Do changes in government spending affect voluntary contributions to those recipients? We examine how changes in K-12 education budgets impact donations to teachers using data from DonorsChoose.org, an online crowdfunding platform for public school teachers to raise money. We find a positive correlation between budgets and voluntary contributions when not accounting for their endogeneous relationship. With instrumental variables, we find evidence for crowd-out of private giving, though the magnitudes are small relative to spending and do not meaningfully offset budget changes. These results are driven entirely by teachers’ posting of requests. [Download]

We examine the combined effects of popularity and feelings of being important to reaching a goal by testing how people react to situations in which their own behavior is pivotal or not, as well as the popularity of the action. We conduct a laboratory experiment to cleanly fix beliefs about the person's likelihood of being pivotal in reaching a donation threshold that triggers a matching gift, varying both the pivotality and the number of other donors (popularity). The results are striking, with those whose action is pivotal being more than twice as likely to make a donation. We then conduct two field experiments to test these findings in real-world settings. Our results suggest that pivotality is a more important determinant of prosocial behavior. [Download]

How can charities solicit high-capacity donors to provide the funds for matching grants and leadership gifts? In conjunction with Texas A&M University’s fundraising organizations, we conducted a field experiment to study whether high-income donors respond to nonpersonal solicitations. We also designed the experiment to test the impact of allowing for directed giving on the giving behavior of high-income donors and their willingness to direct their donations toward overhead costs. High-income donors are not responsive to letters or emails, regardless of whether they have the option to direct giving; we cannot conclude, therefore, that giving behavior is different for those who could direct giving compared with those who could not. Our results highlight the difficulties of motivating some high-income donors, especially when only impersonal communication is used. [Download]

Despite widespread interest, there is little systematic evidence on the relationship between income, wealth, and charitable giving. We use the Panel Study of Income Dynamics to provide descriptive statistics on this relationship. We find that, irrespective of specification, donative behavior increases with greater resources. [Download]

We estimate the tax price elasticity of charitable giving using newly-available data from the Panel Study of Income Dynamics spanning 2001-2017. We find that households that always itemize are less sensitive to changes in the tax treatment of donations than households that switch itemizing status. We apply these results to the provisions of the Tax Cut and Jobs Act of 2017, taking into account the marginal propensity to donate from the increase in disposable income expected for most households, and predict significant reductions in charitable giving. [Download] 

Why do individuals volunteer their time even when recipients receive far less value than the donor’s opportunity cost? Previous models of altruism that focus on the overall impact of a gift cannot rationalize this behavior, despite its prevalence. We develop a model that relaxes this assumption, allowing for differential warm glow depending on the form of the donation. In a series of laboratory experiments that control for other aspects of volunteering, such as its signaling value, subjects demonstrate behavior consistent with the theoretical assumption that gifts of time produce greater utility than the same transfers in the form of money. Subjects perform an effort task, accruing earnings at potentially different wage rates for themselves or a charity of their choice, with the ability to transfer any of their personal earnings to charity at the end of the experiment. Subjects exhibit strong preferences for donating time even when differential wage rates make it costly to do so. The results provide new insights on the nature of volunteering and gift-giving. [Download]

One of the most important outstanding questions in fundraising is whether donor premiums, or gifts to prospective donors, are effective in increasing donations. Donors may be motivated by reciprocity, making premium recipients more likely to donate and give larger donations. Or donors may dislike premiums, preferring instead to maximize the value of their donations to the charity; in this case donor premiums would be ineffective. We conduct a field experiment in conjunction with the fundraising campaign of a major university to examine these questions. Treatments include a control, an unconditional premium with two gift quality levels, and a set of conditional premium treatments. The conditional treatments include opt-out and opt-in conditions to test whether donors prefer to forego premiums. Compared with the control, donors are twice as likely to give when they receive an unconditional, high-quality gift. The low-quality unconditional and all conditional premiums have little impact on the likelihood or level of giving. Donors do not respond negatively to premiums: rates of giving do not suffer when premiums are offered. In addition, few opt out given the opportunity to do so, indicating that they like gifts, and suggesting that reciprocity rather than altruism determines the impact of premiums on giving. [Download]

We examine the impact of the Great Recession on charitable giving. We find sharp declines in overall donative behavior that is not accounted for by shocks to income or wealth. These results suggest that overall attitudes towards giving changed over this time period. [Download]

Despite an extensive literature on the impacts of a variety of charitable fundraising techniques, little is known about whether these activities increase overall giving or merely cause donors to substitute away from other causes. Using detailed data from Donorschoose.org, an online platform linking teachers with prospective donors, I examine the extent to which matching grants for donations to certain requests affect giving to others. Eligibility for matches is determined in entirely by observable attributes of the request, providing an exogenous source of variation in incentives to donate between charities. I find that, while matches increase giving to eligible requests, they do not appear to crowd out giving to similar ones, either contemporaneously or over time. [Download]

The use of directed giving – allowing donors to target their gifts to specific organizations or functions – is pervasive in fundraising, yet little is known about its effectiveness. We conduct a field experiment at a public university in which prospective donors are presented with either an opportunity to donate to the unrestricted Annual Fund, or an opportunity of donating to the Annual Fund and directing some or all of their donation towards the academic college from which they graduated. While there is no effect on the probability of giving, donations are significantly larger when there is the option of directing. However, the value of the option does not come directly from use, as very few donors choose to direct their gift.  [Download]

We conduct a laboratory experiment to examine how third-party ratings impact charity choice and donative behavior, particularly in regards to preferences for local charities. Subjects are given a menu of ten charities, with a mix of local and non-local organizations included. We vary whether third-party ratings are displayed on this menu. Subjects perform an effort task to earn money and can choose to donate to their selected charity. We find evidence that subjects’ choice of charity is impacted by third-party evaluations but, somewhat surprisingly, there are no obvious preferences for local charities. These third-party assessments have some impact on the percent of earnings that subjects allocate to their selected charity; local charities also accrue more donations, though these results are imprecise. [Download]

A long literature has examined the effects of the price of giving – that is, the amount an individual must give for one dollar to accrue to the charitable activity itself – on donative behavior. We use data from DonorsChoose.org, an online platform linking teachers with prospective donors that are uniquely suited to addressing this question due to exogenous variation in overhead costs. An increased price of giving results in a lower likelihood of a project being funded. We also calculate the price elasticity of giving, finding estimates between −0.8 and −2. Finally, we examine the effect of competition on giving and find that increased competition reduces the likelihood of a project being funded. These results provide insight into the workings of the market for charitable gifts. [Download] [Online Appendix]

We use data from a field experiment at Kiva, the online microfinance platform, to examine the role of transactions costs and social distance in decision-making. Requests for loans are either written in English or another language, and our treatment consists of posting requests in the latter category with or without translation. We find evidence that relatively small transactions costs have a large effect on the share of funding coming from speakers of languages other than that in which the request was written. Social distance plays a smaller role in funding decisions. [Download]

Many charitable organizations believe it is worthwhile to solicit very small donations, particularly from young people, because these gifts form a habit of giving which leads to larger donations in the future. Indeed, there is some evidence of a positive correlation between giving when young and giving when old. However, such a correlation, by itself, does not constitute evidence of habit formation. Using data on alumni contributions to a university, we assess whether the correlation is due to habit formation—true state dependence—or to unobservable factors such as affinity to the school. We further examine whether habits form by the mere act of giving or based on the amount given. We implement an instrumental variables approach using the fact that performance of the school’s athletic teams and solicitation by one’s former roommates generate shocks to giving while young that are plausibly uncorrelated with giving when older. There is strong evidence of habit formation on the extensive margin, but not in the amount given. This finding has important implications for fundraising strategies, charities’ accounting practices, and tax policy. [Download]

A general finding in the empirical literature on charitable giving is that among older individuals, both the probability of giving and the conditional amount of donations decrease with age, ceteris paribus. In this paper, we use data on giving by alumni at an anonymous university to investigate end-of-life giving patterns. Our main finding is that taking into account the approach of death substantially changes the age-giving profile for the elderly—in one segment of the age distribution, the independent effect of an increase in age on giving actually changes from negative to positive.

We examine how the decline in giving as death approaches varies with the length of time that a given condition is likely to bring about death, and the individual’s age when he died. We find that for individuals who died from conditions that bring about death fairly quickly, there is little decline in giving as death approaches compared to those who died from other causes. Further, the decline in giving as death approaches is steeper for the elderly (for whom death is less likely to be a surprise) than for the relatively young. These findings suggest that our primary result, that failing to take into account the approach of death leads to biased inferences with respect to the age-giving profile, is not merely an artifact of some kind of nonlinearity in the relationship between age and giving. [Download]

We investigate how undergraduates’ financial aid packages affect their subsequent donative behavior as alumni. We analyze micro data on alumni giving at an anonymous research university, and focus on three types of financial aid: scholarships, loans, and campus jobs. Consistent with the view of some professional fundraisers, we allow the receipt of a given form of aid per se to affect alumni giving.

Our main findings are: (1) Individuals who take out student loans are less likely to make a gift, ceteris paribus. Further, individuals who take out large loans make smaller contributions as alumni, conditional on making a gift. (2) Scholarship aid reduces the size of a gift, conditional on making a gift, but has little effect on the probability of making a donation. (3) Aid in the form of campus jobs does not have a strong effect on donative behavior. [Download] [Online Appendix]

While the effects of peer pressure in charitable giving have been of considerable interest to social scientists, there is little empirical evidence on the magnitude of these effects. A correlation between giving or volunteering by one’s peers and one’s own giving can be driven by self-selection into groups, common shocks that inspire both the solicitor to ask and the individual to give, or social influence. Using data from a university, this paper analyzes whether alumni are more likely to give and give larger amounts when they are solicited by someone with whom they have social ties. Freshman year roommate assignments and the structure of the university’s giving campaigns are used to overcome problems of selection and common shocks. Social ties play a strong causal role in the decision to donate and the average gift size. Additionally, a solicitor’s request is much more effective if he or she shares characteristics, such as race, with the alumnus being solicited. [Download]

We estimate the effect of a marginal personal solicitation after receiving two to four non-personal solicitations using observational data on alumni giving at an anonymous research university, which we refer to as Anon U. At Anon U, volunteers use lists provided by the Development Office to telephone classmates and solicit them for donations. The names on these lists are always in alphabetical order. The volunteers who do the soliciting often run out of time before they reach the end of their lists. These observations suggest a simple strategy for testing whether personal solicitation matters, viz., examine whether alumni with names toward the end of the alphabet are less likely to give than alumni with names toward the beginning, ceteris paribus. If so, then a marginal personal solicitation matters.

Our main finding is that the location in the alphabet—and hence, a marginal personal solicitation—has a strong effect on the probability of making a gift. A rough estimate of the elasticity of the probability of giving with respect to the probability of receiving a personal solicitation is 0.15. However, there is no statistically discernible effect on the amount given, conditional on donating. [Download]

One justification offered for legacy admissions policies at universities is that they bind entire families to the university. Proponents maintain that these policies have a number of benefits, including increased donations from members of these families. We use a rich set of data from an anonymous selective research institution to investigate which types of family members have the most important effect upon donative behavior. We find that the effects of attendance by members of the younger generation (children, children-in-law, nieces and nephews) are greater than the effects of attendance by the older generations (parents, parents-in-law, aunts and uncles). Previous research has indicated that, in a variety of contexts, men and women differ in their altruistic behavior. However, we find that there are no statistically discernible differences between men and women in the way their donations depend on the alumni status of various types of relatives. Neither does the gender of the various types of relatives who attended the university seem to matter. Thus, for example, the impact of having a son attend the university is no different from the effect of a daughter. [Download]

An ongoing controversy in the literature on the economics of higher education centers on whether the success of a school’s athletic program affects alumni donations. This paper uses a unique data set to investigate this issue. The data contain detailed information about donations made by alumni of a selective research university as well as a variety of their economic and demographic characteristics. One important question is how to characterize the success of an athletic program. We focus not only on the performance of the most visible teams, football and basketball, but also on the success of the team on which he or she played as an undergraduate.

One of our key findings is that the impact of athletic success on donations differs for men and women. When a male graduate’s former team wins its conference championship, his donations for general purposes increase by about 7% and his donations to the athletic program increase by about the same percentage. Football and basketball records generally have small and statistically insignificant effects; in some specifications, a winning basketball season reduces donations. For women there is no statistically discernible effect of a former team’s success on current giving; as is the case for men, the impacts of football and basketball, while statistically significant in some specifications, are not important in magnitude. Another novel result is that for males, varsity athletes whose teams were successful when they were undergraduates subsequently make larger donations to the athletic program. For example, if a male alumnus’s team won its conference championship during his senior year, his subsequent giving to the athletic program is about 8% a year higher, ceteris paribus. [Download]

We study alumni contributions to an anonymous research university. If alumni believe donations will increase the likelihood of their child’s admission, and if this belief helps motivate their giving, then the pattern of giving should vary systematically with the ages of their children, whether the children ultimately apply to the university, and the admissions outcome. We call this pattern the child cycle of alumni giving. The evidence is consistent with the child-cycle pattern. Thus, while altruism drives some giving, the hope for a reciprocal benefit also plays a role. We compute rough estimates of the proportion of giving due to selfish motives. [Download]

We examine the impact of encouragement emails sent to high-performing students in a principles of microeconomics course at a large state university, aimed at motivating them to take additional economics courses and consider an economics major or minor. Using a regression discontinuity design, we find some evidence of an increase in the likelihood of enrolling in intermediate microeconomics, especially for first-generation college students and underrepresented minorities, but limited effects on major switching or declaring an economics minor. Our findings suggest sustained interventions may be necessary to produce lasting effects.  [Download]

We analyze the differential effects of minimum wage increases on individuals with disabilities using data from the American Community Survey and leveraging state-level minimum wage variation during the 2010s. We find that large minimum wage increases significantly reduce employment and labor force participation for individuals of all working ages with severe disabilities. These declines are accompanied by a downward shift in the wage distribution and an increase in public assistance receipt. By contrast, we find no employment effects for all but young individuals with either non-severe disabilities or no disabilities. Our findings highlight important heterogeneities in minimum wage impacts, raising concerns about labor market policies’ unintended consequences for populations on the margins of the labor force.  [Download]

The nonprofit sector’s ability to absorb increases in labor costs differs from the private sector in a number of ways. We analyze how nonprofits are affected by changes in the minimum wage utilizing data from the Bureau of Labor Statistics and the Internal Revenue Service, linked to state minimum wages. We examine changes in reported employment and volunteering, as well as other financial statements such as revenues and expenses. The results from both datasets show a negative impact on employment for states with large statutory minimum wage increases. We observe some evidence for a reduction in the number of nonprofit establishments, fundraising expenses, and revenues from contributions. [Download]

We evaluate the impact of an intervention aimed at informing high school counselors about the field of economics, with the aim of attracting a more diverse student population into the major. Our study involves 234 Texas high schools that send a large number of students to Texas A&M University. Half of the schools were randomly selected and invited to send a guidance counselor to an in-person informational counselor workshop. While the intervention did not significantly increase applications into the major in the full student population, it significantly increased the economics applications of top-performing women and underrepresented minority students. [Download]

Labor market search-and-matching models posit supply-side responses to minimum wage increases that may lead to improved matches and lessen or even reverse negative employment effects. Yet there is sparse empirical evidence on this crucial assumption. Using event study analysis of recent minimum wage increases, we find that these changes do not affect the likelihood of searching, but do lead to large yet very transitory spikes in search effort by individuals already looking for work. These results are not driven by changes in the composition of searchers. [Download] [Extended NBER Version]

A potential contributor to socioeconomic disparities in academic performance is the difference in the level of stress experienced by students outside of school. Chronic stress – due to neighborhood violence, poverty, or family instability – can affect how individuals’ bodies respond to stressors in general, including the stress of standardized testing. This, in turn, can affect whether performance on standardized tests is a valid measure of students’ actual ability. We collect data on students’ stress responses using cortisol samples provided by low-income students in New Orleans. We measure how their cortisol patterns change during high-stakes testing weeks relative to baseline weeks. We find that high-stakes testing does affect cortisol responses, and those responses have consequences for test performance. Those who responded most strongly – with either a large increase or large decrease in cortisol – scored 0.40 standard deviations lower than expected on the high-stakes exam. [Download]

We explore whether minimum wage increases result in substitution from lower-skilled to slightly higher-skilled labor. Using 2011-2016 American Community Survey data (ACS), we show that workers employed in low-wage occupations are older and more likely to have a high school diploma following recent statutory minimum wage increases. To better understand the role of firms, we examine the Burning Glass vacancy data. We find increases in a high school diploma requirement following minimum wage hikes, consistent with our ACS evidence on stocks of employed workers. We see substantial adjustments to requirements both within and across firms. [Download]

Many existing studies find that females perform better when they are taught by female teachers. However, there is little evidence on what the long-run impacts may be, and through what mechanisms these impacts may emerge. We exploit panel data from middle schools in Seoul, South Korea, where students and teachers are randomly assigned to classrooms. We replicate the existing literature that examines contemporaneous effects, and find that female students taught by a female versus a male teacher score higher on standardized tests compared to male students even five years later. We also find that having a female math teacher in 7th grade increases the likelihood that female students attend a STEM-focused high school, take higher-level math courses, and aspire to a STEM degree. These effects are driven by changes in students’ attitudes and choices. [Download]  [Online Appendix]

Obesity among children is an important public health concern, and social networks may play a role in students’ habits that increase the likelihood of being overweight. We examine data from South Korean middle schools, where students are randomly assigned to classrooms, and exploit the variation in peer body mass index. We use the number of peers’ siblings as an instrument to account for endogeneity concerns and measurement error. Heavier peers increase the likelihood that a student is heavier; there is no spurious correlation for height, which is unlikely to have peer contagion. Public policy that targets obesity can have spillovers through social networks. [Download]

Gender disparities in academic performance may be driven in part by the interaction of teacher and student gender, but systematic sorting of students into classrooms makes it difficult to identify causal effects. We use the random assignment of students to Korean middle school classrooms and show that female students perform substantially better on standardized tests when assigned to female teachers; there is little effect on male students. We find evidence that teacher behavior drives the increase in female students’ achievement. [Download]

The voluminous literature on minimum wages offers little consensus on the extent to which a wage floor impacts employment. We argue that the minimum wage will impact employment over time, through changes in growth rather than an immediate drop in relative employment levels. We show that commonly-used specifications in this literature, especially those that include state-specific time trends, will not accurately capture these effects. Using three separate state panels of administrative employment data, we find that the minimum wage reduces job growth over a period of several years. This finding is supported using several empirical specifications. [Download]   [Data & Code]  [NBER Version]  [Data & Code - NBER Version] [Appendix- Response to Dube (2013)]

Vocational education in high schools has frequently been stigmatized as an anachronistic, dead-end path for students. We use data from the National Education Longitudinal Survey of 1988 to examine claims that students on a vocational track would benefit from a more academically rigorous education. Clearly, selection bias confounds attempts to untangle the effects of academic tracking on income after high school. Using an econometric framework that accounts for this bias, we find evidence of comparative advantage in tracking. [Download]

Most data sets indicate a positive correlation between having health insurance and utilizing health care services. Yet the direction of causality is not at all clear. If we observe a positive correlation between the utilization of health care services and insurance status, we do not know if this is because people who anticipate poor health buy more insurance (or take jobs with generous medical coverage), or because insurance lowers the cost of health care, increasing the quantity demanded.

While a few attempts have been made to implement an instrumental variables (IV) strategy to deal with endogeneity, the instruments chosen have not been entirely convincing. In this paper we revisit the IV estimation of the reduced form relationships between insurance and health care utilization taking advantage of what we argue is a good instrument—the individual’s self-employment status. Our main finding is that a positive and statistically significant effect of insurance continues to obtain even after instrumenting. Indeed, instrumental variables estimates of the impact of insurance on utilization of a variety of health care services are larger than their non-instrumented counterparts.

The validity of this exercise depends on the extent to which self-employment status is a suitable instrument. To argue this case, we analyze panel data on transitions from wage-earning into self-employment and show that individuals who select into self-employment do not differ systematically from those who remain wage-earners with respect to either the utilization of health care or health status. While this finding does not prove that self-employment status is an appropriate instrument, it is encouraging that there appear to be no underlying differences that might lead to self-employment per se affecting health services utilization. [Download]

The causal links between health and economic resources have long concerned social scientists. We use four waves of data from the Panel Study of Income Dynamics (PSID) to analyze the impact of wealth upon an individual’s health status. The difficulty in approaching this task that has bedeviled previous studies is that wealth may be endogenous; a priori, it is just as likely that changes in health affect wealth as vice versa. We argue that inheritance is a suitable instrument for the change in wealth, and implement a straightforward instrumental variables strategy to deal with this problem. Our results suggest that the causal relationship running from wealth to health may not be as strong as first appears. In the data, wealth exerts a positive and statistically significant effect on health status, but it is very small in magnitude. Instrumental variables estimation leaves the point estimate approximately the same, but renders it insignificantly different from zero. And even when the point estimate is increased by twice its standard error (S.E.), the quantitative effect is small. We conclude that the wealth-health connection is not driven by short run changes in wealth. [Download]

This paper explores the relationship between the minimum wage, the structure of employee compensation, and worker welfare. We advance a conceptual framework that describes the conditions under which a minimum wage increase will alter the provision of fringe benefits, alter employment outcomes, and either increase or decrease worker welfare. Using American Community Survey data from 2011-2016, we find robust evidence that state-level minimum wage changes decreased the likelihood that individuals report having employer-sponsored health insurance. Effects are largest among workers in very low-paying occupations, for whom coverage declines offset 9 percent of the wage gains associated with minimum wage hikes. We find evidence that both insurance coverage and wage effects exhibit spillovers into occupations moderately higher up the wage distribution. For these groups, reductions in coverage offset a more substantial share of the wage gains we estimate. [Download] [Appendix- Response to Cengiz]

The cost of employee health insurance is steadily increasing, due in part to state mandates that require insurance policies to cover additional medical treatments and services. A prevalent empirical finding is that these mandates have uncertain labor market effects, as most results are statistically insignificant. We determine several reasons for the imprecision in this area of research: small sample bias, heterogeneity in the effects of mandates, and collinearity of mandate legislation. Empirically addressing these factors with population-level data on small business employment, we identify significant employment effects for several mandates and illustrate how pervasively these issues plague identification. [Download]

Most antipoverty policy in the United States focuses on families with children, but efforts to assist childless adults have gained traction in recent years. We examine the impact of the Earned Income Tax Credit on the labor force outcomes of childless adults using the age-25 eligibility discontinuity. We find no impacts on labor force participation and employment outcomes, which may be due to lack of information about the credit, lack of behavioral response due to its small size, or that childless adults already have very high labor force participation rates. [Download]

Most robust estimators require tuning the parameters of the algorithm for the particular application, a bottleneck for practical applications. The paper presents the multiple input structures with robust estimator (MISRE), where each structure, inlier or outlier, is processed independently. The same two constants are used to find the scale estimates over expansions for each structure. The inlier/outlier classification is straightforward since the data is processed and ordered with the relevant inlier structures listed first. If the inlier noises are similar, MISRE’s performance is equivalent to RANSAC-type algorithms. MISRE still returns the correct inlier estimates when inlier noises are very different, while RANSAC-type algorithms do not perform as well. MISRE’s failures are gradual when too many outliers are present, beginning with the least significant inlier structure. Examples from 2D images and 3D point clouds illustrate the estimation. [Download]

A major concern with addressing the negative externalities of gasoline consumption by regulating fuel economy, rather than increasing fuel taxes, is that households respond by driving more. This paper exploits a discrete threshold in the eligibility for Cash for Clunkers to show that fuel economy restrictions lead households to purchase vehicles that have lower cost-per-mile, but are also smaller and lower-performance. Whereas the former effect can increase driving, the latter effect can reduce it. Results indicate that these households do not drive more, suggesting that behavioral responses do not necessarily undermine the effectiveness of fuel economy restrictions at reducing gasoline consumption. [Download]

This paper provides evidence concerning the extent to which consumers of liquor employ commitment devices. One widely recommended commitment strategy is to regulate alcohol consumption by deliberately manipulating availability. The paper assesses the prevalence of the “availability strategy” by evaluating the effects of policies that would influence its effectiveness – specifically, changes in allowable Sunday sales hours. It finds that consumers increase their liquor consumption in response to extended Sunday on-premises sales hours, but not in response to extended off-premises sales hours. The latter finding is inconsistent with widespread use of the availability strategy. [Download]

We investigate how stimulus-motivated federal funding directed to universities affected their revenues, expenditures, employment, tuition, student aid, endowment spending, and receipt of state government appropriations. We also investigate how these funds affected the economies of the counties in which the institutions are located. To overcome the potential endogeneity of federal funds (for instance, federal student aid rising when students become poorer), we employ: (i) an instrument that applies nation-wide rates of increase in research funding by agency to universities whose initial dependence on these agencies differs; and (ii) an instrument that applies the change in the maximum Pell Grant to institutions with varying initial numbers of students eligible for the maximum grant. Our results suggest that federal funds induced private universities to increase research, reduce tuition, raise student aid, spend slightly more on many categories of expenditure, and slightly reduce endowment spending rates. These results are consistent with private universities maximizing objectives that require them to allocate funds over a broad array of activities. Our results suggest that public universities used federal funds as leverage to gain independence from state governments–gaining the ability to set tuition and other prices closer to market-based rates but losing state appropriations in the bargain. Overall, the stimulus apparently caused universities to increase their investments in research and human capital. We find no evidence that federal funds directed to universities propped up aggregate demand or generated local economic multipliers in the classic Keynesian sense, but this is not surprising because only a small share of the federal funds “stuck where they hit.” [Download]

This paper measures the effects of real estate brokerage services provided to sellers, other than MLS listings, on the terms and timing of home sales. It is not obvious that sellers benefit from those services. On the one hand, brokers offer potentially useful knowledge and expertise. On the other hand, because the relationship between the homeowner and the broker resembles a classical principal-agent problem, the broker may not deploy services in ways that promote the seller’s interests. Yet as long as valuable MLS listings are bundled with brokerage services, homeowners may use brokers even if the agency costs exceed the benefits of brokers’ knowledge and expertise. Thus, quantification of the net value of brokerage services other than MLS listings bears directly on the recent policy debate over the desirability of unbundling MLS listings. We estimate the effect of a seller’s decision to use a broker on list prices, selling prices, and speed of sale for a real estate market with an unusual and critical characteristic: it has a single open-access listing service that is used by essentially all sellers, regardless of whether they employ brokers. Our central finding is that, when listings are not tied to brokerage services, a seller’s use of a broker reduces the selling price of the typical home by 5.9% to 7.7%, which indicates that agency costs exceed the advantages of brokers’ knowledge and expertise by a wide margin. [Download]

Overconfidence in one’s abilities does not seem to be tempered by experience, suggesting that overconfidence serves an evolutionary purpose. Compte and Postlewaite (2004) argue that if confidence improves performance, the welfare maximizing learning technology ignores some negative information and overconfidence is optimal. This theory suggests that peoples’ self-assessments should improve over time, converging to a biased level. We test this claim among university debaters, and find that while experienced debaters are no less biased than inexperienced debaters, their predictions are half as noisy around this biased level. Debaters, a group for whom confidence is critical for performance, learn over time; but they never learn that they are not as good as they think they are. We therefore provide some evidence of the origin for this widespread behavioral bias. [Download]