In this paper we propose a new variance estimator for OLS as well as for nonlinear estimators such as logit, probit and GMM. This variance estimator enables cluster-robust inference when there is two-way or multi-way clustering that is nonnested. The variance estimator extends the standard cluster-robust variance estimator or sandwich estimator for one-way clustering (e.g. Liang and Zeger (1986), Arellano (1987)) and relies on similar relatively weak distributional assumptions. Our method is easily implemented in statistical packages, such as Stata and SAS, that already offer cluster-robust standard errors when there is one-way clustering. The method is demonstrated by a Monte Carlo analysis for a two-way random effects model; a Monte Carlo analysis of a placebo law that extends the state-year effects example of Bertrand et al. (2004) to two dimensions; and by application to two studies in the empirical public/labor literature where two-way clustering is present.

In many field settings, participants sort among environments based on their preferences, beliefs, and skills. Experiments, however, often ignore the potential impact of such sorting. We demonstrate the importance of sorting for experiments, in the domain of social preferences. When individuals are constrained to play a dictator game, 61 % of the subjects share. But when subjects are allowed to avoid the situation altogether, only 23 % share. This reversal of proportions illustrates the importance of sorting for drawing inferences from experimental findings to the field. In a second experiment, we subsidize participation in the dictator game with higher payoffs relative to opting out. We find that the subjects whom the increased payoffs attract back into the sorting environment are primarily those who share the least. Thus, even with subsidization, the portion shared by participants remains much lower than without sorting. A second consequence of sorting, then, is that incentives aimed at enticing pro-social behavior can induce adverse selection. Both experiments also shed light on the motives for sharing. While much sharing is consistent with other-regarding preferences, the majority of sharers prefer to avoid the sharing environment.

This paper draws on a new combination of employer-employee and plant-level data from Mexico to investigate the relationship between exports and wage premia, defined as wages above what workers would receive elsewhere in the labor market. We first use detailed information on individual workers ’ wage histories to decompose plant-level average wages into a component reflecting skill composition and a component reflecting wage premia. Our estimating procedure allows for changes in the return to ability and feedback from current idiosyncratic shocks to future mobility. We then use the peso devaluation of late 1994, which we argue generated an exogenous differential inducement to export within industries, to estimate the effect of export incentives on the two components. Comparing across plants within industries, we find that approximately two-thirds of the higher level of wages in larger, more productive plants is explained by higher levels of wage premia, and that nearly all of the differential within-industry wage change due to the export shock is explained by changes in wage premia. The findings argue against the hypothesis that sorting on individual ability is solely responsible for the well-documented correlation between exporting and wages.

Referral networks affect the efficiency and equity of labor market outcomes, but few studies have been able to identify earnings effects empirically. To make progress, I build a model of on-the-job search in which referral networks channel information about high-paying jobs. I evaluate the model using geographically detailed employer-employee matched data for the U.S. The referral effect is identified by variations in the quality of local referral networks within narrowly defined neighborhoods. I find, consistent with the model, that local referral networks have a positive and significant effect on the full distribution of earnings outcomes from job search.

In an experiment using two-bidder first-price sealed bid auctions with symmetric independent private values, we scan also the right hand of each subject. We study how the ratio of the length of the index and ring fingers (2D:4D) of the right hand, a measure of prenatal hormone exposure, is correlated with bidding behavior and total profits. 2D:4D has been reported to predict competitiveness in sports competition (Manning and Taylor, 2001, and Hönekopp, Manning and Müller, 2006), risk aversion in an investment task (Dreber and Hoffman, 2007), and the average profitability of high-frequency traders in financial markets (Coates, Gurnell and Rustichini, 2009). We do not find any significant correlation between 2D:4D and both bidding or profits. Yet, our study raises an issue of ethnic differences with respect to 2D:4D.

In an experiment using two-bidder first-price sealed bid auctions with symmetric independent private values, we collected information on the female participants’ menstrual cycles. We find that women bid significantly higher than men in their menstrual and premenstrual phase but do not bid significantly different in other phases of the menstrual cycle. We suggest an evolutionary hypothesis according to which women are genetically predisposed by hormones to generally behave more riskily during their fertile phase of their menstrual cycle in order to increase the probability of conception, quality of offspring, and genetic variety. Our finding is in contrast to results by Chen, Katuˇsčák and Ozdenoren (2005, 2009).

We document the consequences of money market fund risk taking during the European sovereign debt crisis. Using a novel data set of security-level holdings of prime money market funds, we show that funds with large exposures to risky Eurozone banks suffered significant outflows between June and August 2011. Due to credit market frictions, these outflows have significant spillover effects on other firms: non-European issuers that typically rely on these funds raise less financing in this period. The results are not driven by issuers ’ riskiness or exposure to Europe: for the same issuer, money market funds with greater exposure to Eurozone banks decrease their holdings more than other funds. We show that relationships are important in short-term credit markets so that these spillover effects cannot be seamlessly offset, even though issuers are large, highly rated firms. Our results illustrate that instabilities associated with money market funds persist despite recent changes to the regulations governing them.

Many researchers have addressed concerns of omitted variable bias in hedonic price models through the use of spatial fixed effects. We argue that this approach does not consider the biases introduced by effects that overlap the zone of capitalization for the non-market good. We show this bias can dominate the usual omitted variable bias using data on developer-provided open space. We control for multi-scale capitalization and omitted variables simultaneously by extending the Hausman-Taylor estimator where the panel component of the estimator is defined over repeated transactions within neighborhoods rather than the traditional definition following a unique cross-sectional unit through time.

The Centre for Market and Public Organisation (CMPO) is a leading research centre, combining expertise in economics, geography and law. Our objective is to study the intersection between the public and private sectors of the economy, and in particular to understand the right way to organise and deliver public services. The Centre aims to develop research, contribute to the public debate and inform policy-making. CMPO, now an ESRC Research Centre was established in 1998 with two large grants from The Leverhulme Trust. In 2004 we were awarded ESRC Research Centre status, and CMPO now combines core funding from both the ESRC and the

The paper investigates the relationship between offshoring, wages, and the ease with which individuals ’ tasks can be offshored. Our analysis relates to recent theoretical contributions arguing that there is only a loose relationship between the suitability of a task for offshoring and the associated skill level. Accordingly, wage effects of offshoring can be very heterogeneous within skill groups. We test this hypothesis by combining micro-level information on wages and demographic and workplace characteristics as well as occupational information relating to the degree of offshorability with industry-level data on offshoring. Our main results suggest that in partial equilibrium, wage effects of offshoring are fairly modest but far from homogeneous and depend significantly on the extent to which the respective task requires personal interaction or can be described as non-routine. When allowing for cross-industry movement of Daniel Baumgarten thanks the Leibniz Association for financial support.