Health Research Educational Trust. Results from random coefficients models indicate that for an average consumer, price sensitivity for employer-sponsored health insurance plans varies by age, wage, health condition and gender. Employees who are older, obese, or female are less sensitive to deductibles and premiums than younger and healthier employees, or male employees. These findings suggest that high deductible health plans that combine a tax-sheltered account with higher deductibles will negatively impact the utility of older employees and females as compared to younger employees and males.

January 9, 2020

Marathon, Hurdling, or Sprint? The Effects of Exam Scheduling on Academic Performance

Sofoklis Goulas, Rigissa Megalokonomou

Article number: 20190177

Abstract

Would you prefer a tighter or a more prolonged exam schedule? Would you prefer to take an important exam first or last? We exploit quasi-random variation in exam schedules across cohorts, grades and subjects from a lottery to identify distinct effects of the number of days between exams, the number of days since the first exam, and the exam order on performance. Scheduling effects are more pronounced for STEM exams. We find a positive and a negative relationship between STEM scores and exam order (warm-up) and number of days since the first exam (fatigue), respectively. In STEM, warm-up is estimated to outweigh fatigue. Marginal exam productivity in STEM increases faster for boys than for girls. Higher-performing students exhibit higher warm-up and lower fatigue effects in STEM than lower-performing students. Optimizing the exam schedule can improve overall performance by as much as 0.02 standard deviations.

Open Access February 1, 2020

Sharing Competition: An Agent-Based Model for the Short-Term Accommodations Market

Bruna Bruno, Marisa Faggini

Article number: 20190231

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Abstract

This paper presents an agent-based model for the sharing economy, in the short-term accommodations market, where peers participating as suppliers and customers follow simple decision rules about sharing market participation, according to their heterogeneous characteristics. Simulations results show that, in the competition between the sharing economy and the traditional industry, low substitutability occurs between goods if consumers are differentiated in preferences. The main determinant for market performance in both sectors is the demand level, with minor influence of price setting and competition within and between markets.

January 11, 2020

Timing of Adopting a Flexible Manufacturing System and Product Differentiation

Chia-Hung Sun

Article number: 20190094

Abstract

Based on a circular product-space model with continuous time, we investigate a dynamic game in which each firm decides whether and when to adopt a flexible manufacturing system (FMS) at the beginning of the game and then chooses its quantity supplied at each time. We show that the equilibrium outcomes may be either joint adoption at the beginning of the game or sequential adoption, depending on the range of an initial adoption cost. For a given basic product, we find that a larger product differentiation decelerates the adoption of FMS. We also investigate competition behavior when the decisions on product locations are made endogenously and conduct welfare analysis, showing that there is market failure in the adoption timing choices.

January 11, 2020

Childcare Allowances and Public Pensions: Welfare and Demographic Effects in an Aging Japan

Akira Okamoto

Article number: 20190067

Abstract

In this study, reforms on childcare allowances and public pensions are examined in an extended lifecycle simulation model with endogenous fertility. A slight increase in family policies such as childcare allowances leads to increases in the total population but the magnitude of change is not large. As childcare allowances increase, however, the total population is cumulatively and progressively augmented, resulting in substantial growth in the total population and national income in the long run. Furthermore, from a long-term perspective, increases in childcare subsidies or decreases in public pension benefits are potentially Pareto-improving .

January 29, 2020

The Crucial Role of Social Welfare Criteria and Individual Heterogeneity for Optimal Inheritance Taxation

Esteban García-Miralles

Article number: 20190274

Abstract

This paper extends the calibrations of Piketty and Saez (2013. “A Theory of Optimal Inheritance Taxation.” Econometrica 81 (5): 1851–86) to unveil the importance of the assumed social welfare criteria and its interplay with individual heterogeneity on optimal inheritance taxation. I calibrate the full social optimal tax rate and find that it is highly sensitive to the assumed social welfare criteria. The optimal tax rate ranges from negative (under a utilitarian criterion) to positive and large (even assuming joy of giving motives). A decreasing marginal utility of consumption does not affect the results qualitatively, given the underlying distribution of wealth and income. I also calibrate the optimal tax rate by percentile of the distribution of bequest received, as in Piketty and Saez, but accounting for heterogeneity in wealth and labor income. This leads to significant variation in the optimal tax rate among zero-bequest receivers, contrary to their finding of a constant tax rate.

March 3, 2020

The Economics of Enlightenment: Time Value of Knowledge and the Net Present Value (NPV) of Knowledge Machines, A Proposed Approach Adapted from Finance

Ravi Kashyap

Article number: 20190044

Abstract

We formulate one methodology to put a value or price on knowledge using well accepted techniques from finance. We provide justifications for these finance principles based on the limitations of the physical world we live in. We start with the intuition for our method to value knowledge and then formalize this idea with a series of axioms and models. To the best of our knowledge this is the first recorded attempt to put a numerical value on knowledge. The implications of this valuation exercise, which places a high premium on any piece of knowledge, are to ensure that participants in any knowledge system are better trained to notice the knowledge available from any source. Just because someone does not see a connection does not mean that there is no connection. We need to try harder and be more open to acknowledging the smallest piece of new knowledge that might have been brought to light by anyone from anywhere about anything.

February 1, 2020

The Consequences of the 1959–1961 Chinese Famine for Educational Attainment

Margaret J. Lay, Johannes Norling

Article number: 20190112

Abstract

This paper finds that the Great Chinese Famine of 1959–1961 reduced lifetime educational attainment by up to 3.8 years for people who lived in areas most severely hit by the famine. Using geographical variation in famine intensity, information about place of residence during the famine, and educational attainment recorded in the China Health and Retirement Longitudinal Study, the paper demonstrates that the decline in educational attainment was particularly sharp for women. This decline interrupted substantial gains in schooling achieved in China during the middle part of the twentieth century.

February 1, 2020

Investment in Green Technology and Entry Deterrence

John C. Strandholm, Ana Espínola-Arredondo

Article number: 20180355

Abstract

This paper analyzes an entry-deterrence model in which the incumbent decides whether to invest in research and development (R&D) that promotes clean technology. We consider the case in which the entrant could benefit from a technology spillover and analyze the conditions that facilitate the incumbent’s entry-deterrence behavior. We show that higher levels of the spillover make entry more attractive compared to a standard entry game. In addition, regulator and incumbent prefer entry when the spillover from clean technology is sufficiently high and the cost of investing in R&D is relatively low. However, preferences are misaligned when the spillover and cost of R&D are low.

April 3, 2020

Analyzing the Effect of Mandatory Water Restrictions on Water Usage

Trey Dronyk-Trosper, Brandli Stitzel

Article number: 20190137

Abstract

As water rights and water usage become an ever more important part of municipalities’ and states’ way of life, it becomes important to understand what policies can be effective for encouraging conservation of water. One method that has been employed at various times and throughout numerous communities is to limit outdoor watering days. We use a dataset with over 3 million property-month observations during the 2007–2015 period in Norman, Oklahoma, to identify whether the periodic implementation of mandatory water restrictions reduces water usage. Our data allow us to exploit variance in the timing of these water restriction programs. Our findings indicate that this policy reduces water consumption by 0.7 % of total water consumption. Additionally, we use home assessment prices to identify heterogeneity in this response, finding that high priced homes are more responsive to water use restrictions.

February 26, 2020

Acquisitions for Sleep

Pehr-Johan Norbäck, Charlotta Olofsson, Lars Persson

Article number: 20190021

Abstract

Within the policy debate, there is a fear that large incumbent firms buy small firms’ inventions to ensure that they are not used in the market. We show that such “acquisitions for sleep” can occur if and only if the quality of a process invention is small; otherwise, the entry profit will be higher than the entry-deterring value. We then show that the incentive for acquiring for the purpose of putting a patent to sleep decreases when the intellectual property law is stricter because the profit for the entrant then increases more than the entry-deterring value does.

April 2, 2020

Gender Differences in Performance and Risk-taking among Children, Teenagers, and College Students: Evidence from Jeopardy!

Michael Jetter, Jay K. Walker

Article number: 20190179

Abstract

Studying Jeopardy! contestants in the US, we explore whether and when gender differences in performance in competitive settings and risk-taking emerge with age and by opponents’ gender. We identify no gender differences in winning episodes, responding, or responding correctly to clues. Male teenagers (but not children) wager substantially more than female teenagers, leading to the emergence of the gender gap, equivalent to a 7.3 percentage point difference. This gap persists for college students. Finally, male teenagers and college students wager substantially less when competing against females, whereas the gender of opponents does not influence the behavior of young female contestants.

Letters

February 1, 2020

Accounting for Differences in Female Labor Force Participation between China and India

Mehtabul Azam, Luyi Han

Article number: 20190302

Abstract

Although, the male labor force participation rate is comparable in China and India, female labor force participation rate remains very low in India. In this paper, we examine the factors responsible for the difference in female labor force participation rate between the two countries by carrying out decomposition exercise at three points of time covering two decades. We find that the differences in female labor force participation rate are not explained by the differences in characteristics across the two countries in each of the three year studied. The differences in returns to these characteristics explain most of the differences in participation rate.

March 25, 2020

Conflict Intensity and Birth Outcomes – Evidence from the West Bank

Hendrik Jürges, Franz G. Westermaier

Article number: 20190301

Abstract

This study uses data collected in the West Bank to study the effect of intrauterine exposure to conflict during the Second Intifada on birth weight. We use the number of fatalities in a locality of residence during pregnancy as an instantaneous measure of local conflict intensity. Conditional on experiencing any fatality, pregnant mothers were exposed to 11 fatalities on average, which was related to a reduction in average birth weight of about 20 g (or 3 % of a standard deviation). Although the estimated reductions are only significant for boys. Our results are consistent with the notion that violent conflict triggers prenatal psychological or economic stress in pregnant women, which in turn harms unborn children.

March 25, 2020

Search and Bidding Costs

Chun-Hui Miao

Article number: 20190143

Abstract

This paper studies consumer search behavior in markets where sellers must incur fixed costs to win a contract. We show that consumers face a commitment problem if their search intensities are not observed by sellers. Welfare is maximized when consumers can precommit to a limited number of searches, but in the absence of the ability to commit, consumers search more than the optimum. A decline in search costs can exacerbate the commitment problem and leave consumers potentially worse off.

About this journal

Objective
The B.E. Journal of Economic Analysis & Policy (BEJEAP) welcomes submissions that employ microeconomics to analyze issues in organizational economics, consumer behavior, and public policy. Articles submitted to BEJEAP can come in two formats: research papers and letters. Authors should bring to their analysis whatever microeconomic theoretical, experimental or econometric tools are helpful. We publish both empirical work and applied theory (though not more abstract forms of applied theory), and our aim is to disseminate papers that have practical implications for public policy, organizational or individual decision making.

Topics

Design of organizations and institutions
Industrial organization
Health economics
Public finance
Labour Economics
Economics of education, family, development, law, or the environment
Effects of domestic and international policy

Article formats
Research Papers, Letters

> Information on submission process