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A Franchise Education: The Impact of High School Quality on the Operations of Quick Service Restaurant Franchises in Texas
By Joseph Yetter
While the franchise business model provides customers with a certain level of consistency, there is still considerable variation in service quality across locations. Among other factors, a franchise’s quality of human capital (i.e., its workers) contributes to the quality of its operations, one of the strongest determinants of its revenue. Assuming that low wage workers have minimal geographical mobility, this paper studies how worker education impacts operation scores at the Texas locations of a quick service restaurant franchise brand by studying local school quality. This analysis controls for internal and external operations influences, such as the franchisee, designated market area, retail location type, the location’s proximity to a highway, and per capita income of the area to isolate the effect of school quality on operations. Ultimately, this study finds that higher school quality ratings have a significant and positive impact on the operations of franchises, and that operations have a significant and positive impact on sales revenue. Decomposing operations scores, this study finds that school quality ratings primarily impact operations by reducing customer complaints.
Advisor: Michelle Connolly, Ryan Mcdevitt | JEL Codes: J24, L8, L83 | Tagged: Business Operations, Education Quality, Franchise, Worker Productiviity
What is the Effect of Regulatory Supervision on the Profitability and Outreach of Microfinance Institutions?
By Nikolaus Axmann
Regulatory supervision is an important part of the formal banking process. As microfinance institutions have developed and multiplied, they have become more closely regulated, which has allowed many of them to evolve into more traditional banks. But there are concerns over microfinance regulation, as complying with regulatory can be costly, particularly for smaller institutions. Using high-quality cross-sectional data from the Microfinance Information eXchange, I conduct ordinary least squares and instrumental variables regression of regulatory supervision on profitability and outreach of microfinance institutions. Controlling for the non-random assignment of regulation using instrumental variables, I find that regulation is correlated with higher average loan sizes and less lending to women, but increased profitability among for-profit microfinance institutions. The results are consistent with the hypothesis that for-profit microfinance institutions change their business model in response to regulation by cutting outreach to lending sectors that are generally more costly per dollar lent. In contrast, nonprofit microfinance institutions do not adjust loan sizes or reduce lending to women in
response to regulation, although their profitability does not increase either.
Advisor: Edward Tower, Michelle Connolly | JEL Codes: F6, F61, F63 | Tagged: Development, Microfinance, Regulation
The Impact of State and Local Government Spending on Charitable Giving in the United States
By Lynn Vandendriessche
This paper seeks to further understand how government spending impacts private giving to charitable organizations. It considers giving and spending in the United States in 2008 with a focus on government spending on education, welfare, healthcare, and hospitals. Government spending is looked at at the state and local levels. The results indicate that the impact of government spending depends not only on the category of spending, but also on the income level of the giver. Increased welfare spending is shown to cause incomplete crowding-out across all income groups. Results consistently show education spending to cause crowding-out as well. The impact of both healthcare and hospital spending is more ambiguous, with differing results for different government levels (state and local) and income brackets.
Advisor: Michelle Connolly, Peter Arcidiacono | JEL Codes: L3, L31, L38 | Tagged: Altruism/Philanthropy, and Education, Charitable Giving, Health, Non-profit Institutions, Welfare
The Impact of Suburbanization on Poverty Concentration: Using Transportation Networks to Predict the Spatial Distribution of Poverty
By Winston Riddick
The purpose of this paper is to investigate the determinants of concentrated poverty, a phenomenon where socioeconomically deprived groups are heavily concentrated in particular neighborhoods in a metropolitan area. Drawing on Land Use Theory and the Spatial Mismatch Hypothesis, I develop a theory that identifies suburbanization as a principal cause of poverty concentration. Using interstate highway expansion as a source of exogenous variation in suburbanization rates, I evaluate this relationship in 240 U.S. Metropolitan Statistical Areas (MSAs) from 1960-1990, with concentrated poverty measured at the tract level. Panel regressions with MSA Fixed Effects find a positive and significant relationship between highway expansion and increased poverty concentration under a variety of specifications, including alternative measures of highways and an instrumented measure of urban population decline.
Advisor: Charles Becker, Michelle Connolly | JEL Codes: I30, J61, R13, R40 | Tagged: Highways, Poverty Concentration, Spatial Mismatch, Suburbanization, Transportation Networks
Has Tort Reform Been Effective in Abating the Medical Malpractice Crisis? An Empirical Analysis from 1991-2012
By Raj Singh and Jiten Solanki
This paper evaluates the impact of malpractice reforms on average malpractice payment awards, frequency of malpractice claims, and malpractice premiums for internists, surgeons, and OB/GYNS. We also empirically test the physician-induced demand (PID) hypothesis in the context of the medical malpractice environment. Our results suggest that caps on noneconomic damages and total damages as well as patient compensation funds are successful in reducing average payments, while damage caps and collateral source rule reform were found to lower malpractice claim incidence. When grouping claims by severity level, we find that noneconomic damage caps and patient compensation funds are more effective at reducing average payment with increasing severity level, while total damage caps induce the greatest reductions in payments for cases of medium severity. Also, non-economic damage caps were found to only significantly decrease the incidence of medium severity claims. With regards to malpractice premiums, we found that implementation of total damage caps as well as modification of joint-and-several liability were associated with lower premiums for all specialists. Finally, we evaluate the notion of ‘defensive medicine’ by studying whether higher malpractice premiums result in greater Medicare payments. Based on our model, increases of $10,000 in OB/GYN premiums are estimated to result in a 0.81% rise in total spending. Of the reforms studied, modification of joint-and-several liability had the most significant and consistent effects in reducing Medicare reimbursements for all categories of spending analyzed, and total damage caps were also estimated to effectively slow the growth of spending in specifications without premiums.
Advisor: Tracy Falba | JEL Codes: I1, I18, I19 | Tagged: Defensive Medicine, Medical Malpractice, Tort Reform
The Relationship between and Geographic Distribution of Breast Cancer Statistics: Diagnosis, Survival, and Mortality in Selected Areas in the United States, 1973-2004
By Timothy Rooney
Using breast cancer registry data from the United States and regression models controlling for race, marital status, and county-level variation, this research analyzes the connections between these statistics and the geographic variation of each of them. In doing so, it determines that stage of diagnosis has a significant impact on survival likelihood and the likelihood of death due to breast cancer. It also determines that survival reduces mortality likelihood. Additionally, it determines that stage of diagnosis, survival, and mortality all vary geographically, postulating that the reason for this variation is due to lifestyle variation and uneven medical talent distribution.
Advisor: Charles Becker, Michelle Connolly | JEL Codes: I1, I10, I19 | Tagged: Cancer, Diagnosis, Health, Mortality, Survival
Video Game Sales: Does Diversity Pay?
By Hai Lin “Helena” Wu
The video game industry has grown into a mature market in the past decade, surpassing the size of the U.S. film industry in 2009. As a result of the rise in popularity of video gaming amongst many demographic groups of the American population, the underrepresentation of female and ethnic minorities in video games has become an increasingly relevant topic of discussion. This paper empirically examines the effects of including female and ethnic minority lead characters on the equilibrium sales volume of video games. Through the use of a reduced-‐form regression, the equilibrium quantity is regressed on a list of exogenous variables pertinent to the interest of this study. The findings suggest that the inclusion of female and minority lead characters affects sales of different genres of games in distinct manners, suggesting that the video game market has a heterogeneous consumer base with a diverse range of preferences. In addition to empirical work, one of the main contributions of this paper is creating a new and unique dataset (N=712) on game attributes, especially with regard to character gender and ethnicity. This paper’s findings have implications on the game design decisions for video game producers.
Advisor: Kent Kimbrough, Lori Leachman | JEL Codes: D00, L1, L82 | Tagged: Entertainment, Ethnicity, Gender, Sales, Video Game
Conditional Beta Model for Asset Pricing By Sector in the U.S. Equity Markets
By Yuci Zhang
In nance, the beta of an investment is a measure of the risk arising from exposure to general market movements as opposed to idiosyncratic factors. Therefore, reliable estimates of stock portfolio betas are essential for many areas in modern nance, including asset pricing, performance evaluation, and risk management. In this paper, we investigate Static and Dynamic Conditional Correlation (DCC) models for estimating betas by testing them in two asset pricing context, the Capital Asset Pricing Model (CAPM) and Fama-French Three Factor Model. Model precision is evaluated by utilizing the betas to predict out-of-sample portfolio returns within the aforementioned asset-pricing framework. Our findings indicate that DCC-GARCH does consistently have an advantage over the Static model, although with a few exceptions in certain scenarios.
Advisor: Andrew Patton, Michelle Connolly | JEL Codes: C32, C51, G1, G12, G17 | Tagged: Beta, Asset Pricing, Dynamic Correlation, Equity, U.S. Markets
Market Dynamics and the Forward Premium Anomaly: A Model of Interacting Agents
By Phillip Hogan and Evan Myer
This paper presents a stochastic model of exchange rates, which is used to explain the forward premium anomaly. In the model, agents switch between four trading strategies, and these changes drive the evolution of the exchange rate. This framework is meant to more realistically represent the important market dynamics of exchange rates, as we suspect these to be the cause of the forward premium anomaly. Our simulations of the model indicate two conclusions: (i) many of the statistical regularities observed in currency markets, including the forward premium anomaly, can be thought of as macro-level scaling laws emerging from micro-level interactions of heterogeneous agents, and (ii) the dynamics of estimates of the beta coefficient in tests of UIP are driven by perceived relationships between changes in interest rates and agents’ aggregate views on the value of the exchange rate, which we call the fundamental value. Section I presents an introduction to the topic and section II reviews the relevant literature. Section III provides the theoretical basis of the forward premium anomaly and our model, then the mathematical definition of the model. Section IV presents the results of a typical simulation which section V compares to relevant stylized facts of the currency markets. Sections VI and VII present our results and a conclusion of what we have drawn from the model.
Advisor: Craig Burnside, Michelle Connolly | JEL Codes: G1, G13, G15 | Tagged: Exchange Rates, Forward Premium Anomaly
Exceeding the Threshold: Analysis of Public Information Transfer using Instrumental Variables
By Gabrielle Inder
This paper examines how information transfer about contamination levels found at brownfield sites capitalizes into nearby property values. More specifically, a hedonic model is used to test the impact on housing transaction prices when a binary measure (i.e. exceeding a threshold or not) or a continuous measure (i.e. chemical levels) is used. In the analysis, I exploit the variation in the contaminant thresholds, caused by regulatory conditions defined by the state of Massachusetts, holding the contaminant level constant. As thresholds are tied to neighborhood attributes in areas surrounding brownfields, threshold exceedance is potentially correlated to unobserved factors that impact housing values. An instrumental variables approach is used to create variation in threshold
exceedance through the use of an instrument that measures the presence to underground aquifers. After instrumenting for threshold exceedance, my estimates indicate that a 10.8% decrease in housing values occurs when a contaminant threshold is exceeded, while the continuous measures of toxicity indicate a negative but insignificant effect. These findings suggest that policy makers should consider information conveyance when creating policies to inform homeowners of pollution presence, as improved information provision may increase public awareness about local environmental concerns.
Advisor: Christopher Timmins, Michelle Connolly, Lala Ma | JEL Codes: C26, Q5, Q53 | Tagged: Brownfields, Hedonic Analysis, Housing Markets, Instrumental Variables, Pollution