Scott Gilbert

Testing the Distribution of Error Components in Panel Data Models

Abstract We propose tests for normality of the error components in panel data models, using estimates of skewness and kurtosis in the components.

Effects of college education on demonstrated happiness in the United States

Among the many documented benefits of a college education is a higher level of self-reported happiness. The present work considers instead the level of demonstrated happiness and unhappiness within groups, the latter proxied by the conditional probability of suicide within groups having a college education and those without. Those with college are not happier for it, in these terms, and actually have slightly higher rates of suicide than those without college, based on a recent US data.

A Theory of Tax Effects on Economic Damages

This paper provides a theoretical statement about the effect of tax on the present value of lost income streams. I consider the simple case of flat tax rates on earnings and interest income. I approximate tax effects via the instantaneous rate of change - in present value – when the tax rate goes from zero to a small positive number. In this setting I show that present value is lower before tax than after tax when the earning stream is short, with the reverse outcome holding when the earnings stream is long. The switch point, where the tax effect goes from negative to positive, depends on the theoretical model’s inputs. I characterize the effect of inputs on this switch point, and illustrate via an example of an injured railroad worker’s claim of economic damages.

Taxes and the Present Value Assessment of Economic Losses in Personal Injury Litigation

Anderson and Barber (2010) provide a recent discussion of tax effects on economic damages, for forensic economists and similar experts who supply the courts with opinions on economic damages. Anderson and Barbers’ paper fills a void in the forensic economics literature, by offering a formal theory of how tax considerations can impact economic damages. In the present work I point out a limitation of this theory - via a counter-example, and discuss conditions under which the theory seems to hold approximately.

Testing for Latent Factors in Models with Autocorrelation and Heteroskedasticity of Unknown Form

This article considers the problem of testing for latent factors or reduced rank in a broad class of (multivariate linear stationary) time-series models, wherein model errors have autocorrelation and heteroskedasticity of unknown form. It is easy to motivate these models and methods in the context of finance models, and we illustrate with a familiar macromodel of asset returns, proposed previously by Chen, Roll, and Ross. Unfortunately, previously used tests for reduced rank are not sufficiently robust, so we examine two heteroskedasticity and autocorrelation-consistent (HAC) methods, a HAC version of Hansens GMM test and a lesser known but more user-friendly minimum-distance or ratio of asymptotic densities (RAD) test. We recommend the RAD test, for which we supply computer code. In application, the tests lend more HAC-robust support to the hypothesis that multiple factors drive the link between the macroeconomy and the returns on bonds and stocks.

Pure Monopoly Model

The classical model of the anti-competitive and socially undesirable monopoly is the pure monopoly model. In this model, the monopolist provides less output—at a higher price—than would be provided by competitive firms facing the same production costs. The output drop and price hike are both anti-competitive negative consequences to consumers of monopoly. The model accommodates other measures of anti-competitive harm, including changes in consumer surplus and total surplus.

Monopoly Spillover Effects

In a market that goes from many suppliers to just one supplier, the advent of monopoly has an immediate effect: change in supply in that market. The pure monopoly model, discussed in Chap. 2, represents the monopoly effect in a given market. The effect is anti-competitive: price rises above the many-supplier competitive level, and goods quantity falls, doubly bad for consumers. The simplicity of the pure monopoly model is a virtue but also limits the range of behavior and outcomes that can be discussed within it.

The effect of assassinations on political institutions: Are the Jones–Olken findings robust?

Jones and Olken (JO; 2009) report that the outcome of an assassination attempt – whether it is successful or not – matters for political institutions. We question how these institutions are classified. Revisiting their methodology shows that their findings are generally robust to reasonable differences in classification, thereby strengthening their conclusions that leadership and luck matter for political outcomes.

Chapter 20 Foreign Aid, History, and Growth

Recent work focuses on long-run historical factors in promoting economic growth and raising income. Other work considers whether the inflow of foreign aid works better in countries having good policies or good institutions. A problem with the latter is the endogeneity of policies and institutions since these are mutable. This paper combines the two approaches and asks whether aid (representing an inflow of resources) is better at promoting economic growth in historically “advantaged” (as identified by the literature) as opposed to “disadvantaged” ones. It finds that history still does matter but understanding why is less clear.