Stephen J. Schmidt

Active and Cooperative Learning Using Web-Based Simulations

Abstract The author discusses the advantages of using computers and the World Wide Web in classroom simulation exercises. Using networked computers permits a richer simulation design, allows more complicated decisions by the students, and facilitates reporting results for later discussion. The Web is an ideal technology for such simulations because computers already have Web-capable browsers, with which students are familiar, and information on creating Web sites is readily available. The author discusses these points in the context of a sample simulation that teaches basic economic principles of trade, investment, and public goods in the context of American economic history.

Market structure and market outcomes in deregulated rail freight markets

Abstract Using cross-section data on a national sample of city-pair markets for rail freight, I examine correlations between prices, quantities, and the number of single-line and interline firms serving markets. I estimate the reduced form of a structural model in which rail rates and quantities depend on the number of firms. I find that rates increase as the number of firms serving the market falls, and quantities shipped rise as the number of firms falls. The result is consistent with market power for rail freight shippers that causes markups to rise when fewer firms serve the market, and is not consistent with other explanations of the relationship between number of firms and rates and quantities. Interline shipment is much more costly than single-line, suggesting that mergers may be desirable even if they exacerbate market power problems.

Federal policies, state responses, and community college outcomes: Testing an augmented Bennett hypothesis

We estimate the impact of increases in Federal student aid and higher education funding, such as the recently proposed American Graduation Initiative (AGI), on the outcomes of community colleges, including enrollments, list and average tuitions, and educational quality. We develop a reduced form model of state-level education policy in which state policy makers, who have objectives that differ from those of Federal policy makers, respond to changes in Federal policies. Our empirical specification treats state and institutional variables as endogenous; we interpret the coefficients as measuring the responses of state and institution officials to changes in Federal policies. We simulate the effects of AGI and find little evidence that states recapture Federal education resources. AGI would have a significant effect on educational quality but a limited effect on enrollments. An equivalent increase in Federal student aid would have greater impact on access and enrollments, but decrease educational quality.

Reforming Reforms: Changing Incentives in Education Finance in Vermont

In 1997, Vermont passed Act 60, which reformed its education finance system to achieve greater equality of spending. The reform encouraged wealthy towns to reduce spending; it was politically unpopular and was replaced, in 2004, by Act 68. We analyze the spending incentives created by the two acts and estimate the effects the changewill have on spending inequality. Act 68 reduces tax prices for education spending in all towns, but reduces them disproportionately for wealthy towns. It increases education spending in Vermont but also increases inequality of spending. Because spending is inelastic with respect to tax prices, the increase in inequality is small relative to existing inequality. Our findings demonstrate that understanding the way towns respond to financial incentives, economically and politically, is critical in designing successful reforms. They suggest that it is difficult to maintain finance systems that give wealthy towns strong incentives to spend less or subsidize poorer towns. Using state revenues to subsidize schools achieves nearly asmuch equality as more explicit attempts to force wealthy districts to share resources.

Dynamic Patterns in State Government Finance

The authors estimate vector autoregressions for three categories of state government expenditure: education, highways, and welfare. Each regression contains state expenditure on that category, federal aid to the state in that category, total federal aid to the state, state general revenue, and personal income. The authors calculate impulse response functions for these vector autoregressions to analyze changes in aid and expenditure over time. The authors find that deviations in expenditure and category-specific aid have large and long-lasting effects on future expenditure. Category-specific aid has a much stronger effect than aid, revenue, or income, suggesting a flypaper effect in which aid is spent disproportionately in the category in which it is granted. This effect persists for up to 5 years, suggesting that there are structural dynamic links between category-specific aid and expenditure by states on those categories.

The Contribution of Study Abroad to Human Capital Formation

ABSTRACT Studying abroad may allow students to form human capital in ways not possible at home and may enable them to earn higher incomes. On the other hand, study abroad has been criticized as insufficiently rigorous. Little is known about how study abroad affects skills and earnings in the long term. Using a data set of 3,155 students over a range of 43 years from a single college, we investigated the effects of study abroad and found it has no net effect on earnings compared with study at home. The advantages and disadvantages of study abroad are approximately balanced; human capital formed by study abroad is not more or less than that formed in residence. Colleges need not emphasize study abroad more than study on campus, but they also need not worry that study abroad is unproductive. Study abroad and study at home appear equally effective at forming human capital.

A proposal for more sophisticated normative principles in introductory economics

ABSTRACT Introductory textbooks teach a simple normative story about the importance of maximizing economic surplus that supports common policy claims. There is little defense of the claim that maximizing surplus is normatively important, which is not obvious to non-economists. Difficulties with the claim that society should maximize surplus are generally not addressed. Economists are thus frequently criticized by non-economists for having a poor moral foundation for our normative claims. We should tell a more sophisticated normative story that justifies the moral importance of surplus, but acknowledges that other moral values may conflict with generating surplus and that distribution is not always separable from efficiency. This would allow students to make more compelling arguments in favor of normative positions they accept, regardless of the values they hold.

SOCIAL ANIMAL HOUSE: THE ECONOMIC AND ACADEMIC CONSEQUENCES OF FRATERNITY MEMBERSHIP

We exploit changes in the residential and social environment on campus to identify the economic and academic consequences of fraternity membership at a small Northeastern college. Our estimates suggest that these consequences are large, with fraternity membership lowering student grade point average by approximately 0.25 points on the traditional 4†point scale, but raising future income by approximately 36%, for those students whose decision about membership is affected by changes in the environment. These results suggest that fraternity membership causally produces large gains in social capital, which more than outweigh its negative effects on human capital for potential members. Alcohol†related behavior does not explain much of the effects of fraternity membership on either the human capital or social capital effects. These findings suggest that college administrators face significant trade†offs when crafting policies related to Greek life on campus. (JEL I23, J24, I12)

Towards Teaching a Normative Ethics: Or, Ethics Even an Economist Can Accept

This article presents a new method of teaching ethics in economics based on recent developments in game theory. Economics traditionally divides normative questions from positive questions, and relies only on the Pareto principle to distinguish good actions and policies from bad ones in answering the former. The traditional presentation of ethics as constraints on behavior makes it hard to justify ethics normatively using only the Pareto principle. Binmore (1994, 1998) instead presents ethics as coordinating conventions in games with multiple equilibria, in which all players gain from coordination. The author adds a discussion of stability to Binmores presentation to construct a normative argument in favor of ethical or fair behavior, based only on the Pareto principle. The author describes teaching this material in a course on economics and game theory, and proposes ways to implement discussions of ethics at other points in the economics curriculum.

SOCIAL ANIMAL HOUSE: THE ECONOMIC AND ACADEMIC CONSEQUENCES OF FRATERNITY MEMBERSHIP: CONSEQUENCES OF FRATERNITY MEMBERSHIP

We exploit changes in the residential and social environment on campus to identify the economic and academic consequences of fraternity membership at a small Northeastern college. Our estimates suggest that these consequences are large, with fraternity membership lowering student grade point average by approximately 0.25 points on the traditional 4‐point scale, but raising future income by approximately 36%, for those students whose decision about membership is affected by changes in the environment. These results suggest that fraternity membership causally produces large gains in social capital, which more than outweigh its negative effects on human capital for potential members. Alcohol‐related behavior does not explain much of the effects of fraternity membership on either the human capital or social capital effects. These findings suggest that college administrators face significant trade‐offs when crafting policies related to Greek life on campus.