Sam Allgood

The Match between CEO and Firm

We investigate the role of job-match heterogeneity in the CEO labor market. We document a high percentage of CEO turnovers in the early years of tenure as illustrated by the hazard that increases until the fifth year of CEO tenure and then decreases. Evidence suggests that a good match is more likely if the new CEO performs better than the previous CEO. The best matches tend to occur when inside (outside) CEOs follow previous CEOs who quit (are dismissed). Evidence consistent with match theory in the CEO labor market suggests factors that influence the likelihood of observing a good match.

The Marginal Cost of Raising Tax Revenue and Redistributing Income

We present analytic formulas for calculating marginal welfare costs when taxes are levied against the wages of a heterogeneous population of households and marginal tax revenue finances either the supply of a public good or lump‐sum transfers. The formulas are applied to explain the wide discrepancy between estimates of marginal welfare costs for redistribution previously obtained through computer simulation procedures. Our calculations reveal that these procedures introduced lump‐sum transfers that were not specified as part of the reforms to be simulated, but explain most of the differences between their estimates. We also show that welfare cost estimates are quite sensitive to the elasticity of labor supply with respect to exhaustive public spending.

What Students Remember and Say about College Economics Years Later

In his presidential address to the American Economic Association, George Stigler (1963) offered the provocative hypothesis that students would retain very little knowledge from principles courses in economics five years or more after taking the courses. The few empirical studies that have been published on this topic generally found no or small lasting effects, at least for those who took fewer than four courses (see e.g., G. L. Bach and Phillip Saunders, 1965; Gerald J. Lynch, 1990). That raises even broader questions about the long-term effects of studying economics in college, in terms of individuals’ behavior as consumers, workers, and voters, which we are now beginning to investigate using both survey and transcript data. We have two major goals in this study. First, we want to learn how students perceive their classroom experience in economics courses years after leaving school, both in absolute terms and compared to other courses they took. We drew samples of economics, business, and other majors, who attended our four universities in 1976, 1986, and 1996, and asked which topics regularly covered in economics courses they now viewed as being most (and least) important. We asked whether they now viewed the economics courses they took as interesting, important, too difficult, or too abstract. We also compared their perceptions of teaching methods and grading rigor in economics courses to those developed in other courses. Our second major goal represents an empirical test of the common claim that economics is a unique “way of thinking.” If it is, we might reasonably expect people with more training in economics to have different views on policy issues, and to make different decisions as consumers, workers, savers, investors, and voters. We collected survey data on many of these choices, and by matching those responses with transcript data, we plan to investigate whether there are observable behavioral responses associated with being an economics major, or simply taking some minimum number of economics courses, compared to students who took fewer courses or none at all. There are other uses for these data. They can likely be used to study choice of major and course-taking behavior as well as common laboreconomics issues such as human capital versus screening in the labor market. Certainly the data can provide insight into curriculum development for economics departments, and business schools as well. There is, obviously, the potential for response biases in the analysis of these data, but we expect that having transcript data for respondents and nonrespondents will allow us to deal with these issues econometrically. This first, brief report from this ongoing project addresses only the first goal of the project, specifically, how our former students evaluate their experience with economics courses and instructors. What economic courses and concepts do they now believe are most important? Do they wish they had taken more, or less, coursework in economics? What do they think now about various economic issues? And * Allgood: Department of Economics, University of Nebraska, Lincoln, NE 68588 (e-mail: sallgood@unlnotes.unl. edu); Bosshardt: Department of Economics, Florida Atlantic University, Boca Raton, FL, 33431 (e-mail: wbosshar@fau.edu); van der Klaauw: Department of Economics, University of North Carolina, Chapel Hill, NC, 27599 (e-mail: vanderkl@email.unc.edu); Watts: Department of Economics, Purdue University, West Lafayette, IN 47907, and while this paper was written, the German International School of Management and Administration, Hanover, Germany (e-mail: mwatts@mgmt.purdue.edu). We thank the Board of the Calvin K. Kazanjian Economics Foundation for the grant that made this work possible, and the AEA Committee for Economic Education for bringing us together to write the proposal, as described in Michael Salemi et al. (2002). Mike Salemi provided helpful comments on an earlier draft of this paper. April Fidler provided major assistance in project coordination, administration, and data entry. Georg Schaur worked extensively with data organization and preliminary tabulations.

The Longitudinal Effects of Economic Education on Teachers and Their Students

Teacher education in economics is essential if high school students are to have an opportunity to learn economics. Teachers need to develop a solid understanding of economics through course work because students cannot be expected to learn what teachers do not know. In fact, research in economic education at the high school level has found that the number of economics courses taken by teachers has a positive and consistently significant effect on the economic learning of students (Becker, Greene, and Rosen 1990; Bosshardt and Watts 1990). For most teachers, however, the amount of course work in economics is limited. Studies of teacher education programs at colleges and universities show that most prospective social studies teachers (the ones most likely to teach economics in the schools) take about four college credit hours of course work in economics, and only 11 states have specific requirements for course work in economics for teacher certification (Walstad 1992). Although some teachers can correct deficiencies in their economic education by taking in-service courses and workshops, these programs are of short duration and often limit content coverage to the level of a one-semester principles course. Taking just one or two courses in economics is inadequate preparation in the view of a distinguished national committee of economists and educators that

Financial Literacy and Credit Card Behaviors: A Cross-Sectional Analysis by Age

In this study, we use a measure of financial literacy that includes both a test score of actual financial literacy and a self-rating of perceived financial literacy to investigate how financial literacy affects five credit card behaviors: (1) always paying a credit card balance in full; (2) carrying over a credit card balance and being charged interest; (3) making only a minimum payment on a credit card balance; (4) being charged a fee for a late payment; and (5) being charged a fee for exceeding a credit limit. Probit analysis was used to assess each behavior with a large nationally representative sample of U.S. adults (N = 28,146) divided into groups to reflect the five major decades in the adult life cycle (18–29; 30–39; 40–49; 50–59; and 60–69 and older). Perceived financial literacy was found to be a stronger predictor of less costly practices in credit card use than actual financial literacy for the five credit card behaviors and across each of the five age groups. The study also shows that the combination of the subjective assessment with the objective assessment of financial literacy provides a more comprehensive analysis of how financial literacy affects each credit card behavior. This combined approach to assessment produced the largest estimates of the effects of financial literacy on credit card behavior. The findings hold across the five credit card behaviors and the five age groups.

Grade targets and teaching innovations

Abstract This paper develops a simple model of student choice to explain why some teaching innovations have only a negligible effect on mean student performance. Teaching innovations are defined as small changes in pedagogy that enable students to more quickly convert time to knowledge. In modeling student behavior it is assumed that some students are more interested in their level of performance or in minimizing their effort than in mastering a subject. The model demonstrates that if students set grade targets, some students choose to learn less and the change in mean student achievement will tend to be small.

Economics Coursework And Long‐Term Behavior And Experiences Of College Graduates In Labor Markets And Personal Finance

Using survey data from over 2,000 students who attended one of four large public universities in 1976, 1986, or 1996, we investigate the relationship between taking more coursework in economics, or choosing economics as an undergraduate major, and a wide range of later decisions and outcomes in labor markets and personal finance, many of which have not been analyzed in earlier research. Generally, economics coursework and majoring in economics are significantly related to higher levels of earnings, home equity, and savings. They are also associated with working more hours and negatively related to completing graduate degrees (except the MBA). Among graduates with positive savings, those with more economics coursework invest more in individual stocks and money market accounts, and are more likely to have employer‐provided life insurance. They have fewer credit cards, which are more often paid in full each month. Most of these findings also hold for graduates who majored in business, but on average economics majors worked more hours and earned more than business majors, were more likely to have been self‐employed, and expected to retire at an older age. Business majors were more likely to have experienced a layoff, and were even less likely than economics majors to complete graduate degrees (except the MBA). Economics majors expected to save even more than business majors by retirement, and viewed short‐term and precautionary motives for saving as more important. Finally, our results suggest that exposure to economics through course‐taking is more important for later outcomes than actual performance in those courses.

Views of Teaching and Research in Economics and Other Disciplines

Anecdotes are often quite suggestive. A graduate student in economics who was serving as a teaching assistant once reported that his major professor came into his office and told him that he was spending too much of his time helping his undergraduate students and not enough time on his research. Was the professor expressing a preference for time spent on teaching over research? Or was the professor suggesting to the student that the academic market rewards research more than teaching? Regardless, the underlying message that gets transferred from such an experience, as early as graduate education and perhaps throughout a career, is that teaching is not as important or valuable as research. Such strong conclusions, however, should not be based on anecdotal evidence. Whether economics professors are less interested in teaching and more interested in research is an empirical question worthy of study. Although teaching and research choices made by economics faculty members reflect both preferences and choice sets, in this study we focus on preferences and use a national survey to compare the teaching and research views of economists with faculty members in other major disciplines.

The Effects of Perceived and Actual Financial Knowledge on Credit Card Behavior

This study uses a combined measure of financial literacy or financial knowledge that includes both a test score of actual financial knowledge and a self-assessment of overall financial knowledge. The combined measure provides greater understanding about how financial knowledge affects financial behavior. The study uses a large national survey of U.S. adults and households (n=28,146) to investigate how financial knowledge affects typical behaviors related to credit card use. The five behaviors include paying credit card balances on time, carrying over a balance and paying interest on it, making only a minimum payment on a credit card, being charged a late fee, and going over a credit card limit. The results from the probit analysis show that actual financial knowledge and perceived financial knowledge both significantly influence credit card behavior.

Charity, Impure Altruism, and Marginal Redistributions of Income

Warm–glow utility mitigates concerns that public giving crowds–out private giving dollar–for–dollar. Warm glow also means that utility is decreasing in the giving of others, ceteris paribus, and the willingness to pay for altruism is smaller (at the margin) if altruistic households have a positive willingness to pay for warm glow. Consequently, a marginal redistribution of income that passes the Pareto test may fail the test if altruistic households receive warm glow. Numerical evaluation shows that passing the Pareto test is very sensitive to cross–price elasticities between charity and labor supply, the elasticity of charity with respect to warm glow, the tax rate of the rich, and the fraction of the population that is rich.