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Showing papers in "Quarterly Journal of Economics in 2013"


Journal ArticleDOI
TL;DR: In this article, the authors use the highly unequal geographic distribution of wealth losses across the United States to estimate a large elasticity of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk sharing.
Abstract: lapse using the highly unequal geographic distribution of wealth losses across the United States. We estimate a large elasticity of consumption with respect to housing net worth of 0.6 to 0.8, which soundly rejects the hypothesis of full consumption risk-sharing. The average marginal propensity to consume (MPC) out of housing wealth is 5–7 cents with substantial heterogeneity across ZIP codes. ZIP codes with poorer and more levered households have a significantly higher MPC out of housing wealth. In line with the MPC result, ZIP codes experiencing larger wealth losses, particularly those with poorer and more levered households, experience a larger reduction in credit limits, refinancing likelihood, and credit scores. Our findings highlight the role of debt and the geographic distribution of wealth shocks in explaining the large and unequal decline in consumption from 2006 to 2009. JEL Codes: E21, E32, E44, E60.

1,245 citations


Journal ArticleDOI
TL;DR: This article examined the historical origins of existing cross-cultural differences in beliefs and values regarding the appropriate role of women in society and found that the descendants of societies that traditionally practiced plough agriculture today have less equal gender norms, measured using reported gender-role attitudes and female participation in the workplace, politics and entrepreneurial activities.
Abstract: The study examines the historical origins of existing cross-cultural differences in beliefs and values regarding the appropriate role of women in society. We test the hypothesis that traditional agricultural practices influenced the historical gender division of labor and the evolution of gender norms. We find that, consistent with existing hypotheses, the descendants of societies that traditionally practiced plough agriculture today have less equal gender norms, measured using reported gender-role attitudes and female participation in the workplace, politics, and entrepreneurial activities. Our results hold looking across countries, across districts within countries, and across ethnicities within districts. To test for the importance of cultural persistence, we examine the children of immigrants living in Europe and the United States. We find that even among these individuals, all born and raised in the same country, those with a heritage of traditional plough use exhibit less equal beliefs about gender roles today. JEL Codes: D03, J16, N30. Copyright 2013, Oxford University Press.

1,057 citations


Journal ArticleDOI
TL;DR: In this paper, the role of establishment-speci c wage premiums in generating recent increases in West German wage inequality was studied and it was shown that the increasing variability of West German wages has arisen from a combination of rising heterogeneity between workers, rising variability in the wage premiums at dierent establishments, and increasing assortativeness in the as-signment of workers to plants.
Abstract: We study the role of establishment-speci…c wage premiums in generating recent increases in West German wage inequality. Models with additive …xed eects for work- ers and establishments are …t in four sub-intervals spanning the period from 1985 to 2009. We show that these models provide a good approximation to the wage struc- ture and can explain nearly all of the dramatic rise in West German wage inequality. Our estimates suggest that the increasing variability of West German wages has arisen from a combination of rising heterogeneity between workers, rising variability in the wage premiums at dierent establishments, and increasing assortativeness in the as- signment of workers to plants. In contrast, the idiosyncratic job-match component of wage variation is small and stable over time. Decomposing changes in mean wages between dierent education groups, occupations, and industries, we …nd that increas- ing plant-level heterogeneity and rising assortativeness in the assignment of workers to establishments explain a large share of the rise in inequality along all three dimensions.

781 citations


Journal ArticleDOI
Dani Rodrik1
TL;DR: The authors found that manufacturing industries exhibit strong unconditional convergence in labor productivity and showed that despite strong convergence within manufacturing, aggregate convergence fails due to the small share of manufacturing employment in low-income countries and slow pace of industrialization.
Abstract: Unlike economies as a whole, manufacturing industries exhibit strong unconditional convergence in labor productivity. The article documents this at various levels of disaggregation for a large sample covering more than 100 countries over recent decades. The result is highly robust to changes in the sample and specification. The coefficient of unconditional convergence is estimated quite precisely and is large, at between 2–3% in most specifications and 2.9% a year in the baseline specification covering 118 countries. The article also finds substantial sigma convergence at the two-digit level for a smaller sample of countries. Despite strong convergence within manufacturing, aggregate convergence fails due to the small share of manufacturing employment in low-income countries and the slow pace of industrialization. Because of data coverage, these findings should be as viewed as applying to the organized, formal parts of manufacturing.

617 citations


Journal ArticleDOI
TL;DR: This paper investigated the determinants of regional development using a newly constructed database of 1569 sub-national regions from 110 countries covering 74 percent of the world surface and 97 percent of its GDP.
Abstract: We investigate the determinants of regional development using a newly constructed database of 1569 sub-national regions from 110 countries covering 74 percent of the world’s surface and 97 percent of its GDP. We combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination of productivity in several thousand establishments located in these regions. To organize the discussion, we present a new model of regional development that introduces into a standard migration framework elements of both the Lucas (1978) model of the allocation of talent between entrepreneurship and work, and the Lucas (1988) model of human capital externalities. The evidence points to the paramount importance of human capital in accounting for regional differences in development, but also suggests from model estimation and calibration that entrepreneurial inputs and possibly human capital externalities help understand the data.

544 citations


Journal ArticleDOI
TL;DR: In this paper, the role of employer behavior in generating negative duration dependence was studied by sending fictitious resumes to real job postings in 100 U.S. cities, showing that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months.
Abstract: This article studies the role of employer behavior in generating ''negative duration dependence''—the adverse effect of a longer unemployment spell—by sending fictitious resumes to real job postings in 100 U.S. cities. Our results indicate that the likelihood of receiving a callback for an interview significantly decreases with the length of a worker's unemployment spell, with the majority of this decline occurring during the first eight months. We explore how this effect varies with local labor market conditions and find that duration de- pendence is stronger when the local labor market is tighter. This result is consistent with the prediction of a broad class of screening models in which employers use the unemployment spell length as a signal of unobserved productivity and recognize that this signal is less informative in weak labor markets. JEL Code: J64.

490 citations


Journal ArticleDOI
TL;DR: In this article, the authors develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches, and apply their framework to tax notches in Pakistan using rich administrative data.
Abstract: We develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches?discontinuities in the choice sets of agents?introduced by tax and transfer policies Notches create excess bunching on the low-tax side and missing mass on the high-tax side of a cutoff, and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world By combining excess bunching (observed response attenuated by frictions) with missing mass in the dominated region (frictions), it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long-run behavior We apply our framework to tax notches in Pakistan using rich administrative data While observed bunching is large and sharp, optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives The combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large, but the underlying structural elasticity driving this response is nevertheless modest This highlights the inefficiency of notches: by creating extremely strong price distortions, they induce large behavioral responses even when structural elasticities are small

447 citations


Journal ArticleDOI
TL;DR: In this article, the authors present a general applicable theory of focusing based on the hypothesis that a person focuses more on, and hence overweights, attributes in which her options dier more.
Abstract: We present a generally applicable theory of focusing based on the hypothesis that a person focuses more on, and hence overweights, attributes in which her options dier more. Our model predicts that the decisionmaker is too prone to choose options with concentrated advantages relative to alternatives, but maximizes utility when the advantages and disadvantages of alternatives are equally concentrated. In intertemporal choice, because the relative concentrations of an option’s costs and benets can be dierent from the perspective of a single period and the perspective of the entire choice problem, the decisionmaker often exhibits a form of time inconsistency. She is present-biased when the costs of current misbehavior are distributed over many future dates (such as in harmful consumption), but \future-biased" when the benet of many

387 citations


Journal ArticleDOI
TL;DR: In this paper, the authors estimate the effects of headquarters' proximity to plants on plant-level investment and productivity, using the introduction of new airline routes as a source of exogenous variation in proximity.
Abstract: Proximity to plants makes it easier for headquarters to monitor and acquire information about plants. In this article, I estimate the effects of headquarters’ proximity to plants on plant-level investment and productivity. Using the introduction of new airline routes as a source of exogenous variation in proximity, I find that new airline routes that reduce the travel time between headquarters and plants lead to an increase in plant-level investment of 8% to 9% and an increase in plants’ total factor productivity of 1.3% to 1.4%. The results are robust when I control for local and firm-level shocks that could potentially drive the introduction of new airline routes, when I consider only new airline routes that are the outcome of a merger between two airlines or the opening of a new hub, and when I consider only indirect flights where either the last leg of the flight (involving the plant’s home airport) or the first leg of the flight (involving headquarters’ home airport) remains unchanged. Moreover, the results are stronger in the earlier years of the sample period and for firms whose headquarters is more time-constrained. In addition, they also hold at the extensive margin, that is, when I consider plant openings and closures.

367 citations


Journal ArticleDOI
TL;DR: This article showed that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens, and provided concrete proposals to improve international investment statistics.
Abstract: This paper shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on systematic anomalies in portfolio investment positions and a unique Swiss dataset, I find that 8% of the global financial wealth of households is held in tax havens, 6% of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world's second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that, after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international investment statistics.

367 citations


Journal ArticleDOI
TL;DR: The authors show that the value of remaining in office is higher for a moderate politician when the median voter is more likely to vote for a right-wing candidate than a moderate candidate, and that politicians are more forward-looking when voters are more uncertain about the type of the incumbent.
Abstract: When voters fear that politicians may have a right-wing bias or that they may be in‡uenced or corrupted by the rich elite, signals of true left-wing conviction are valuable. As a consequence, even a moderate politician seeking reelection chooses ‘populist’policies— i.e., policies to the left of the median voter— as a way of signaling that he is not from the right. Truly right-wing politicians respond by choosing more moderate, or even left-of-center policies. This populist bias of policy is greater when the value of remaining in o¢ ce is higher for the politician; when there is greater polarization between the policy preferences of the median voter and right-wing politicians; when politicians are indeed more likely to have a hidden right-wing agenda; when there is an intermediate amount of noise in the information that voters receive; when politicians are more forward-looking; and when there is greater uncertainty about the type of the incumbent. We show that similar results apply when some politicians can be corrupted or in‡uenced through other non-electoral means by the rich elite. We also show that ‘soft term limits’ may exacerbate, rather than reduce, the populist bias of policies.

Journal ArticleDOI
TL;DR: In this paper, the authors report the results from a randomized experiment designed to evaluate the direct and indirect impacts of job placement assistance on the labor market outcomes of young, educated job seekers in France.
Abstract: This article reports the results from a randomized experiment designed to evaluate the direct and indirect (displacement) impacts of job placement assistance on the labor market outcomes of young, educated job seekers in France. We use a two-step design. In the first step, the proportions of job seekers to be assigned to treatment (0%, 25%, 50%, 75%, or 100%) were randomly drawn for each of the 235 labor markets (e.g., cities) participating in the experiment. Then, in each labor market, eligible job seekers were randomly assigned to the treatment, following this proportion. After eight months, eligible, unemployed youths who were assigned to the program were significantly more likely to have found a stable job than those who were not. But these gains are transitory, and they appear to have come partly at the expense of eligible workers who did not benefit from the program, particularly in labor markets where they compete mainly with other educated workers, and in weak labor markets. Overall, the program seems to have had very little net benefits.

Journal ArticleDOI
TL;DR: This paper found that the urban-rural gap accounts for 40% of mean country inequality and much of its cross-country variation, and that one out of every four or five individuals raised in rural areas moves to urban areas as a young adult, where they earn much higher incomes than nonmigrant rural permanent residents.
Abstract: Using population and product consumption data from the Demographic and Health Surveys, I construct comparable measures of inequality and migration for 65 countries, including some of the poorest countries in the world. I find that the urban-rural gap accounts for 40% of mean country inequality and much of its cross-country variation. One out of every four or five individuals raised in rural areas moves to urban areas as a young adult, where they earn much higher incomes than nonmigrant rural permanent residents. Equally, one out of every four or five individuals raised in urban areas moves to rural areas as a young adult, where they earn much lower incomes than their nonmigrant urban cousins. These flows and relative incomes are suggestive of a world where the population sorts itself geographically on the basis of its human capital and skill. I show that a simple model of this sort explains the urban-rural gap in living standards.

Journal ArticleDOI
TL;DR: In this article, the role of financial incentives in attracting a larger and more qualified pool of applicants, the elasticity of the labor supply facing the employer, and role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies in public sector positions in Mexico.
Abstract: We study a recent recruitment drive for public sector positions in Mexico. Different salaries were announced randomly across recruitment sites, and job offers were subsequently randomized. Screening relied on exams designed to measure applicants' intellectual ability, personality, and motivation. This allows the first experimental estimates of (i) the role of financial incentives in attracting a larger and more qualified pool of applicants, (ii) the elasticity of the labor supply facing the employer, and (iii) the role of job attributes (distance, attractiveness of the municipal environment) in helping fill vacancies, as well as the role of wages in helping fill positions in less attractive municipalities. A theoretical model guides each stage of the empirical inquiry. We find that higher wages attract more able applicants as measured by their IQ, personality, and proclivity towards public sector work – i.e., we find no evidence of adverse selection effects on motivation; higher wage offers also increased acceptance rates, implying a labor supply elasticity of around 2 and some degree of monopsony power. Distance and worse municipal characteristics strongly decrease acceptance rates but higher wages help bridge the recruitment gap in worse municipalities.

Journal ArticleDOI
TL;DR: A two-year field experiment in the Indian state of Gujarat as mentioned in this paper showed that the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher.
Abstract: In many regulated markets, private, third-party auditors are chosen and paid by the firms that they audit, potentially creating a conflict of interest. This article reports on a two-year field experiment in the Indian state of Gujarat that sought to curb such a conflict by altering the market structure for environmental audits of industrial plants to incentivize accurate reporting. There are three main results. First, the status quo system was largely corrupted, with auditors systematically reporting plant emissions just below the standard, although true emissions were typically higher. Second, the treatment caused auditors to report more truthfully and very significantly lowered the fraction of plants that were falsely reported as compliant with pollution standards. Third, treatment plants, in turn, reduced their pollution emissions. The results suggest reformed incentives for third-party auditors can improve their reporting and make regulation more effective. JEL Codes: Q56, M42, D22. Copyright 2013, Oxford University Press.

Journal ArticleDOI
TL;DR: This paper used linked worker-firm data in the United States to estimate the transitional costs associated with reallocating workers from newly regulated industries to other sectors of the economy in the context of new environmental regulations.
Abstract: This article uses linked worker-firm data in the United States to estimate the transitional costs associated with reallocating workers from newly regulated industries to other sectors of the economy in the context of new environmental regulations. The focus on workers rather than industries as the unit of analysis allows me to examine previously unobserved economic outcomes such as nonemployment and long-run earnings losses from job transitions, both of which are critical to understanding the reallocative costs associated with these policies. Using plant-level panel variation induced by the 1990 Clean Air Act Amendments (CAAA), I find that the reallocative costs of environmental policy are significant. Workers in newly regulated plants experienced, in aggregate, more than $5.4 billion in forgone earnings for the years after the change in policy. Most of these costs are driven by nonemployment and lower earnings in future employment, highlighting the importance of longitudinal data for characterizing the costs and consequences of labor market adjustment. Relative to the estimated benefits of the 1990 CAAA, these one-time transitional costs are

Journal ArticleDOI
TL;DR: This article studied the effect of the Tea Party movement in the United States, which rose to prominence through a series of rallies across the country on April 15, Tax Day, 2009 and found that large rallies cause an increase in turnout in favor of the Republicans in the 2010 Congressional elections, and increase the likelihood that incumbent Democratic representatives retire.
Abstract: Can protests cause political change, or are they merely symptoms of underlying shifts in policy preferences? This paper studies the effect of the Tea Party movement in the United States, which rose to prominence through a series of rallies across the country on April 15, Tax Day, 2009. To identify the causal effect of protests, we use an instrumental variables approach that exploits variation in rainfall on the day of the coordinated rallies. Weather on Tax Day robustly predicts rally attendance and the subsequent local strength of the movement as measured by donations, media coverage, social networking activity, and later events. We show that larger rallies cause an increase in turnout in favor of the Republicans in the 2010 Congressional elections, and increase the likelihood that incumbent Democratic representatives retire. Incumbent policymaking is affected as well: representatives respond to large protests in their district by voting more conservatively in Congress. Finally, the estimates imply significant multiplier effects: for every protester, Republican votes increase by seven to fourteen votes. Together our results show that protests can build political movements that ultimately affect policy, and they suggest that it is unlikely that these effects arise solely through the standard channel of private-information revelation.

Journal ArticleDOI
TL;DR: It is found that when gasoline prices rise consumers substitute to lower octane gasoline, to an extent that cannot be explained by income effects.
Abstract: We formulate a test of the fungibility of money based on parallel shifts in the prices of different quality grades of a commodity. We embed the test in a discrete-choice model of product quality choice and estimate the model using panel microdata on gasoline purchases. We find that when gasoline prices rise consumers substitute to lower octane gasoline, to an extent that cannot be explained by income effects. Across a wide range of specifications, we consistently reject the null hypothesis that households treat "gas money" as fungible with other income. We compare the empirical fit of three psychological models of decision-making. A simple model of category budgeting fits the data well, with models of loss aversion and salience both capturing important features of the time series.

Journal ArticleDOI
TL;DR: The authors studied explicit gender discrimination in a population of ads on a Chinese Internet job board and found that almost two thirds of the variation in advertised gender preferences occurs within firms, and one third occurs within firm occupation cells.
Abstract: We study explicit gender discrimination in a population of ads on a Chinese Internet job board. Gender-targeted job ads are common, favor women as often as men, and are much less common in jobs requiring higher levels of skill. Employers' relative preferences for female versus male workers, on the other hand, are more strongly related to the preferred age, height, and beauty of the worker than to job skill levels. Almost two thirds of the variation in advertised gender preferences occurs within firms, and one third occurs within firmoccupation cells. Overall, these patterns are not well explained by a firm-level animus model, by a glass-ceiling model, or by models in which broad occupational categories are consistently gendered across firms. Instead, the patterns suggest a model in which firms have idiosyncratic preferences for particular job-gender matches, which are overridden in skilled positions by factors such as thinner labor markets or a greater incentive to search broadly for the most qualified candidate. JEL Codes: J16, J63, J71. Copyright 2013, Oxford University Press.

Journal ArticleDOI
TL;DR: In this article, the authors evaluate the long-term effects of class size in primary school and find that smaller classes have positive effects on completed education, wages, and earnings at age 27 to 42.
Abstract: This article evaluates the long-term effects of class size in primary school. We use rich data from Sweden and exploit variation in class size created by a maximum class size rule. Smaller classes in the last three years of primary school (age 10 to 13) are beneficial for cognitive and noncognitive ability at age 13, and improve achievement at age 16. Most important, we find that smaller classes have positive effects on completed education, wages, and earnings at age 27 to 42. The estimated wage effect is large enough to pass a cost-benefit test.

Journal ArticleDOI
TL;DR: This paper showed that a stable matching exists when there are relatively few couples and preference lists are suciently short relative to market size, and they also discussed incentives in markets with couples.
Abstract: Accommodating couples has been a longstanding issue in the design of centralized labor market clearinghouses for doctors and psychologists, because couples view pairs of jobs as complements. A stable matching may not exist when couples are present. This paper’s main result is that a stable matching exists when there are relatively few couples and preference lists are suciently short relative to market size. We also discuss incentives in markets with couples. We relate these theoretical results to the job market for psychologists, in which stable matchings exist for all years of the data, despite the presence of couples.

Journal ArticleDOI
TL;DR: In this article, the risk-taking behavior of money market funds during the financial crisis of 2007-2010 has been examined, and the authors examine the risk taking behavior of funds during this period.
Abstract: We examine the risk-taking behavior of money market funds during the nancial crisis of 2007-2010. We

Journal ArticleDOI
TL;DR: In this article, the authors consider a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector and show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single nonlinear income tax.
Abstract: We consider optimal redistribution in a model where individuals can self-select into one of several possible sectors based on heterogeneity in a multidimensional skill vector. We show that when the government does not observe the sectoral choice or underlying skills of its citizens, the constrained Pareto frontier can be implemented with a single non-linear income tax. We derive formulas for this optimal tax schedule. If sectoral inputs are complements, a many-sector model with self-selection leads to optimal income taxes that are less progressive than the corresponding taxes in a standard single-sector model under natural conditions. However, they are more progressive than in a multi-sector model without occupational choice or without overlapping wage distributions, as in Stiglitz (1982).

Journal ArticleDOI
TL;DR: This paper investigated whether the most favored nation (MFN) tariffs set by World Trade Organization (WTO) members in the Uruguay Round are consistent with the terms-of-trade hypothesis.
Abstract: International trade agreements are an important element of the world economic system, but questions remain as to their purpose. The terms-of-trade hypothesis posits that countries use tariffs in part to improve their terms of trade and that trade agreements cause them to internalize the costs that such terms-of-trade shifts impose on other countries. This article investigates whether the most-favored-nation (MFN) tariffs set by World Trade Organization (WTO) members in the Uruguay Round are consistent with the terms-of-trade hypothesis. We present a model of multilateral trade negotiations featuring endogenous participation that leads the resulting tariff schedules to display terms-of-trade effects. Specifically, the model predicts that the level of the importer's tariff resulting from negotiations should be negatively related to the product of two terms: exporter concentration, as measured by the Herfindahl-Hirschman index (sum of squared export shares), and the importer's market power, as measured by the inverse elasticity of export supply, on a product-by-product basis. We test this hypothesis using data on tariffs, trade, and production across more than 30 WTO countries and find strong support. We estimate that the internalization of terms of trade effects through WTO negotiations has lowered the average tariff of these countries by 22% to 27% compared to its noncooperative level. JEL Codes: F1, F5. Copyright 2013, Oxford University Press.

Journal ArticleDOI
Abstract: While the traditional view of …nancial innovation emphasizes the risk sharing role of new …nancial assets, belief disagreements about these assets naturally lead to speculation, which represents a powerful economic force in the opposite direction. This paper investigates the eect of …nancial innovation on portfolio risks in an economy when both the risk sharing and the speculation forces are present. Financial assets provide hedging services but they are also subject to speculation because traders do not necessarily agree about their payos. I de…ne the average variance of traders'net worths as a measure of portfolio risks for this economy, and I decompose it into two components: the uninsurable variance, de…ned as the average variance that would obtain if there were no belief disagreements, and the speculative variance, de…ned as the residual variance that results from speculative trades based on belief disagreements. Financial innovation always decreases the uninsurable variance because new assets increase the possibilities for risk sharing. My main result shows that …nancial innovation also always increases the speculative variance. This is true even if traders completely agree about the payos of new assets. The intuition behind this result is the hedge-more/bet-more eect: Traders use new assets to hedge their bets on existing assets, which in turn enables them to place larger bets and take on greater risks. My second set of results concern endogenous …nancial innovation. When belief disagreements are su¢ ciently large, a pro…t seeking market maker introduces assets that maximize the average variance among all possible choices, completely disregarding the risk sharing motive for …nancial innovation. My third set of results concern a calibration of the model in the context of the GDP indexed assets proposed by Athanasoulis and Shiller (2001). When traders have reasonable amounts of belief disagreements, these assets would have the unintended consequence of increasing their consumption risks.

Journal ArticleDOI
TL;DR: In this paper, the authors argue that if prison time lowers recidivism risk and if parole boards can accurately estimate inmates' recidivitis risk, then, relative to a xed-sentence regime, parole can provide allocative energy benets (costly prison space is allocated to the highest-risk offenders).
Abstract: Over the past thirty years, many states have abolished parole boards, which traditionally have had the discretion to release inmates before the expiration of their full sentence, in favor of xed-sentence regimes in which the original sentence is binding. However, if prison time lowers recidivism risk and if parole boards can accurately estimate inmates’ recidivism risk, then, relative to a xed-sentence regime, parole can provide allocativeeciency benets (costly prison space is allocated to the highest-risk oenders)

Journal ArticleDOI
TL;DR: In this article, the authors use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for noneconomic reasons can be an important determinant of regional economic growth.
Abstract: We use the fall of the Berlin Wall in 1989 to show that personal relationships which individuals maintain for noneconomic reasons can be an important determinant of regional economic growth. We show that West German households who had social ties to East Germany in 1989 experienced a persistent rise in their personal incomes after the fall of the Berlin Wall. Moreover, the presence of these households significantly affects economic performance at the regional level: it increases the returns to entrepreneurial activity, the share of households who become entrepreneurs, and the likelihood that firms based within a given West German region invest in East Germany. As a result, West German regions that (for idiosyncratic reasons) have a high concentration of households with social ties to the East exhibit substantially higher growth in income per capita in the early 1990s. A one standard deviation rise in the share of households with social ties to East Germany in 1989 is associated with a 4.7 percentage point rise in income per capita over six years. We interpret our findings as evidence of a causal link between social ties and regional economic

Journal ArticleDOI
TL;DR: In this article, the authors present a perfectly competitive model of firm boundary decisions and study their interplay with product demand, technology, and welfare, showing that if the enterprise managers have full title to its revenues, market equilibrium ownership structures are second best efficient.
Abstract: This article presents a perfectly competitive model of firm boundary decisions and study their interplay with product demand, technology, and welfare. Integration is privately costly but is effective at coordinating production decisions; nonintegration is less costly but coordinates relatively poorly. Output price influences the choice of ownership structure: integration increases with the price level. At the same time, ownership affects output, because integration is more productive than nonintegration. For a generic set of demand functions, equilibrium delivers heterogeneity of ownership and performance among ex ante identical enterprises. The price mechanism transmutes demand shifts into industry-wide reorganizations and generates external effects from technological shocks: productivity changes in some firms may induce ownership changes in others. If the enterprise managers have full title to its revenues, market equilibrium ownership structures are second-best efficient. When managers have less than full revenue claims, equilibrium can be inefficient, with too little integration. JEL Codes: D21, D23, D41, L11, L14, L22. Copyright 2013, Oxford University Press.

Journal ArticleDOI
TL;DR: In this article, the authors study an infinite-horizon model in which the government in each period decides how much to offer the opposition and the rate at which it tries to consolidate its power.
Abstract: Governments in weak states often face an armed opposition and have to decide whether to try to accommodate and contain that adversary or to try to consolidate power and monopolize violence by disarming it. When and why do governments choose to consolidate power and monopolize violence? How fast do they try to consolidate power? When does this lead to costly fighting rather than to efforts to eliminate the opposition by buying it off? We study an infinite-horizon model in which the government in each period decides how much to offer the opposition and the rate at which it tries to consolidate its power. The opposition can accept the offer and thereby acquiesce to the government's efforts to consolidate, or it can fight in an attempt to disrupt those efforts. In equilibrium, the government always tries to monopolize violence when it has "coercive power" against the opposition where, roughly, coercive power is the ability to weaken the opposition by lowering its payoff to fighting. Whether the government consolidates peacefully or through costly fighting depends on the size of any "contingent spoils," which are benefits that begin to accrue from an increase in economic activity resulting from the monopolization of violence and the higher level of security that comes with it. When contingent spoils are small, the government buys the opposition off and eliminates it as fast as is peacefully possible. When contingent spoils are large, the government tries to monopolize violence by defeating the opposition militarily. JEL Codes: D02, D74, H1. Copyright 2013, Oxford University Press.

Journal ArticleDOI
TL;DR: In this article, the authors present a more complete theory that expands their solution for two-person complete-information strategic games with transferable utility, where all major variable-threat bargaining and arbitration solutions coincide.
Abstract: For two-person complete-information strategic games with transferable utility, all major variable-threat bargaining and arbitration solutions coincide. This confluence of solutions by luminaries such as Nash, Harsanyi, Raiffa, and Selten, is more than mere coincidence. Staying in the class of two-person games with transferable unility, the article presents a more complete theory that expands their solution. Specifically, it presents: (1) a decomposition of a game into cooperative and competitive components, (2) an intuitive and computable closed-form formula for the solution, (3) an axiomatic justification of the solution, and (4) a generalization of the solution to games with private signals, along with an arbitration scheme that implements it. The objective is to restart research on cooperative solutions to strategic games and their applications. JEL Codes: C71, C72, C78. Copyright 2013, Oxford University Press.