Frontiers of Economics in China

ISSN 1673-3444

ISSN 1673-3568(Online)

CN 11-5744/F

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Returns to Lying? Identifying the Effects of Misreporting When the Truth Is Unobserved
Yingyao Hu, Arthur Lewbel
Front Econ Chin. 2012, 7 (2): 163-192.

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Consider an observed binary regressor D and an unobserved binary variable D?, both of which affect some other variable Y . This paper considers nonparametric identification and estimation of the effect of D on Y , conditioning on D? = 0. For example, suppose Y is a person’s wage, the unobserved D? indicates if the person has been to college, and the observed D indicates whether the individual claims to have been to college. This paper then identifies and estimates the difference in average wages between those who falsely claim college experience versus those who tell the truth about not having college. We estimate this average effect of lying to be about 6% to 20%. Nonparametric identification without observing D? is obtained either by observing a variable V that is roughly analogous to an instrument for ordinary measurement error, or by imposing restrictions on model error moments.

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A Theory of Mergers and Merger Waves
Bingyong Zheng
Front Econ Chin. 2012, 7 (2): 193-217.

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We consider a sequential merger game between Cournot firms with homogeneous product and quadratic cost. A large slope of the marginal cost function or a small slope of inverse market demand are both predicted to increase the incentive to merge. The profitability of any merger increases with the number of mergers having already taken place. Thus, mergers tend to occur in waves in industries that have experienced exogenous shocks affecting firms’ cost or demand. We also show some mergers that are not profitable for merged firms in the short-run may take place in the early stage of a wave.

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Does Innovation Matter for Chinese High-Tech Exports? A Firm-Level Analysis
Dahai Fu, Yanrui Wu, Yihong Tang
Front Econ Chin. 2012, 7 (2): 218-245.

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This paper investigates the impact of innovation on export decisions of Chinese high-tech firms during the period of 2005–2007. Using a parametric, instrumental variable approach and a non-parametric matching method, we find that firm-level innovation efforts, measured by R&D spending and new product output, play only a minor role for domestic exporters. Foreign-invested firms dominate the high-tech exports but do not rely on indigenous innovation activities. These results demonstrate that the success of Chinese high-tech exports does not result from heavy R&D expenditure and technological progress. Moreover, different types of innovation measures show different impacts on the likelihood of exporting. The impacts of innovation on exporting vary widely across industries and Chinese regions.

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Price-Matching Guarantees and Entry Deterrence under Incomplete Information
Liping Zhang
Front Econ Chin. 2012, 7 (2): 246-262.

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This paper studies price-matching guarantees in a market where entrant does not have perfect information about incumbent’s cost. The low-cost incumbent can adopt price-matching guarantees as a signal to distinguish itself from the high-cost type and thus effectively deter entry. On the other hand, the high-cost incumbent can successfully fool the potential entrant under certain conditions. Compared with the equilibriums in situations where the option of offering a price guarantee is not available, the use of this instrument either makes it easier for the low-cost incumbent to signal its cost, or expands the range of parameters over which the high-cost incumbent is able to deter entry successfully.

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Money Quantity and Optimal Monetary and Fiscal Policy: A Quantitative Analysis
Xuan Liu
Front Econ Chin. 2012, 7 (2): 263-285.

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This paper quantitatively analyzes the impact of money stock on optimal monetary and fiscal policy in a stochastic production economy with sticky prices. The numerical results indicate that a sufficient large quantity of money makes a noticeable difference in many aspects of optimal monetary and fiscal policy. They suggest that the volatile inflation in China may not be as bad as the existing theory would have implied if its large amount of money is taken into consideration.

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Statistical Discrimination and Gender Wage Gap: A Model
Xia Li
Front Econ Chin. 2012, 7 (2): 286-304.

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In this paper, I extend the model in Coate and Loury (CL) (1993) to show how statistical discrimination by employers can help create gender wage gap for men and women with equal earning potentials. Given that employers do not perfectly observe a worker’s skill type and partly rely on the average skills level of his (her) peers for inference purpose, employers’ differential treatment of male and female workers can create different skill-investment incentives for them, which in turn justify employers’ discrimination in the first place. The second result of this paper which is not possible within the original CL framework is that I point to the possibility that there exist circumstances under which the gender wage gap can not be eliminated without the formerly advantaged sex being negatively affected.

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Changes in Job Structure and Rising Wage Inequality in Urban China, 1995-2007
Chunbing Xing
Front Econ Chin. 2012, 7 (2): 305-337.

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We use household surveys from 1995, 2002, and 2007 to examine how changes in job structure contributed to China’s rising urban wage inequality, considering three job characteristics: occupation, industry, and firm ownership. The explanatory power of job structure for wage inequality increased between 1995 and 2007. Both the change in relative number of jobs (composition effect) and the change in between-job and within-job wage gaps (price effect) contributed to rising wage inequality. Price effect was the major contributor, whereas composition effect played a larger role in the 1995–2002 period than in the 2002–2007 period, and at the lower-half distribution. Between-job inequality played a major role in the first period, and within-job inequality played a major role in the second period. Our results suggest that both technological change and institutional features influence job structure and wage inequality.

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