Every Monday, the National Bureau of Economic Research, a nonprofit organization made up of some of North America’s most respected economists, releases its latest batch of working papers. The papers aren’t peer-reviewed, so their conclusions are preliminary (and occasionally flat-out wrong). But they offer an early peek into some of the research that will shape economic thinking in the years ahead. Here are a few of this week’s most interesting papers:
Title: “Cash for Corollas: When Stimulus Reduces Spending”
Authors: Mark Hoekstra, Steven L. Puller, Jeremy West
What they found: Intended as an economic stimulus, the 2009 “cash for clunkers” program ended up reducing consumer spending because stringent fuel-efficiency rules led buyers to choose cheaper cars.
Why it matters: The program, which offered $3 billion in subsidies for Americans to trade in older vehicles and buy new ones, had two primary goals: to stimulate the economy (and in particular help the auto industry) by boosting spending and to help the environment by getting older cars off the road. But the authors of this study find that the goals may have been in conflict. Using data from Texas, they find that the program did boost auto spending, but only temporarily — people simply bought cars earlier than they would have otherwise. And because they could only use the subsidies to buy cars that met certain minimum fuel-efficiency standards, people ended up buying smaller cars than they would have otherwise and therefore spent less. Households that took advantage of the program spent on average $4,600 less than they would have if “cash for clunkers” had never been adopted.
Key quote: “We show that while the program signiﬁcantly increased the number of vehicles sold during the two months of the program, this entire increase represented a shift from sales that would have occurred in the following seven to nine months. Thus, over a nine to eleven month period, the program had no impact on the number of vehicles sold. Strikingly, however, we show that over a nine to eleven month period, including the two months of the program, Cash for Clunkers actually reduced the amount of money spent on new cars by two to four billion dollars.”
Data they used: Administrative records maintained by the Texas Department of Motor Vehicles
Title: “Affirmative Action Bans and Black Admission Outcomes: Selection-Corrected Estimates from UC Law Schools”
Author: Danny Yagan
What he found: Eliminating affirmative action at two top California law schools cut admission rates among blacks in half. But black applicants did retain some advantage relative to white applicants with similar credentials.
Why it matters: In recent years, various states have taken steps to end or restrict the use of race as a factor in public university admissions. That has led many schools to look for ways to promote diversity without relying on explicitly race-based factors. In this paper, University of California, Berkeley economist Danny Yagan looks at the effects of one of the earliest affirmative action bans, a 1996 California ballot initiative banning race-based admissions in the University of California system. Yagan focuses on the state’s two elite public law schools, at Berkeley and Los Angeles, because law school admissions are highly formulaic compared with other education programs. On the surface, the ban had no lasting effect on the admission rates of black applicants, which initially fell but quickly rebounded. But the actual number of black applicants fell sharply and never recovered, leading to a lower number of total black admissions. Yagan finds that, controlling for students’ grades and test scores, black admission rates fell to 31 percent after the ban from 61 percent before. But Yagan also finds that, black admission rates would have fallen even further, to 8 percent, if schools hadn’t found other ways to give minority applicants an advantage, such as by giving preference to low-income students. But the schools were either unable or unwilling to use those techniques to boost minority admissions to pre-ban levels.
Key quote: “Evaluations of a nationwide affirmative action ban should assume a large reduction in black admission advantages, while also allowing for large advantages to remain. Second and by revealed preference, UC schools did not consider race-neutral alternatives to affirmative action to be ‘workable’ enough to sustain pre-ban black admission advantages, potentially satisfying an important federal constitutionality requirement for affirmative action. Third, achieving substantially larger black advantages under the ban is likely feasible but may require policies that mandate higher admissions weight on black-correlates (e.g. low family income and diversity essays) than schools would choose on their own.”
Data he used: Law school application data over 17 years from an undisclosed, large elite college
Title: “The Changing Face of World Oil Markets”
Author: James D. Hamilton
What he found: Oil prices of $100 a barrel or higher are here to stay due to rising demand from China and the rest of the developing world, and the difficulty of increasing production amid both geological and geopolitical challenges.
Why it matters: This month marks the 155th anniversary of the drilling of the “Drake well” in Titusville, Pennsylvania, which is widely considered the birthplace of the modern oil industry. Well-known energy economist James Hamilton took the opportunity to review recent developments in global oil markets. Among the major trends he identifies: Demand is being driven by China and other fast-growing emerging economies, rather than by developed nations. Meanwhile, global production growth has slowed as old fields dry up and new ones are harder and more expensive to tap, and often contain lower-quality oil. At the same time, turmoil in Libya, Iraq and other oil-producing nations have further limited production growth. Taken together, Hamilton finds, the trends suggest oil prices will remain high.
Key quote: “Although the oil industry has a long history of temporary booms followed by busts, I do not expect the current episode to end as one more chapter in that familiar story. The run-up of oil prices over the last decade resulted from strong growth of demand from emerging economies confronting limited physical potential to increase production from conventional sources. … If China were to face a financial crisis, or if peace and stability were suddenly to break out in the Middle East and North Africa, a sharp drop in oil prices would be expected. But even if such events were to occur, the emerging economies would surely subsequently resume their growth, in which case any gains in production from Libya or Iraq would only buy a few more years.”
Title: “Free to Choose: Promoting Conservation by Relaxing Outdoor Watering Restrictions”
Authors: Anita Castledine, Klaus Moeltner, Michael Price, Shawn Stoddard
What they found: Rigid, schedule-based watering restrictions can lead residents to use more water than they would under more flexible regulations.
Why it matters: Rising water consumption and severe droughts have led many U.S. communities, particularly in Western states, to adopt restrictions on outdoor water use. Many of these restrictions take the form of rules that permit watering only on designated days. Using data from the Reno, Nevada, area, the authors of this paper find that such rigid rules lead residents to use more water than they would if they were allowed to follow more flexible watering arrangements. They find that residents who followed Reno’s strict two-day-a-week watering policy, which was in effect until 2010, used more water than those who were willing to break the rules, probably because they were more likely to overwater their lawns on the days when they were allowed to water. Moreover, when Reno switched to a three-day-a-week schedule in 2010, the effect became weaker, perhaps because people felt less need to overwater.
Key quote: “We ﬁnd that higher frequencies unambiguously translate into higher weekly use. However, we uncover an unintended consequence of [outdoor watering restrictions] with days-of-week assignments: weekly use and peak are higher the more closely a given household follows the assigned schedule. These ‘rigidity penalties’ are substantial and amount to approximately 20-25 percent of weekly consumption and 30-40 percent of weekly peaks.”
Data they used: Customer-level data from the Truckee Meadows Water Authority