Three Essays in Applied Economics

Smith, Austin Crowley

Graduate Thesis Or Dissertation

Three Essays in Applied Economics Public Deposited

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Citeable URL: https://scholar.colorado.edu/concern/graduate_thesis_or_dissertations/nk322d406

Abstract

This dissertation examines various topics in applied economics, with particular attention to policy evaluation and to how workers respond to incentives. Specifically, in my first paper I conduct a policy evaluation of Daylight Saving Time, demonstrating a significant social cost. The remainder of my dissertation focuses on more traditional questions of labor economics, leveraging novel datasets to examine how workers respond to alternative compensation schemes and to estimate a short-run labor supply elasticity. In the first chapter, I examine the impact of Daylight Saving Time (DST) on fatal automobile accidents. Despite mounting evidence that DST fails in its primary goal of saving energy, some form of DST is still practiced by over 1.5 billion people in over 60 countries. I demonstrate that DST imposes high social costs on Americans, specifically, an increase in fatal automobile crashes. DST alters fatal crash risk in two ways: disrupting sleep schedules and reallocating ambient light from the morning to the evening. First, I take advantage of the discrete nature of the transitions between Standard Time and DST to measure the impact of DST on fatal crashes in a regression discontinuity design. Then, to measure the duration of the effect, I exploit variation in the coverage of DST created primarily by a 2007 policy change, in a day-of-year fixed effects model. Both models reveal a short-run increase in fatal crashes following the spring transition and no aggregate impact in the fall. Employing three tests, I decompose the aggregate effect into ambient light and sleep mechanisms. I find that shifting ambient light reallocates fatalities within a day, while sleep deprivation caused by the spring transition increases risk. The increased risk persists for the first six days of DST, causing a total of 302 deaths at a social cost of $2.75 billion over the 10-year sample period, underscoring the huge costs of even minor disruptions to sleep schedules. In the second chapter, my coauthor and I examine the impact of alternative compensation structures on worker performance. Performance pay, broadly defined, was used in 39% of jobs in the US private sector during 2013. Despite this prevalence, empirical evidence of the impact of these alternative compensation schemes on employee performance has lagged behind, generally due to a lack of data. We utilize a unique panel dataset that tracks workers as they are able to adjust how they are paid for performance, between a pure variable payment scheme based on performance in a rank-order tournament and a hybrid structure with a fixed fee and tournament component. We find that performance is best under the pure variable payment structure, with performance under the hybrid structure improving as more weight is given to the variable component of pay. Importantly, the incentives created by the variable payment scheme have an economically meaningful impact in a setting where output is highly variant. In the final chapter, I investigate how professional online poker players respond to shocks in expected wages. Neoclassical models of lifecycle labor supply predict that a worker should increase hours worked when facing a transitory increase in wages. However, empirical results have been mixed with estimated elasticities ranging from -1 to 1.5. Disagreement persists in part due to the scarcity of labor markets in which workers are able to choose their labor supply on a daily basis. Online poker players have complete flexibility in hours worked and expected wages are changing constantly, based on the overall composition of the player pool. Matching hours worked data from the Online Poker Database of the University of Hamburg with a dataset I assembled on daily poker earnings, I analyze the labor supply decisions of professional online poker players. Using variation in expected wages created by the amateur portion of the player pool, I find that the top pros respond on the extensive margin, playing more often when expected wages are high, and on the intensive margin, playing more tables simultaneously. In contrast, weaker pros respond only on the intensive margin.

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