Many corporate acquirers impose losses on their shareholders. Conflicted or overconfident CEOs and boards embark on acquisitions that are not in the best interest of the owners of the firm. The governance tool of shareholder voting can represent a potential solution. This column shows that in the UK, where bids for relatively large targets require mandatory shareholder approval, shareholders gain when the transaction is conditional on a vote and lose when it is not. The evidence suggests that the vote puts a constraint on the amount the CEO can offer for the target.
Marco Becht, Andrea Polo, Stefano Rossi, 20 July 2016
Alisdair McKay, Ricardo Reis, 14 July 2016
Brexit has raised the possibility of a recession on both sides of the Atlantic. Unable to use traditional remedies like monetary or fiscal policy stimulus, policymakers may consider automatic fiscal stabilisers. This column examines the impact of automatic stabilisers through social insurance on the business cycle, and how its impact can be used to mitigate recession. Unemployment insurance or food stamps would be better than progressive taxes at stimulating aggregate demand. The main economic channels policymakers must consider are those related to risk and precautionary savings.
Ghazala Azmat, Rosa Ferrer, 12 July 2016
Gender gaps in earnings exist in high-skill industries despite male and female workers having similar educational backgrounds. This column uses evidence from the legal industry to assess how performance affects career outcomes across genders. Performance gaps, defined by hours billed and new revenue raised, explain a substantial share of the gender gaps in earnings, as women’s working hours are affected by having young children while those of men are not. An important implication is that gender-based inequality in earnings and career outcomes might not decrease in the near future as more high-skilled workers are explicitly compensated based on performance.
Stephen Billings , David Deming, Stephen Ross, 11 July 2016
The propensity for youths to commit crime has long been associated with where they live. This column looks at how the school they attend can shape this relationship. Exploiting changes to school catchment areas in a US school district, it shows that concentrations of students with similar characteristics and from similar neighbourhoods at the same school increase arrest rates, if these potential peers live close to each other. Moreover, youths who live near each other and are in the same school and grade are more likely to commit crimes together. Policies to decrease segregation in schools could thus be effective in reducing crime.
Sandra Black, Jason Furman, Emma Rackstraw, Nirupama Rao, 06 July 2016
Labour force participation among men ages 25-54 in the US has been falling for more than six decades. This column examines this longstanding decline, its potential causes, and its implications for public policy and the future of the US labour market.
Janet Currie, Hannes Schwandt, 02 July 2016
Inequalities in mortality rates are a good indicator of economic wellbeing, but most of the existing literature does little to distinguish between developments in infants and adults. This column uses extensive US data to analyse mortality trends across all age groups. It finds that the health of the next generation in the poorest areas of the US has improved significantly and the race gap has declined significantly. Underlying explanations include declines in the prevalence of smoking and improved nutrition, and a major cause is social policies that target the most disadvantaged.
Daron Acemoglu, Jacob Moscona, James Robinson, 27 June 2016
The ‘great inventions’ view of productivity growth ascribes the excellent growth from 1920 to 1970 in the US to a handful of advances, and suggests that today poor productivity performance is driven by a lack of breakthrough discoveries. This column argues instead that the development of an effective governmental infrastructure in the 19th century accounted for a major part of US technological progress and prominence in this period. Infrastructure design thus appears to have the power to reinvigorate technological progress.
Dalia Marin, 23 June 2016
Income inequality is less severe in Germany than in the US. Part of this is due to CEO pay in the US growing faster than in Germany. This column offers some novel explanations for these observations. From the mid-1990s, Germany began offshoring managerial tasks to Eastern Europe, reducing demand for German managers. In addition Germany offshored skill-intensive jobs to Eastern Europe, reducing the skill premium.
David Autor, David Figlio, Krzysztof Karbownik, Jeffrey Roth, Melanie Wasserman, 22 June 2016
Around the world, girls tend to surpass boys in educational achievement. Early childhood inputs have been shown to be particularly important for the formation of children’s skills and behavioural patterns. Using US data, this column shows that in higher-quality schools the gender gap in terms of both skills and behaviour shrinks, with essentially no boy-girl disparity in outcomes at the very best schools. Better schools are thus an effective policy lever for reducing gender disparities in elementary and middle school outcomes.
Brandon Dupont, Joshua Rosenbloom, 19 June 2016
The long-run persistence of social and economic status has received substantial attention from economists of late. But the impact of economic and political shocks on this persistence has yet to be thoroughly explored. This column examines the disruptions from the US Civil War on the Southern wealth distribution. Results suggest that an entrenched southern planter elite retained their economic status after the war. However, the turmoil of the decade opened mobility opportunities for Southerners of more modest means, especially compared with the North.
Peter Lindert, Jeffrey Williamson, 16 June 2016
Americans have long debated when the country became the world’s economic leader, when it became so unequal, and how inequality and growth might be linked. Yet those debates have lacked the quantitative evidence needed to choose between competing views. This column introduces evidence on American incomes per capita and inequality for two centuries before World War I. American history suggests that inequality is not driven by some fundamental law of capitalist development, but rather by episodic shifts in five basic forces: demography, education policy, trade competition, financial regulation policy, and labour-saving technological change.
Ruben Durante, Ekaterina Zhuravskaya, 15 June 2016
Governments involved in conflict are often concerned with how their actions are perceived by the international community. This column uses evidence on the Israel-Palestine conflict and US news reporting between 2000 and 2011 to show how media considerations can impact military strategy. Israeli attacks are more likely to be carried out one day before the US news is expected to be dominated by important political or sport events. There is no evidence of a similar pattern to Palestinian attacks. The findings suggest that strategic behaviour could undermine the effectiveness of the mass media as a watchdog, and thus reduce citizens’ ability to keep public officials accountable.
Efraim Benmelech, Ralf R Meisenzahl, Rodney Ramcharan, 11 June 2016
The US government’s ‘bailout of bankers’ in 2008-09 remains a highly controversial moment in economic policy. Many critics suggest that intervention to relieve household debt may have been more effective in stimulating economic recovery. This column suggests that without federal intervention to stabilise financial markets and recapitalise some non-bank lenders, the magnitude of the economic collapse might have been much worse. While household debt was incredibly important in reducing demand, the financial sector dislocations and the lack of credit also played a critical role.
Torben Andersen, Jonas Maibom, 29 May 2016
Theory and empirical data contest the direction of causality in the relationship between economic performance and income inequality – a relationship that is of great political importance. This column uses evidence from OECD countries to show that the relationship is not linear. While some countries can improve economic performance only at the cost of increasing economic inequality, other countries can improve both economic performance and equality without such a trade-off.
Kris Mitchener , Gary Richardson, 28 May 2016
The Global Crisis emphasised the fragility of international financial networks. Despite this, there has been little historical research into how networks propagate financial shocks. This column explores how interbank networks transmitted liquidity shocks through the US banking system during the Great Depression. During banking panics, the pyramided-structure of reserves forced troubled banks to reduce lending, thus amplifying the decline in investment spending.
Liangliang Jiang, Ross Levine, Chen Lin, 20 May 2016
By creating liquidity, banks improve the allocation of capital and accelerate economic growth. This column uses evidence from US banks between 1984 and 2006 to evaluate the impact of competition amongst banks on their liquidity creation. It finds that an intensification of competition in the banking industry materially reduces liquidity creation. Furthermore, the evidence suggests that more profitable banks experience a smaller reduction in liquidity creation because of their ability to better absorb risk. Similarly, an intensification of competition reduces liquidity creation more among small banks, who are more engaged in relationship lending.
Kevin Rinz, Daniel Hungerman, 15 May 2016
In the last decade, US states have created dozens of large-scale programmes that use public resources to subsidise attendance at private schools, but there is disagreement over who benefits from these subsidies. This column estimates the effects of the programmes on school revenue and enrolment. The programmes increase revenue, but the mechanism depends on the design. In programmes with restricted eligibility the subsidies reach families and increase enrolment, whereas in unrestricted programmes the subsidies flow to schools and increase revenue per student.
Santiago Caicedo, Robert Lucas, Esteban Rossi-Hansberg, 14 May 2016
A large part of people’s wages rewards the knowledge embedded in them that they use in a production endeavour. Knowledgeable individuals specialise in hard, complicated tasks, while less knowledgeable ones specialise in simpler, more common tasks. This column uses a dynamic model of knowledge accumulation over time and career paths to find an underlying cause for wage inequality in the US over the last few decades. A good explanation for the wage inequality is the discrepancy between the rate of technological change and the rate at which the distribution of knowledge catches up.
Alex Cukierman, 19 April 2016
Following the collapse of Lehman Brothers, there was a fall in growth rates of net banking credit and total net new bond issues. This column discusses these events in detail. It also suggests that the decrease in credit was mainly due to supply shrinkage. The persistence of credit arrest beyond the two years following Lehman’s collapse is due to gradual enactment of tougher banking regulations along with growing awareness of low bailout probabilities.
Eva Arceo, Rema Hanna, Paulina Oliva, 16 April 2016
Pollution levels are orders of magnitude higher in lower-income countries than in the developed world. This means that studies of the health effects of pollution based on data from the latter will not necessarily be relevant to the former. This column reports on the effect of air pollution on infant mortality in Mexico City. Significant effects are found that are much larger than found in earlier work based on US data. These findings highlight the potential pitfalls of naively extrapolating findings from high-income to developing countries.