Tag Archive: Economics

Three essays in public economics (Education Papers posted on March 23rd, 2013 )

The first essay uses the policy changes surrounding the 1992 Amendments to the Higher Education Act HEA92) to examine the effects that the implicit financial-aid tax has on household saving behavior, particularly on portfolio choices. The empirical results show that the financial-aid tax does not significantly affect the total level of wealth. However, families significantly adjust their portfolio composition to avoid the tax. In addition, families seem to lack knowledge about financial-aid rules if they have not experienced with the financial-aid applications. Even if families know the rules, they do not change assets in response to the financial-aid tax if they face no imminent taxation. This second essay uses the policy changes surrounding the 1992 Amendments to the Higher Education Act HEA92) to examine the reasons for which families have borrowed much more after the HEA92 increased the loan limits on subsidized and unsubsidized student loans. I find that the loan-limit changes do not significantly affect education investments. However, families significantly reduce some other financial instruments used to finance students higher education, including loans from parents, parents direct contributions, working while in school, and work-study aid. The third essay uses the Health and Retirement Study to study the effects of group Health insurance on womens retirement decisions. I find the availability of alternative group health insurance, including retiree health insurance and spousal health insurance, significantly increases the retirement hazard and decreases retirement age for women. Married women are much more sensitive to the availability of spousal health insurance than to retiree health insurance. Medicare also has significant effect on women retirement behavior.

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The impact of the business cycle on educational choices (Education Papers posted on March 23rd, 2013 )

The following essays analyze the impact of short-term economic fluctuations on individual and household educational decisions. The first essay investigates how the business cycle affects a households decision on the timing of kindergarten enrollment. For some 5 year-olds, waiting an additional year beyond the designated age of eligibility for kindergarten enrollment can potentially result in long-term academic benefits. Although delayed entry affords an opportunity for further Social and intellectual development prior to the start of formal education, there is a significant financial and time burden associated with not enrolling once legally eligible, specifically the cost of daycare, preschool, or home care; the next best alternatives to public elementary school. Broadly, the results presented in this study indicate that during economic downturns kindergarten enrollment increases. The empirical analysis is motivated by a simple model of the relationship between kindergarten enrollment eligibility, the timing of enrollment, the cost of alternatives to kindergarten, a childs future academic success, and how budget and time constraints are impacted by short-term economic fluctuations. The second chapter explores the impact of fluctuations in entry-level labor market conditions on graduate school enrollment decisions directly after earning an undergraduate degree. Focusing on data for recently graduated science and Engineering undergraduates, this essay finds that advanced degree enrollment patterns vary across the business cycle by undergraduate major, grade point average GPA), gender, and advanced degree type. The final chapter investigates and documents the rising trend in employment among those enrolled in college. From 1968 to 2003, student employment increased from 36 percent to 51 percent. This essay examines the role of state-level economic conditions, tuition, cohort size, type of institution, and individual and household characteristics on the probability of being employed while enrolled in an undergraduate degree program.

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Wealth and prices in the not-for-profit sector (Education Papers posted on March 18th, 2013 )

I develop a model in which a not-for-profit sector arises because altruistic agents care about the consumption of certain goods by other agents. The equilibrium is identical to the solution to the benefactors’ utility maximization subject to the beneficiaries’ demand, the potential entry of for-profit firms, the production technology and the budget constraint. Therefore, the goal of a not-for-profit reflects the preferences of the benefactor. If the goods produced in the not-for-profit sector are characterized by their quality and quantity, differences in the benefactor’s tastes for quality and quantity across these goods result in different effects of donations on prices. The main claim is that the price of quality-intensive goods is more likely to increase or stay constant when donations grow. I analyze the case of symphony orchestras in the U.S. in the period 1988-2005. The evidence is consistent with the benefactors caring significantly about the quality of the service. I also analyze the case of private colleges in the U.S. Since in this not-for-profit industry consumers (students) are inputs in the production process (education), I develop a more complicated model of matching. Students differ in talent and maximize their net wealth. Colleges differ in wealth and maximize their quality, measured by the human capital of their graduates. The model has two predictions: (1) when a college becomes wealthier it raises tuition, and (2) when the wealth of all colleges grows at the same rate, tuition increases at every college. The first claim is supported with data from the period 1970-2005 using the number of alumni as an instrumental variable for each college’s wealth. The second claim is supported with a data set from the period 1900-2005 using the Dow Jones index as an instrumental variable for colleges’ median endowment. The main conclusion is that colleges’ wealth must be added to the factors behind the rapid growth in tuition fees over the last twenty-five years discussed in other studies.

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Performance of funds of hedge funds (Education Papers posted on March 5th, 2013 )

The studies of hedge fund performance are hindered by the lack of quality returns data and the complicated nature of hedge fund returns. This study contributes to the literature in three ways. First, I reinvestigate the performance of hedge funds from different aspects. Second, I develop a new framework to evaluate fund of hedge funds managers skills. Finally, I exam the performance persistence of funds of hedge funds by using various performance measures. In the first study, I find that the annual survivorship and backfilled biases for funds of hedge funds are 0.66% and 0.21%, respectively, during the period 1994-2004. I confirm that hedge funds monthly returns tend to have low standard deviations, negative skewness and high kurtosis. Hedge funds often underperform the equity market in terms of absolute returns, but outperform the equity market in terms of traditional performance measures like the Jensen alpha, Treynor, and Sharpe ratios. However, when accounting for downside risks, the Omega and Sortino ratios both indicate that the performance of hedge funds is not as superior as the traditional performance measures suggest. I also find that hedge funds usually have low exposures to risk factors identified by Fama and French 1993), and Fung and Hsieh 2004). The subperiod analysis indicates that hedge funds tend to underperform the equity market during a bullish stock market, but outperform the equity market during a bearish stock market. I also find some evidence of stale price when returns are measured monthly, quarterly or semiannually. However, it appears that the stale price does not affect the performance rankings. In the second study, I am able to replicate funds of funds returns by using hedge fund strategy indices. I find that fund of hedge funds managers have neither the ability of picking winning hedge funds on the net basis nor the ability of predicting winning hedge fund strategies. In the third study, I find strong evidence of performance persistence when returns are measured monthly, quarterly or semiannually. The evidence of persistence is substantially weakened when returns are measured annually. The quintile analysis indicates that the winners based on the past alpha tend to have the highest return while the losers based on the past Sortino ratio have the lowest return.

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Essays on credit constraints and education (Education Papers posted on March 4th, 2013 )

What fraction of college-age youths in the United States comes from credit-constrained families? Can subjective assessments of financial difficulties inform the debate about pervasiveness of credit constraints in the demand for college education? My dissertation contains two essays addressing these questions. Credit constraints in education may lead to inefficient skill allocations and perpetuate imbalances in the distribution of economic well-being. Unfortunately, empirical evidence regarding their pervasiveness in the United States has not been consistent, in part because constraints tend to be inferred indirectly. The first essay evaluates how a potentially more direct measure can be used to enhance our understanding of the issue. I focus on subjective assessments of financial limitations available in the National Longitudinal Survey of Youth 1979 and find that about 12 percent of college-age individuals expect to underinvest in education because of financial reasons or the need to work. While the measure developed in this paper is noisy and not a precise indicator of credit constraints, it appears to capture important variations in educational choices, beyond these captured by the standard controls, such as parental income. The contribution of the second essay is the use of parents reports of borrowing limitations in the NLSY79 Young Adult Supplement to evaluate the proportion of constrained college-age youths in the early 2000s. The focus on the 2000s is critical because the sharp increase in tuition costs and gradual erosion of real student borrowing limits over the past two decades have potentially made credit constraints in education more widespread. My analysis sample is limited to children of young mothers who are more likely to be disadvantaged economically and hence are of specific interest to policy-makers. Over one-fifth of youths in the sample come from families where mothers report borrowing limitations. Conditional on scholastic ability, family income, and family background characteristics, parental constraints have a strong negative correlation with childrens college attendance. Although my results do not distinguish between alternative explanations for borrowing limitations, they do suggest that researchers interested in the connection between liquidity constraints and education might benefit from paying more attention to direct measures.

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Essays on credit constraints and education (Education Papers posted on March 2nd, 2013 )

What fraction of college-age youths in the United States comes from credit-constrained families? Can subjective assessments of financial difficulties inform the debate about pervasiveness of credit constraints in the demand for college education? My dissertation contains two essays addressing these questions. Credit constraints in education may lead to inefficient skill allocations and perpetuate imbalances in the distribution of economic well-being. Unfortunately, empirical evidence regarding their pervasiveness in the United States has not been consistent, in part because constraints tend to be inferred indirectly. The first essay evaluates how a potentially more direct measure can be used to enhance our understanding of the issue. I focus on subjective assessments of financial limitations available in the National Longitudinal Survey of Youth 1979 and find that about 12 percent of college-age individuals expect to underinvest in education because of financial reasons or the need to work. While the measure developed in this paper is noisy and not a precise indicator of credit constraints, it appears to capture important variations in educational choices, beyond these captured by the standard controls, such as parental income. The contribution of the second essay is the use of parents reports of borrowing limitations in the NLSY79 Young Adult Supplement to evaluate the proportion of constrained college-age youths in the early 2000s. The focus on the 2000s is critical because the sharp increase in tuition costs and gradual erosion of real student borrowing limits over the past two decades have potentially made credit constraints in education more widespread. My analysis sample is limited to children of young mothers who are more likely to be disadvantaged economically and hence are of specific interest to policy-makers. Over one-fifth of youths in the sample come from families where mothers report borrowing limitations. Conditional on scholastic ability, family income, and family background characteristics, parental constraints have a strong negative correlation with childrens college attendance. Although my results do not distinguish between alternative explanations for borrowing limitations, they do suggest that researchers interested in the connection between liquidity constraints and education might benefit from paying more attention to direct measures.

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Bayesian power prior analysis and its application to operational risk and Rasch model (Education Papers posted on February 14th, 2013 )

When sample size is small, informative priors can be valuable in increasing the precision of estimates. Pooling historical data and current data with equal weights under the assumption that both of them are from the same population may be misleading when heterogeneity exists between historical data and current data. This is particularly true when the sample size of historical data is much larger than that of the current data. One way of constructing an informative prior in the presence of the historical data is the power prior, which is realized by raising the likelihood of the historical data to a fractional power. In this dissertation, we extend the power prior by considering the existence of nuisance parameters. When historical information is used as priors, we assume that the parameters of interest have not changed, while the nuisance parameter may change. The properties of power prior methods with nuisance parameters and its posterior distributions are examined for normal populations. The power prior approaches, with or without nuisance parameters, are compared empirically in terms of the mean squared error MSE) of the estimated parameter of interest as well as the behavior of the power parameter. To illustrate the implementation of the power prior with nuisance parameter approach, we apply it to lognormal models for operational risk data and the Rasch model for item response theory IRT). In the application to the Rasch model, we extend the power prior with nuisance parameter approach further by incorporating it with the hierarchical Bayes model.

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Three essays in labor economics (Education Papers posted on February 8th, 2013 )

This dissertation is comprised of three autonomous chapters on topics in labor Economics. The first chapter exploits the quasi-random assignment of students into classrooms in a large secondary school in Malaysia to estimate the effects of peers on student outcomes. The estimates show that having better achieving classmates improves a students math achievement and reduces the students incidence of class absences and discipline violations. There is also evidence of non-linear peer effects and that average achievement may increase as a result of ability grouping. The second chapter extends Iannaccones 1992) religious club model to explain why the Amish would collectively object to high school education and refuse to comply with compulsory schooling laws. I utilize the surprising 1972 U.S. Supreme Courts decision in Wisconsin vs. Yoder, which exempts Amish children from compulsory high school education, as a policy shock to test the predictions of the model. The results show that the successful restriction on high school education helped the Amish sect exclude individuals who have high labor productivity and would lower the quality of the sect from joining. The evidence supports the idea that the Amish use the restriction on secular education as a religious sacrifice to screen out uncommitted members. The third chapter investigates the effect of higher immigration on native fertility. Previous research shows that immigration affects wages, income, and the cost of child rearing, while standard fertility model predicts that changes in wages, income, and the cost of child rearing would affect fertility. Using the cross-state variation in the total fertility rates of native-born American women and the share of immigrants in the population between 1970 and 2005, this chapter estimates that for every one percentage point increase in the share of immigrants in the population, native total fertility rate is predicted to increase by roughly 0.01 children. The negative effect of immigration on wages is the most likely explanation, because the fertility of less educated women and women who resided in their states of birth is most affected.

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Essays on saving for child’s college (Education Papers posted on February 7th, 2013 )

How effective tax-favored education saving accounts ESA) can foster the incentive of saving for childs college among heterogeneous families is still a debate. My dissertation contributes to this query by analyzing the main uncertainty of college saving – childs ability – in the context of the saving with learning model and an empirical examination of the effectiveness of ESA. This dissertation can be divided into three chapters. The first chapter develops a dynamic model combining asset accumulation and learning to explain the parents forward-looking saving behavior when they are confronted with a real option of college choice due to uncertainty of the childs ability. The model infers, with enough time spent learning, that information can improve parents welfare. This can be accomplished by better allocating the consumption to accommodate the burden of college cost given both asset status and childs true ability. Then, I test the implications of the model from Panel Study of Income Dynamics/Child Development Supplement & Transition into Adulthood PSID/CDS & TA) 1997-2005) in the second chapter. This empirical study investigates college saving behavior when learning is present. Data suggest pessimistic and/or rich parents might reduce the college saving, which confirms the interaction of wealth and learning effects predicted by this model. The result also supports the state dependence of parents college expectation and diminishing persistence over time due to learning. The third chapter is devoted to a policy study on education saving accounts ESAs). I examine whether the contribution to ESA is associated with education saving propensity ESP) among families with different income by using Survey of Consumer Finance 1998-2007). The model is estimated by a dynamic synthetic panel. The evidence suggests that only the poor families significantly utilize ESAs to fulfill ESP. Relatively richer families might mainly treat ESA as a tax shelter. I then provide the justification on the ineffectiveness of ESA by using my theoretical model. A number of fiscal policy improvements are proposed to encourage early learning childs ability in an effort to raise the economic efficiency of ESA.

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The smart money: A case study illustrating the impact a global economic recession has had on endowment funds at three Ohio higher education institutions (Education Papers posted on February 7th, 2013 )

Managing the endowment funds of higher education institutions has grown increasingly challenging. Throughout the 2008 “great recession,” institutional leaders have been under pressure to maintain the purchasing power of their endowment funds for future generations of students; however, some of these funds have lost 30–40% of their value. This research was a comparison case study of the endowment funds at three different higher educational institutional in Ohio, their management, and their investment policies. The research involved gathering data such as written or implied endowment management and investment policies, and interviewing key person(s) involved in each institution’s endowment process. The purpose of this case study was to understand the effectiveness of endowment management practices and investment policies at a large state university, a smaller private college and a community college. A focus of the study was to what extent these institutions have been affected by the current global economic recession. Four major themes emerged from the research. These central themes included liquidity, philanthropy, taking a long-term perspective, and external management. The research suggest that In an economic recessive climate endowment managers must make it a priority to define, utilize, and evaluate these four themes. However, the research failed to prove risky investment policies, ones that included alternative investing, exacerbated the recession’s impact on these three endowment fund values.

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