Reduced-form Analysis Research Articles

Path Dependency in Physician Decisions

Abstract We examine path dependency in physician decisions in an emergency department setting, and find that physicians’ treatment decisions for the current and previous patients are positively correlated. We show that the positive autocorrelation is higher when the current patient is of greater medical uncertainty or more similar to the previous patient in terms of observed characteristics and when the physician is less experienced or more fatigued. We then show that these patterns are highly consistent with the memory and attention model, whereby the physician’s current decision is anchored to her previous decision. The results from both reduced-form analyses and structural estimations provide further support for the importance of memory and attention in physician decision-making.

Strategic Complements or Substitutes? The Case of Adopting Health Information Technology by U.S. Hospitals

Abstract This paper explores the adoption choice of electronic medical records by U.S. hospitals, which could exhibit strategic complements or substitutes. I find complementarities in adoption through a reduced-form analysis with instruments for unobserved market characteristics. I further develop a dynamic oligopoly model to allow for strategic timing incentives that are missing in the static model. Adopting a dominant local vendor could increase per period profits from adoption by 9.2% over choosing a marginal vendor. A counterfactual analysis suggests that an incentive program rewarding coordination, not just adoption, is more effective in achieving interoperability, especially before the widespread adoption of the technology.

The Micro-Origins of Business Cycles: Evidence from German Metropolitan Areas

Abstract How large is volatility due to large firms? We answer this question through both reduced-form analysis and a calibration exercise. First, we exploit time and spatial variation across German cities and show that higher concentration is associated with more persistent local business cycles, and local concentration Granger causes local employment volatility. From a business cycle perspective, we find evidence in favor of granularity-driven recessions only. Next, we calibrate a structural model along the lines of Carvalho and Grassi (2019) and find that the more fat-tailed productivity distribution in bigger cities crucially depends also on the higher probability that firms will grow.

Patience and Comparative Development

Abstract This article studies the relationship between patience and comparative development through a combination of reduced-form analyses and model estimations. Based on a globally representative dataset on time preference in 76 countries, we document two sets of stylized facts. First, patience is strongly correlated with per capita income and the accumulation of physical capital, human capital, and productivity. These correlations hold across countries, sub-national regions, and individuals. Second, the magnitude of the patience elasticity strongly increases in the level of aggregation. To provide an interpretive lens for these patterns, we analyse an overlapping generations model in which savings and education decisions are endogenous to patience, aggregate production is characterized by capital-skill complementarities, and productivity implicitly depends on patience through a human capital externality. In our model estimations, general equilibrium effects alone account for a non-trivial share of the observed amplification effects, and an extension to human capital externalities can quantitatively match the empirical evidence.

Does “investment climate” affect GDP? Panel data evidence using reduced-form and stochastic frontier analysis

It is often believed that investment enhances welfare, particularly through channels of capital creation, employment generation, and output growth. Two commonly used measures of a nation’s ability to attract investment are the Global Competitiveness Index (GCI) and the Ease of Doing Business Index (EDBI). This paper attempts to estimate the causal link between these indices and per capita Gross Domestic Product (GDP). A positive relation between these would essentially vindicate the theory that better investment implies better prosperity. Two complementary methods are used for estimating the effects, viz, reduced form analysis and stochastic frontier analysis (SFA). SFA is an appealing method but to have a convincing SFA setup and eventually get at causal estimates, endogeneity issues need to be addressed. Reduced form setting using fixed effects and proxy variables provides the required foundation for the SFA. Overall, we find evidence of a positive relation between GCI and per capita GDP.

The billion pound drop: the Blitz and agglomeration economies in London

Abstract We exploit locally exogenous variation from the Blitz bombings to quantify the effect of redevelopment frictions and identify agglomeration economies at a micro-geographic scale. Employing rich location and office rental transaction data, we estimate reduced-form analyses and a spatial general equilibrium model. Our analyses demonstrate that more heavily bombed areas exhibit taller buildings today, and that agglomeration elasticities in London are large, approaching 0.2. Counterfactual simulations show that if the Blitz had not occurred, the concomitant reduction in agglomeration economies arising from the loss of higher-density redevelopment would cause London’s present-day gross domestic product to drop by some 10% (or £50 billion).

Globalization and the Concentration of Talent

We analyze how (amplified) superstar effects impact the allocation of talent across competing teams in large matching markets. We show that a convex transformation of payoffs promotes positive assortative matching. This result holds under minimal assumptions on how skills translate into competition outcomes and how competition outcomes translate into payoffs. Our reduced-form analysis covers a wide range of special cases from the literature that micro-found convex transformations of payoffs through diverse mechanisms including globalization, technological change, urban agglomeration, and inter-occupational spillovers.

Time-Varying Dynamics of the German Business Cycle: A Comprehensive Investigation

This paper provides insights into the time-varying dynamics of the German business cycle over the last five decades. To do so, I employ an open-economy time-varying parameter VAR with stochastic volatility, which I estimate by quasi-Bayesian techniques. The reduced-form analysis reveals substantial shifts in the variables’ long-run growth rates and shock volatilities over time. German trend inflation has strongly decreased and settled at a historically low level. GDP growth volatility exhibits marked fluctuations over time and has dropped to historically low levels only after the global financial crisis. The structural analysis employs externally identified oil supply shocks along with a recursive identification scheme to identify key macroeconomic shocks. The analysis reveals strong fluctuations in both the impact responses of macroeconomic aggregates to these shocks and the shock propagation processes. Thus, I conclude that business cycle stabilization in Germany is driven by both good policy and good luck.

Openness and factor shares: Is globalization always bad for labor?

This paper studies the response of factor shares to the liberalization episode in India during the 1990's, which is characterized by large and unexpected changes in trade and foreign investment policies. We find that access to foreign capital caused an increase in the labor-to-capital relative factor share. As lower tariffs on capital goods and FDI liberalization reduce the cost of foreign capital, firms increase their use of foreign capital relative to domestic capital. This shift in the composition of the capital stock improves capital's productivity per unit of expenditure, which in turn raises wages and the relative labor share. Consistent with this mechanism, firm TFP and the share of firms that import capital both increase in industries with the largest capital cost reductions, while the relatively larger rise of labor payments is observed predominantly for new capital importers. We identify domestic deregulation policies and reallocation to capital-intensive firms as potential determinants of the observed decline in the aggregate labor share. Finally, in a model where domestic and foreign capital are imperfect substitutes, we quantify the effect of a reduction in capital tariffs, and find that it explains a large part of the estimated increase in the labor share found in the reduced form analysis.

Price Effects of Target Ratcheting: A Progress Report on Medical Devices

Regulators, who have asymmetric information concerning the technology of regulated firms, often rely on incentive-based regulation. While such a scheme is well known to be vulnerable to the adverse incentives of regulated firms, empirical research that quantifies the magnitude of distortion caused by incentive regulation is scarce. This paper is a progress report of our recent project on target ratcheting with an application to medical devices in Japan. A casual observation of detailed product-level transaction data and reduced-form analyses indicate the existence of pricing distortion in the wholesale market. The paper also proposes a two-period bilateral bargaining model to match the data. A preliminary analysis finds evidence consistent with the hypothesis that target ratcheting distorts the pricing of regulated firms, but the magnitude of the distortion is estimated to be economically small.

Environmental and socio-economic sustainability in India: evidence from CO2 emission and economic inequality relationship

ABSTRACTThis study demonstrates the evolution of the relationship between anthropogenic CO2 emission from fossil fuels use and inequality in consumption expenditure in India based on state-level panel data for the period 1981–2008. Controlling for the scale and composition of economic activities and population, the estimated elasticity of CO2 emission with respect to economic inequality is found to be equivalent to zero for the overall 28 years period. However, classifying the time frame into pre and post economic liberalization periods (1981–1991 and 1992–2008), reveals that the emission-inequality relationship was insignificant or negative in the pre-liberalization period but turned unambiguously positive and significant in the post-liberalization period. Further classification of the post-liberalization period shows that the positive emission-inequality relationship was statistically insignificant during 1992–1999 and it gained significant strength during 2000–2008. Substantively higher increase in the upper economic strata’s propensity to emit CO2 made feasible by enhanced access to global markets is discussed as a plausible reason for the positive emission-inequality relationship in the post-liberalization period. The reduced form analysis of the emission-inequality relationship provides a vital policy insight that India has a potential opportunity to harness this synergistic relationship and jointly mitigate the environmental and socio-economic sustainability challenges.

Male Earnings, Marriageable Men, and Nonmarital Fertility: Evidence from the Fracking Boom

We investigate whether an increase in the potential earnings of men leads to an increase in marriage and a reduction in nonmarital births by exploiting the positive economic shock associated with fracking in the 2000s. A reduced-form analysis reveals that in response to local-area fracking production, which increased wages and jobs for non-college-educated men, both marital and nonmarital birth rates increase, but marriage rates do not. The pattern of results is consistent with positive income effects on births but no associated increase in marriage. We contrast our findings to the Appalachian coal boom experience of the 1970s and 1980s.

Investment and uncertainty with time to build: Evidence from entry into U.S. copper mining

The standard real-options model predicts that increased uncertainty discourages investment. When projects are large and take time to build, however, that prediction can be reversed. We investigate the investment/uncertainty relationship empirically using historical data on opening dates of new U.S. copper mines – large, irreversible projects with substantial construction lags. Both the timing of the decision to go forward and the price thresholds that trigger that decision are assessed. In particular, we build upon a reduced form analysis to construct a structural model of entry. We find that, in this market, greater uncertainty encourages investment and lowers the price thresholds for many mines.

Complementary middle-down and intact monoclonal antibody proteoform characterization by capillary zone electrophoresis - mass spectrometry.

High-resolution capillary zone electrophoresis - mass spectrometry (CZE-MS) has been of increasing interest for the analysis of biopharmaceuticals. In this work, a combination of middle-down and intact CZE-MS analyses has been implemented for the characterization of a biotherapeutic monoclonal antibody (mAb) with a variety of post-translational modifications (PTMs) and glycosylation structures. Middle-down and intact CZE separations were performed in an acidified methanol-water background electrolyte on a capillary with a positively charged coating (M7C4I) coupled to an Orbitrap mass spectrometer using a commercial sheathless interface (CESI). Middle-down analysis of the IdeS-digested mAb provided characterization of PTMs of digestion fragments. High resolution CZE enabled separation of charge variants corresponding to 2X-deamidated, 1X-deamidated, and non-deamidated forms at baseline resolution. In the course of the middle-down CZE-MS analysis, separation of glycoforms of the FC /2 fragment was accomplished due to hydrodynamic volume differences. Several identified PTMs were confirmed by CZE-MS2 . Incorporation of TCEP-HCl reducing agent in the sample solvent resulted in successful analysis of reduced forms without the need for alkylation. CZE-MS studies on the intact mAb under denaturing conditions enabled baseline separation of the 2X-glycosylated, 1X-glycosylated, and aglycosylated populations as a result of hydrodynamic volume differences. The presence of a trace quantity of dissociated light chain was also detected in the intact protein analysis. Characterization of the mAb under native conditions verified identifications achieved via intact analysis and allowed for quantitative confirmation of proteoforms. Analysis of mAbs using CZE-MS represents a complementary approach to the more conventional liquid-chromatography - mass spectrometry-based approaches.

Why Shareholder Wealth Maximization despite Other Objectives

The objective of this book is to present an economic analysis of accounting earnings to aid our understanding of financial accounting’s economic roles. We structure the book into two parts. The first part examines the attributes of accounting earnings as produced and received in the market without delving into the preparers’ incentives influencing the amount of information production or the effect of the incentives on its properties. This part can be viewed as a static or reduced-form analysis of accounting earnings and its relation to security prices. The second part presents a dynamic and strategic analysis of accounting earnings. It recognizes that accounting information affects users’ and producers’ decisions, which, against the backdrop of self-interested behavior, influences properties of accounting information produced and affects how it is used in valuation, in contracting, and in firms’ investment decisions. Our thesis is that earnings and other outputs of financial accounting help firms function more efficiently. We often use shareholder value as the measure of efficiency, though we discuss regulation, social and contract efficiency.

Strategic Complements or Substitutes: The Case of Adopting Electronic Medical Records (EMRs) by U.S. Hospitals

This paper explores the adoption choice of electronic medical records by U.S. hospitals, which could exhibit strategic complements or substitutes. I find complementarities in adoption through a reduced-form analysis with instruments for unobserved market characteristics. I further develop a dynamic oligopoly model to allow for strategic timing incentives that are missing in the static model. Adopting a dominant local vendor could increase per-period profits from adoption by 9.2% over choosing a marginal vendor. A counterfactual analysis suggests an incentive program rewarding coordination, not just adoption, is more effective in achieving interoperability, especially before the widespread adoption of the technology.

A structural model of cost pass-through: the case of the US yogurt retailing

We provide a structural framework for retail cost pass-through based on a neoclassical inverse demand model and retail profit maximization conditions. Unlike previous literature where game-theoretic structures are imposed on cost pass-through, our framework allows for estimating cost pass-through and the degree of market competition simultaneously. Further, our model incorporates potential cross-brand effects representing demand substitution and strategic complementarity effects. Our model supplements the traditional reduced-form approach to pass-through and is applicable in environments, where the lack of brand-level cost data renders reduced-form analysis infeasible. The empirical value of our model is illustrated in an econometric analysis of retail pass-through for national and store brand yogurt. Our results indicate that: (1) market competition has a positive impact on own-brand cost pass-through, especially for national brands, and (2) overlooking cross-brand effects results in biased own-brand pass-through estimates. Finally, we provide a graphical illustration of the relationship between cost pass-through and market competition.

Explaining the time-varying effects of oil market shocks on US stock returns

This paper documents time-variation in the relation between oil price and US equity returns based on both reduced-form and structural analyses. Our reduced-form analysis suggests that the sign of the relation between real oil returns and real stock returns has changed over time, and that in the recent period this relation has turned positive since early 2007 (but started increasing since 2005). Based on our structural analysis, we find that oil-specific demand shocks have had positive effects on the US stock market since 2009 as opposed to oil supply shocks, which have no large effects on stock returns. We also show that the time variation in the parameters of the structural VAR is very well explained by the level of the US short-term interest rate and shifts in consumer confidence.

Estimating the Relative Benefits of Agricultural Growth on the Distribution of Expenditures

Does the sectoral composition of aggregate economic growth affect poverty? We ask whether agricultural growth in developing countries increases the expenditures of poorer households more than growth in other sectors. While some reduced form analyses have tackled this question using either country-level time series data, regional panel data for one country, or cross-sectional country data, this paper is unusual in using panel data for many countries. We improve on much of the existing literature by devising an instrumental variables strategy to correct for the endogeneity of sectoral GDP growth, involving averaging over sectoral income growth rates for neighboring countries. Our principal finding from our instrumental variable estimator is that the estimated elasticities associated with growth in agricultural income are significantly greater than for non-agricultural income for all but the extreme top and bottom deciles. In the middle range of the income distribution the effect of a given GDP growth due to agriculture is 3–4 times larger than if it was due to non-agricultural activities. Having established that on average growth in GDP originating in agriculture is more beneficial for poorer deciles, we finally explore whether this is a pattern which holds across different groupings of countries. A second important finding is that there is heterogeneity across some groupings. Most particularly, we find that it is the poorest people in the poorest countries for whom agricultural income growth is the most beneficial.

The Impact of Unanticipated Economic Shocks on the Demand for Contraceptives: Evidence from Uganda.

We investigate the impact of unanticipated economic shocks on the use of contraceptives for childbirth control in Uganda using a nationally representative panel of women. To complement our reduced form analysis, we use both intra-village and inter-village variation in rainfall shocks between 2009 and 2012 to identify the impact of agricultural income on the adoption of contraceptives by Ugandan women and their husbands. Our results indicate that women in Uganda, along with their husbands, use contraceptives strategically to postpone childbirth during negative shocks. Our baseline coefficient estimate reveals that a 0.10 log-point adverse rainfall shock increases the demand for contraceptives by 3.8 percentage points. This translates to a 6.7% increase in the likelihood of contraceptives demand. Results from the two-stage least-square instrumental variable estimation for the impact of income complements the strategic birth control story from the reduced form estimates of this paper. More importantly, we find suggestive evidence-linking preventive childbirth decisions to food insecurity during drought. Copyright © 2017 John Wiley & Sons, Ltd.