Findings

Money Talks

Kevin Lewis

April 06, 2011

Can Collectivism Promote Bribery?

Nina Mazar & Pankaj Aggarwal
Psychological Science, forthcoming

Abstract:
Why are there national differences in the propensity to bribe? One correlational study with cross-national data and one laboratory experiment find a significant effect of the degree of collectivism versus individualism present in a national culture on the propensity to offer bribes to international business partners. Furthermore, the effect is mediated by individuals' sense of responsibility for their actions. Together, the results suggest that collectivism promotes bribery through lower perceived responsibility for one's actions.

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Payday lenders: Heroes or villains?

Adair Morse
Journal of Financial Economics, forthcoming

Abstract:
Does access to high-interest credit (payday loans) exacerbate or mitigate individual financial distress. Using natural disasters as an exogenous shock, I apply a propensity score-matched, triple-difference specification to identify a causal relation between welfare and access to credit. California foreclosures increase by 4.5 units per 1,000 homes after a natural disaster. The existence of payday lenders mitigates 1.0-1.3 of them, with the caveat that not all payday loans are for emergency distress. Payday lenders also mitigate larcenies (but not burglaries or vehicle thefts). In a placebo test of disasters covered by homeowner insurance, payday lending has no mitigation effect.

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Top Incomes in the Long Run of History

Anthony Atkinson, Thomas Piketty & Emmanuel Saez
Journal of Economic Literature, March 2011, Pages 3-71

Abstract:
A recent literature has constructed top income shares time series over the long run for more than twenty countries using income tax statistics. Top incomes represent a small share of the population but a very significant share of total income and total taxes paid. Hence, aggregate economic growth per capita and Gini inequality indexes are sensitive to excluding or including top incomes. We discuss the estimation methods and issues that arise when constructing top income share series, including income definition and comparability over time and across countries, tax avoidance, and tax evasion. We provide a summary of the key empirical findings. Most countries experience a dramatic drop in top income shares in the first part of the twentieth century in general due to shocks to top capital incomes during the wars and depression shocks. Top income shares do not recover in the immediate postwar decades. However, over the last thirty years, top income shares have increased substantially in English speaking countries and in India and China but not in continental European countries or Japan. This increase is due in part to an unprecedented surge in top wage incomes. As a result, wage income comprises a larger fraction of top incomes than in the past. Finally, we discuss the theoretical and empirical models that have been proposed to account for the facts and the main questions that remain open.

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Campaign Contributions, Access, and Government Contracting

Christopher Witko
Journal of Public Administration Research and Theory, forthcoming

Abstract:
It is clear that corporations seek to use campaign contributions to gain government contracts, but despite anecdotes, whether they succeed has been largely ignored in academic studies. In this article, I discuss how campaign contributions may influence contracting and consider the relationship between the donation of campaign contributions and the receipt of government contracts for a sample of firms politically active between 1979 and 2006. The analysis shows that even after controlling for past contracts and other factors, companies that contributed more money to federal candidates subsequently received more contracts. In the conclusion, I discuss the implications of this finding for future research and for reforming the contracting process.

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Relaxation Increases Monetary Valuations

Michel Pham, Iris Hung & Gerald Gorn
Journal of Marketing Research, forthcoming

Abstract:
This research documents an intriguing empirical phenomenon whereby states of relaxation increase the monetary valuation of products. This phenomenon is demonstrated in six experiments involving two different methods of inducing relaxation, a large number of products of different types, and various methods of assessing monetary valuation. In all six experiments participants who were put into a relaxed affective state reported higher monetary valuations than participants who were put into an equally pleasant but less relaxed state. This effect seems to be caused by differences in relaxed and non-relaxed individuals' mental construals of the value of the products. Specifically, compared to less-relaxed individuals, relaxed individuals seem to represent the value of products at a higher level of abstraction, which increases their perceptions of these products' value. The phenomenon appears to reflect an inflation of value by relaxed individuals rather than a deflation of value by less-relaxed individuals.

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Gambling on Electronic Gaming Machines is an Escape from Negative Self Reflection

Matthew Rockloff et al.
Journal of Gambling Studies, March 2011, Pages 63-72

Abstract:
An experiment tested whether thinking about oneself, particularly in negative terms, increases gambling intensity on Electronic Gaming Machines (EGMs). Forty male and 65 Female participants, aged 18-76 (M = 46.2, SD = 15.3), were recruited through newspaper advertisements to play a laptop simulated EGM in Hervey Bay, Queensland, Australia. Prior to play, subjects in the test conditions audio tape-recorded 2 min of self reflection on either: (1) "things you like about yourself," or (2) "things you don't like about yourself." Immediately after the recordings, the subjects played an EGM that was programmed (rigged) with five wins in the first 20 spins, and indefinite losses thereafter. Participants gambled more intensively in terms of Average Bet Size, Number of Trials Played, and Speed of Betting in the negative self reflection condition compared to the control condition. The experiment supports the proposition that EGM gambling behavior is motivated by escape from negative self reflection.

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Financial satisfaction and perceived income through a demographic lens: Do different race/gender pairs reap different returns to income?

David DePianto
Social Science Research, May 2011, Pages 773-783

Abstract:
The subjective assessment of personal income, insofar as it reflects or sheds light upon the (potentially different) economic incentive structures facing workers of different demographic groups, has far-reaching implications for public policy and private decision-making alike. This paper explores the impact of personal income on financial satisfaction and on perceived income, focusing on demographic differences across the following groups: white males, black males, white females and black females. The results indicate that different race/gender pairs do respond to income differently. For both financial satisfaction and perceived relative income, white females, black females and black males all have lower returns to personal income than do white males. White males, in other words, appear to reap more "bang for the buck" in terms of both of the outcome variables, even after a host of control variables are introduced. The possibility that social comparison among (racial and gender) ingroups is driving the observed demographic differences is discussed.

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The Real Puzzle of Blackmail: An Informational Approach

Thomas Miceli
Information Economics and Policy, forthcoming

Abstract:
The "puzzle" of blackmail is that threats to reveal private information that would be harmful to someone in exchange for money are illegal, but revelation is not. The resolution is that concealment of information about product quality impedes the efficient operation of markets, whereas revelation promotes it. The real puzzle is why possessors aren't naturally inclined to sell to uninformed parties, who value the information more than would-be blackmail victims. The answer has to do with the public good qualities of information, which create an appropriability problem in transactions with uninformed parties. The paper also discusses incentives to acquire compromising information.

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What Happens to the Earnings of Military Reservists When They Are Activated? Evidence from Administrative Data

Jacob Alex Klerman & David Loughran
Defence and Peace Economics, February 2011, Pages 1-19

Abstract:
From 2001 through 2008, the US Department of Defense (DoD) has activated more than 700,000 military reservists. Activation imposes a variety of costs on reservists. Among those costs is potentially a decline in total earnings during the period of activation. In this paper, we use administrative data on military and civilian earnings to estimate how earnings change when reservists are activated and the causal effect of activation. Contrary to press accounts and DoD survey evidence, our estimates indicate that, on average, the earnings of activated reservists increase substantially when they are activated and that earnings losses are not common.

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Trends in Men's Earnings Volatility: What Does the Panel Study of Income Dynamics Show?

Donggyun Shin & Gary Solon
Journal of Public Economics, forthcoming

Abstract:
Using Panel Study of Income Dynamics data for 1969 through 2006, we examine movements in men's earnings volatility. Like many previous studies, we find that earnings volatility is substantially countercyclical. As for secular trends, we find that men's earnings volatility increased during the 1970s, but did not show a clear trend afterwards until a new upward trend appeared in the last few years.

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"No More" leads to "Want More," but "No Less" leads to "Want Less": Consumers' counterfactual thinking when faced with quantity restriction discounts

Sukki Yoon & Patrick Vargas
Journal of Consumer Behaviour, March/April 2011, Pages 93-101

Abstract:
The current research examines the impact of point-of-purchase (POP) discounts on consumers' counterfactual thinking (CFT). Study 1 reveals that consumers tend to engage in upward CFT (what might have been better) rather than downward CFT (what might have been worse) in response to POP discounts. Study 2 shows that upward CFT depends on how the discount information is framed. A discount with a lower-quantity restriction (e.g., "X % off if you buy at least Y items") leads consumers to counterfactually wish to buy more, but a discount with an upper-quantity restriction ("X % off - limit Y items per customer") leads consumers to wish to buy less. Study participants in both conditions report they would buy the same POP-suggested amount, but for completely opposite reasons. In Study 3, this convergence effect in purchase quantity disappears when the maximum and minimum restrictions are lifted, suggesting that quantity restrictions in POP discounts guide quantity decisions.

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Youth debt, mastery, and self-esteem: Class-stratified effects of indebtedness on self-concept

Rachel Dwyer, Laura McCloud & Randy Hodson
Social Science Research, May 2011, Pages 727-741

Abstract:
Young adults at the turn of the 21st century came of age in a time of unprecedented access to credit but slowed growth in earnings, resulting in a dramatic increase in indebtedness. Debt has been little studied by sociologists, even though it is increasingly important in financing both attainment and a middle-class lifestyle, especially for youth in the transition to adulthood. We study the consequences of indebtedness for young adults' sense of mastery and self-esteem as stratified by class. Young adulthood is a crucial developmental period for mastery and self-esteem, which then serve as a social psychological resource (or deficit) into the adult years. Research suggests that young people have divergent perspectives on debt: some focus on credit as a necessary investment in status attainment, while others worry that readily available credit invites improvidence that can erode the self-concept as debt encumbers achievement and future consumption and increases a sense of powerlessness. We find that both education and credit-card debt increase mastery and self-esteem, supporting the hypothesis that young people experience debt as an investment in the future, and contradicting the expectation that debt used to finance current spending will lower mastery and self-esteem. Our expectation that debt effects are accentuated for those of lower- and middle-class origins but blunted for those of upper-class origins is supported. We find, however, that the positive effects of debt appear to wane among the oldest young adults, suggesting the stresses of debt may mount with age. We conclude that further study of the long-term consequences of debt will be essential for advancing contemporary stratification theory and research.

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On the arbitrariness of consumption

John Whalley & Shunming Zhang
Applied Economics Letters, March 2011, Pages 301-304

Abstract:
We discuss a simple model of choices of joint consumption by a working couple who place maintenance of their marriage (relationship) above all else. Any proposal made by one partner seeking to provide maximal utility to the other so as to preserve the marriage, in the case where preferences of partners are unknown, will be accepted. In this sense consumption is arbitrary. In the concluding section, we suggest that while overly simple, this structure may characterize to some degree significant amounts of observed consumption, emphasizing how social arrangements and the value placed on them by individuals can impact on observed economic behaviour.

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The Role of Financial Literacy in Determining Retirement Plans

Robert Clark, Melinda Sandler Morrill & Steven Allen
NBER Working Paper, December 2010

Abstract:
Workers nearing retirement face many important, and often irreversible, choices. We collected detailed demographic and financial literacy data on over 1,500 workers nearing retirement at three large companies to assess how individuals are planning for retirement. Many respondents display limited knowledge and understanding of public and company-provided retirement benefits. Controlling for basic demographics and wealth, we find that misconceptions about eligibility ages and plan generosity influence workers' expected age of retirement. Although retirement-related decisions will affect workers' wellbeing for the remainder of their lifetimes, many do not possess enough basic financial knowledge to confidently make optimal choices.

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Who comprised the nation of shareholders? Gender and investment in Great Britain, c. 1870-1935

Janette Rutterford, David Green, Josephine Maltby & Alastair Owens
Economic History Review, February 2011, Pages 157-187

Abstract:
This article explores the widening ownership of stocks and shares in Great Britain between 1870 and 1935. It demonstrates the extent of that growth and the increasing number of small investors. Women became more important in terms of the number of shareholders and value of holdings. Factors that encouraged this trend included the issue of less risky types of investments, and legal changes relating to married women's property. We examine the 'deepening' importance of stocks and shares for wealth holders, arguing that the growing significance of these kinds of financial assets was as important as the growth in the investor population.

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Reconsidering the Effect of Market Experience on the "Endowment Effect"

Dirk Engelmann & Guillaume Hollard
Econometrica, November 2010, Pages 2005-2019

Abstract:
Simple exchange experiments have revealed that participants trade their endowment less frequently than standard demand theory would predict. List (2003a) found that the most experienced dealers acting in a well functioning market are not subject to this exchange asymmetry, suggesting that a significant amount of market experience is required to overcome it. To understand this market-experience effect, we introduce a distinction between two types of uncertainty - choice uncertainty and trade uncertainty - both of which could lead to exchange asymmetry. We conjecture that trade uncertainty is most important for exchange asymmetry. To test this conjecture, we design an experiment where the two treatments impact differently on trade uncertainty, while controlling for choice uncertainty. Supporting our conjecture, we find that "forcing" subjects to give away their endowment in a series of exchanges eliminates exchange asymmetry in a subsequent test. We discuss why markets might not provide sufficient incentives for learning to overcome exchange asymmetry.

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Optimal Irrational Behavior

James Feigenbaum, Frank Caliendo, & Emin Gahramanov
Journal of Economic Behavior & Organization, March 2011, Pages 285-303

Abstract:
Contrary to the usual presumption that welfare in markets is maximized if consumers behave rationally, we show in a two-period overlapping generations model that there always exists an irrational consumption rule that can weakly improve upon the lifecycle/permanent-income rule in general equilibrium. The market-clearing mechanism introduces a pecuniary externality that individual rational households do not consider when making decisions but a publically shared rule of thumb can exploit. For typical calibrations, the improvement of the welfare of irrational households is robust to the introduction of rational agents. Although transitions to the optimal irrational steady state are not Pareto improving, transitions do exist that will improve a Pareto social welfare function with a sufficiently small generational discount rate. Generalizing to a more realistic lifecycle model, we find that the Save More Tomorrow (SMarT) Plan, if properly parameterized, can confer higher lifetime utility than the permanent-income rule.

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Golden eggs versus plastic eggs: Hyperbolic preferences and the persistence of debit

Amanda Swift King & John King
Journal of Economics and Finance, January 2011, Pages 93-103

Abstract:
The popularity of debit cards is good news from a social perspective since they carry a lower transaction cost than other non-cash payment methods. Unfortunately, the reason for this consumer driven growth remains a mystery. Consumers do not benefit from any of the gains created by the low transaction costs. Rather, the incentives being offered to consumers encourage them to use credit cards despite higher transaction costs. We demonstrate that consumers may be using debit cards as a means of budgetary precommitment when preferences are hyperbolic. Using data from the 2004 Survey of Consumer Finances, we find that consumers substitute debit use for investment in illiquid assets as a method of self constraint as incomes fall.


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