Estimating Hedonic Models: Implications of the Theory

In this paper we consider the conditions under which instrumental variables methods are required in estimating a hedonic price function and its accompanying demand and supply relations. We assume simple functional forms that permit an explicit solution for the equilibrium hedonic price function. The principles are the same for models in which no analytic solution exists, but having the solutions makes the issues far more transparent. The need for instrumental variables estimation is directly analogous for the classical demand and supply model with undifferentiated products and for the hedonic model with differentiated products. In estimating individual demand and supply functions, instrumental variables estimation is required if the consumer and firm unobservables, which give rise to the error terms in the demand and supply functions, are correlated across consumers/firms within a community. In estimating inverse demand/supply functions, which are referred to as bid/offer functions in the hedonic model, instrumental variables estimation is required even if the unobservables are not correlated across agents within a community. If the unobservables are not correlated across agents within a community, then community binaries or the means of observable consumer and firm characteristics can be used as instruments. If the unobservables are correlated then only the latter can be used. The error term in the hedonic price function is often assumed to be uncorrelated with the chosen attributes. This assumption may be reasonable if consumers have quasilinear preferences. If not, then the error term in the price function may affect the utility-maximizing amounts of the attributes. The feasible instruments again depend upon whether the error term is correlated for agents within a community. If not, then community binaries or observed individual characteristics may be used as instruments. If so, then the community binaries are correlated with the error terms and cannot serve as instruments.

Domestic Violence: A Non-random Affair

In this paper, we develop and estimate a model of violence between romantically linked men and women. Physical violence is viewed as both a source of direct gratification and as an instrument for controlling the victim's behavior. Our model is a Stackleberg type model in which the assailant maximizes expected utility subject to the stochastic reaction function of the victim. Our model is estimated by a bounded-?influence regression technique because the process generating violence appears to lead to a heavy-tailed error distribution. Our empirical results suggest that increases in the assailants(i.e. the male's) income serve to increase violence, while increases in the proportion of the year that he is employed serve to decrease violence. Further, the employment effect is larger than the income effect. By way of contrast, our results suggest that the effect of a change in the female's employment or income depends heavily onher economic status relative to the male's. Finally, we find that improvements in the female's opportunites outside the relationship significantly reduce the level of violence.

Tax Compliance: An Investigation Using Individual TCMP Data

In this paper, we analyze the tax compliance behavior of US taxpayers by using a 1979 data set that combines information from a random sample of individual tax returns each of which has been thoroughly audited, IRS administrative records, and sociodemographic data from the Census. We find evidence that both audits and tax code provisions affect compliance. However, the effects are significant for only the low and high income groups. Interestingly, previous research has shown that these groups also participate most actively in underground economic activities, the income from which is not reported on any tax returns. Our results for audits suggest that the "ripple" or general deterrent effect of audits may be many times larger than the direct revenue yield of audits for high income taxpayers. Our results for allowable subtractions from income imply that the 1986 Tax Reform Act changes to lower allowable subtractions may have procompliance effects.

A Structural Equation Model for Tax Compliance and Auditing

In this paper. we estimate a three equation model for taxpayers' reported income and tax liability and for the probability of an audit. Our work differs from previous studies in that our dependent variables in the compliance equations are taxpayer reports rather than a variable related to auditor estimates of noncompliance and in that we estimate a structural equation for audits. We find that audits stimulate compliance although the effect is not large and is not statistically significant for all groups. Audits are more effective at inducing accurate reporting of subtractions from income than of income. Reduced-form results suggest that IRS activities other than audits have significant compliance effects. Results for the sociodemographic variables are interesting and help to explain some seemingly incongruous findings in the literature. We find compliance to be higher, if anything. in areas with less educated and older taxpayers, a large proportion of households headed by females. and a mostly native born population.

Criminal Deterrence: Revisiting the Issue with a Birth Cohort

In this paper, we estimate the general deterrent effect of criminal justice resources on criminal behavior. Our panel data, which combine individual-level information on arrests and personal characteristics with aggregate measures of criminal justice resources, allow us to obtain deterrence measures that more closely reflect theoretical concepts and are of potential policy relevance. We find robust evidence of a general deterrent effect in our estimates of error components probit and Tobit models.

Insurance-induced moral hazard: A dynamic model of within-year medical care decision making under uncertainty

Abstract Insurance-induced moral hazard may lead individuals to overconsume medical care. Many studies estimate this overconsumption using models that aggregate medical care decisions up to the annual level. Using employer-employee matched data from the Medical Expenditure Panel Survey (MEPS), I estimate the effect of moral hazard on medical care expenditure using a dynamic model of within-year medical care consumption that allows for endogenous health transitions, variation in medical care prices, and individual uncertainty within a health insurance year. I then calculate moral hazard effects under a second set of conditions that are consistent with the assumptions of most annual decision-making models. The within-year decision-making model produces a moral hazard effect that is 24% larger than the alternative model. I also provide evidence of heterogeneous moral hazard effects, particularly between insured and uninsured individuals, and discuss related policy implications. The paper concludes with a counterfactual policy simulation that implements the individual mandate provision of the 2010 Patient Protection and Affordable Care Act. I find that full implementation of the individual mandate decreases the percentage of uninsured individuals in the population being analyzed from 11.8% to 6.0% and increases average medical care expenditure 77% among the newly insured. JEL Classification: C61, D81, G22, I12, I1