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2012

• Labor Standards and Human Rights: Implications for International Trade and Investment
  Goldman School of Public Policy Working Paper No. GSPP12-001 (August, 2011)
  Drusilla K. Brown, Alan V. Deardorff, and Robert M. Stern (Visiting Professor)

  Abstract:

  • The establishment of international labor standards linked to market access within the WTO is among the proposals intended to remedy the gross violations of labor and human rights that accompany international trade and investment. Yet, the WTO Charter and, previously, the GATT are virtually silent on the potential inhumanity of globally integrated goods and services markets. Despite intense pressure from the United States and the European Union, the Singapore Ministerial Declaration (December 1996), while acknowledging the importance of international labor standards, identified the International Labor Organization (ILO) as the competent body to establish and monitor labor standards. However, advocates for international labor standards ultimately gained access to the process of rules-setting in the WTO indirectly through Article XXIV governing the creation of customs unions and free trade agreements and, more importantly, the 1971 GSP Decision permitting special and differential treatment of developing country exports.

    Thus, contrary to the WTO Ministerial dictates, labor standards are now routinely enforced by the prospective loss of preferential tariff concessions and market access. We discuss in this context a mechanism for linking ILO-established labor standards, monitoring by the ILO, and enforcement through the threat of lost trade concessions that emerged fully operational in the 1999 U.S.-Cambodia Bilateral Textile Trade Agreement. Under this agreement, the United States provided Cambodia access to US markets by giving expanded apparel and textile quotas conditional on improved working conditions in the garment sector.

    We also discuss the labor and human-rights issues that emerge in a globalizing world economy, the market failures that produce labor and human-rights violations, and the role of labor standards in mitigating the most grievous of consequences. We then discuss the evidence on the impact that labor standards have on trade, firm behavior and investment, and on workers, and whether or not there is a race to the bottom, which we conclude not to be the case.

• My Studies in International Economics
  Goldman School of Public Policy Working Paper No. GSPP12-002 (July, 2011)
  Robert M. Stern (Visiting Professor)

  Abstract:

  • I first review some of the major influences that shaped my early years. I then relate the subsequent developments in my professional career, including my research orientation, chief publications, collaborative relationships, and longstanding involvement in undergraduate and graduate teaching and supervision.

2011

• Fairness in the WTO Trading System
  Goldman School of Public Policy Working Paper No. GSPP11-001 (January, 2011)
  Andrew G. Brown and Robert M. Stern (Visiting Professor)

  Abstract:

  • We first provide a brief critique of the utilitarian principle as a guide to fairness in the world trading system. We then turn to the alternative conception of fairness in terms of economic equity, exploring the meaning of its two components: equality of opportunity and distributive justice. We thereafter proceed to discuss the conditions of autonomy and reciprocity that have to be met in order to realize greater fairness in multilateral trade negotiations. Next, we comment on aspects of procedural justice that are necessary for the functioning of a fair trading system. Finally, we conclude with an overall assessment of the considerations of the fairness achieved in the Uruguay Round multilateral negotiations and implications for conclusion of the Doha Round.
• THE MULTILATERAL TRADING SYSTEM
  Goldman School of Public Policy Working Paper No. GSPP11-002 (February, 2011)
  Robert M. Stern (Visiting Professor)

  Abstract:

  • This paper traces the evolution of the global trading system from the 19th century to the present-day GATT/WTO arrangements, calling attention to the key roles of reciprocity and non-discrimination and taking note of how the system is now challenged by the new paradigm of global market integration. The main features of the WTO are described, the boundaries of the WTO identified, and how the expansion of these boundaries may result in the over-extension and weakening of the effectiveness of the WTO.
• Free Trade Agreements and Governance of the Global Trading System
  Goldman School of Public Policy Working Paper No. GSPP11-003 (February, 2011)
  Andrew G. Brown and Robert M. Stern (Visiting Professor)

  Abstract:

  • This paper explores how far free trade agreements (FTAs) have strengthened or weakened global governance of the trading system. We open with an analysis of the altered political and economic context within which countries have come, in recent years, to assign a new importance to regional and bilateral trade agreements in their trade policies. We then consider each of the main provisions included in FTAs and comment on how these may separately affect the management of trade relations. We conclude with some observations of the broader trends affecting global governance that are associated with the spread of trade agreements as a whole.

2010

• The New (Commercial) Open Source: Does It Really Improve Social Welfare?
  Goldman School of Public Policy Working Paper No. GSPP10-001 (January, 2010)
  Sebastian von Engelhardt and Stephen M. Maurer

  Abstract:

  • The number of open source (“OS”) software projects has grown exponentially for at least a decade. Unlike early open source projects, much and perhaps most of this growth has been funded by commercial firms that expect to earn a profit on their investment. Typically, firms do this by selling bundles that contain both OS software and proprietary goods (e.g. cell phones, applications programs) and services (custom software). We present a general two-stage Cournot model in which arbitrary numbers of competing OS and closed source (“CS”) firms decide how much software to create in Stage 1 and how many bundles to supply in Stage 2. We find that the amount of OS software delivered depends on (a) the degree of substitutability between proprietary products, (b) the number of OS and CS firms competing in the market, and (c) the cost savings available to each firm from shared development of OS software. However, the fact that OS firms share software also prevents them from competing on how much code (and therefore quality) their bundles contain. This de facto quality cartel suppresses the amount of software that all-OS industries create. The problem is less acute in mixed OS/CS industries where OS firms must produce high quality software to meet quality competition from CS firms. Unfortunately, we find that all-OS (all-CS) markets are sometimes stable against CS (OS) entry so that a mixed OS/CS state never occurs. Even where mixed OS/CS industries do exist, moreover, the fraction of OS firms needed to stabilize the market against entry is typically much larger than the number required to optimize welfare. We evaluate several tax- and subsidy-based schemes that governments can use to address this imbalance. We find that the first-best solution in our model is to tax OS firms and use the proceeds to subsidize CS firms. However, government can also improve welfare by funding OS software development (e.g. by universities).
• The Importance of Marginal Cost Electricity Pricing to the Success of Greenhouse Gas Reduction Programs
  Goldman School of Public Policy Working Paper No. GSPP10-002 (March, 2010)
  Lee S. Friedman

  Abstract:

  • This paper identifies a previously unnoticed problem important for the efficient reduction of GHG emissions: the pricing of off-peak electricity. There may be many opportunities to reduce emissions by substituting relatively clean and inexpensive off-peak electricity in place of a more GHG-intensive fuel, with the most important example being vehicle electrification. However, off-peak electricity for residential consumers is currently priced at 331% above its marginal cost in the United States as a whole. Even for the 1.3% of residences that are on some form of time-of-use rate schedule, the off-peak rate is still almost three times higher than the marginal cost. A primary barrier to the increased use of marginal-cost based TOU rates is that less than 5% of U.S. households have the “smart” meters in place that can measure and record the time of consumption. A FERC report estimates the deployment rate of these meters for residences by 2019 will reach only 40%; policies should be put in place so that this deployment rate nears 100% by that time. Another important barrier is TOU rate design. I describe two TOU rate designs (baseline and two-part tariff) that utilize marginal-cost based rates, ensure appropriate cost recovery, and minimize bill changes from current rate structures. A final barrier is to get residences on to these rates. I consider whether a marginal-cost based TOU rate design should remain as an alternative for which residences could “opt-in,” or become the default choice, or become mandatory. I conclude that it should become mandatory. Time-invariant rates are a historical anachronism that subsidize very costly peak-period consumption and penalize off-peak usage to our environmental detriment. There is no reason for such a system to continue.
• Invisible Students - Bridging the Widest Achievement Gap
  Goldman School of Public Policy Working Paper No. GSPP10-003 (April, 2010)
  David L. Kirp

  Abstract:

  • African-American boys have long fared worse in school. This paper documents this achievement gap, then assesses a number of evidence-based strategies that hold promise of bridging that gap. Those strategies range from high-quality early education and skill-buidng reading programs to mentoring initiatives and interventions that address stereotype vulnerability. Much of the existing research has not isolated the effects on black males, and the paper offers new data that demonstrates those impacts. A sequence of interventions, which begin before kindergarten and continue during college, is recommended.
• The Effects of Uncertain Divestiture as Regulatory Threat
  Goldman School of Public Policy Working Paper No. GSPP10-004 (May, 2010)
  Makoto Tanaka (Visiting Professor)

  Abstract:

  • It has been argued that the threat of regulatory intervention affects firm behavior. We investigate the pricing decision of the dominant firm under regulatory threat, considering the probability of intervention as a function of the price. Our focus is on the case where the potential divestiture of the firm serves as a threat of regulatory intervention. Specifically, we compare regulatory threat, which can be regarded as uncertain intervention, with deterministic intervention. It is shown that under certain conditions associated with the marginal expected penalty, regulatory threat induces the firm to lower prices even more than deterministic intervention. Numerical examples illustrate that with relatively small-scale divestiture, the firm’s price under regulatory threat may be lower than that under deterministic intervention within a relatively broad range of regulator’s attitudes toward intervention.
• Multi-Sector Model of Tradable Emission Permits
  Goldman School of Public Policy Working Paper No. GSPP10-005 (May, 2010)
  Makoto Tanaka (Visiting Professor)

  Abstract:

  • This paper presents a multi-sector model of tradable emission permits, which includes oligopolistic and perfectly competitive industries. The firms in oligopolistic industries are assumed to exercise market power in the tradable permit market as well as in the product market. Specifically, we examine the effects of the initial permit allocation on the equilibrium outcomes, focusing on the interaction among these product and permit markets. It is shown that raising the number of initial permits allocated to one firm in an oligopolistic industry increases the output produced by that…firm. Under certain conditions, raising a “clean” (less-polluting) …firm’s share of the initial permits can lead to reductions in both the product and permit prices. We discuss criteria for the socially optimal allocation of initial permits, considering the trade-off between production inefficiency and consumer benefit.
• The Penguin and the Cartel: Rethinking Antitrust and Innovation Policy for the Age of Commercial Open Source
  Goldman School of Public Policy Working Paper No. GSPP10-006 (August, 2010)
  Stephen M. Maurer

  Abstract:

  • Modern open source (“OS”) software projects are increasingly funded by commercial firms that expect to earn a profit from their investment. This is usually done by bundling OS software with proprietary goods like cell phones or services like tech support. This article asks how judges and policymakers should manage this emerging business phenomenon. It begins by examining how private companies have adapted traditional OS institutions in a commercial setting. It then analyzes how OS methods change companies’ willingness to invest in software. On the one hand, OS cost-sharing often leads to increased output and benefits to consumers. On the other, these benefits tend to be limited. This is because sharing guarantees that no OS company can offer consumers better software than any other OS company. This suppresses incentives to invest much as a formal cartel would. In theory, vigorous competition from non-OS companies can mitigate this effect and dramatically increase OS output. In practice, however, de facto cartelization usually makes the OS sector so profitable that relatively few proprietary companies compete. This poses a central challenge to judges and policymakers.
    
    Antitrust law has long recognized that the benefits of R&D sharing frequently justify the accompanying cartel effect. This article argues that most commercial OS collaborations can similarly be organized in ways that satisfy the Rule of Reason. It also identifies two safe harbors where unavoidable cartel effects should normally be tolerated. That said, many OS licenses contain so-called “viral” clauses that require users who would prefer to develop proprietary products to join OS collaborations instead. These clauses aggravate the cartel effect by further reducing the number of companies willing to adopt proprietary business models. Although viral licenses may sometimes be needed to stabilize OS collaborations against free-riding, practical experience suggests that many viral licenses (notably including the GPL) are too broad to survive a Rule of Reason analysis. The article concludes by asking how policymakers can use taxes and government spending to mitigate the cartel effect and/or increase OS software production.
• Policy Should Incorporate the Cost of Error and Uncertainty in Estimates of Fuel Carbon Intensity
  Goldman School of Public Policy Working Paper No. GSPP10-007 (September, 2010)
  Michael O'Hare, Richard Plevin and Derek Lemoine

  Abstract:

  • Implementation of many policies intended to reduce fuels’ contribution to global warming require an estimate of the global warming intensity (GWI) of various fuels. Determining the climate effect of a direct substitution of fuels is not the same as determining the official value of each fuel’s GWI used to implement the policy. Choosing the second, which depends in part on estimates of the first and their intrinsic uncertainty, is a decision that should reflect the shape of the probability distribution of the first and of the cost of error (the difference between the chosen value and the ‘real’ value. Decision analysis helps clarify the difference between these GWI’s, how they relate to each other, and how standard engineering practice like a safety factor applies to the regulator’s decision.
• Legislative-Executive Conflict and Private Statutory Litigation in the US: Evidence from Labor, Civil Rights, and Environmental Law
  Goldman School of Public Policy Working Paper No. GSPP10-008 (October, 2010)
  Sean Farhang

  Abstract:

  • Examining qualitative historical evidence from cases of federal regulation in the areas of labor, civil rights, and environmental policy, this paper provides support for the hypothesis that divergence between legislative and executive preferences—a core and distinctive feature of the American constitutional order—creates an incentive for Congress to rely upon private lawsuits, as an alternative to administrative power, to achieve its regulatory goals. It also shows that this mechanism encouraging statutory mobilization of private litigants had been operative long before its powerful growth started in the late 1960s; that it operates in similar fashion with Republican legislators facing Democratic presidents, and Democratic legislators facing Republican presidents; and that it remained a source of controversy, and an active influence on congressional decision-making, throughout the half century covering the 1940s through the 1980s.
• Private Lawsuits, General Deterrence, and State Capacity: Evidence from Job Discrimination Litigation
  Goldman School of Public Policy Working Paper No. GSPP10-009 (October, 2010)
  Sean Farhang

  Abstract:

  • When Congress relies upon private litigation to implement and enforce statutes, is it actually effective, as a regulatory policy instrument, in driving compliance by the regulated population? This question goes to the heart of American regulatory state capacity when Congress relies upon private lawsuits for implementation, which it has done to an increasing extent since the late 1960s. Questions about the efficacy of this legislative approach to regulation have figured centrally in the massive policy and theoretical debate among scholars over the legislative wisdom of allowing and encouraging private litigation to implement statutes, such as civil rights, environmental, and anti-trust laws. This paper adds to the debate by adjudicating between competing theoretical perspectives with an empirical model testing the links, if any, between rates of private lawsuits and compliance behavior by organizations under federal employment discrimination statutes. The paper presents evidence that litigation rates drive compliance behavior.
• Beyond Treaties and Regulation: Using Market Forces to Control Dual Use Technologies
  Goldman School of Public Policy Working Paper No. GSPP10-010 (November, 2010)
  Stephen M. Maurer

  Abstract:

  • WMD technologies are increasingly available from commercial firms located all over the world. Scholars point out that traditional political initiatives based on regulation and treaty will have difficulty controlling this complex environment. By comparison, market forces routinely impose uniform, worldwide standards (e.g. Windows software, Blu-Ray video players) in many high tech industries. Recently, the companies in one such industry (artificial DNA) used these same economic forces to develop and implement a biosecurity standard. Surprisingly, the resulting standard is more stringent – and at least arguably more enforceable – than the US government’s own official guidelines. This article begins by presenting a short history of how private and public standards evolved in the artificial DNA industry. It then goes beyond this motivating example to ask whether we can expect private non-proliferation standards to be similarly effective in other industries. Next, it reviews what modern theories have to say about standard-setting in both government and the private sector. This analysis suggests that private standards should be reasonably feasible, stringent, and enforceable for many dual use industries. Furthermore, theory suggests that private standards will often reflect society’s risk preferences at least as well as public regulation. The article concludes by suggesting specific reforms for improving private and public standards-setting still further.
• Five Easy Pieces: Case Studies of Entrepreneurs Who Organized Private Communities for a Public Purpose
  Goldman School of Public Policy Working Paper No. GSPP10-011 (November, 2010)
  Stephen M. Maurer

  Abstract:

  • Many observers are skeptical of claims that private entrepreneurs can perform traditional governmental functions like supporting basic research, keeping WMD away from terrorists, or protecting public health. This article presents five recent counterexamples. These include initiatives designed to establish new health and safety standards in nanotechnology; build a central repository for worldwide mutations data; use on-line volunteers to find cures for tuberculosis; and require biotech companies to screen customer orders for products that can be used to make weapons. In principle, many more initiatives are both possible and desirable. Historically, however, government done little to promote private initiatives and sometimes destabilized them. The article suggests strategies for this overcoming this problem.
• Constrained after College: Student Loans and Early Career Occupational Choices
  Goldman School of Public Policy Working Paper No. GSPP10-012 (September, 2010)
  Jesse Rothstein and Cecilia E. Rouse

  Abstract:

  • In the early 2000s, a highly selective university introduced a “no-loans” policy under which the loan component of financial aid awards was replaced with grants. We use this natural experiment to identify the causal effect of student debt on employment outcomes. In the standard life-cycle model, young people make optimal educational investment decisions if they are able to finance these investments by borrowing against future earnings; the presence of debt has only income effects on future decisions. We find that debt causes graduates to choose substantially higher-salary jobs and reduces the probability that students choose low-paid “public interest” jobs. We also find some evidence that debt affects students’ academic decisions during college. Our estimates suggest that recent college graduates are not life-cycle agents. Two potential explanations are that young workers are credit constrained or that they are averse to holding debt. We find suggestive evidence that debt reduces students’ donations to the institution in the years after they graduate and increases the likelihood that a graduate will default on a pledge made during her senior year; we argue this result is more likely consistent with credit constraints than with debt aversion.
• Are Mixed Neighborhoods Always Unstable? Two-Sided and One-Sided Tipping
  Goldman School of Public Policy Working Paper No. GSPP10-013 (March, 2008)
  David Card, Alexandre Mas and Jesse Rothstein

  Abstract:

  • A great deal of urban policy depends on the possibility of creating stable, economically and racially mixed neighborhoods. Many social interaction models – including the seminal Schelling (1971) model – have the feature that the only stable equilibria are fully segregated. These models suggest that if home-buyers have preferences over their neighborhoods’ racial composition, a neighborhood with mixed racial composition is inherently unstable, in the sense that a small change in the composition sets off a dynamic process that converges to either 0% or 100% minority share. Card, Mas, and Rothstein (2008) outline an alternative “one-sided” tipping model in which neighborhoods with a minority share below a critical threshold are potentially stable, but those that exceed the threshold rapidly shift to 100% minority composition. In this paper we examine the racial dynamics of Census tracts in major metropolitan areas over the period from 1970 to 2000, focusing on the question of whether tipping is “two-sided” or “one-sided”. The evidence suggests that tipping behavior is one-sided, and that neighborhoods with minority shares below the tipping point attract both white and minority residents.
• Permanent Income and the Black-White Test Score Gap
  Goldman School of Public Policy Working Paper No. GSPP10-014 (December, 2010)
  Jesse Rothstein and Nathan Wozny

  Abstract:

  • Analysts often examine the black-white test score gap conditional on family income. Typically only a current income measure is available. We argue that the gap conditional on permanent income is of greater interest, and we describe a method for identifying this gap using an auxiliary data set to estimate the relationship between current and permanent income. Current income explains only about half as much of the black-white test score gap as does permanent income, and the remaining gap in math achievement among families with the same permanent income is only 0.2 to 0.3 standard deviations in the CNLSY and ECLS samples. When we add permanent income to the controls used by Fryer and Levitt (2006), the unexplained gap in 3rd grade shrinks below 0.15 SDs, less than half of what is found with their controls.

2009

• Intertemporal Regulatory Tasks and Responsibilities for Greenhouse Gas Reductions
  Goldman School of Public Policy Working Paper No. GSPP09-001 (May, 2009)
  Lee S. Friedman and Jeff Deason

  Abstract:

  • A number of jurisdictions are in the process of establishing regulatory systems to control greenhouse gas emissions that will include as a major component a cap-and-trade system. Both short-term and long-term emissions reduction goals are often established, as California does for the years 2020 and 2050, but little attention has yet been focused on establishing annual emissions targets for the intervening years. We develop recommendations for how these annual targets—which we collectively term a “compliance pathway”—can be set, as well as what flexibility sources should have to adjust to changing or unexpected circumstances in light of cost uncertainties. Existing cap-and-trade programs provide limited guidance on the choice of compliance pathways or on mechanisms for flexibility along them. We consider environmental effectiveness, efficiency, equity, and adaptability as appropriate criteria by which these intertemporal policy alternatives should be judged. We also consider how the strategic context of global emissions reduction may affect the design. Borrowing constraints that are likely to be present in any regulatory system affect our recommendations. We recommend that some allowances intended for future years be auctioned early, and that sources be allowed to use them early. We also find that a three-year compliance period can have substantial benefit over a one-year period. Furthermore, we find that many sources of cost uncertainty suggest a compliance pathway characterized by increasing emission decrements along it. This can be approximated by discrete linear segments, and the latter may fit better with ongoing global negotiations.
• Possibility of Death Sentence Has Divergent Effect on Verdicts for Black and White Defendants
  Goldman School of Public Policy Working Paper No. GSPP09-002 (June 24, 2009)
  Jack Glaser, Karin Martin and Kimberly Kahn

  Abstract:

  • When anticipating the administration of the death penalty, mock jurors may be less inclined to convict defendants. Furthermore, minority defendants have been shown to be treated more punitively. We conducted a survey-embedded experiment with a nationally representative sample to examine the effect of sentence severity as a function of defendant race, presenting respondents with a triple murder trial summary, manipulating the maximum penalty (death vs. life without parole) and the race of the defendant. Respondents who were told life-without-parole was the maximum sentence were not significantly more likely to convict Black (67.7%) than White defendants (66.7%). However, when death was the maximum sentence, respondents presented with Black defendants were significantly more likely to convict (80.0%) than were those with White defendants (55.1%). The results implicate threats to civil rights and to effective criminal incapacitation.
• Reverse deterrence in racial profiling: Increased transgressions by the non-profiled group
  Goldman School of Public Policy Working Paper No. GSPP09-003 (September 25, 2009)
  Amy A. Hackney, Jack Glaser

  Abstract:

  • A controlled experiment tested the possibility that racial profiling – disproportionate scrutiny of minorities by sanctioned authorities – would have “reverse deterrent” effects on the illicit behavior of members of non-profiled groups (e.g., Whites). Research participants given a task involving extremely difficult anagrams were given the opportunity to cheat. White participants randomly assigned to a condition in which two Black confederates were obtrusively singled out for scrutiny by the study administrator cheated more than Whites in a White-profiling condition and a no-profiling control condition, and more than Black participants in all three conditions. Black participants cheated at comparable levels across the three experimental conditions. The effect of the profiling was therefore a net increase in cheating.
• Doing Well by Doing Good? Green Office Buildings
  Program on Housing and Urban Policy Working Paper No. W08-001 (August, 2009)
  American Economic Review, Forthcoming
  Goldman School of Public Policy Working Paper No. GSPP09-004
  Piet M.A. Eichholtz, Nils Kok, John M. Quigley

  Abstract:

  • This paper provides the first credible evidence on the economic value of the certification of “green buildings” -- derived from impersonal market transactions rather than engineering estimates. Our analysis of clusters of certified green buildings and nearby comparables establishes that buildings with “green ratings” command substantially higher rents and selling prices than otherwise identical buildings.
    
    Moreover, variations in the premium for green office buildings are systematically related to their energy-saving characteristics. An increase in the energy efficiency of a green building is associated with a substantial increase in selling price – over and above the premium for a labeled building. Further evidence suggests that the intangible effects of the label itself may also play a role in determining the values of green buildings in the marketplace.
• Housing Policy, Mortgage Policy, and The Federal Housing Administration
  Program on Housing and Urban Policy Working Paper No. W07-004 (May, 2009)
  Measuring and Managing Financial Risk, University of Chicago Press, forthcoming
  Goldman School of Public Policy Working Paper No. GSPP09-005
  Dwight M. Jaffee, John M. Quigley

  Abstract:

  • This paper provides a survey of federal housing programs, establishing the primary importance of indirect and off-budget activities in promoting housing and providing subsidies to housing consumers. We consider the role of the Government Sponsored Enterprises (GSEs) and the Veterans’’ Administration in supplying liquidity and credit guarantees. We then consider in more detail the role of the FHA as supplier and guarantor of credit. We especially focus on the rationale for these activities in the light of the rise and subsequent collapse of the subprime mortgage market. We suggest that a reinvigorated FHA mortgage program will be highly useful in its own right and might be the appropriate agency to assume many of the activities currently undertaken by the GSEs.
• The Government Sponsored Enterprises: Recovering from a Failed Experiment
  Program on Housing and Urban Policy Working Paper No. W09-001 (February 2009)
  Goldman School of Public Policy Working Paper No. GSPP09-006
  Dwight M. Jaffee, John M. Quigley

  Abstract:

  • The Federal takeover of Fannie Mae and Freddie Mac last September spells the end of an experiment in the public-private hybrid known as the Government Sponsored Enterprises (GSE). This paper documents the subsidies provided to the enterprises and the public and private benefits generated. The public benefits included somewhat reduced interest rates for borrowers receiving conforming mortgages. The public subsidies allowed the firms to use the implicit guarantee of their debts to borrow at attractive rates to invest in mortgage portfolios and also to provide a fee-based service in issuing mortgage-backed securities.
    
    We suggest reforming the functions provided by the GSEs. In particular we advocate spinning off the portfolio investment activities into a fully private firm. We also advocate conducting the services necessary to issue mortgage-backed securities within a government-owned corporation responsible directly to federal authorities. These reforms would curb excess risk taking in the secondary mortgage market and would provide the liquidity necessary to support the primary mortgage market.
• Housing Subsidies and Tax Expenditures: The Case of Mortgage Credit Certificates
  Program on Housing and Urban Policy Working Paper No. W02-004 (February 2009)
  Regional Science and Urban Economics, forthcoming
  Goldman School of Public Policy Working Paper No. GSPP09-007
  Erica Greulich, John M. Quigley

  Abstract:

  • In many developed countries, the most significant housing subsidy programs are funded by tax expenditures rather than direct appropriations. Beyond the subsidy to homeownership under the personal income tax, the U.S. tax code provides additional subsidies to specific groups of homeowners. For example, the Mortgage Revenue Bond program (MRB) permits lower levels of government to issue tax-exempt debt, using the proceeds to supply mortgages at below-market interest rates to deserving households. States are also permitted to issue and distribute Mortgage Credit Certificates (MCCs) which entitle recipient homeowners to claim a tax credit for some portion of the mortgage interest paid rather than the tax deduction claimed by other homeowners.
    
    This paper documents the wide variations in reliance upon MCCs and MRBs across U.S. states and the emergence of Mortgage Credit Certificates as the largest housing program administered by California, the largest U.S. state.
    
    The paper also provides an economic analysis of the MCC program using micro data on more than 12 thousand program recipients in California. We estimate the extent and distribution of MCC subsidies across income and demographic groups, measuring the dollar amount of federal subsidies and their effects upon the user cost of residential capital and the demand price of housing. We estimate Poisson models of the geographic incidence of MCC subsidies across neighborhoods of varying socio-demographic composition and deprivation. Finally, we note differences in the administrative and programmatic costs of MCCs and MRBs, suggesting that there are clear reasons to favor Mortgage Credit Certificates as a means of subsidizing deserving households.
• Land Use Regulation with Durable Capital
  Program on Housing and Urban Policy Working Paper No. W08-003 (June 2009)
  Journal of Economic Geography, forthcoming
  Goldman School of Public Policy Working Paper No. GSPP09-008
  John M. Quigley and Aaron Swoboda

  Abstract:

  • This paper compares the level and distribution of the welfare changes from restricting land available for residential development in a city. We compare the economic costs when residential capital is durable with the costs when capital is perfectly malleable and those when population is also freely mobile. Our simulation, based on the stylized specification of an urban location model, suggests that in a more realistic setting with durable capital, the costs of regulation are substantially higher than they are when capital is assumed to be malleable or when households are assumed to be fully mobile. Importantly, the extent of wealth redistribution attributable to these regulations is much larger when these more realistic factors are recognized. When capital is durable, the results also imply that far more new development takes place on previously undeveloped land at the urban boundary, sometimes resulting in an increase in land under development.
• Urbanization, Productivity, and Innovation: Evidence from Investment In Higher Education
  Journal of Urban Economics 66(1), 2009: 2-15.
  Goldman School of Public Policy Working Paper No. GSPP09-009
  Roland Andersson and John M. Quigley

  Abstract:

  • During the past two decades, Swedish government policy has decentralized post-secondary education throughout the country. We investigate the economic effects of this decentralization policy on the level of productivity and innovation and their spatial distribution in the national economy. We find important and significant effects of this investment policy upon economic output and the locus of knowledge production, suggesting that the decentralization has affected regional development through local innovation and increased creativity. Our evidence also suggests that aggregate productivity was increased by the deliberate policy of decentralization. Finally, we estimate the spillovers of university investment over space, finding that they are substantial, but that they are greatly attenuated. Agglomerative effects decline rapidly; roughly half of the productivity gains from these investments are manifest within 5–8 km of the community in which they are made.
• Political and Public Acceptability of Congestion Pricing: Ideology and Self Interest
  Goldman School of Public Policy Working Paper No. GSPP09-010
  Björn Hårsman and John M. Quigley

  Abstract:

  • Studies of the “stated preferences” of households generally report public and political opposition by urban commuters to congestion pricing. It is thought that this opposition inhibits or precludes tolls and pricing systems that would enhance efficiency in the use of scarce roadways. This paper analyzes the only case in which road pricing was decided by a citizen referendum on the basis of experience with a specific pricing system. The city of Stockholm introduced a toll system for seven months in 2006, after which citizens voted on its permanent adoption. We match precinct voting records to citizen commute times and costs by traffic zone, and we analyze patterns of voting in response to economic and political incentives. We document political and ideological incentives for citizen choice, but we also find that the pattern of time savings and incremental costs exerts a powerful influence on voting behavior. In this instance, at least, citizen voters behave as if they value commute time highly. When they have experienced first-hand the out-of-pocket costs and time-savings of a specific pricing scheme, they are prepared to adopt freely policies which reduce congestion on urban motorways.
• Why Do Companies Rent Green? Real Property and Corporate Social Responsibility
  Program on Housing and Urban Policy Working Paper No. W09-004 (August 2009)
  Goldman School of Public Policy Working Paper No. GSPP09-011
  Piet Eichholtz, Nils Kok, and John M. Quigley

  Abstract:

  • This paper provides the first systematic analysis of the choice by organizations to occupy green office space. We develop a framework of ecological responsiveness, and we formulate five propositions to explain why specific firms and industries may be more likely to lease green space. We test these propositions by analyzing the decisions of more than 11,000 tenants to choose office space in green buildings or in otherwise comparable non-green buildings located nearby. We find that corporations in the oil and banking industries, as well as government-related and non-profit organizations, are among the most prominent green tenants. After appropriately controlling for building quality and for location within one quarter mile, our empirical analysis shows that firms in mining and construction and organizations in public administration are relatively more likely to lease green rather than conventional office space. Furthermore, organizations employing higher levels of human capital (as measured by skills and compensation) are more likely to lease green office space.
• Housing Price Dynamics in Time and Space: Predictability, Liquidity and Investor Returns
  Program on Housing and Urban Policy Working Paper No. W08-007 (August 2009)
  Goldman School of Public Policy Working Paper No. GSPP09-012
  Min Hwang and John M. Quigley

  Abstract:

  • It is widely accepted that aggregate housing prices are predictable, but that excess returns to investors are precluded by the transactions costs of buying and selling property. We examine this issue using a unique data set -- all private condominium transactions in Singapore during an eleven-year period. We model directly the price discovery process for individual dwellings. Our empirical results clearly reject a random walk in prices, supporting mean reversion in housing prices and diffusion of innovations over space. We find that, when house prices and aggregate returns are computed from models that erroneously assume a random walk and spatial independence, they are strongly autocorrelated. However, when they are calculated from the appropriate model, predictability in prices and in investment returns is completely absent. We show that this is due to the illiquid nature of housing transactions. We also conduct extensive simulations, over different time horizons and with different investment rules, testing whether better information on housing price dynamics leads to superior investment performance.

2008

• Should California Include Motor Vehicle Fuels in a Greenhouse Gas Cap-and-Trade Program?
  Goldman School of Public Policy Working Paper No. GSPP08-001 (June 1, 2008)
  Lee S. Friedman

  Abstract:

  • This paper considers whether the California Air Resources Board, in implementing regulations to achieve the greenhouse gas reduction goals of the AB32 legislation, should include motor vehicle fuels as part of a cap-and-trade program. Its conclusion is that it is of importance to do so. While this may be relatively uncontroversial on the grounds of first-best economic principles, there are numerous political, administrative and second-best economic reasons that suggest other courses may be preferred. These reasons include compliance and enforcement concerns, the existence of other regulatory programs for the transportation sector, belief that efficiency gains from inclusion would be small, jurisdictional linkage issues, and both political skepticism and agency inexperience with broad market-based regulation. However, consideration of most of these factors strengthens the conclusion. Additionally, a cap-and-trade market with motor vehicle fuels included is necessary to create an important economic competition between the electricity sector and the motor vehicle fuels sector, in which they (and others) vie to see which can most successfully replace ordinary gasoline and diesel with much greener sources. The overall program will be more effective, efficient and equitable with motor vehicle fuels included as part of the cap-and-trade component.
• Beyond Technology-Push and Demand-Pull: Lessons from California's Solar Policy
  Energy Economics, Forthcoming (July 31, 2008)
  Goldman School of Public Policy Working Paper No. GSPP08-002
  Margaret R. Taylor

  Abstract:

  • The scale of the technological transformation required to reduce greenhouse gas emissions to "safe" levels while minimizing economic impacts necessitates an emphasis on designing climate policy to foster, or at least not impede, environmental innovation. There is only a weak empirical base for policy-makers to stand on regarding the comparative innovation effects of various climate policy options, however. Empirical scholarship in environmental innovation is hindered by the complexity of both the innovation process and the interactions between the dual market failures of pollution and innovation that are in play, and it appears that the field would benefit from the structure provided by a common lexicon. This paper focuses on the issues related to policy categorization in this field; these issues have received little attention in the literature despite their importance to making insights gained from empirical studies generalizable. The paper reviews the origins, strengths, and weaknesses of the dominant policy typology of technology-push versus demand-pull instruments. Its primary contribution, however, is to assemble a comprehensive chronology of solar policy in California and its impacts on innovation, where known, and then use this as a basis for building a new policy categorization that takes advantage of the intuitive resonance of the dominant typology, while encompassing the broader range of policy instruments that are employed in practice in order to stimulate environmental innovation. The most noteworthy aspect of the new categorization is that it introduces a third category of environmental innovation policy instrument that focuses on improving the interface between technology suppliers and users. This reflects developments in the economics of innovation literature as well as considerable evidence in the domain of distributed solar energy technologies that opportunism by some of the actors that work at this interface can be a barrier to innovation.
• The Case Against Corporate Social Responsibility
  Goldman School of Public Policy Working Paper No. GSPP08-003 (August 1, 2008)
  Robert B. Reich

  Abstract:

  • This paper argues that the new interest in so-called "corporate social responsibility" is founded on a false notion of how much discretion a modern public corporation has to sacrifice profits for the sake of certain social goods, and that the promotion of corporate social responsibility by both the private and public sectors misleads the public into believing that more is being done by the private sector to meet certain public goals than is in fact the case.
• Reconciling National and Regional Estimates of the Effect of Immigration on U.S. Labor Markets: The Confounding Effects of Native Male Incarceration Trends
  Goldman School of Public Policy Working Paper No. GSPP08-004 (June 2008)
  Steven Raphael and Lucas Ronconi

  Abstract:

  • In this paper, we reconcile the disparity between regional and national level estimates of the effect of immigration on native earnings. The reconciliation derives from the fact that existing national level studies fail to adequately control for changes in other determinants of the wage structure that correspond closely with the skill distribution of immigrant shocks. We focus specifically on the effect of accounting for incarceration trends. Over the past thirty years, an increasing proportion of low skilled native workers have served time in prison, a development that has arguably harmed their employment prospects. We show that the fraction of a given education-experience group that is immigrant is strongly correlated with the fraction of native born workers in the demographic group that is institutionalized. Holding constant incarceration trends considerably diminishes the estimated magnitude of the reduced-form relationship between native labor market outcomes and the fraction in their skill cell that is immigrant.
    
    An alternative interpretation of these findings offered by Borjas, Grogger, and Hansen> (2006) is that immigration-induced wage declines have pushed more men into criminal activity which, in turn, has increased the incarceration rate. The authors present a model whereby the reduced form effect of immigration on incarceration reflects the product of (1) the effect of immigration on wages and (2) the elasticity of labor demand in the crime sector. The latter elasticity gauges the extent to which the local crime market is able to absorb additional offenders as the quality of legitimate work opportunities (as measured by wages) diminishes. While national level correlations presented by the authors are consistent with this interpretation, we show that the state level results are not. Despite a sizable and statistically significant negative reduced-form effect of immigrant penetration on wages in state-level panel regressions, there is no statistically significant relationship between state-level immigrant shocks and state-level incarceration rates – i.e., despite an identifiable dose to state-level wages, there is no incarceration response. Estimates of the elasticity of demand in the criminal sector using both the original state-level estimates presented in Borjas, Grogger, and Hansen (2006) as well as our replication and simple alternative specification of these regressions are essentially zero. Thus, we conclude that immigration has had no impact on criminal activity among natives operating through labor market competition.
• Capitalizing Art Museum Collections: Awkward for Museums But Good for Art and for Society
  Goldman School of Public Policy Working Paper No. GSPP08-005 (November 2005)
  Michael O'Hare

  Abstract:

  • Though standard accounting practice requires that all assets of a firm be manifest in accounts, an exception to this principle allows museums to omit their entire collections from their balance sheets.  As the collection of any top-rank museum has more value than the rest of a typical museum’s assets put together, this practice greatly obstructs good institutional decisionmaking.  The practice is justified by an assertion common in the museum community that the collection is not a financial asset, neither available for sale nor obligation as a loan security, and by a variety of other assertions regarding the cost of assessing it. These assertions are shown to be choices with no fundamental support beyond museum management comfort, or to be erroneous.
    The allocation of artistic patrimony across museums generates a return on investment below 1%, indicating that these assets are not being used efficiently to create the benefits museums (whether non-profit or public) are supposed to provide: no other organization would be allowed to control assets with such a low rate of return.  Capitalizing collections is practical and would lead to a variety of beneficial changes in museum practice, on the criterion of inducing “more, better, engagement with more art by more people.” 
• Arts Policy Research for the Next Twenty-Five Years: A Trajectory after Patrons Despite Themselves
  Journal of Cultural Economics, Forthcoming (August 09, 2008)
  Goldman School of Public Policy Working Paper No. GSPP08-006
  Michael O'Hare

  Abstract:

  • This paper was commissioned for a plenary session at the Association for Cultural Economics International 2008 Research Conference recognizing the 25th anniversary of the publication of Patrons Despite Themselves: Taxpayers and Arts Policy.  It proposes five “big questions” to which arts policy research should attend if carried on in the spirit that animated the book, namely that arts policy should seek to generate “more, better, engagement by more people with better art.”  The five issues are:
    
    • Waste of cultural resources represented by works that are not heard or seen, such as unperformed music and works in reserve collections of museums.
    • Design and implementation of a workable business model for works in digital form (recordings, video, text, etc.).
    • Increasing the value created by amateur participation (in contrast to passive consumption of art provided by professionals).
    • Withdrawal of elites, especially economic elites, from their historic participation in arts governance and support.
    • Fragmentation of collective patrimony as people have fewer and fewer works commonly experienced and art serves niche markets.
• Implicit Motivation to Control Prejudice
  Journal of Experimental Social Psychology 44 (2008) 164-172. (September, 02 2008)
  Goldman School of Public Policy Working Paper No. GSPP08-007
  Jack Glaser and Eric D. Knowles

  Abstract:

  • This research examines whether spontaneous, unintentional discriminatory behavior can be moderated by an implicit (nonconscious) motivation to control prejudice. We operationalize implicit motivation to control prejudice (IMCP) in terms of an implicit negative attitude toward prejudice (NAP) and an implicit belief that oneself is prejudiced (BOP). In the present experiment, an implicit stereotypic association of Blacks (vs. Whites) with weapons was positively correlated with the tendency to "shoot" armed Black men faster than armed White men (the "Shooter Bias") in a computer simulation. However, participants relatively high in implicit negative attitude toward prejudice showed no relation between the race-weapons stereotype and the shooter bias. Implicit belief that oneself is prejudiced had no direct effect on this relation, but the interaction of NAP and BOP did. Participants who had a strong association between self and prejudice (high BOP) but a weak association between prejudice and bad (low NAP) showed the strongest relation between the implicit race-weapons stereotype and the Shooter Bias, suggesting that these individuals freely employed their stereotypes in their behavior.
• Drug Use and Drug Policy in a Prohibition Regime
  UC Berkeley Public Law Research Paper No. 1118460 (April 10, 2008)
  Goldman School of Public Policy Working Paper No. GSPP08-008
  Robert MacCoun and Karin D. Martin

  Abstract:

  • Prohibition makes some drug use and drug selling a crime by statute, but licit drugs like alcohol are also associated with criminality in myriad ways. Within a prohibition regime, it is difficult but important to distinguish a drug's "intrinsic" psychopharmacological harms from the harms created or exacerbated by prohibition and its enforcement. Rather than debating the merits of legalization (see MacCoun & Reuter, 2001), we evaluate current epidemiological patterns and mainstream policy instruments within the US prohibition regime, but we go beyond the standard criterion of prevalence reduction by considering harm reduction and quantity reduction as well. We close by speculating about some emerging challenges, including the "thizzle" scene and the future of performance enhancing drugs.
• Intuitive Lawmaking: The Example of Child Support
  2nd Annual Conference on Empirical Legal Studies Paper (July 3, 2007)
  Goldman School of Public Policy Working Paper No. GSPP08-009
  Robert MacCoun, Ira Mark Ellman and Sanford L. Braver

  Abstract:

  • Legal rules are often understood as setting the appropriate balance between competing claims. One might expect policymakers to identify these competing claims and employ a systematic and comprehensive analysis to assign them relative values, and to generate legal rules that follow from those values. But probably, they will not. If policy is instead set by intuitive assessments of the fair balance between competing claims, policymakers would do well to have a good understanding of the public's intuitions about these policy questions. Would a careful study of such intuitions reveal a coherent analytic framework in lay policy judgments, even if most people are unlikely to articulate their views in that way? This study examines that question in the context of child support rules. Child support awards necessarily involve tradeoffs in the allocation of finite resources among at least three private parties: the two parents, and their child or children. Using a sample of citizens called to jury service, we find that our respondents follow a predictable and rational course in their intuitive lawmaking. Their judgments in individual cases varied systematically with their views about four basic principles, suggesting that our respondents largely share a common understanding of the relevant factors that should influence decisions in particular cases, even though they differ in their judgment of the appropriate support level in many of them. Once anchored by their initial judgments, our respondents decide individual cases with considerable consistency and predictability. While gender differences conform to stereotypic expectations, the magnitude of these differences shrink when those with personal experience in the legal child support system are removed from the sample. Additional findings to be presented in future papers are also foreshadowed here.
• Multiple Constraint Satisfaction in Judging
  UC Berkeley Public Law Research Paper No. 11333184 (May 15, 2008)
  Goldman School of Public Policy Working Paper No. GSPP08-010
  Robert MacCoun, Jennifer K. Robbennolt, and John M. Darley

  Abstract:

  • Different models of judicial decision making highlight particular goals. Traditional legal theory posits that in making decisions judges strive to reach the correct legal decision as dictated by precedent. Attitudinal and strategic models focuses on the ways in which judges further their preferred policies. The managerial model emphasizes the increasing caseload pressures that judges at all levels face. Each model accurately captures some of what every judge does some of the time, but a sophisticated understanding of judicial decision making should explicitly incorporate the notion that judges simultaneously attempt to further numerous, disparate, and often conflicting, objectives. We offer a preliminary account of a more psychologically plausible account of judicial cognition and motivation, based on principles of goal management in a constraint satisfaction network.
• Do Citizens Know Whether Their State Has Decriminalized Marijuana? A Test of the Perceptual Assumption in Deterrence Theory
  Goldman School of Public Policy Working Paper No. GSPP08-011 (April 17, 2008)
  Robert MacCoun , Rosalie Liccardo Pacula , Jamie F. Chriqui , Katherine M. Harris and Peter H. Reuter

  Abstract:

  • Deterrence theory proposes that legal compliance is influenced by the anticipated risk of legal sanctions. This implies that changes in law will produce corresponding changes in behavior, but the marijuana decriminalization literature finds only fragmentary support for this prediction. But few studies have directly assessed the accuracy of citizens' perceptions of legal sanctions. The heterogeneity in state statutory penalties for marijuana possession across the United States provides an opportunity to examine this issue. Using national survey data, we find that the percentages who believe they could be jailed for marijuana possession are quite similar in both states that have removed those penalties and those that have not. Our results help to clarify why statistical studies have found inconsistent support for an effect of decriminalization on marijuana possession.
• Distinguishing Spurious and Real Peer Effects: Evidence from Artificial Societies, Small-Group Experiments, and Real Schoolyards
  Review of Law & Economics, Forthcoming , UC Berkeley Public Law Research Paper No. 1118436 (April 10, 2008)
  Goldman School of Public Policy Working Paper No. GSPP08-012
  Robert MacCoun, Philip J. Cook, Clara Muschkin and Jacob L. Vigdor

  Abstract:

  • In a variety of important domains, there is considerable correlational evidence suggestive of what are variously referred to as social norm effects, contagion effects, information cascades, or peer effects. It is difficult to statistically identify whether such effects are causal, and there are various non-causal mechanisms that can produce such apparent norm effects. Lab experiments demonstrate that real peer effects occur, but also that apparent cascade or peer effects can be spurious. A curious feature of American local school configuration policy provides an opportunity to identify true peer influences among adolescents. Some school districts send 6th graders to middle school (e.g., 6th-8th grade "junior high"); others retain 6th graders for one additional year in K-6 elementary schools. Using administrative data on public school students in North Carolina, we have found that sixth grade students attending middle schools are much more likely to be cited for discipline problems than those attending elementary school, and the effects appear to persist at least through ninth grade. A plausible explanation is that these effects occur because sixth graders in middle schools are suddenly exposed to two cohorts of older, more delinquent peers.
• Converting Sentiments to Dollars: Scaling and Incommensurability Problems in the Evaluation of Child Support Payments
  Goldman School of Public Policy Working Paper No. GSPP08-013 (April 16, 2008)
  Robert MacCoun, Ira Mark Ellman and Sanford L. Braver

  Abstract:

  • We examine how ordinary citizens translate intuitions about child welfare and distributive justice into dollar amounts for post-divorce child support payments. Our analyses indicate that child support judgments are quite sensitive to anchoring and question-wording effects. Nevertheless, we find much that is both interpretable and principled in these judgments. For example, the amounts that citizens recommended in an open-ended format ("name") were nearly identical to the amounts other citizens selected from an array of choices in a multiple choice format ("choose").
• Cost-Effectiveness of Greenhouse Gas Emission Reductions from Plug-In Hybrid Electric Vehicles
  Goldman School of Public Policy Working Paper No. GSPP08-014 (November 2008)
  Daniel M. Kammen , Samuel M. Arons, Derek M. Lemoine and Holmes Hummel

  Abstract:

  • We find that plug-in hybrid electric vehicles (PHEVs) could significantly reduce automotive greenhouse gas (GHG) emissions and petroleum consumption, while improving energy security and urban air quality. Widespread PHEV adoption will depend upon technological and economic advances in batteries because the initial fuel savings do not rapidly compensate consumers for the capital costs of batteries today. For PHEV purchases to become economical to consumers, battery prices must decline from $1,300 per kilowatt-hour (kWh) to about or below $500/kWh, or U.S. gasoline prices must remain at about $5 per gallon—or the federal government must institute policy innovations with equivalent effects, such as policies to lower battery cost and increase battery lifetimes (e.g. a broad and sustained program of battery RD&D), or those to widen the difference between gasoline and electricity prices (e.g. changes in energy taxes). However, even before PHEVs become cost-effective consumers, their purchase can still be highly valuable to society if their significant GHG reductions can be achieved cost-effectively (using a benchmark price of about $50/t-CO2-eq). Using the GREET model, we determine that in order for PHEVs’ reductions to become cost-effective, either their purchase must approach current unsubsidized prices—requiring the same policy innovations described above—or very low-GHG electricity must be used to power them. This requires policies to decrease the GHG intensity of electricity, such as renewable portfolio standards, feed-in tariffs or other measures. Importantly, we find that any carbon price would have to exceed $100/t-CO¬2¬-eq in order to render PHEVs’ reductions cost-effective, and hence a carbon price alone represents an impractical short-term means of achieving this goal.