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Showing papers in "Journal of Economic Perspectives in 2013"


Journal ArticleDOI
Miles Corak1
TL;DR: In this article, the authors discuss the underlying drivers of opportunity that generate the relationship between inequality and intergenerational mobility, and explain why America differs from other countries, how intergeneration mobility will change in an era of higher inequality, and how the process is different for the top 1 percent.
Abstract: My focus is on the degree to which increasing inequality in the high-income countries, particularly in the United States, is likely to limit economic mobility for the next generation of young adults. I discuss the underlying drivers of opportunity that generate the relationship between inequality and intergenerational mobility. The goal is to explain why America differs from other countries, how intergenerational mobility will change in an era of higher inequality, and how the process is different for the top 1 percent. I begin by presenting evidence that countries with more inequality at one point in time also experience less earnings mobility across the generations, a relationship that has been called “The Great Gatsby Curve.” The interaction between families, labor markets, and public policies all structure a child's opportunities and determine the extent to which adult earnings are related to family background—but they do so in different ways across national contexts. Both cross-country compa...

1,169 citations


Journal ArticleDOI
TL;DR: Prospect theory, first described in a 1979 paper by Daniel Kahneman and Amos Tversky, is widely viewed as the best available description of how people evaluate risk in experimental settings.
Abstract: Prospect theory, first described in a 1979 paper by Daniel Kahneman and Amos Tversky, is widely viewed as the best available description of how people evaluate risk in experimental settings. While the theory contains many remarkable insights, it has proven challenging to apply these insights in economic settings, and it is only recently that there has been real progress in doing so. In this paper, after first reviewing prospect theory and the difficulties inherent in applying it, I discuss some of this recent work. It is too early to declare this research effort an unqualified success. But the rapid progress of the last decade makes me optimistic that at least some of the insights of prospect theory will eventually find a permanent and significant place in mainstream economic analysis.

732 citations


Journal ArticleDOI
Abstract: World Top Incomes Database at http://topincomes.parisschoolofeconomics.eu/) and has represented a challenge to the economics profession. Stories based on the and has represented a challenge to the economics profession. Stories based on the supply and demand for skills are not enough to explain the extreme top tail of supply and demand for skills are not enough to explain the extreme top tail of the earnings distribution; nor is it enough to look only at earned incomes. Different the earnings distribution; nor is it enough to look only at earned incomes. Different approaches are necessary to explain what has happened in the United States over approaches are necessary to explain what has happened in the United States over the past century and also to explain the differing experience in other high-income the past century and also to explain the differing experience in other high-income countries over recent decades. We begin with the international comparison in the countries over recent decades. We begin with the international comparison in the fi rst section and then turn to the causes and implications of the evolution of top fi rst section and then turn to the causes and implications of the evolution of top income shares. income shares.

698 citations


Journal ArticleDOI
TL;DR: The available evidence on the extent to which expenditures on early childhood education programs constitute worthy social investments in the human capital of children is summarized, and different models of human development used by social scientists are described and examined.
Abstract: early childhood education programs constitute worthy social investments in the human capital of children. We begin with a short overview of existing early childhuman capital of children. We begin with a short overview of existing early childhood education programs, and then summarize results from a substantial body of hood education programs, and then summarize results from a substantial body of methodologically sound evaluations of the impacts of early childhood education. We methodologically sound evaluations of the impacts of early childhood education. We fithat the evidence supports few unqualifi ed conclusions. Many early childhood fi nd that the evidence supports few unqualifi ed conclusions. Many early childhood

563 citations


Journal ArticleDOI
TL;DR: Using scanner datasets that record transaction-level data for households across a wide range of products, or text data where counts of words in documents may be wide range to text data, researchers are faced with a large set of potential variables formed by different ways of interacting and transforming the underlying variables.
Abstract: using scanner datasets that record transaction-level data for households across a wide range of products, or text data where counts of words in documents may be wide range of products, or text data where counts of words in documents may be used as variables. In both of these latter examples, there may be thousands or tens used as variables. In both of these latter examples, there may be thousands or tens of thousands of available variables per observation. of thousands of available variables per observation. Second, even when the number of available variables is relatively small, Second, even when the number of available variables is relatively small, researchers rarely know the exact functional form with which the small number of researchers rarely know the exact functional form with which the small number of variables enters the model of interest. Researchers are thus faced with a large set variables enters the model of interest. Researchers are thus faced with a large set of potential variables formed by different ways of interacting and transforming the of potential variables formed by different ways of interacting and transforming the underlying variables. underlying variables.

491 citations


Journal ArticleDOI
TL;DR: In this article, a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking has been socially beneficial has been provided by the US financial services industry.
Abstract: The US financial services industry grew from 49 percent of GDP in 1980 to 79 percent of GDP in 2007 A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages This expansion was fueled by the development of nonbank credit intermediation (or “shadow banking”) We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking—the main areas of growth in the financial sector—has been socially beneficial

393 citations


Journal ArticleDOI
TL;DR: In this article, the authors explore five possible reasons why the US political system has failed to counterbalance rising inequality and suggest that the rich have been able to use their resources to influence electoral, legislative, and regulatory processes through campaign contributions, lobbying, and revolving door employment of politicians and bureaucrats.
Abstract: During the past two generations, democratic forms have coexisted with massive increases in economic inequality in the United States and many other advanced democracies. Moreover, these new inequalities have primarily benefited the top 1 percent and even the top .01 percent. These groups seem sufficiently small that economic inequality could be held in check by political equality in the form of "one person, one vote." In this paper, we explore five possible reasons why the US political system has failed to counterbalance rising inequality. First, both Republicans and many Democrats have experienced an ideological shift toward acceptance of a form of free market capitalism that offers less support for government provision of transfers, lower marginal tax rates for those with high incomes, and deregulation of a number of industries. Second, immigration and low turnout of the poor have combined to make the distribution of voters more weighted to high incomes than is the distribution of households. Third, rising real income and wealth has made a larger fraction of the population less attracted to turning to government for social insurance. Fourth, the rich have been able to use their resources to influence electoral, legislative, and regulatory processes through campaign contributions, lobbying, and revolving door employment of politicians and bureaucrats. Fifth, the political process is distorted by institutions that reduce the accountability of elected officials to the majority and hampered by institutions that combine with political polarization to create policy gridlock.

331 citations


Journal ArticleDOI
TL;DR: In some parts of the developing world, this growth has more thanproportionately involved rural migration to informal growth and more than proportionally involved rural migrants to informal settlements in and around cities, known more commonly as "slums" as mentioned in this paper.
Abstract: Urban populations have skyrocketed globally and today represent more than rban populations have skyrocketed globally and today represent more than half of the world’s population. In some parts of the developing world, this half of the world’s population. In some parts of the developing world, this growth has more-than-proportionately involved rural migration to informal growth has more-than-proportionately involved rural migration to informal settlements in and around cities, known more commonly as “slums”— densely settlements in and around cities, known more commonly as “slums”— densely populated urban areas characterized by poor-quality housing, a lack of adequate living populated urban areas characterized by poor-quality housing, a lack of adequate living space and public services, and accommodating large numbers of informal residents space and public services, and accommodating large numbers of informal residents with generally insecure tenure.

316 citations


Journal ArticleDOI
TL;DR: In this paper, a society with perfect economic equality is disturbed by an entrepreneur with an idea for a new product, and the new product makes the entrepreneur much richer than everyone else.
Abstract: Imagine a society with perfect economic equality. Then, one day, this egalitarian utopia is disturbed by an entrepreneur with an idea for a new product. Think of the entrepreneur as Steve Jobs as he develops the iPod, J. K. Rowling as she writes her Harry Potter books, or Steven Spielberg as he directs his blockbuster movies. The new product makes the entrepreneur much richer than everyone else. How should the entrepreneurial disturbance in this formerly egalitarian outcome alter public policy? Should public policy remain the same, because the situation was initially acceptable and the entrepreneur improved it for everyone? Or should government policymakers deplore the resulting inequality and use their powers to tax and transfer to spread the gains more equally? In my view, this thought experiment captures, in an extreme and stylized way, what has happened to US society over the past several decades. Since the 1970s, average incomes have grown, but the growth has not been uniform across the inco...

238 citations


Journal ArticleDOI
TL;DR: The famous RAND Health Insurance Experiment is re-present and the famous RAND estimate that the elasticity of medical spending with respect to its out-of-pocket price is -0.2 is considered, emphasizing the challenges associated with summarizing the experimental treatment effects from non-linear health insurance contracts using a single price elasticity.
Abstract: We re-present and re-examine the analysis from the famous RAND Health Insurance Experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending. We begin by summarizing the experiment and its core findings in a manner that would be standard in the current age. We then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms. Finally, we re-consider the famous RAND estimate that the elasticity of medical spending with respect to its out-of-pocket price is −0.2, emphasizing the challenges associated with summarizing the experimental treatment effects from non-linear health insurance contracts using a single price elasticity.

229 citations


Journal ArticleDOI
TL;DR: In this article, the authors look at the increase in pay at the highest income levels across occupations and find that those in the Forbes 400 are less likely to have higher income than the rest of the population.
Abstract: One explanation that has been proposed for rising inequality is that technical change allows highly talented individuals, or “superstars” to manage or perform on a larger scale, applying their talent to greater pools of resources and reaching larger numbers of people, thus becoming more productive and higher paid. Others argue that managerial power has increased in a way that allows those at the top to receive higher pay, that social norms against higher pay levels have broken down, or that tax policy affects the distribution of surpluses between employers and employees. We offer evidence bearing on the different theories explaining the rise in inequality in the United States over recent decades. First we look the increase in pay at the highest income levels across occupations. We consider the income share of the top 1 percent over time. And we turn to evidence on inequality of wealth at the top. In looking at the wealthiest Americans, we find that those in the Forbes 400 are less likely to have ...

Journal ArticleDOI
TL;DR: The emerging market architecture as mentioned in this paper features separate emissions trading systems serving distinct jurisdictions and a variety of other types of policies exist alongside the carbon markets, which is in sharp contrast to the top-down, integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol.
Abstract: Carbon markets are substantial and they are expanding. There are many lessons from market experiences over the past eight years: there should be fewer free allowances, better management of market-sensitive information, and a recognition that trading systems require adjustments that have consequences for market participants and market confidence. Moreover, the emerging market architecture features separate emissions trading systems serving distinct jurisdictions and a variety of other types of policies exist alongside the carbon markets. This situation is in sharp contrast to the top-down, integrated global trading architecture envisioned 15 years ago by the designers of the Kyoto Protocol and raises a suite of new questions. In this new architecture, jurisdictions with emissions trading have to decide how, whether, and when to link with one another. Stakeholders and policymakers must confront how to measure the comparability of efforts among markets as well as relative to a variety of other polic...

Journal ArticleDOI
TL;DR: In this paper, the authors show that the long-run trend of the income share of the United States is similar to that in a number of other now-industrial economies, although the exact pattern varies by country.
Abstract: Studies of long-run evolution of the fi nance industry have largely focused tudies of long-run evolution of the fi nance industry have largely focused on the United States. These studies reveal three key facts: 1) the share of on the United States. These studies reveal three key facts: 1) the share of aggregate income spent on fi nancial intermediation is time varying; 2) the aggregate income spent on fi nancial intermediation is time varying; 2) the unit cost of fi nancial intermediation is relatively fl at; and 3) the pattern of changes unit cost of fi nancial intermediation is relatively fl at; and 3) the pattern of changes in human capital and wages in fi nance relative to the whole economy exhibits a in human capital and wages in fi nance relative to the whole economy exhibits a U-shape over the twentieth century. In this paper, we ask whether these facts hold U-shape over the twentieth century. In this paper, we ask whether these facts hold for a set of other economies with similar levels of development. for a set of other economies with similar levels of development. Over the long run, the US fi nancial sector has grown in two waves: The fi rst Over the long run, the US fi nancial sector has grown in two waves: The fi rst lasted from (at least) 1860 to the 1930s; and then, following a sharp decline, the lasted from (at least) 1860 to the 1930s; and then, following a sharp decline, the second wave starts in 1950 and lasts to the present. The long-run trend of second wave starts in 1950 and lasts to the present. The long-run trend of the income share of fi nance in the United States is similar to that in a number the income share of fi nance in the United States is similar to that in a number of other now-industrial economies, although—as Figure 1 illustrates—the exact of other now-industrial economies, although—as Figure 1 illustrates—the exact pattern varies by country. A few features in Figure 1 stand out. First, in all of pattern varies by country. A few features in Figure 1 stand out. First, in all of these countries—except Finland, for a brief period—fi nance’s share of income these countries—except Finland, for a brief period—fi nance’s share of income today is signifi cantly higher than it has been during the last 150 years. Second, today is signifi cantly higher than it has been during the last 150 years. Second, the overall trend is upward, although periods of decline are evident; in particular, the overall trend is upward, although periods of decline are evident; in particular, there are sharp drops in Australia after 1888 and in Canada and the United States there are sharp drops in Australia after 1888 and in Canada and the United States after 1933 following severe depressions. Third, while the Netherlands, the United after 1933 following severe depressions. Third, while the Netherlands, the United

Journal ArticleDOI
Petra Moser1
TL;DR: In this paper, the optimal system of intellectual property rights to encourage innovation is discussed, and empirical evidence from economic history can help to inform important policy questions that have been investigated.
Abstract: What is the optimal system of intellectual property rights to encourage innovation? Empirical evidence from economic history can help to inform important policy questions that have been di...

Journal ArticleDOI
TL;DR: The standard approach to policy making and advice in economics implicitly or explicitly ignores politics and political economy and maintains that if possible, any market failure should be avoided as mentioned in this paper, which is not true.
Abstract: The standard approach to policy making and advice in economics implicitly or explicitly ignores politics and political economy and maintains that if possible, any market failure should be ...

Journal ArticleDOI
TL;DR: In this paper, the authors argue that social policy, including human capital and education, social insurance, and redistribution, need special attention if achievements of the last two decades are to be sustained and amplified.
Abstract: Long regarded as a region beset by macroeconomic instability, high inflation, and excessive poverty and inequality, Latin America has undergone a major transformation over the last 20 years The region has seen improved macroeconomic management and substantial and sustained reductions in poverty and inequality In this paper, we argue that social policy, including human capital and education, social insurance, and redistribution, need special attention if achievements of the last two decades are to be sustained and amplified Starting in the mid 1990s, many governments in the region introduced a variety of programs, including noncontributory pensions and health insurance, and cash transfers targeted to the poor Social spending in Latin America increased sharply These policies have been widely praised, and we believe they have resulted in substantial improvements in the lives of the poor in the region However, a more nuanced view shows some worrisome trends Moving forward, we believe it is nec

Journal ArticleDOI
TL;DR: The authors argue that putting a price on every human activity erodes certain moral and civic goods worth caring about, and therefore need a public debate about where markets serve the public good and where they don't belong.
Abstract: In my book What Money Can't Buy: The Moral Limits of Markets (2012), I try to show that market values and market reasoning increasingly reach into spheres of life previously governed by nonmarket norms. I argue that this tendency is troubling; putting a price on every human activity erodes certain moral and civic goods worth caring about. We therefore need a public debate about where markets serve the public good and where they don't belong. In this article, I would like to develop a related theme: When it comes to deciding whether this or that good should be allocated by the market or by nonmarket principles, economics is a poor guide. Deciding which social practices should be governed by market mechanisms requires a form of economic reasoning that is bound up with moral reasoning. But mainstream economic thinking currently asserts its independence from the contested terrain of moral and political philosophy. If economics is to help us decide where markets serve the public good and where they do...

Journal ArticleDOI
TL;DR: In the United States, gas emissions from coal-fi red, electric generating plants were the primary source of gas emissions as mentioned in this paper, and a major source of NO in the US Northeast and southern Canada.
Abstract: ) reacting in the atmosphere to form sulfuric and nitric acids —was damaging forests and aquatic ecosystems, to form sulfuric and nitric acids —was damaging forests and aquatic ecosystems, particularly in the US Northeast and southern Canada. In the United States, fl ue particularly in the US Northeast and southern Canada. In the United States, fl ue gas emissions from coal-fi red, electric generating plants were the primary source of gas emissions from coal-fi red, electric generating plants were the primary source of SO SO2 emissions and a major source of NO

Journal ArticleDOI
TL;DR: In this paper, the authors present a critique of the market economy and economics, and argue that economics is complicit in an assault on virtue and on more generally; therefore, it is not only in markets but also in social life but also (in its ventures into the territories of other social sciences).
Abstract: contrast, virtue ethics —the study of moral character—has been an important strand in moral philosophy for literally thousands of years, but has received little strand in moral philosophy for literally thousands of years, but has received little attention from contemporary economists. That neglect has not been reciprocated. attention from contemporary economists. That neglect has not been reciprocated. A signifi cant body of philosophical work in virtue ethics is associated with a radical A signifi cant body of philosophical work in virtue ethics is associated with a radical critique of the market economy and of economics. Expressed crudely, the charge critique of the market economy and of economics. Expressed crudely, the charge sheet is this: The market depends on instrumental rationality and extrinsic motisheet is this: The market depends on instrumental rationality and extrinsic motivation; market interactions therefore fail to respect the internal value of human vation; market interactions therefore fail to respect the internal value of human practices and the intrinsic motivations of human actors; by using market exchange practices and the intrinsic motivations of human actors; by using market exchange as its central model, economics normalizes extrinsic motivation, not only in markets as its central model, economics normalizes extrinsic motivation, not only in markets but also (in its ventures into the territories of other social sciences) in social life but also (in its ventures into the territories of other social sciences) in social life more generally; therefore economics is complicit in an assault on virtue and on more generally; therefore economics is complicit in an assault on virtue and on human fl ourishing. We will argue that this critique is fl awed, both as a descriphuman fl ourishing. We will argue that this critique is fl awed, both as a description of how markets actually work and as a representation of how classical and tion of how markets actually work and as a representation of how classical and neo classical economists have understood the market. We will show how the market neo classical economists have understood the market. We will show how the market and economics can be defended against the critique from virtue ethics. and economics can be defended against the critique from virtue ethics. Crucially, our response to that critique will be constructed Crucially, our response to that critique will be constructed using the language and logic of virtue ethics. In this respect, it is fundamentally different from a response . In this respect, it is fundamentally different from a response that many economists would fi nd more natural—to point to the enormous benefi ts, that many economists would fi nd more natural—to point to the enormous benefi ts,

Journal ArticleDOI
TL;DR: Some assets are traded in liquid markets, at transparent prices, with the help of many thriving intermediaries: houses and apartments, stocks, stocks and other financial products, books, DVDs, electronics, and all sorts of collectibles as discussed by the authors.
Abstract: Some assets are traded in liquid markets, at transparent prices, with the help ome assets are traded in liquid markets, at transparent prices, with the help of many thriving intermediaries: houses and apartments, stocks and other of many thriving intermediaries: houses and apartments, stocks and other fi nancial products, books, DVDs, electronics, and all sorts of collectibles. fi nancial products, books, DVDs, electronics, and all sorts of collectibles.

Journal ArticleDOI
TL;DR: In this paper, the authors argue that the increase in incomes and wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and/or redistribution of economic rents, and not simply as the outcome of well-functioning competitive markets rewarding skills or productivity based on marginal differences.
Abstract: incomes and wages has now raged for at least two decades. In this paper, we will make four arguments. First, the increase in the incomes and we will make four arguments. First, the increase in the incomes and wages of the top 1 percent over the last three decades should be interpreted wages of the top 1 percent over the last three decades should be interpreted as driven largely by the creation and/or redistribution of economic rents, and as driven largely by the creation and/or redistribution of economic rents, and not simply as the outcome of well-functioning competitive markets rewarding not simply as the outcome of well-functioning competitive markets rewarding skills or productivity based on marginal differences. This rise in rents accruing skills or productivity based on marginal differences. This rise in rents accruing to the top 1 percent could be the result of increased to the top 1 percent could be the result of increased opportunities for rentfor rent

Journal ArticleDOI
TL;DR: The authors show that sovereign wealth funds with greater involvement of political leaders in fund management are associated with investment strategies that seem to favor short-term economic policy goals in their respective countries at the expense of longer-term maximization of returns.
Abstract: Sovereign wealth funds have emerged as major investors in corporate and real resources worldwide. After an overview of their magnitude, we consider the institutional arrangements under which many of the sovereign wealth funds operate. We focus on a specific set of agency problems that is of first-order importance for these funds: that is, the direct involvement of political leaders in the management process. We show that sovereign wealth funds with greater involvement of political leaders in fund management are associated with investment strategies that seem to favor short-term economic policy goals in their respective countries at the expense of longer-term maximization of returns. Sovereign wealth funds face several other issues, like how best to cope with demands for transparency, which can allow others to copy their investment strategies, and how to address the problems that arise with sheer size, like the difficulties of scaling up investment strategies that only work with a smaller value of assets under investment. In the conclusion, we discuss how various approaches cultivated by effective institutional investors worldwide -- from investing in the best people to pioneering new asset classes to compartmentalizing investment activities -- may provide clues as to how sovereign wealth funds might address these issues.

Journal ArticleDOI
TL;DR: In this article, the authors study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone periphery and led to the deterioration of important institutions in these countries.
Abstract: We study the mechanisms through which the adoption of the Euro delayed, rather than advanced, economic reforms in the Euro zone periphery and led to the deterioration of important institutions in these countries. We show that the abandonment of the reform process and the institutional deterioration, in turn, not only reduced their growth prospects but also fed back into financial conditions, prolonging the credit boom and delaying the response to the bubble when the speculative nature of the cycle was already evident. We analyze empirically the interrelation between the financial boom and the reform process in Greece, Spain, Ireland, and Portugal and, by way of contrast, in Germany, a country that did experience a reform process after the creation of the Euro.

Journal ArticleDOI
TL;DR: In this paper, a few economists offered the novel idea of trading pollution rights as a way of meeting environmental goals, and such trading was touted as a more cost-effective alternative.
Abstract: About 45 years ago a few economists offered the novel idea of trading pollution rights as a way of meeting environmental goals. Such trading was touted as a more cost-effective alternative...

Journal ArticleDOI
TL;DR: In this paper, the authors review key innovations in trading technology starting with portfolio optimization in the 1950s and ending with high-frequency trading in the late 2000s, as well as opportunities, challenges, and economic incentives that accompanied these developments.
Abstract: Financial markets have undergone a remarkable transformation over the past two decades due to advances in technology. These advances include faster and cheaper computers, greater connectivity among market participants, and perhaps most important of all, more sophisticated trading algorithms. The benefits of such financial technology are evident: lower transactions costs, faster executions, and greater volume of trades. However, like any technology, trading technology has unintended consequences. In this paper, we review key innovations in trading technology starting with portfolio optimization in the 1950s and ending with high-frequency trading in the late 2000s, as well as opportunities, challenges, and economic incentives that accompanied these developments. We also discuss potential threats to financial stability created or facilitated by algorithmic trading and propose “Financial Regulation 2.0,” a set of design principles for bringing the current financial regulatory framework into the Digital Age.

Journal ArticleDOI
TL;DR: In this article, the authors examined the significant increase in asset management fees charged to both individual and institutional investors over time and found that the increase in fees charged by actively managed funds could prove to be socially useful, if it reflected increasing returns for investors from active management or if it was necessary to improve the efficiency of the market for investors who availed themselves of low-cost passive (index) funds.
Abstract: From 1980 to 2006, the financial services sector of the United States economy grew from 4.9 percent to 8.3 percent of GDP . A substantial share of that increase was comprised of increases in the fees paid for asset management. This paper examines the significant increase in asset management fees charged to both individual and institutional investors. Despite the economies of scale that should be realizable in the asset management business, the asset-weighted expense ratios charged to both individual and institutional investors have actually risen over time. If we exclude index funds (an innovation that has made market returns available even to small investors at close to zero expense), fees have risen substantially as a percentage of assets managed. One could argue that the increase in fees charged by actively managed funds could prove to be socially useful, if it reflected increasing returns for investors from active management or if it was necessary to improve the efficiency of the market for investors who availed themselves of low-cost passive (index) funds. But neither of these arguments can be supported by the data. Actively managed funds of publicly traded securities have consistently underperformed index funds, and the amount of the underperformance is well approximated by the difference in the fees charged by the two types of funds. Moreover, it appears that there was no change in the efficiency of the market from 1980 to 2011. Arbitrage opportunities to obtain excess risk-adjusted returns do not appear to have been available at any time during the early part of the period. Passive portfolios that bought and held all the stocks in a broad-based market index substantially outperformed the average active manager

Journal ArticleDOI
TL;DR: Since the onset of the Great Recession in peripheral Europe, nominal hourly wages have not fallen from the high levels they had reached during the boom years as mentioned in this paper, this in spite of widespread in...
Abstract: Since the onset of the Great Recession in peripheral Europe, nominal hourly wages have not fallen from the high levels they had reached during the boom years—this in spite of widespread in...

Journal ArticleDOI
TL;DR: Water pollution permit trading has been comprehensively described and analyzed in the peer-reviewed literature as discussed by the authors, including active programs and completed or otherwise inactive programs, including approximately three dozen initiatives.
Abstract: This paper seeks to assess the current status of water quality trading and to identify possible problems and solutions. Water pollution permit trading programs have rarely been comprehensively described and analyzed in the peer-reviewed literature. Including active programs and completed or otherwise inactive programs, we identify approximately three dozen initiatives. We describe six criteria for successful pollution trading programs and consider how these apply to standard water quality problems, as compared to air quality. We then highlight some important issues to be resolved if current water quality trading programs are to function as the "leading edge" of a new frontier in cost-effective pollution permit trading in the United States.

Journal ArticleDOI
TL;DR: An error in calculations of the expected present discounted value of life-contingent payout streams in the paper “The Composition and Drawdown of Wealth in Retirement,” published in the Fall 2011 issue of this journal, overstated the wealth-equivalent value of both Social Security and defi ned pensions.
Abstract: In extending our research on issues related to those in this paper, we have discovered an error in our calculations of the expected present discounted value of life-contingent payout streams in our paper “The Composition and Drawdown of Wealth in Retirement,” published in the Fall 2011 issue of this journal. This error affected entries in Tables 1 and 2 of the paper and the associated discussion. The error overstated the wealth-equivalent value of both Social Security and defi ned benefi t pensions. The corrected values, shown in the tables below, indicate that the average capitalized value of Social Security for all retirementage households is $204,264 rather than $341,556. The mean capitalized value of defi ned benefi t pension payouts is $99,147. Taken together, Social Security and defi ned benefi t pension wealth represent 34.9 percent of the mean value of household wealth, not 46 percent as initially reported. The share of home equity, which was previously reported as 16.8 percent, correspondingly rises to 20.2 percent and

Journal ArticleDOI
TL;DR: The eurozone currently confronts severe short-run macroeconomic adjustment problems and a deficient institutional architecture that has to be reformed in the longer run as mentioned in this paper, and the eurozone's leaders may therefore ultimately have to take heed of the lessons of history regarding currency union breakups.
Abstract: The eurozone currently confronts severe short-run macroeconomic adjustment problems and a deficient institutional architecture that has to be reformed in the longer run. Europe's efforts at economic and monetary union are historically unprecedented. However, the gold standard provides lessons regarding what will and won't work, macroeconomically and politically, in the short run, while US history provides long-run lessons regarding appropriate institutional structures. The latter also suggests that institutional reform only happens at times of great crisis, and that it cannot be taken for granted. The eurozone's leaders may therefore ultimately have to take heed of the lessons of history regarding currency union breakups.