College of Behavioral & Social Sciences
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Item Empirical Essays in Comparative Institutional Economics(2007-05-02) Mukashev, Yerzhan Bulatovich; Murrell, Peter; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Essay 1 investigates an empirical link between institutional variables and the performance of firms based on cross-country firm-level survey data. Current empirical evidence based on this type of data is unsatisfactory because employing survey responses as direct measures of institutional concepts and using those to analyze the effects of institutions at the firm level would limit the researcher to findings only within countries effects. This happens at the expense of losing inherent cross-country variation in institutions. Essay 1 offers a simple conceptual framework that decomposes survey responses for each firm into the average of their country and a residual firm-specific component. Importantly, the estimation results indicate that both variations have clearly different effects on growth of sales of firms. Essay 2 estimates the causal effects of economic shocks on the incidence of politically destabilizing events. The estimation is difficult due to the joint endogeneity between economic growth and events related to the political environment, which is addressed by the instrumental variable method. The variation in oil prices is used as an instrument for economic growth in the sample of small oil importing economies during 1960 - 1999. In contrast to a common belief and OLS estimates, the most striking finding of the IV estimation is that higher economic growth has a strong and robust positive effect on the incidence of relatively peaceful unrest such as demonstrations, strikes and riots. Essay 3 studies the question of differences in economic growth rates between Democratic and Republican governorships in the United States. The question is difficult to answer by simply comparing growth rates because the party affiliation is not randomly selected during elections. The empirical analysis employs the Regression Discontinuity Method to address the endogeneity in the party control variable. Focusing on very close elections permits the generation of quasi-experimental estimates of the impact of a "randomized" change in party control at the 50 percent threshold. When comparing Democratic with Republican governorships, the results are suggestive about the possibility of slightly worse performance of Democratic governors but the lack of statistical significance does not fully support this evidence.Item Essays on Advertising and Price Collusion(2005-09-02) Singh, Kartikeya; Minehart, Deborah; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)Chapter I: Persuasive advertising alters consumers' tastes and creates brand loyalty. The established view in the economics literature is that such advertising is anti-competitive and results in higher prices. This paper demonstrates that this is not necessarily true. This is shown in a model of a duopoly with horizontal product differentiation, where firms interact repeatedly over an infinite horizon. Firms in such a market try to increase their profits by avoiding price competition. They do this by colluding on price while making independent decisions on advertising. This practice is called price semicollusion. However, collusion on price leads to intensified advertising, which may lower firm profits to below the competitive level when advertising is market-stealing (rather than market-expanding). In such a case the collusion on price would break down and firms would revert to price competition. Thus, persuasive advertising can induce price competition. Moreover, the paper shows that the equilibrium price in a market with persuasive advertising can be lower than the price without it. This contradicts the prevalent view on the effect of persuasive advertising. Chapter II: This paper examines the effect of advertising on price collusion using data on price fixing across manufacturing industries in the United States. I construct an original dataset from summaries of price fixing cases initiated by the Department of Justice between 1960 and 2003. In determining if advertising hinders or facilitates price collusion, the paper makes a distinction between market-expanding and market-stealing advertising. The need for the distinction between the two kinds of advertising is driven by the theoretical model outlined in the paper. The model shows that price collusion results in intensified advertising. This could undermine the gains from collusion if advertising is market-stealing rather than market-expanding. The paper identifies two types of industries where advertising is more market-stealing: (1) Industries with low market growth and (2) Industries with high product differentiation. The econometric results from a probit model provide evidence that supports the theory. The incidence of collusion is found to be lower in low-growth industries with high advertising. Collusion is also found to be less likely in product differentiated industries with high advertising.