Copyright (c) 2009 Illinois Wesleyan University All rights reserved. http://digitalcommons.iwu.edu/uer Recent documents in Undergraduate Economic Review en-us Wed, 18 Nov 2009 13:18:06 PST 3600 http://digitalcommons.iwu.edu/uer/vol5/iss1/11 http://digitalcommons.iwu.edu/uer/vol5/iss1/11 Wed, 19 Aug 2009 17:06:22 PDT This work investigates the use of wealth redistribution mechanisms in establishing and promoting meritocratic practices in early United States history. From the fifteenth to eighteenth century, the reward system used in exploration, colonization incentives, and land redistribution techniques are examined. During the eighteenth and nineteenth century, the effects of industrialization and education on social mobility are reviewed. Finally, the social and economic factors resulting in southern secession, particularly slavery, are examined. While the concept may be unpopular in modern society, wealth redistribution mechanisms were essential to cultivating merit-based social mobility and overall societal stability throughout the period covered. Micah D. Bobo Economics History Social Sciences, General/Other Sociology http://digitalcommons.iwu.edu/uer/vol5/iss1/10 http://digitalcommons.iwu.edu/uer/vol5/iss1/10 Wed, 19 Aug 2009 17:06:20 PDT The speculation that public spending may shift as the age composition changes in the United States raises questions regarding the sustainability of government programs. This paper addresses this issue by examining how age demographics alter a county government's spending on public goods and its sources (local taxes or intergovernmental transfers from the state and/or federal level) for funding these expenditures. Building on an existing model, this study finds that it is not enough to simply examine this question with cross-sectional analysis, suggesting that time and county fixed effects need to be considered to address consequences from the Tiebout bias. The results report that the consequences of age composition vary according to the spillover and cost dimensions of each public good. However, these changes are rendered benign as revenues shift in a similar manner as spending, which eliminates potential imbalances within county governments. Thuy P. Le Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/9 http://digitalcommons.iwu.edu/uer/vol5/iss1/9 Mon, 03 Aug 2009 10:03:58 PDT This empirical analysis uses daily data sets to study hedging activity of major US airlines during 1996-2005 to examine whether hedging is a value added activity as perceived by the investors. The US airline industry presents a good environment to measure the risk exposure due to changes in jet fuel prices. Fuel price risk is omnipresent across the industry. Given jet fuel price volatility, airlines have an incentive to find value in hedging future prices of jet fuel. The research does not find a reason that would contradict the economic fundamentals of hedging; airline stock returns are negatively related to percentage changes in jet fuel prices, on average. However, looking at daily returns of jet fuel and stock prices, we do not find a significant correlation that can be used to support the theorized sensitivity. This result is consistent with the assertion that the benefit of hedging is of a limited value to the investors who seek a combination of stocks that will reduce the overall risk exposure of the portfolio rather than the risk inherent in this or that individual firm. Robert Trempski Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/8 http://digitalcommons.iwu.edu/uer/vol5/iss1/8 Mon, 15 Jun 2009 08:49:58 PDT Letter from the Editor 2009 Anna Konradi http://digitalcommons.iwu.edu/uer/vol5/iss1/7 http://digitalcommons.iwu.edu/uer/vol5/iss1/7 Wed, 20 May 2009 20:57:48 PDT Many people invest a lot of money in order to go to college with the hope that they will eventually be rewarded with higher salaries. This paper attempts to determine what aspects of college are most important in determining the future income of students. In particular, this paper studies whether GPA is an important determinant of income as well as whether some majors are better investments than others after controlling for other factors. In addition, the effect of math and verbal ability on income and how they interact with different fields of study are examined. The data comes from the National Longitudinal Study of Youth database and OLS regressions are used. The regression results show that grades, natural ability, and major all significantly affect income. Paul Oehrlein Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/5 http://digitalcommons.iwu.edu/uer/vol5/iss1/5 Wed, 20 May 2009 10:54:28 PDT This paper seeks to address the risks of extending credit to those without collateral through a game theory analysis. There is relatively low risk when lending to someone with collateral, such as a house or a car, however a potential borrower without collateral is seen as a much larger risk. The three major issues of lending: Moral Hazard, Adverse Selection and Enforcement are seen as the three main obstacles that must be overcome and addressed for credit to be available to those without collateral. As will be displayed throughout this paper, there are not three issues that must be addressed, but rather, one. The single issue of extending credit to the collateral-less is enforcement. By addressing the issue of enforcement, both moral hazard as well as adverse selection are addressed. The rationale behind this is that when there is full enforcement capability by the lender (Guaranteed Repayment), the issue of moral hazard is addressed and the issue of asymmetric information becomes relatively insignificant. Moral hazard is addressed in two ways: First, the borrower understands that they will be forced to repay the loan which creates incentives for the borrowers to abstain from utilizing credit for endeavors that previously they would have been limited in liability for. A good example of this is student loans; students don't take out loans with the assumption that they can default and file for bankruptcy to remedy their debts because under U.S. law they are unable to do so. Secondly, the lenders are aware of the game facing the borrowers, and therefore they can assume that any borrower attempting to utilize credit is risky due to moral hazard, which increases the borrowers' ability to extend credit. Adverse selection and asymmetric information become relatively unimportant because there cannot be negative implications from asymmetric information if there is full enforcement capability. This holds true in two ways: First off, if someone has asymmetric information that makes likely to default on their loan, it makes no difference because they will still be forced to repay. Secondly, if they have asymmetric information which makes their payoffs higher than the lender is aware of, it is not valuable to keep this as asymmetric information because it benefits both the lender and the borrower, and therefore the potential borrower would make that information known to the lender. When comparing a government backed lending entity versus a private lending entity, as well as in comparing a corrupt government backed entity to a non-corrupt government backed entity utilizing a potential borrower without collateral, game theory allows us to draw conclusions on solutions to social dilemmas within lending. All games were three-player, multi-strategy games with expected payoffs represented in the present value of the long term. Nature was brought into each game to represent the uncertainty that is associated with all credit transactions. The four games solutions supported the hypothesis of enforcement being the singular issue when analyzing whether to or not to extend credit to a collateral-less borrower. When investigating the effects of corruption, expected payoff functions were utilized to assess the incentives to seek rents by government backed entities in comparison to a private entity. Additionally, assessing the ability of the borrower to identify rent-seeking in the market for credit was assessed to see the costs and benefits of a private entity relative to a government backed entity. After concluding these studies, it became apparent that enforcement was the key issue to collateral-less borrowing, but also, that there would be less corruption with a government backed entity than a private entity, due to the relative expected payoffs of corrupt behavior. David A. Medak Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/4 http://digitalcommons.iwu.edu/uer/vol5/iss1/4 Wed, 01 Apr 2009 14:02:21 PDT Education is essential to the future productivity of workers in the Metropolitan Detroit area, so determining what impacts high school graduation is vital to predicting the future success of our economy. This research investigates what key aspects in our society affect the high school graduation rate: poverty level, violent crime rate, student body, class size, local school taxes, and standardized test scores. Results from multiple regressions using school district and city data from the CCD and FBI suggest that poverty levels and violent crime in the Metro Detroit area significantly, negatively influence high school graduation rates. Reforms to public policy reducing crime and poverty rates in Metro Detroit could improve high school graduation rates and help minimize the potential for the Motor City to lose its cutting edge in the auto industry and help diversify Michigan's future human capital. Thomas A. Wilk Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/3 http://digitalcommons.iwu.edu/uer/vol5/iss1/3 Wed, 01 Apr 2009 13:45:53 PDT Major League Baseball, like other American professional sports, has become a multibillion dollar industry. The institution of free agency has led to the escalation of payrolls and altered the make-up of rosters by dramatically reducing owners' monopsony power. The ability of large market clubs such as the New York Yankees to compete continually for the game's greatest prize illustrates the power of the dollar. This paper examines four distinct periods from 1977 to 2008 in order to assess the influence of pecuniary advantages on regular season and postseason outcomes. Payroll exerts great influence in the regular season, but not in the playoffs. A time series graph of slope coefficients from regression analyses indicates that an additional ten million 2008 dollars produces between one and three wins depending on the season. In addition, we test several other potential indicators of postseason success and find that October baseball is a truly random event. Noah L. Schwartz Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/2 http://digitalcommons.iwu.edu/uer/vol5/iss1/2 Mon, 30 Mar 2009 12:14:25 PDT This paper considers the effect of a firm's sales location on the relationship between tariffs, exchange rates, and the flows of Foreign Direct Investment (FDI). Much of the FDI literature assumes that an increase in the average tariff or relative exchange rate will provoke a decrease in foreign investment. This result, however, is contingent on the firm's preference for exporting. When the majority of sales for a foreign firm are located within its own the domestic market, the impact from changes in the tariff and exchange rate are reversed. This paper further argues that the firm's pre-existing sales orientation(domestic/foreign) will be a factor that initially determines the influence of tariff and exchange rates on FDI flows. Applying the logic of the Stolper-Samuelson theorem, we develop a theoretical framework to predict a variety of consequences for wages and rental rates in US industrial sectors. Using a series of panel data regressions and a three-equation model, we generate a policy analysis that incorporates and partially validates our theory. Our final conclusions also call upon the elasticities of substitution in major industrial sectors as they correspond to changes in trade policy. William Swanson Economics http://digitalcommons.iwu.edu/uer/vol5/iss1/1 http://digitalcommons.iwu.edu/uer/vol5/iss1/1 Mon, 30 Mar 2009 12:14:24 PDT Using the fact that ethanol first accounted for more than 10% of total corn use and ethanol production surpassed 2 billion gallons annually in 2002, I assert that an ethanol boom began in the United States in 2002. This paper uses both Two Stage Least Squares and Autoregressive time-series models to estimate the corn market in the US during the period of 1980-2007. I find that the ethanol boom caused US corn production in 2007 to be about 3 billion bushels (23%) higher than it would be in the absence of the ethanol industry. The model also suggests that ethanol is not crowding out other uses of corn; however, it may be crowding out production of soybeans and other crops competing with corn for acreage. It is likely that the ethanol industry is partially responsible for the recent increase in food prices around the world. Bethany Vittetoe Economics