Hanming Fang

Eat, Drink, Firms, Government: An Investigation of Corruption from the Entertainment and Travel Costs of Chinese Firms

We propose entertainment and travel costs (ETC) expenditures as a measure of corruption in Chinese firms. These expenses are publicly reported in firms’ accounting books, and on average they amount to about 3 percent of a firm’s total value added. We find that ETC is a mix that includes grease money to obtain better government services, protection money to lower tax rates, managerial excesses, and normal business expenditures to build relational capital with suppliers and clients. Entertainment and travel costs overall have a significantly negative effect on firm productivity, but we also find that some components of ETC have substantial positive returns to firms.

Lottery versus all-pay auction models of lobbying ∗

I first provide a complete characterizationof the unique equilibrium of thelottery game by n lobbyists with asymmetricvaluations, and then compare the lotteryand the all-pay auction models of lobbying.I show that the exclusion principlediscovered by Baye, Kovenock and de Vries(1993) for all-pay auction does not applyto lottery. I also show that the perverse effectthat an exogenous cap may increase thetotal lobbying expenditure in a two-bidderall-pay auction discovered by Che and Gale(1998) does not apply to lottery.

Theories of Statistical Discrimination and Affirmative Action: A Survey

This chapter surveys the theoretical literature on statistical discrimination and affirmative action. This literature suggests different explanations for the existence and persistence of group inequality. This survey highlights such differences and describes in these contexts the effects of color-sighted and color-blind affirmative action policies, and the efficiency implications of discriminatory outcomes.

Estimating Dynamic Discrete Choice Models with Hyperbolic Discounting, with an Application to Mammography Decisions

We extend the semi-parametric estimation method for dynamic discrete choice models using Hotz and Millers (1993) conditional choice probability (CCP) approach to the setting where individuals may have hyperbolic discounting time preferences and may be naive about their time inconsistency. We illustrate the proposed estimation method with an empirical application of adult womens decisions to undertake mammography to evaluate the importance of present bias and naivety in the under-utilization of this preventive health care. Our results show evidence for both present bias and naivety.

Demystifying the Chinese Housing Boom

We construct housing price indices for 120 major cities in China in 2003-2013 based on sequential sales of new homes within the same housing developments. By using these indices and detailed information on mortgage borrowers across these cities, we find enormous housing price appreciation during the decade, which was accompanied by equally impressive growth in household income, except in a few first-tier cities. While bottom-income mortgage borrowers endured severe financial burdens by using price-to-income ratios over eight to buy homes, their participation in the housing market remained steady and their mortgage loans were protected by down payments commonly in excess of 35 percent. As such, the housing market is unlikely to trigger an imminent financial crisis in China, even though it may crash with a sudden stop in the Chinese economy and act as an amplifier of the initial shock.

Dysfunctional Identities Can Be Rational

Understanding the nature and sources of human identity is an important objective in the study of a variety of social problems. Scholarly and popular writing on the cultural determinants of economic disadvantage underscores this point. Some analysts (e.g., Edward Banfield, 1970; Thomas Sowell, 1994; John McWhorter, 2000; John Ogbu, 2003) have hypothesized that a causal connection exists between the poor social performance of a group of people and their “culture.” That disadvantaged people harbor “dysfunctional” notions about identity has been offered as an explanation of a group’s welfare dependency, or its low academic proficiency. It has been said, for instance, that people fare poorly because they focus overly much on their own victimization, or because they disassociate themselves from their more successful fellows, and so on. At the root of such cultural criticism lies the presumption that the disadvantaged should “reform” themselves: If those people would only see themselves differently, the critics hint, they could be so much better off. This mode of social explanation easily accommodates racial overtones. With the present paper we intend to raise serious doubts about such normative criticisms of the poor when applied to their conceptions of identity. We show that the identities adopted by a group of people can be perfectly consistent with rational individual choices, even though feasible alternative configurations may exist under which everyone would be better off. Indeed, we argue that identity choice by interactive agents with ongoing economic relations has a “tragedy of the commons” quality about it: the profile of dominant strategies for the agents can yield a Pareto-inferior collective outcome. Preaching “identity reform” to such people is a bit like trying to counter an overfishing problem by lecturing fishermen on the moral need for forbearance! We wish to be explicit and clear at the outset about what we have in mind when using the term “identity.” Human identity includes both a personal and a social aspect. Social identity deals with how an individual is perceived and categorized by others (e.g., Erving Goffman, 1963). In contrast, personal identity, which is the subject of this paper, and which psychologists sometimes call “ego identity,” deals with a person’s answer to the question: “Who am I?” Our proposed model of personal identity posits that, to answer this question, an agent must provide a “narrative” about her personal history. That is, she has to summarize her life experiences. Because a full personal history is (necessarily) a very complex object, and since their cognitive capacities are limited, answering the “Who Am I?” question requires agents to project elaborate personal accounts onto manageable categories of self-description. We think of an agent’s identity as the mechanism she uses to convert complex personal history into a more simplified account of herself. A group’s “collective identity” is any self-representational mode of this sort which has been adopted in common by (most of) the agents in that group. We formalize the problem of selective selfrepresentation and use the resulting framework to study the efficiency implications of the “identity” choices people make. This, we believe, is one way that economic analysis can contribute to the study of identity-related issues.

Equilibrium of Affiliated Value Second Price Auctions with Financially Constrained Bidders: The Two-Bidder Case☆

We study an affiliated value second price auction with two financially constrained bidders. We prove the existence of a symmetric equilibrium under quite general conditions. Comparative static results are provided. Journal of Economic Literature Classification Number: D44.

On the compassion of time-limited welfare programs

Supporters of recent welfare reforms argue that time limits and other eligibility restrictions serve recipients. We present a simple model of agents with present-biased preferences to investigate the theoretical validity of this claim. We first identify four types of outcome that describe the behavior of a present-biased agent in the absence of time limits. We then show that the behavioral consequences of time limits are contingent on which outcome characterizes the agent’s behavior in the absence of time limits. We show that under some conditions the imposition of time limits may improve the wellbeing of welfare recipients evaluated both in terms of long-run, time-consistent utility and the periodone self’s utility. This benefit of time limits may come either from allowing the welfare eligible to start working earlier than they otherwise would or, contrary to the intent of the reforms, from allowing them to postpone working. D 2002 Elsevier B.V. All rights reserved.

Government-Mandated Discriminatory Policies: Theory and Evidence

We study an economy with private and public sectors in which workers invest in imperfectly observable skills that are important to the private sector but not to the public sector. Government regulation allows native majority workers to be employed in the public sector with positive probability while excluding the minority from it. We show that even when the public sector offers the highest wage rate, it is still possible that the discriminated group is, on average, economically more successful. The widening Chinese/Malay wage gap in Malaysia since the adoption of its New Economic Policy in 1970 supports our model.

On the failure of the linkage principle with financially constrained bidders

Abstract This paper provides a class of examples of two-bidder common value second price auctions in which bidders may be financially constrained and the seller has access to information about the common value. We show that the sellers expected revenue under a revelation policy may be lower than that under a concealing policy. The intuition for the failure of the linkage principle is as follows. In the presence of financial constraints, the bidders’ upward response in their bids to the sellers good signals is limited by their financial constraints, while their downward response to bad signals is not.