-
Cheaper by the Dozen: Using Sibling Discounts at Catholic Schools to Estimate the Price Elasticity of Private School Attendance
October 2011
Working Paper Number:
CES-11-34
The effect of vouchers on sorting between private and public schools depends upon the price elasticity of demand for private schooling. Estimating this elasticity is empirically challenging because prices and quantities are jointly determined in the market for private schooling. We exploit a unique and previously undocumented source of variation in private school tuition to estimate this key parameter. A majority of Catholic elementary schools offer discounts to families that enroll more than one child in the school in a given year. Catholic school tuition costs therefore depend upon the interaction of the number and spacing of a family's children with the pricing policies of the local school. This within-neighborhood variation in tuition prices allows us to control for unobserved determinants of demand with a fine set of geographic fixed effects, while still identifying the price parameter. We use data from 3700 Catholic schools, matched to restricted Census data that identifies geography at the block level. We find that a standard deviation decrease in tuition prices increases the probability that a family will send its children to private school by one-half percentage point, which translates into an elasticity of Catholic school attendance with respect to tuition costs of -0.19. Our subgroup results suggest that a voucher program would disproportionately induce into private schools those who, along observable dimensions, are unlike those who currently attend private school.
View Full
Paper PDF
-
Globalization and Price Dispersion: Evidence from U.S. Trade Flows
March 2010
Working Paper Number:
CES-10-07
Historically, the integration of international markets has corresponded with decreasing prices for traded goods due to higher competition among suppliers, scale economies, and consumption demand. In recent years, product differentiation and multinational firm pricing behavior across markets and between suppliers make it difficult to assess the degree to which this still occurs. Using a confidential panel dataset comprising the universe of U.S. import trade transactions between 1992 and 2007, this paper explores the change in prices for imported commodities across American trade partners. Overall price dispersion appears to decline, albeit unevenly, over time; nevertheless, there is considerable heterogeneity within commodity groups, geographic regions, and income levels, which may owe to increased product and quality differentiation within commodity categories. Unusually, after controlling for gravity trade factors, trade openness and extensive measures of globalization are positively associated with price dispersion, which suggests a more disaggregated approach both at the commodity and firm level to account for these differences.
View Full
Paper PDF
-
Entry, Exit, and the Determinants of Market Structure
September 2009
Working Paper Number:
CES-09-23
Market structure is determined by the entry and exit decisions of individual producers. These decisions are driven by expectations of future profits which, in turn, depend on the nature of competition within the market. In this paper we estimate a dynamic, structural model of entry and exit in an oligopolistic industry and use it to quantify the determinants of market structure and long-run firm values for two U.S. service industries, dentists and chiropractors. We find that entry costs faced by potential entrants, fixed costs faced by incumbent producers, and the toughness of short-run price competition are all important determinants of long run firm values and market structure. As the number of firms in the market increases, the value of continuing in the market and the value of entering the market both decline, the probability of exit rises, and the probability of entry declines. The magnitude of these effects differ substantially across markets due to differences in exogenous cost and demand factors and across the dentist and chiropractor industries. Simulations using the estimated model for the dentist industry show that pressure from both potential entrants and incumbent firms discipline long-run profits. We calculate that a seven percent reduction in the mean sunk entry cost would reduce a monopolist's long-run profits by the same amount as if the firm operated in a duopoly.
View Full
Paper PDF
-
Testing for Factor Price Equality in the Presence of Unobserved Factor Quality Diferences
August 2009
Working Paper Number:
CES-09-22
We develop a method for identifying departures from relative factor price equality across regions that is valid under general assumptions about production, markets and factors. Application of this method to the United States reveals substantial and increasing deviations in relative skilled wages across labor markets in both 1972 and 1992. These deviations vary systematically with labor markets .industry structure both in the cross section and over time.
View Full
Paper PDF
-
Productivity Dispersion and Input Prices: The Case of Electricity
September 2008
Working Paper Number:
CES-08-33
We exploit a rich new database on Prices and Quantities of Electricity in Manufacturing (PQEM) to study electricity productivity in the U.S. manufacturing sector. The database contains nearly 2 million customer-level observations (i.e., manufacturing plants) from 1963 to 2000. It allows us to construct plant-level measures of price paid per kWh, output per kWh, output per dollar spent on electric power and labor productivity. Using this database, we first document tremendous dispersion among U.S. manufacturing plants in electricity productivity measures and a strong negative relationship between price per kWh and output per kWh hour within narrowly defined industries. Using an IV strategy to isolate exogenous price variation, we estimate that the average elasticity of output per kWh with respect to the price of electricity is about 0.6 during the period from 1985 to 2000. We also develop evidence that this price-physical efficiency tradeoff is stronger for industries with bigger electricity cost shares. Finally, we develop evidence that stronger competitive pressures in the output market lead to less dispersion among manufacturing plants in price per kWh and in electricity productivity measures. The strength of competition effects on dispersion is similar for electricity productivity and labor productivity.
View Full
Paper PDF
-
Transfer Pricing by U.S.-Based Multinational Firms
September 2008
Working Paper Number:
CES-08-29
This paper examines how prices set by multinational firms vary across arm's-length and related party customers. Comparing prices within firms, products, destination countries, modes of transport and month, we find that the prices U.S. exporters set for their arm's-length customers are substantially larger than the prices recorded for related-parties. This price wedge is smaller for commodities than for differentiated goods, is increasing in firm size and firm export share, and is greater for goods sent to countries with lower corporate tax rates and higher tariffs. We also find that changes in exchange rates have differential effects on arm's-length and related-party prices; an appreciation of the dollar reduces the difference between the prices.
View Full
Paper PDF
-
Electricity Pricing to U.S. Manufacturing Plants, 1963-2000
October 2007
Working Paper Number:
CES-07-28
We construct a large customer-level database and use it to study electricity pricing patterns from 1963 to 2000. The data show tremendous cross-sectional dispersion in the electricity prices paid by manufacturing plants, reflecting spatial price differences and quantity discounts. Price dispersion declined sharply between 1967 and 1977 because of erosion in quantity discounts. To estimate the role of cost factors and markups in quantity discounts, we exploit differences among utilities in the purchases distribution of their customers. The estimation results reveal that supply costs per watt-hour decline by more than half over the range of customer-level purchases in the data, regardless of time period. Prior to the mid 1970s, marginal price and marginal cost schedules with respect to annual purchase quantity are remarkably similar, in line with efficient pricing. In later years, marginal supply costs exceed marginal prices for smaller manufacturing customers by 10% or more. The evidence provides no support for a standard Ramsey-pricing interpretation of quantity discounts on the margin we study. Spatial dispersion in retail electricity prices among states, counties and utility service territories is large, rises over time for smaller purchasers, and does not diminish as wholesale power markets expand in the 1990s.
View Full
Paper PDF
-
Factor Price Equality and the Economies of the United States
October 2005
Working Paper Number:
CES-05-21
We develop a methodology for identifying departures from relative factor price equality across regions that is valid under general assumptions about production, markets and factors. Application of this methodology to the United States reveals substantial and increasing deviations in relative skilled wages across labor markets in both 1972 and 1992 . These deviations vary systematically with labor markets' industry structure both in cross section and over time.
View Full
Paper PDF
-
Prices, Spatial Competition, and Heterogeneous Producers: An Empirical Test
August 2004
Working Paper Number:
CES-04-16
In markets where spatial competition is important, many models predict that average prices are lower in denser markets (i.e., those with more producers per unit area). Homogeneous-producer models attribute this effect solely to lower optimal markups. However, when producers instead differ in their production costs, a second mechanism also acts to lower equilibrium prices: competition-driven selection on costs. Consumers' greater substitution possibilities in denser markets make it more difficult for high-cost firms to profitably operate, truncating the equilibrium cost (and price) distributions from above. This selection process can be empirically distinguished from the homogenous-producer case because it implies that not only do average prices fall as density rises, but that upper-bound prices and price dispersion should also decline as well. I find empirical support for this process using a rich set of price data from U.S. ready-mixed concrete plants. Features of the industry offer an arguably exogenous source of producer density variation with which to identify these effects. I also show that the findings do not simply result from lower factor prices in dense markets, but rather because dense-market producers are low-cost because they are more efficient.
View Full
Paper PDF
-
The Effects of Low-Valued Transactions on the Quality of U.S. International Export Estimates: 1994-1998
August 2004
Working Paper Number:
CES-04-11
This paper uses data from the U.S. Census Bureau Annual Survey of Manufactures (ASM) to examine the effects that a growth of low-valued transactions likely has on the quality of export estimates provided in the U.S. International Trade in Goods and Services (FT-990) series. These transactions, valued at less than $2,500, do not legally require the filing of export declarations. As a result, they are often not captured in the administrative records data used to construct FT-990 estimates. By comparing industry-level estimates created from the ASM to related FT-990 estimates, this paper estimates that the undercounting of low-valued transactions in the FT-990 export series increases by roughly $30 billion over the period of 1994-1997. It also finds that regression analysis provides little insight into the undercounting issue as results are primarily driven by industries whose contributions to total manufacturing exports are small.
View Full
Paper PDF
