Summary of some current projects (Feb 2012)
Click on paper title for full text in PDF format (requires Acrobat Reader or Ghostview)
File sharing provides a useful laboratory for investigating the economic importance of intellectual property protection. There are two main empirical challenges: overcoming the non-random timing of the arrival date of illicit copies and dealing with low statistical power due to limited sample size. This paper uses markets to address these issues in the context of movies. I show forward-looking markets can be used to establish the unobserved counter-factual of how movie revenues would change on any possible file sharing release date, particularly those prior to the theatrical premier. Using movie-level tracking stocks in conjunction with the arrival date of illicit copies, I find that file sharing has only a modest impact on box office revenue.
Tax evasion is difficult to measure, since evaders try to avoid detection and counter-factual behavior is hard to establish. This paper considers evasion in an environment where these two issues can be overcome. Aircraft are taxed as personal property in some American states. Taxes are owed if the plane is hangared in the state on one specific date. Strategic plane owners may try to evade the tax by flying to a non-taxing jurisdiction just before this date and returning shortly thereafter. I assess such "tax flights" using a database of about twenty million trips covering general aviation flights in the United States during the period 2004 to 2009. For each flight I know the time, location of the arrival and departure airport, the address of the owner, and the type of plane. I match this to a database of local tax rates and valuation of planes to measure the potential tax bills. To establish the counter-factual flying behavior, I exploit variation in tax policy (at both the state and local level), exemptions for certain classes of planes, costs associated with evasion, type of plane, tax valuation method, and tax date. I find evidence that tax flights are higher in taxing states just before the tax date. There is direct evidence of evasion as planes which take tax flights are missing from local tax rolls. Business-owned aircraft are more likely to make tax flights than personal owned ones, as are planes where the owner lives in very high income or wealth areas.
Revised version of, Historical Political Futures Markets: An International Perspective (NBER WP #14377).
Political future markets, in which investors bet on election outcomes, are often thought a recent invention. Such markets in fact have a long history in many Western countries. This paper traces the operation of political futures markets back to 16th Century Italy, 18th Century Britain and Ireland, 19th Century Canada, and 20th Century Australia and Singapore. In the United States, election betting was a common part of political campaigns in the pre-1860 period, but became increasingly concentrated in the organized futures markets in New York City over the post-1860 period.
Trading document for Iowa Electronic Market field experiment
Political stock markets have a long history in the United States. Organized prediction markets for Presidential elections have operated on Wall Street (1880-1944), the Iowa Electronic Market (1988-present), and the internet (2000-present). Proponents claim such markets efficiently aggregate information and provide forecasts superior to polls. An important counterclaim is that such markets may be subject to manipulation by interested parties. We investigate the impact of actual and alleged speculative attacks- large trades, uninformed by fundamentals, intended to change prices- in political stock markets. First we report the results of a field experiment involving a series of planned, random investments-- accounting for two percent of total market volume-- in the Iowa Electronic Market in 2000. We next examine the historical Wall Street markets where political operatives from the contending parties actively and openly bet on city, state and national races; the record is rife with accusations that parties tried to boost their candidates through investments and wash bets. Finally, we investigate the speculative attacks on TradeSports market in 2004 when a single trader made a series of large investments in an apparent attempt to make one candidate appear stronger. In the cases studied, the speculative attack initially moved prices, but these changes were quickly undone and prices returned close to their previous levels. We find little evidence that political stock markets can be systematically manipulated beyond short time periods. Our results potentially have implications for trader behavior in broader financial markets.
This paper provides an economic analysis of illegal sports bookmaking using detailed records from six bookmakers who operated in the 1990s. These operations are structured like standard firms and utilize incentive contracts to induce appropriate employee behavior. The bookmakers offer prices which closely follow the geographically separated legal market, but larger operations price discriminate based on individual betting patterns. Despite the availability of inexpensive hedging instruments, all operations take on substantial financial risk. This implies the bookmakers cannot be risk-averse and must hold large cash reserves. The risk-adjusted profit rate is lower than in legal financial markets. These results and behaviors are consistent with standard models of economic self-interest.