National Bureau of Economic Research

About: National Bureau of Economic Research is a nonprofit organization based out in Cambridge, Massachusetts, United States. It is known for research contribution in the topics: Monetary policy & Population. The organization has 2626 authors who have published 34177 publications receiving 2818124 citations. The organization is also known as: NBER & The National Bureau of Economic Research.

Stoking the Fires? Co2 Emissions and Economic Growth

Abstract: Over the past decade, concern over potential global warming has focused attention on the emission of greenhouse gases into the atmosphere, and there is an active debate concerning the desirability of reducing emissions. At the heart of this debate is the future path of both greenhouse gas emissions and economic development among the nations. We use global panel data to estimate the relationship between per capita income and carbon dioxide emissions, and then use the estimated trajectories to forecast global emissions of CO2. The analysis yields four major results. First, the evidence suggests a diminishing marginal propensity to emit (MPE) CO2 as economies develop; a result masked in analyses that rely on cross-section data alone. Second, despite the diminishing MPE, our forecasts indicate that global emissions of CO2 will continue to grow at an annual rate of 1.8 percent. Third, continued growth stems from the fact that economic and population growth will be most rapid in the lower-income nations that have the highest MPE. For this reason, there will be an inevitable tension between policies to control greenhouse gas emissions and those toward the global distribution of income. Finally, our sensitivity analyses suggest that the pace of economic development does not dramatically alter the future annual or cumulative flow of CO2 emissions.

Inequality and Happiness: Are Europeans and Americans Different?

Abstract: The answer to the question posed in the title is 'yes.' Using a total of 128,106 answers to a survey question about happiness,' we find that there is a large, negative and significant effect of inequality on happiness in Europe but not in the US. There are two potential explanations. First, Europeans prefer more equal societies (inequality belongs in the utility function for Europeans but not for Americans). Second, social mobility is (or is perceived to be) higher in the US so being poor is not seen as affecting future income. We test these hypotheses by partitioning the sample across income and ideological lines. There is evidence of inequality generated' unhappiness in the US only for a sub-group of rich leftists. In Europe inequality makes the poor unhappy, as well as the leftists. This favors the hypothesis that inequality affects European happiness because of their lower social mobility (since no preference for equality exists amongst the rich or the right). The results help explain the greater popular demand for government to fight inequality in Europe relative to the US.

Competition and Innovation: An Inverted U Relationship

Abstract: This paper investigates the relationship between product market competition and innovation. It uses the radical policy reforms in the UK as instruments for changes in product market competition, and finds a robust inverted-U relationship between competition and patenting. It then develops an endogenousm growth model with step-by-step innovation that can deliver this inverted-U pattern. In this model, competition has an ambiguous effect on innovation. On the one hand, it discourages laggard firms from innovating, as it reduces their rents from catching up with the leaders in the same industry. On the other hand, it encourages neck-and-neck firms to innovate in order to escape competition with their rival. The inverted-U pattern results from the interplay between these two effects, together with the effect of competition on the equilibrium industry structure. The model generates two additional predictions: on the relationship between competition and the average technological distance between leaders and followers across industries; and on the relationship between the distance of an industry to its technological frontier and the steepness of the inverted-U. Both predictions are supported by the data.

A Behavioral Approach to Law and Economics

Abstract: Economic analysis of law usually proceeds under the assumptions of neoclassical economics. But empirical evidence gives much reason to doubt these assumptions; people exhibit bounded rationality, bounded self-interest, and bounded willpower. This article offers a broad vision of how law and economics analysis may be improved by increased attention to insights about actual human behavior. It considers specific topics in the economic analysis of law and proposes new models and approaches for addressing these topics. The analysis of the article is organized into three categories: positive, prescriptive, and normative. Positive analysis of law concerns how agents behave in response to legal rules and how legal rules are shaped. Prescriptive analysis concerns what rules should be adopted to advance specified ends. Normative analysis attempts to assess more broadly the ends of the legal system: Should the system always respect people's choices? By drawing attention to cognitive and motivational problems of both citizens and government, behavioral law and economics offers answers distinct from those offered by the standard analysis.

Risk Reduction in Large Portfolios: Why Imposing the Wrong Constraints Helps

Abstract: Green and Hollifield (1992) argue that the presence of a dominant factor would result in extreme negative weights in mean-variance efficient portfolios even in the absence of estimation errors. In that case, imposing no-short-sale constraints should hurt, whereas empirical evidence is often to the contrary. We reconcile this apparent contradiction. We explain why constraining portfolio weights to be nonnegative can reduce the risk in estimated optimal portfolios even when the constraints are wrong. Surprisingly, with no-short-sale constraints in place, the sample covariance matrix performs as well as covariance matrix estimates based on factor models, shrinkage estimators, and daily data. MARKOWITZ'S (1952, 1959) PORTFOLIO THEORY is one of the most important theoretical developments in finance. Mean-variance efficient portfolios play an important role in this theory. Such portfolios constructed using sample moments often involve large negative weights in a number of assets. Since negative portfolio weights (short positions) are difficult to implement in practice, most investors impose the constraint that portfolio weights should be nonnegative when constructing mean-variance efficient portfolios. Green and Hollifield (1992) argue that because a single factor dominates the covariance structure, it would be difficult to dismiss the observed extreme negative and positive weights as being entirely due to the imprecise estimation of the inputs. They consider the global minimum variance portfolio to avoid the effect of estimation error in the mean on portfolio weights. They note that when returns are generated by a single factor model, minimum variance portfolios can be constructed in two steps. First, naively diversify over the set of high beta stocks and