American Economic Review

Published by American Economic Association
Online ISSN: 0002-8282
Publications
Article
Using historical census and survey data, Long and Ferrie (forthcoming) found a significant decline in social mobility in the United States from 1880 to 1973. We present two critiques of the Long-Ferrie study. First, the data quality of the Long-Ferrie study is more limiting than the authors acknowledge. Second, and more critically, they applied a method ill-suited for measuring social mobility of farmers in a comparative study between 1880 and 1973, a period in which the proportion of farmers dramatically declined in the U.S. We show that Long and Ferrie's main conclusion is all driven by this misleading result for farmers.
 
Article
During the 1980's, a period in which the average level of real wage rates was roughly stagnant, there were large changes in the structure of relative wages, most notably a huge increase in the relative wages of highly educated workers. This paper attempts to assess the power of several alternative explanations of the observed relative wage changes in the context of a theoretical framework that nests all of these explanations. Our conclusion is that their major cause was a shift in the skill structure of labor demand brought about by biased technological change.
 
Article
Only one-fifth of respondents to a rider on the University of Michigan Survey Research Center’s Monthly Survey said that the 2008 tax rebates would lead them to mostly increase spending. Almost half said the rebate would mostly lead them to pay off debt, while about a third saying it would lead them mostly to save more. The survey responses imply that the aggregate propensity to spend from the rebate was about one-third, and that there would not be substantially more spending as a lagged effect of the rebates. Because of the low spending propensity, the rebates in 2008 provided low “bang for the buck†as economic stimulus. Putting cash into the hands of the consumers who use it to save or pay off debt boosts their well-being, but it does not necessarily make them spend. Low-income individuals were particularly likely to use the rebate to pay off debt.
 
Article
Consistent with mental accounting, we document that investors sometimes choose the asset allocation for one account without considering the asset allocation of their other accounts. The setting is a firm that changed its 401(k) matching rules. Initially, 401(k) enrollees chose the allocation of their own contributions, but the firm chose the match allocation. These enrollees ignored the match allocation when choosing their own-contribution allocation. In the second regime, enrollees simultaneously selected both accounts' allocations, leading them to mentally integrate the two. Own-contribution allocations before the rule change equal the combined own- and match-contribution allocations afterwards, whereas combined allocations differ sharply across regimes.
 
Article
This study isolates the causal effects of financial literacy and schooling on wealth accumulation using a new household dataset and an instrumental variables (IV) approach. Financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models, whereas the IV estimates reveal even more potent effects of financial literacy. They also indicate that the schooling effect only becomes positive when interacted with financial literacy. Estimated impacts are substantial enough to imply that investments in financial literacy could have large wealth payoffs.
 
Article
While the high level and rapid growth of health expenditures are well recognized, this examination explores a less-well-investigated aspect of health-care financing: how health costs are distributed among families by income, race, and ethnicity. The focus is on outlays for health care (out-of-pocket spending, the purchase of insurance premiums, and expenditures through the tax system), not on the quantity of health services received. The distributional effects of replacing premiums with tax-based financing is also examined. The unit of analysis is the nonelderly family (families with family reference person below age 65) and under-65-yr-old single individuals. -from Author
 
Article
A number of prominent diseases are influenced by health behaviors. For example, it is well-known that the decision to smoke comes with considerable risks of developing smoking-related ailments such as lung cancer, emphysema, and heart disease. Obesity is another health condition that can be costly. It is associated with increased risk for diseases such as coronary heart disease and diabetes (Centers for Disease Control 2009). Nationally, it is estimated that about one-third of the U.S. population is obese, and estimates suggest that obesity costs society anywhere from $27 to $47 billion in health care expenditures annually (Centers for Disease Control 2009, National Center for Health Statistics 2008). Research suggests that changing individuals’ diets and getting them to exercise would help to reduce the prevalence of obesity in society (Melayne McInnes and Judith Shinogle, 2009). Smoking and obesity provide just two examples of cases in which the nation’s burden of disease is influence by behaviors that its citizens engage in. Because the United States spends a large share of GDP on health care each year, understanding the determinants of health behaviors is important, as it may allow scholars to identify ways to reduce these costs. This paper examines the relationship between individuals’ health behaviors and the “non-cognitive” skills that individuals possess. In the past decade the economics discipline has seen a burst of interest in human capabilities that contribute to labor market productivity beyond the usual foci of attention—levels of education and learning by doing. The collection of personality traits, soft-skills, incentive-enhancing preferences, and socio-emotional factors that economists are now studying has been loosely grouped together under the heading “non-cognitive” skills.1 While the term may be something of a misnomer because many of the worker attributes that the authors writing in this subfield are interested in require reasoning or cognition, the skills of interest have been found to be important determinants of labor market success (James Heckman, Jora Stixrud, and Sergio Urzua 2006; Samuel Bowles, Herbert Gintis, and Melissa Osborne 2001).2James Heckman (2007) has stated that these socio-emotional attributes--as non-cognitive skills are sometimes called--are also likely to affect health behaviors. This paper tests this hypothesis. It provides a theoretical and an empirical analysis of the connection between socio-emotional attributes and the choices that individuals make about health. It uses data from a large, nationally representative dataset to analyze the relationships.
 
Article
We propose a social choice rule for aggregating preferences elicited from surveys into a marginal adjustment of policy from the status quo. The mechanism is: (i) symmetric in its treatment of survey respondents; (ii) ordinal, using only the orientation of respondents’ indifference surfaces; (iii) local, using only preferences in the neighborhood of current policy; and (iv) what we call “first-order strategy-proof,” making the gains from misreporting preferences second order. The mechanism could be applied to guide policy based on how policy affects responses to subjective well-being surveys.
 
Article
I explore the relationship between the distribution of adult heights and the distribution of income. It has previously been argued (a) that average adult height may depend negatively on income inequality; (b) that some measure of inequality in adult heights is informative about inequality in income; and (c) that differences in heights between groups are informative about the allocation of resources between the groups. I argue on theoretical grounds that, except in very special cases, height inequality is unlikely to indicate income inequality, but that (a) and (c) are plausible and worth serious investigation. I use data from the third round of India's National Fertility and Health survey to explore these issues. The most important findings concern sexual dimorphism in heights between adult Indian men and women. Consistent with improvements in material living conditions and in the epidemiological environment, both men and women are becoming taller over time, but the rate of increase is three times faster for men than for women, which is strongly suggestive of increasing relative discrimination against women in nutrition or healthcare. Sexual dimorphism is more marked in places where there is a high ratio of missing women which is consistent both with spatial differences in discrimination and with accounts in evolutionary biology of sexual dimorphism. I find no consistent relationship between either average heights or the inequality in heights and inequality in consumption.
 
Article
In this paper, I examine several critical issues pertaining to the health care needs of the elderly and disabled population. I also discuss the economist's contribution to policy formulation and analysis in this area, and current research opportunities. -Author
 
Article
This paper presents a simple model of preventive health care, similar to that of Grossman (1972), and uses the model to define what a person would pay for a change in air quality. The model assumes that one can build up resistance to acute illnes by increasing his stock of health capital; however, health capital decays at a rate which depends on air pollution. For acute illness, willingness to pay as derived from the model is greater than the benefit estimate computed using the damage-function approach. To illustrate the size of this discrepancy, estimates of willingness to pay are computed using data from the Michigan Panel Study of Income Dynamics. The case for government providing information about risks rests secure in the theory of public goods. Informational scale economies and problems of dissemination conceivably call for a principal-agent relationship in which certain types of decisions are delegated to the agency. However, the setting of standards and prohibitions is too simplistic. It seldom recognizes that personal action tends to interact with and partially offset them. 8 references.
 
Article
This paper examines the recent decentralization of governance in Indonesia and its impact on local infrastructure provision. The decentralization of decisionmaking power to local jurisdictions in Indonesia may have improved the matching of public infrastructures provision with local preferences. However, decentralization has made local public infrastructures depend on local resources. Due to differences in initial endowments, this may result in the divergence of local public infrastructures in rich and poor jurisdictions. Using data from village-level panel surveys conducted in 1996, 2000, and 2006, this paper finds that (1) local public infrastructures depend on local resources, (2) decentralization has improved the availability of local public infrastructures, (3) local jurisdictions are converging to a similar level of local public infrastructure, and (4) to some extent, decentralized public infrastructures' provision reflects local preferences.
 
Article
This study uses data from pre- and post-crash surveys from the Cognitive Economics study to examine the impact of recent stock and labor market wealth losses on the planned retirement ages of older Americans. Regression estimates imply that the average wealth loss between July 2008 and May/June 2009 is associated with an increase in planned retirement age of approximately 2.5 months. Furthermore, pessimism about future stock market returns is found to amplify the impact of wealth losses on retirement timing.
 
Article
Applicants for Social Security Disability Benefits who fail to pass the medical screening form a natural 'control' group for beneficiaries. Data drawn from the 1972 and 1978 surveys of the disabled done for the Social Security Administration show that fewer than 50% of rejected male applicants work. Typical earnings of those that do are less than 50% of median earnings for other men their age. These data cast doubt on recent econometric work which suggests that the disincentive effects of DI have been substantial.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
 
Article
This paper considers how international migration of the head of household affects the allocation of resources toward boys relative to girls within households remaining in the home country. I address the endogeneity of migration with a differences-in-differences style regression model that compares those households in which migrants have already returned home with those in which migrants are still away. The evidence suggests that while the head of household is away a greater fraction of resources are spent on girls relative to boys, but upon his return, this pattern is reversed.
 
Article
I consider the labor-market effects of mandates which raise the costs of employing a demographically identifiable group. The efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group-specific wages. I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group. Correspondingly, I find little effect on total labor input for that group.
 
Article
This paper uses age-at-school-entry policies to identify the effect of female education on fertility and infant health. We focus on sharp contrasts in schooling, fertility, and infant health between women born just before and after the school entry date. School entry policies affect female education and the quality of a woman's mate and have generally small, but possibly heterogeneous, effects on fertility and infant health. We argue that school entry policies manipulate primarily the education of young women at risk of dropping out of school.
 
Distribution of Subjective Probability of Entering Nursing Home Within 5 Years  
Preference-based Selection: Preventive Health Activity
Preference Based Selection: Preventive Health Activity and Wealth
Article
We demonstrate the existence of multiple dimensions of private information in the long-term care insurance market. Two types of people purchase insurance: individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance. Ex post, the former are higher risk than insurance companies expect, while the latter are lower risk. In aggregate, those with more insurance are not higher risk. Our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence. The results also suggest a general test for asymmetric information.
 
Article
Evidence relating unemployment to health is found at every level of social science analysis from national population rates to individual psychophysiological stress response. At the population level of analysis, increase in the unemployment rate indicates recession and/or structural economic decline. At the individual level, unemployment is interpreted as a stressful life event. In both cases, inverse associations are found between measures of unemployment and indicators of health. We identify social science literatures associating health indicators with each of the following: economic growth, socioeconomic status, sociocultural change, economic instability, the status of being unemployed, social stress and work stress. Outstanding research issues include the requirements to identify and measure the effects of conditional factors and control variables in multivariate analysis and to examine a broader range of both severity of unemployment and severity of health outcomes. A research agenda proposes studies at the macro, meso and micro levels of analysis. We urge such research for its potential contribution both to analytic social science and to economic and social policy.
 
Article
The onset of Medicare eligibility at age 65 leads to sharp changes in the health insurance coverage of the U.S. population. These changes lead to increases in the use of medical services, with a pattern of gains across socioeconomic groups that varies by type of service. While routine doctor visits increase more for groups that previously lacked insurance, hospital admissions for relatively expensive procedures like bypass surgery and joint replacement increase more for previously insured groups that are more likely to have supplementary coverage after 65, reflecting the relative generosity of their combined insurance package under Medicare.
 
-VARIOUS MEASURES OF PREDICTED MEAK ANNUAL USEOF M ~ D I C A L SERVICES, BY PLAN 
-ARC ELASTICITIES TYPESOF CARE FOR VARIOUS CALCULATED FROM EPISODES" 
Article
We estimate how cost sharing, the portion of the bill the patient pays, affects the demand for medical services. The data come from a randomized experiment. A catastrophic insurance plan reduces expenditures 31 percent relative to zero out-of-pocket price. The price elasticity is approximately -0.2. We reject the hypothesis that less favorable coverage of outpatient services increases total expenditure (for example, by deterring preventive care or inducing hospitalization).
 
Article
Many have proposed universal insurace coverage to improve health, reduce welfare lock, and eliminate the free-rider problem. The difficulty with universal coverage, however, is that when subsidies are given to the uninsured, they must also be given to those of the same income who are insured. Since many poor people already have insurance, this is very expensive. Policies to improve health will have to focus on particular groups, such as children or single-parent families, where the costs are smaller. Designing policies for these groups, however, still poses numerous economic questions, including the choice between insurance coverage and direct provision of services, the effect of public expansions on private coverage, and the appropriate phase-out rate of benefits. Research must also address the problems in health insurance markets. -from Author
 
Article
For 20 years following 1949, average total fertility per woman in China hovered just above six children. The year 1970 marked the beginning of persistent fertility declines. By 1980, the rate had dropped to 2.75, and since 1992 it has remained under 2. While some of this transition can be accounted for by broad socioeconomic developments, the extent to which it is attributable to China's unique population policies remains controversial. This paper analyzes household data from the 1992 Household Economy and Fertility Survey (HEFS) to provide the first direct microeconomic empirical evidence on the efficacy of these policies.
 
Article
We evaluate the choices of elders across their insurance options under the Medicare Part D Prescription Drug plan, using a unique data set of prescription drug claims matched to information on the characteristics of choice sets. We document that elders place much more weight on plan premiums than on expected out of pocket costs; value plan financial characteristics beyond any impacts on their own financial expenses or risk; and place almost no value on variance reducing aspects of plans. Partial equilibrium welfare analysis implies that welfare would have been 27% higher if patients had all chosen rationally.
 
Summary of bene…t options 
Main results 
Predictive power of di¤erent variables 
Summary correlations by groups 
Article
We analyze the extent to which individuals' choices over five employer-provided insurance coverage decisions and one 401(k) investment decision exhibit systematic patterns, as would be implied by a general utility component of risk preferences. We provide evidence consistent with an important domain-general component that operates across all insurance choices. We find a considerably weaker relationship between one's insurance decisions and 401(k) asset allocation, although this relationship appears larger for more "financially sophisticated" individuals. Estimates from a stylized coverage choice model suggest that up to thirty percent of our sample makes choices that may be consistent across all six domains.
 
Article
Would people choose what they think would maximize their subjective well-being (SWB)? We present survey respondents with hypothetical scenarios and elicit both choice and predicted SWB rankings of two alternatives. While choice and predicted SWB rankings usually coincide in our data, we find systematic reversals. We identify factors-such as predicted sense of purpose, control over one's life, family happiness, and social status-that help explain hypothetical choice controlling for predicted SWB. We explore how our findings vary by SWB measure and by scenario. Our results have implications regarding the use of SWB survey questions as a proxy for utility.
 
Article
Our goal is to evaluate crop yield impacts from likely climate changes for Southeast Asia. To do so we link soil science crop modeling, weather simulators, and global climate change model - ing into an integrated economic model of mul - tistage rice production. The economic model is estimated with detailed monthly data on inputs, operations, and environmental data over a five- year period. We then forecast impacts under two different future economic scenarios, one assum - ing high future global anthropogenic 1 pollution emissions, and the other assuming low. We com - pare results of the integrated economic model with those of a biophysical model, inputting into both the stochastic realizations of a weather gen - erator, calibrated against the present no-climate benchmark and against the two climate change scenarios—mild and severe. The more realistic forecasts from the socioeconomic model thus include important farmer behavioral/mitigation strategies. We discuss both aggregate/average impacts and heterogeneity.
 
Article
This paper examines the effect of workers' compensation on time out of work. It introduces a "natural experiment8 approach of comparing individuals injured before and after increases in the maximum weekly benefit amount. The increases examined in Kentucky and Michigan raised the benefit amount for high-earnings individuals by approximately 50 percent, while low-earnings individuals, who were unaffected by the benefit maximum, did not experience a change in their incentives. Time out of work increased for those eligible for the higher benefits and remained unchanged for those whose benefits were constant. The estimated duration elasticities are clustered around 0.3-0.4.
 
Article
This paper provides the first real-world evidence of Giffen behavior, i.e., upward sloping demand. Subsidizing the prices of dietary staples for extremely poor households in two provinces of China, we find strong evidence of Giffen behavior for rice in Hunan, and weaker evidence for wheat in Gansu. The data provide new insight into the consumption behavior of the poor, who act as though maximizing utility subject to subsistence concerns. We find that their elasticity of demand depends significantly, and nonlinearly, on the severity of their poverty. Understanding this heterogeneity is important for the effective design of welfare programs for the poor. (JEL D12, O12).
 
Article
The following article by Mr Harris discusses in detail the history of Aboriginal education in New South Wales. Readers from New South Wales will: certainly find this extremely interesting and, indeed, the perspective that Mr Harris offers will deepen their insights, into the educational status of Aboriginals today. Readers from other states will, I am sure, also find it very, illuminating; in many ways the New South Wales scene was similar to that in other parts of Australia.
 
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