A Dynamic “Fixed Effects” Model for Heterogeneous Panel Data

This paper introduces a dynamic panel data model in which the intercepts and the coefficients on the lagged endogenous variables are specific to the cross section units, while the coefficients on the exogenous variables are assumed to be normally distributed across the cross section. Thus the model includes mixture of fixed coefficients and random coefficients, which I call the “MFR” model. The paper shows that this model has several desirable characteristics. In particular, the model allows for a considerable degree of heterogeneity across the cross section both in the dynamics and in the relationship between the independent and dependent variables. Estimation of the MFR model produces an estimate of the variance of the coefficients across the cross section units which can be used as a diagnostic tool to judge how widespread a relationship is and whether pooling of the data is appropriate. In addition, unlike LSDV estimation of dynamic panel models, the MFR model does not produce severely biased estimates when T is small.dynamic fixed effects panel data, heterogenous coefficients

Land Use and Transportation Costs in the Brazilian Amazon

In this paper we put forth some empirical evidence from the Brazilian Amazon that the relationship between roads and land clearing may be much more complex than the conventional wisdom implies. In particular we find that in areas that already at least partially cleared, improving the road network (i.e. decreasing transport costs) may actually decrease the rate of deforestation. We argue that our methodology of explicitly modeling the dynamics should be preferred to the more common static, contemporaneous analyses found in the literature. Furthermore, we endeavor to provide an encompassing explanation of our results. In other words, not only do we show that dynamic modeling yields different conclusions from the conventional wisdom, but using our dynamic approach we are able to explain why so many other studies came to (possibly erroneous) conclusions using more traditional methods.

Land Use and Transportation Costs in the Brazilian Amazon

Transport infrastructure improvements are considered to be one of the most effective tools for stimulating economic activity; at the same time environmentalists have largely condemned most road building as being one of the greatest threats to tropical forests. In this paper we put forth some empirical evidence from the Brazilian Amazon that the relationship between roads and land clearing may be much more complex. In particular, we find that decreasing transport costs in areas that have established settlements is associated with lower rates of land clearing. Constructing roads into relatively pristine areas, however, has the expected effect of increasing agricultural land use and the rate of deforestation. Furthermore, our out of sample model evaluation exercises suggested that changes in land clearing tend to precede, rather than follow, changes in transport costs. Taken together our results suggest that intensifying road networks in settled areas of the Amazon region(as opposed to road building in virgin forest) may be a “win-win” strategy, both enhancing economic development and reducing environmental destruction.transport costs, roads, deforestation, Amazon

Do Conservation Easements Reduce Land Prices? The Case of South Central Wisconsin

While theory strongly suggests that restricting development rights should reduce land prices, empirical evidence of this effect has been notoriously hard to obtain. Indeed, largely based on this difficulty a Congressional committee has recently recommended that tax benefits for such restrictions be severely curtailed. We collect data on 131 land transactions in South Central Wisconsin, including 19 cases of developmentrestricted parcels. When we use the whole sample to estimate the impact of conservation easements we replicate the results of Nickerson and Lynch (2001), finding a negative but statistically insignificant effect. However we then show that when the sample is appropriately restricted to a more homogenous group of land parcels, our ability to detect an effect increases dramatically. In particular, for vacant agricultural land we find a statistically significant negative impact of conservation easements that ranges up to 50% of land values.

Do Conservation Easements Reduce Land Prices? The Case of South Central Wisconsin

While theory strongly suggests that restricting development rights should reduce land prices, empirical evidence of this effect has been notoriously hard to obtain. Indeed, largely based on this difficulty a Congressional committee has recently recommended that tax benefits for such restrictions be severely curtailed. We collect data on 131 land transactions in South Central Wisconsin, including 19 cases of development-restricted parcels. When we use the whole sample to estimate the impact of conservation easements we replicate the results of Nickerson and Lynch (2001), finding a negative but statistically insignificant effect. However we then show that when the sample is appropriately restricted to a more homogenous group of land parcels, our ability to detect an effect increases dramatically. In particular, for vacant agricultural land we find a statistically significant negative impact of conservation easements that ranges up to 50% of land valuesland use, valuation of development rights, conservation easements, hedonic regression

The Choice of Institutions: The Role of Risk and Risk-Aversion

Institutions can affect individual behavior both via their efficiency impact and via their risk reducing mechanisms. However there has been little study of the relative importance of these two channels in how individuals choose between simultaneously extant institutions. This paper presents a simple model of institutional choice in a labor market when there is a risk/reward trade-off, and tests the predictions of the theory. Using a novel empirical approach that adapts an ARCH-in-mean to cross-sectional survey data from China, we find that risk and risk aversion are strongly related to the choice of a labor market institution. Further, risk and risk aversion are quantitatively more important than the sectoral wage differential in explaining employment institution choices. Specifically, we find that wage risk has two orders of magnitude greater impact on labor market institutional choice than the wage difference, with a one standard deviation increase in earnings risk reducing the number of workers choosing jobs in the private (risky) sector by 22%.Institutions, Risk, Labor Market, Risk Aversion

Innovation, Inequality and Intellectual Property Rights

The existing literature on the sources and nature of productivity growth during the early industrialization stages of U.S. has identified the combination of intellectual property rights (IPRs) with a large middle class and broad participation in markets as explanations for the extraordinary level and growth of patenting. This paper considers whether these factors could play a role in the contemporaneous evolution of innovation in a broad cross section of countries today. Our results indicate that IPRs and the size of the middle class help explain patterns of resident, but not non-resident patenting. Overall, the evidence suggests that non-resident patenting patterns are driven more by exogenous factors and global integration, while 'home grown' innovation is more sensitive to internal structural and institutional factors.intellectual property rights, innovation, income inequality

Voter choice and issue salience: environmental preferences and the 2016 Presidential election

A large body of evidence suggests that identity-derived political affiliation is increasingly driving environmental preferences. We consider a variation on the reverse question: under what conditions might issue preferences change voters’ party choice? Academic literature predicts that voters are most likely to change their party affiliation when: (1) a party’s platform is distinct and transparent; and (2) the issue is important and personally salient. We argue that the explicitly anti-environmental campaign message of Donald Trump in the 2016 U.S. Presidential election fulfills the first condition; for the second condition, we exploit the plausibly exogenous spatial variation in EPA Superfund sites to generate a source of exogenous variation in the personal saliency of environmental issues. Our empirical analysis, conducted at both the individual- and countylevel, presents evidence on the relationship between Superfund and environmental preferences, establishes a robust causal link from Superfund to voter behaviour, and finally explores the possibility of heterogeneous effects via differing issue salience by age and/or income cohort. We find robust evidence that the presence of a nearby Superfund site did indeed reduce the number of votes for Trump. Specifically, our results imply that almost 490,000 voters that would have otherwise voted for Trump changed their Party vote choice based on their Superfund-induced environmental preferences in the 2016 election. Furthermore, we find evidence of hetergeneous effects of Superfund on voting behavior associated with household income, but not with voter age cohort. In particular, we find that the effect of Superfund on support for Trump grows as household income increases from well below the poverty line to moderately low levels of around $30,000-$40,000, and then tapers off or declines. Significantly, these moderately low-income voters are precisely the income group that are also most likely to vote for Trump, suggesting that educational campaigns aimed at lower-income households to increase personal saliency of environmental issues could potentially have disproportionately large political effects

An empirical investigation of the Internet and international trade: The case of Bolivia

This paper builds on Freund and Weinhold (2000) to show that the results of that paper can be applied to the case of Bolivia. We review the implications of the Freund and Weinhold model, emphasizing the effects of the Internet on increasing trade and lessening the effects of historical trading patterns in determining trade flows. Specifically, using a gravity model of trade for 56 countries including Bolivia, we show that the Internet stimulates trade and that Bolivia stands to gain an economically significant benefit from increased Web connectivity. Our results imply that a 10 percent increase in the relative number of web hosts in Bolivia would have led to about 1 percent greater trade in 1998 and 1999. The evidence is consistent with a model in which the internet creates a global exchange for goods, thereby reducing market-specific sunk costs of exporting

Smoking status and subjective well-being

Background/aims: A debate is currently underway about the FDA's methods for evaluating anti-tobacco regulation. In particular, the US government requires a cost-benefit analysis for significant new regulations, which has led the FDA to consider potential lost subjective well-being (SWB) of ex-smokers as a cost of any proposed anti-tobacco policy. This practice, which significantly limits regulatory capacity, is premised on the assumption that there is in fact a loss in SWB among ex-smokers. Methods: We analyze the relationship between SWB and smoking status using a longitudinal internet survey of over 5000 Dutch adults across five years. We control for socio-economic, demographic and health characteristics, and in a contribution to the literature we additionally control for two potential confounding personality characteristics, habitual use of external substances and sensitivity to stress. In another contribution, we estimate panel fixed effects models that additionally control for unobservable time-invariant characteristics. Results: We find strong suggestive evidence that ex-smokers do not suffer a net loss in SWB. We also find no evidence that the change in SWB of those who quit smoking under stricter tobacco control policies is different from those who quit under a more relaxed regulatory environment. Furthermore, our cross-sectional estimates suggest that the increase in SWB from quitting smoking is not only statistically significant but also of a meaningful magnitude