Student Research Conference: Academic Year 2001-2002
Timofey Chekhoyev did his independent research with Dr. Diego Mendéz-Carbajo on Purchasing Power Parity Theory and the Russian Exchange Rate During the 1990's. ABSTRACT: As the new millennium begins, one of the important questions for the emerging global economy is the role that Russia will play in it. Since August 1991, Russia has been trying to liberalize the economy in its attempt to integrate into the world community. One of the first reforms of the "shock therapy" started in January 1992 by the new Russian government with the goal to make the Russian economy more open to the outside world was to liberalize prices and establish a free currency market. With the latter reform, for the first time since 1917, the Russian Ruble became freely convertible to other currencies. This project will examine the behavior of the Russian-US exchange rate during the last decade and attempt to explain its fluctuations in terms of purchasing power parity.
Megan De Serf did her honors research with Dr. Michael Seeborg examining The Effects of Background Factors on Children's Educational Attainment Across Varying Racial Groups. ABSTRACT: This paper uses data from the National Longitudinal Survey of Youth (NLSY) to examine how background and familial factors affect children's educational attainment. Special attention is paid to the existence of educational gaps among children of varying racial groups and the impact of the background variables on each specific race. Multiple regression models are used to show how income, family size, female-headed households, and mother's educational attainment affect children's educational attainment for each of the three racial groups. The results suggest that the background variables play a larger role in the educational attainment of white respondents than they do in the educational attainment of black or Hispanic respondents. Interestingly, this result, and other results reported in the study, do not support the hypothesis that these background variables have a greater impact on minorities' educational attainment than those of their white counterparts.
Marty Gardner did his independent research with Dr. Robert Leekley on Causes of Stock Market and Sector Fluctuations. ABSTRACT: The stock market has been viewed as a proxy for the state of the economy. However, predicting changes in the stock market has not been an easy task. The Federal Reserve has the power to control, to some degree, the direction in which the stock market will move through monetary policy. While there are many variables that affect the stock market, my study focuses on variables that can be somewhat controlled: interest rates, inflation, real GDP, and consumer confidence. By understanding the relationship of how changes in these variables cause changes in the stock market, we can effectively predict changes in the stock market. This can be useful in determining the future state of the economy. Furthermore, we need to understand how much of a change in these variables cause a certain amount of change in the stock market.
My study uses these four variables to predict changes in the stock market and the sectors in a rational expectations model. I found that these variables are very useful and significant in predicting future changes in the stock market and the three sectors I chose: consumer durables, consumer nondurables, and the financial. My results show that not only are these variables significant in predicting stock market fluctuations, but the market is also very sensitive in slight changes in these particular variables. Given changes in these variables, we can accurately predict changes in the stock market. This is not only useful in determining the future state of the economy, but also can be very lucrative.
Katie Hampson did her honors research with Dr. Robert Leekley on Measuring Demand for Illegal Drugs: Do Prices Matter? ABSTRACT: Despite government efforts to control the proliferation of illicit drugs in this country, illegal drugs continue to burden both our society and economy. In 1998 alone, Americans spent $11 billion on marijuana, $39 billion on cocaine, and $2.3 billion on heroin and other substances. In addition, billions of dollars are spent annually on incarceration, prevention, and rehabilitation for addicts and other drug users.
What causes people to use illegal drugs? How do the prices of drugs affect consumers' demand for them? This study addresses these questions by developing models to predict the elasticity of demand for marijuana, cocaine, and heroin. Separate double-log regressions are run for each of the types of drugs in order to test for differences in the patterns of demand among each of the drugs. In addition to looking at how prices affect demand for the drugs, the model also includes economic, demographic, and background variables that are used to see whether the same groups of individuals use all three types of drugs.
†* Katia Hristova did her honors research with Dr. Michael Seeborg on Czech Voucher Privatazation: A Case of Decision Making Under Uncertainty. ABSTRACT: The collapse of Communism in Central and Eastern European countries in the late 1980's led the countries into a drastic political, social, and economic transformation. The fundamental economic restructuring consisted of three main processes: macroeconomic stabilization, market liberalization, and privatization. A vital part of this triad, privatization was expected to restructure the ownership patterns held for the past 50 years, create a social class of entrepreneurs and, thus, change the manner of operation of enterprises and achieve greater economic efficiency.
In my research I examined a fundamental of economic restructuring in the Czech Republic - voucher privatization. A kind of large-scale privatization, it was conducted in order to redistribute property among the population in a socially fair way in a situation of complete lack of domestic financial capital. It was also thought of as a way to speed up the transition in the economy. In my study this process is examined as decision making under uncertainty. Looking at the process as a game, I have explored how the rules and players change due to the intervention of international institutions. Also, I analyzed how asymmetric information in the privatization process led to concentration of ownership in the hands of a few individuals who have limited ability to initiate change in the enterprises. I have looked at the Investment Privatization Funds (IPFs) as an institution that arose as a new player in the game representation of privatization. I discuss the information asymmetries in the process and analyzed the players' roles and strategies in voucher privatization.
† David Janashvili did his honors research with Dr. Robert Leekley on Market Concentration: The Effects of Technology and Industry Specific Factors. ABSTRACT: Market concentration is often viewed as an important indicator of monopoly power, which makes it a key aspect for analyzing antitrust and other cases. A good understanding of what market concentration is and how it arises is crucial to policy decision making, especially in today's world where large corporations often tend to dominate the business scene. This paper focuses on investigating how factors accounting for technological innovation and industrial specificity affect market concentration.
A variety of studies have been conducted on the effects of concentration on innovation and technology levels among industries. A majority of researchers conventionally agree that this relationship is positive. However, more recent data suggest that the relationship may be negative. Evidence suggests that there is also a reverse relationship between these two factors. In this study I hypothesize that high levels of technological innovation give rise to concentrations and that the magnitude of the effect varies among different industries. As a result, the proxy variables for innovation are constructed (R&D expenditures, number of researchers, net investments, wages). The control variables include industry size, growth, size variability, and advertising intensity.
Neither of the empirical models used in the paper yield strongly significant results. This may be due to data availability problems, and consequently, weakness of some proxies. The final (weak) model provides general intuition and support to the hypothesis. Policy implications are discussed in the last section.
Justin Leverton did his honors research with Dr. Margaret Chapman addressing the question Bubblemania or Not? ABSTRACT: From 1985 until 2001, the price of stocks in the NYSE increased exponentially. Financial analysts wondered if we were in a "new" economy or simply a bubble. Were the fundamentals of stocks changing to support the rapid growth or did a bubble exist? To compare these two viewpoints, my research will look at whether the fundamentals justify the increase in stock prices.
Are bubbles the result of the run up in stock prices or do the fundamentals support the high levels of prices? I will analyze the fundamentals of a stock price evaluation. In essence, I will be measuring the present and expected future earnings streams. By looking at the fundamentals of a stock price from past and expected future performance, the rational expectations model can be used to construct the fundamental price level of a stock.
My research will show that while rational expectations theory explains some of the growth of the stock market from 1985-2001, the majority of the price increase represents a deviation from the fundamental value of a stock. This deviation can be attributed to a stock market bubble.
* Anisha Madan did her honors research with Dr. Ilaria Ossella-Durbal on The Relationship Between Economic Freedom and Socio-Economic Development. ABSTRACT: The concept of economic freedom is not a novel one in economic theory. Since the time of Adam Smith if not before, economists have believed that freedom to choose and supply resources, compete in business, trade with others, and secure property rights are central ingredients of economic progress. Adam Smith (1776-1937) explained how the invisible hand of the marketplace enhanced the wealth of nations. David Ricardo (1821-1912) advocated free trade as a means of producing economic growth. Milton Friedman said, "I believe that free societies have arisen and persisted only because economic freedom is so much more productive economically than other methods controlling economic activity".
Economic freedom has been linked to economic growth. It is a basis for determining why some countries perform better than others since it precedes and causes economic growth. However, merely studying the relationship between economic freedom and economic growth rates is not enough. Whether these benefits and "increased economic growth rates" translate into something real and make a significant contribution to the socio-economic welfare of people is a matter of critical concern.
The aim of this paper is to determine if increased economic freedom leads to improvement in the quality of life. Indeed, if it does so then this paper will formulate an index of economic freedom and also examine which aspects of economic freedom most impact the quality of life. It will also be determined whether the pace of change in freedom matters. The empirical model uses an index to measure economic freedom. Socio-economic development is reflected in two indices: the human development index and the Gini coefficient, measuring life expectancy, education, standard of living and income inequality.
The results are conclusive; economic freedom is positively related to improvement in the quality of life. Policy implications from this research highlight the need for governments to formulate policies that increase economic growth and improve the quality of people's lives. Socio-economic development is too critical to be ignored.
Mindy Mannlein did her honors research with Dr. Robert Leekley on The Effects of Malpractice on Medical Specialties. ABSTRACT: In today's world, individuals highly utilize the law as a resource for blame and compensation. For economists, the increased volume and severity of tort litigation is a topic of concern because it means that vast amounts of wealth are tied up in transfer activity and thus removed from the production possibilities of the economy. Specifically, this paper examines malpractice lawsuits. The frequency and magnitude of malpractice claims have risen dramatically since the late 1960's, producing higher insurance premiums for doctors and leading to what some refer to as the "malpractice insurance crisis." With an estimated 50% of all physicians having to serve as either defendants or expert witnesses in malpractice suits during their careers, medical students are showing concern about this added risk to their future occupations. Therefore, this project concentrates on the effects of the growth of medical malpractice suits on the medical labor market. By running two separate regressions, low-risk and high-risk medical specialties are compared to see how sensitive they are to malpractice. While the medical malpractice system is supposed to provide incentives for physicians to take appropriate precautions in medical treatment, this paper finds that malpractice is actually acting as a supply shock in the medical labor market, causing risk averse medical students to shy away from more highly specialized fields.
†* Jeremy Sandford did his honors research with Dr. Michael Seeborg on English Language Proficiency and the Earnings of Mexican Immigrants. ABSTRACT: Since 1965, the US has seen increasingly large numbers of immigrants crossing its borders. A disturbing corollary to the recent explosion in immigration is the corresponding decline of immigrant wages relative to the wages of natives. As a prime example, Mexican immigrants outnumber any other national group while having one of the biggest relative wage gaps, earning on average 40% less than native workers do. Lack of English language ability may be the main barrier to Mexicans assimilating into mainstream US society. If this barrier is removed (or weakened), so to may be ethnic capital's negative influence on Mexican earning power.
I examine the effects of English language deficiency on the earnings of Mexican immigrants. I find that for immigrants with little or no acquired human capital there is no cost to English language deficiency. For immigrants with some measured human capital, the cost is considerable, often enough to offset the gain associated with that human capital. Moreover, immigrants who rate themselves as speaking English very well are rewarded in similar magnitudes to natives for their human capital acquisitions. My study suggests wage convergence between immigrants who speak English very well and natives, while those immigrants who cannot speak as well lag behind.
†* Debbie Slezak did her honors research with Dr. Michael Seeborg on The Cellular Divide: A Comparative Analysis of Mobile Phone Usage in Spain and the United States. ABSTRACT: The usage of mobile phones has dramatically increased in the past decade, narrowing the boundaries of size, space, and time. It is this "death of distance" that will be the single most important economic force shaping all of society over the next half century. The economic prosperity of the United States has contributed to the increase in this "luxury" telecommunication device, but how can the rapid increase in European countries with lower per capita incomes such as Spain be explained?
The purpose of this paper is to examine mobile phone usage and penetration rates in the United States compared to Spain. This research question will be addressed by analyzing determinants of supply and demand in the market structures of each country. An emphasis will be placed upon differing pricing structures within the two countries. Explanatory demand related factors include the availability and prices of substitutes and complements, and tastes and preferences. Supply-side variables include the impact of regulation and technology.
The paper concludes that an important reason behind the rapid growth in cellular mobile penetration that Spain recently experienced is due to the introduction of pre-paid pricing schemes in a country with a Calling Party Pays (CCP) pricing structure, coupled with the relative effects of the determinants of demand and supply in each mobile communications market.
† Indicates papers presented at the Midwest Economics Association Annual Meeting. * Indicates papers presented at the Georgetown Carroll Round Conference.