Koichiro Ito, the University of Chicago and NBER; Takanori Ida, Kyoto University; and Makoto Tanaka, GRIPS
Information Frictions, Inertia, and Selection on Elasticity: A Field Experiment on Electricity Tariff Choice
Ito, Ida, and Tanaka develop a discrete-continuous choice model to characterize the link between plan choice, switching frictions, and subsequent continuous choice of service utilization. They then test the model predictions in a randomized controlled trial on electricity tariff choice. The researchers find that information friction and inertia prevent consumers from switching to a tariff that is privately and socially beneficial. In addition, consumers self-select into a tariff based on their expected gains from switching (selection on levels) and elasticity to the treatment (selection on slopes). These selections interact with switching frictions, which make the welfare impacts of lowering frictions ambiguous. In this study, lowering information friction increased switching but incentivized relatively price-inelastic consumers to switch, which lowered welfare gains. The researchers discuss how these selections affect the optimal rate design in the presence of switching frictions.
J. Mark Ramseyer, Harvard University, and Eric B. Rasmusen, Indiana University
Outcaste Politics and Organized Crime in Japan: The Effect of Terminating Ethnic Subsidies
In 1969, Japan launched a massive subsidy program for the "burakumin" outcastes. The subsidies attracted the mob, and the higher incomes now available through organized crime compensated those burakumin who abandoned the legal sector for criminal careers. In the process, the subsidies gave new support to the tendency many Japanese already had to equate the burakumin with the mob. The government ended the subsidies in 2002. Ramseyer and Rasmusen explore the effect of the termination by merging 30 years of municipality data with a long-suppressed 1936 census of burakumin neighborhoods. First, they find that out-migration from municipalities with more burakumin increased after the end of the program. Apparently, the higher illegal income generated by the subsidies had restrained young burakumin from joining mainstream society. Second, the researchers find that once the mob-tied corruption and extortion associated with the subsidies neared its end, real estate prices rose in municipalities with burakumin neighborhoods. With the subsidies gone and the mob in retreat, other Japanese found the formerly burakumin communities increasingly attractive places to live.
Kozo Ueda, Waseda University; Kota Watanabe, Meiji University; and Tsutomu Watanabe, the University of Tokyo
Product Turnover and Deflation: Evidence from Japan
In this study, Ueda, Watanabe, and Watanabe evaluate the effects of product turnover on a welfare-based cost-of-living index. They first present several facts about price and quantity changes over the product cycle employing scanner data for Japan for the years 1988-2013, which cover the deflationary period that started in the mid 1990s. They then develop a new method to decompose price changes at the time of product turnover into those due to the quality effect and those due to the fashion effect (i.e., the higher demand for products that are new). The researchers main findings are as follows: (i) the price and quantity of a new product tend to be higher than those of its predecessor at its exit from the market, implying that Japanese firms use new products as an opportunity to take back the price decline that occurred during the life of its predecessor under deflation; (ii) a considerable fashion effect exists for the entire sample period, while the quality effect is declining over time; and (iii) the discrepancy between the cost-of-living index estimated based on the researcher's methodology and the price index constructed only from a matched sample is not large.
Makoto Saito, Hitotsubashi University
On Large-Scale Money Finance in the Presence of Black Markets: A Case of the Japanese Economy During and Immediately after World War II
Saito demonstrates how strong demand for the Bank of Japan (BoJ) notes emerged from illegal dealers in black markets during the wartime and postwar years 1937-1949. As a consequence of large-scale income leakages into black markets under the strict price control, the formal economy including the government suffered from severe financial shortages. Thus, the newly printed BoJ notes worked as an instrument for the government to finance the war expenditures and the postwar rehabilitation indirectly from black markets, while they served as a means for illegal dealers to conceal illicit income. The scale of such income leakages can be precisely inferred from the statistical discrepancy between aggregate expenditure and aggregate income in the national accounts. Some policy implications for currency reforms are also explored with consideration for the fact that the emergence of black markets necessitated the BoJ's money finance.
Kentaro Nakajima, Hitotsubashi University, and Kensuke Teshima, Instituto Tecnologico Autonomo de Mexico
Identifying Neighborhood Effects among Firms: Evidence from Location Lotteries of the Tokyo Tsukiji Fish Market
Firms may benefit from the clustering of neighboring firms with certain characteristics because such clustering allows buyers to reduce their trip and search costs. This idea, known as shopping externality, is central to the theory of the formation of market places and to many branches of the agglomeration theory. A fundamental challenge in investigating such mechanisms arises from economic agents' self-selection into locations. Nakajima and Teshima overcome this challenge by analyzing neighborhood effects among intermediate wholesalers located in the Tokyo Tsukiji Fish Market and by exploiting a unique feature of their shop locations within the market; their locations are determined every 4-10 years by relocation lotteries. First, the researchers confirm that these intermediate wholesalers shop locations are indeed randomly distributed. Then, they find that the characteristics of the neighboring firms significantly affect firm performance. Specifically, the diversity of the types of neighboring firms as well as the fraction of neighboring firms selling similar products positively affect the performance of small-sized and specialized firms. They find no effect of the characteristics of close neighbors not facing the same corridor and thus not sharing the flow of buyers, which provides evidence that their results are not due to factors other than buyer flow sharing, such as technology spillovers. The researchers results provide the first randomization-based evidence of shopping externality.
Wataru Miyamoto, Bank of Canada; Thuy Lan Nguyen, Santa Clara University; and Dmitriy Sergeyev, Bocconi University
Government Spending Multipliers under the Zero Lower Bound: Evidence from Japan
Using a rich data set on government spending forecasts in Japan, Miyamoto, Nguyen, and Sergeyev provide new evidence on the effects of unexpected changes in government spending when the nominal interest rate is near the zero lower bound (ZLB). The on-impact output multiplier is 1.5 in the ZLB period, and 0.6 outside of it. They argue that these results are not driven by the amount of slack in the economy. A simple New Keynesian model can reproduce some features of our empirical findings if the ZLB period is caused by a deflationary trap and government spending is not too persistent.