SHA Working Papers

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    Farm Mechanization and Rural Migration in the Great Depression
    Boone, Christopher; Wilse-Samson, Laurence (2019-01-14)
    We study sectoral labor realloaction in the U.S. during the Great Depression by examining transitions between the farm and nonfarm sectors as well as movement within the farm sector. Towns and cities that are hit harder by the downturn see higher levels of out-migration to farms, suggesting that the widespread movement to farms serves as a source of migratory insurance. We also show that the more mechanized farming areas are far less able to provide this insurance function. In fact, while the subsistence agricultural sector gains large numbers of people during the crisis, the mechanized agricultural sector sheds workers. Instead of being released into more productive occupations, many of the workers leaving these mechanized areas are themselves moving into low-productivity or subsistence farming. This evidence suggests that economic downturns can interrupt the process of structural transformation and that the job losses associated with structural change may exacerbate the employment problem during economic downturns.
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    Customer Concentration and Cost Structure
    Chang, Hsihui; Hall, Curtis M.; Paz, Michael (2017-04-01)
    This study examines the effects of customer concentration levels on firm cost structure decisions. Analyzing cost data from a sample of manufacturing firms from 1976 through 2013, we find a negative relationship between customer concentration and cost elasticity whereby firms exhibit lower proportions of variable-to-fixed costs in the presence of higher levels of customer concentration. Additionally, we find that greater customer bargaining power, proxied by supplier industry competition and product market fluidity, leads to lower cost elasticity as customer concentration becomes greater. These results are robust to alternate specifications as well as controlling for endogeneity using a two-stage model. Our results suggest that suppliers respond to customer concentration by pursuing increased mutual dependence and cooperation with customers rather than attempting to reduce the effect of power imbalances within the supplier-customer relationship.
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    Where, When and How Do Sophisticated Investor Respond to Flood Risk?
    Eichholtz, Piet M. A.; Steiner, Eva; Yönder, Erkan (2019-06-01)
    While the empirical evidence on the pricing of flood risk exposure in residential real estate held by uninformed households is mixed, this study shows that sophisticated investors in commercial real estate markets rationally respond to heightened flood risk by bidding down the prices of exposed assets. Using a detailed property-level database on commercial real estate transactions completed in New York, Boston, and Chicago before and after the shift in the salience of flood risk caused by Hurricane Sandy, we document that properties exposed to flood risk experience slower price appreciation after the storm than equivalent unexposed properties. We further show that: the price effect is not driven by physical damage incurred from Hurricane Sandy, nor by concurrent unrelated pricing trends for waterfront property; it persists through time, suggesting it does not reflect a temporary overreaction that is subsequently reversed; it is driven by higher risk premiums for exposed properties; and it is exacerbated by contagion from locally important occupiers.
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    Labor Scarcity, Finance, and Innovation: Evidence from Antebellum America
    Mao, Yifei; Wang, Jessie Jiaxu (2018-03-18)
    This paper establishes labor scarcity as an important economic channel through which access to finance shapes technological innovation. We exploit antebellum America, a unique setting with (1) staggered passage of free banking laws across states and (2) sharp differences in labor scarcity between slave and free states. We find that greater access to finance spurred technological innovation as measured by patenting activities, especially in free states where labor was relatively scarce. Interestingly, in slave states where slave labor was prevalent, access to finance encouraged technological innovation that substituted for free labor, but discouraged technological innovation that substituted for slave labor.
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    The Rate of Return on Real Estate: Long-Run Micro-Level Evidence
    Chambers, David; Spaenjers, Christian; Steiner, Eva (2019-06-01)
    We provide evidence that direct real estate investments are less profitable and more risky in the long run than previously thought. We hand-collect property-level data on realized income, expenses, and transaction prices from the archives of four large institutional investors in the U.K.—historically important Oxbridge colleges—for the period 1901–1970. Gross income yields mostly fluctuate around 5%, but trend to lower (higher) levels for agricultural and residential (commercial) real estate near the end of our sample period. Operating costs mean that net yields are about one third lower than gross yields on average. Long-term real income growth rates are between -1.0% and 0.0% for the three main property types. Together these findings imply limited long-run capital gains and real annualized net total returns of less than 4% across all property types. Moreover, we find substantial volatility in net income streams and variation in relative price levels across transacted properties, revealing the considerable idiosyncratic risks associated with real estate investments.
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    Preferences Toward Risk and Asset Prices: Evidence From Russian Lottery Bonds
    Ukhov, Andrey D. (2005-11-03)
    This paper studies the relationship between investor risk preferences and asset returns. The paper provides direct evidence on the risk aversion of participants in a securities market. It uses the prices of lottery bonds issued by the Imperial Russian Government in 1864 and 1866 to estimate investor risk aversion and to study changes in preferences toward risk. Time variation in investor risk preferences is then compared to the dynamics of the Russian bond market over the period 1889 to 1904. Increases in risk aversion are positively associated with increases in the price of a risk-free asset. This result is in accord with economic intuition that higher risk aversion is associated with higher demand for a safe asset, and hence, higher equilibrium price of a risk-free security and a lower risk-free rate. Implications of a Consumption CAPM model for a relationship between changes in interest rates and changes of risk aversion are tested. Evidence supporting the model is found. The paper provides evidence on the role of risk aversion in securities market dynamics.
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    Financial Globalization and Risk Sharing: Welfare Effects and the Optimality of Open Markets
    Trzcinka, Charles A.; Ukhov, Andrey D. (2006-01-01)
    To study the welfare effects of investment barriers and the opening of markets to foreigners, we construct an equilibrium model of international asset pricing without agency costs that allows endogenous market participation among heterogeneous agents. Equilibrium prices and the set of participating and non-participating agents are jointly determined in equilibrium and the ability of agents to choose to participate in the market affects prices of domestic and foreign assets. We examine the welfare effects of non-participation and find that when a country moves from complete segmentation to open markets for foreigners, the cost of capital falls in the domestic market. This is consistent with empirical findings in the international asset pricing literature. Through the endogenous participation mechanism, our model is able to capture sources of economic growth. Contrary to previous models, however, we show that opening markets is not Pareto-optimal and we identify a class of domestic agents whose welfare is lower after the opening of markets. These finding have political economy interpretations and policy implications.
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    Learning to Become a Taste Expert
    LaTour, Kathryn A.; Deighton, John (2018-06-01)
    Evidence suggests that consumers seek to become more expert about hedonic products to enhance their enjoyment of future consumption occasions. Current approaches to becoming expert center on cultivating an analytic mindset. In the present research the authors explore the benefit to enthusiasts of moving beyond analytics to cultivate a holistic style of processing. In the taste context the authors define holistic processing as non-verbal, imagery-based, and involving narrative processing. The authors conduct qualitative interviews with taste experts (Master Sommeliers) to operationalize the holistic approach to hedonic learning, and then test it against traditional analytic methods in a series of experiments across a range of hedonic products. The results suggest that hedonic learning follows a sequence of stages whose order matters, and that the holistic stage is facilitated by attending to experience as a narrative event and by employing visual imagery. The results of this multi-method investigation have implications for both managers and academics interested in how consumers learn to become expert in hedonic product categories.
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    Financial Innovation and Russian Government Debt Before 1918
    Ukhov, Andrey D. (2003-05-05)
    In this paper I describe debt instruments issued by the Russian Imperial Government. At the beginning of the 20th century, the Russian government was the largest borrower in the world. Russian government bonds were traded in all major financial centers, including London, Paris, Amsterdam, and New York. Russia was integrated into the world financial system. In 1913 foreign investors held 49.7% of Russian government debt. Innovative financial instruments were developed to attract foreign and domestic investors.
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    The Real Effects of Sharing Economy: Evidence from Airbnb
    Mao, Yifei; Tian, Xuan; Ye, Kailei (2018-03-01)
    Sharing economy has developed rapidly in recent years, but little is known regarding its real effects. This paper examines how a pioneer of sharing economy—Airbnb—affects local economy. Using venture capital infusions as plausibly exogenous shocks to Airbnb’s expansion into a new county, we find that Airbnb expansion leads to poorer hotel performance in the local county. Meanwhile, Airbnb expansion appears to reduce unemployment rate and increase household income. Further analysis suggests that increased employment is concentrated in industries that are complementary to Airbnb’s business and in employee groups with lower education levels. Our study sheds new light on the real effects of the sharing economy and provides important policy implications for policymakers.