Abstract. We present new evidence on consumer liquidity constraints and the credit market conditions that might give rise to them. Our analysis is based on unique data from a large auto sales company that serves the subprime market. We …rst document the role of short-term liquidity in driving purchasing behavior, including sharp increases in demand during tax rebate season and a high sensitivity to minimum down payment requirements. We then explore the informational problems facing subprime lenders. We …nd that default rates rise signi…cantly with loan size, providing a rationale for lenders to impose loan caps because of moral hazard. We also …nd that borrowers at the highest risk of default demand the largest loans, but the degree of adverse selection is mitigated substantially by e¤ective risk-based pricing.

discontinuity Address:

Uppsala, Wharton and Zürich. Andrea Weber gratefully acknowledges research funding from the Austrian

The British Industrial Revolution triggered a reversal in the social order whereby the landed elite was replaced by industrial capitalists rising from the middle classes as the economically dominant group. Many observers have linked this transforma-tion to the contrast in values between a hard-working and thrifty middle class and an upper class imbued with disdain for work. We propose an economic theory of preference formation in which both the divergence of attitudes across social classes and the ensuing reversal of economic fortunes are equilibrium outcomes. In our the-ory, parents shape their children’s preferences in response to economic incentives. If financial markets are imperfect, this results in the stratification of society along oc-cupational lines. Middle-class families in occupations that require effort, skill, and experience develop patience and work ethic, whereas upper-class families relying on rental income cultivate a refined taste for leisure. These class-specific attitudes, which are rooted in the nature of pre-industrial professions, become key determi-nants of success once industrialization transforms the economic landscape. ∗The authors would like to thank the editor, three anonymous refeees, Daron Acemoglu, Philippe

Nearly two years after the official end of the "Great Recession, " the labor market remains historically weak. Many commentators have attributed the ongoing weakness in part to supply-side effects driven by dramatic expansions of Unemployment Insurance (UI) benefit durations, to as many as 99 weeks. This paper investigates the effect of these UI extensions on job search and reemployment. I use the longitudinal structure of the Current Population Survey to construct unemployment exit hazards that vary across states, over time, and between individuals with differing unemployment durations. I then use these hazards to explore a variety of comparisons intended to distinguish the effects of UI extensions from other determinants of employment outcomes. The various specifications yield quite similar results. UI extensions had significant but small negative effects on the probability that the eligible unemployed would exit unemployment, concentrated among the long-term unemployed. The estimates imply that UI benefit extensions raised the unemployment rate by only about 0.2–0.6 percentage points, much less than is implied by previous analyses. Half or more of this effect is due to reduced labor force exit among the unemployed rather than to the changes in reemployment rates that are of greater policy concern; some analyses even suggest that UI extensions, by keeping displaced workers in the labor market, may have increased the share who were later reemployed. 1

Wiseman, and to numerous seminar participants for helpful suggestions. Thanks also to the many employees of the Social Security Administration who assisted us with the data used in this paper. Duggan thanks the Alfred P. Sloan Foundation for support. The corresponding author (Duggan) can be contacted at: University of Maryland, Department or at the email address above. The conclusions and opinions expressed in this paper are solely those of the authors and should not be construed as representing the opinions or policies of the Social Security Administration or any agency of the Federal Government. All errors are our own. 1 The Social Security Amendments of 1983 reduced the generosity of Social Security retired worker benefits in the U.S. by increasing the program’s full retirement age from 65 to 67 and increasing the penalty for claiming benefits at the early retirement age of 62. These changes were phased in gradually, so that individuals born in or before 1937 were unaffected and those born in 1960 or later were fully affected. No corresponding changes were made to the program’s disabled worker benefits, and thus the relative generosity of Social Security Disability Insurance (SSDI) benefits

This paper examines the importance of income effects in purchase decisions for every-day products by analyzing the effect of gasoline prices on grocery expenditures. Using detailed scanner data from a large grocery chain as well as data from the Consumer Expenditure Survey (CES), we show that consumers re-allocate their expenditures across and within food-consumption categories in order to offset necessary increases in gasoline expenditures when gasoline prices rise. We show that gasoline expenditures rise one-for-one with gasoline prices, consumers substitute away from food-away-from-home and towards groceries in order to partially offset their increased expenditures on gasoline, and that within grocery category, consumers substitute away from regular shelf-price products and towards promotional items in order to save money on overall grocery expenditures. On average, consumers are able to decrease the net price paid per grocery item by 5-11 % in response to a 100 % increase in gasoline prices. We find evidence that this consumer substitution effect happens given retail price adjustments due to pass-though of higher gasoline prices into retail prices, by investigating two price indexes; one that uses shelf-prices and one that uses prices net of promotional discounts (net-prices are

The causal effect of nonemployment durations on reemployment wages plays an impor-tant role in evaluating the costs of unemployment for workers and the economy, and in devising appropriate policy responses. However, almost no direct empirical estimates of this effect exist. This paper presents an analytical framework for analyzing the causal effect of nonemployment duration on wages and implements it using a regression discontinuity design and a large administrative dataset from Germany. Using a job search model with hetero-geneous agents, endogenous search choices, and a time-varying wage offer distribution, the paper shows that correlations of nonemployment durations and wages are not only hard to interpret because of selective exit from nonemployment, but also because both search behav-ior (labor supply) and wage offers (labor demand) change throughout the nonemployment spell. We show that if the path of reemployment wages throughout the nonemployment spell does not shift in response to an exogenous change in workers ’ outside options – in our case unemployment insurance (UI) durations – this implies reservation wages do not bind. In that case the model implies that UI extensions can be used to obtain an IV estimator that

I investigate in this paper partial equilibrium labor supply responses to unemployment insurance (UI) in the US. I use administrative data on the universe of unemployment spells in five states from 1976 to 1984, and non-parametrically identify the effect of both benefit level and potential duration in the regression kink (RK) design using kinks in the schedule of UI benefits. I provide many tests for the robustness of the RK design, and demonstrate its validity to overcome the traditional issue of endogeneity in UI benefit variations on US data. I also show how one can use the weighted difference between the behavioral response to an increase in potential duration and to an increase in benefit level to identify the pure moral hazard effect of UI. I then use these estimates to calibrate the welfare effects of an increase in UI benefit level and in UI potential duration.

Marschak (1953) suggested that applied research should begin by determining the minimal set of assumptions and data needed to make a prediction of interest. Standard identification analyses correspond poorly to this search, as they have either stringent data (local average treatment effects/IV and non-parametric) or structure (parametric) requirements. Yet, in this spirit, much empirical (Chetty, 2009) and some theoretical work has asked which effects of policy interventions may be forecast from the local observable levels and derivatives of the structure. I formalize this inquiry as the firstorder identification problem and illustrate it with the case of multi-product production. Under perfect competition or monopoly, but not standard oligopoly, Slutsky conditions for firm optimization provide strategies for identifying, for example, the effects of price controls. They also test for consistency of conjectural variations.