Showing papers in "The American Economic Review in 2000"
TL;DR: The authors demonstrate that people are motivated by both their pecuniary payoff and their relative payoff standing, and demonstrate that a simple model, constructed on the premise that people were motivated by either their payoff or their relative standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern, which explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is played a role and games where competitive behavior is observed.
Abstract: We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)
5,391 citations
TL;DR: In this paper, the authors show that there is a widespread willingness of the cooperators to punish the free-riders, even if punishment is costly and does not provide any material benefits for the punisher.
Abstract: Casual evidence as well as daily experience suggest that many people have a strong aversion against being the 'sucker' in social dilemma situations. As a consequence, those who cooperate may be willing to punish free-riding, even if this is costly for them and even if they cannot expect future benefits from their punishment activities. A main purpose of this paper is to show experimentally that there is indeed a widespread willingness of the cooperators to punish the free-riders. Our results indicate that this holds true even if punishment is costly and does not provide any material benefits for the punisher. In addition, we provide evidence that free-riders are punished the more heavily the more they deviate from the cooperation levels of the cooperators. Potential free-riders, therefore, can avoid or at least reduce punishment by increasing their cooperation levels. This, in turn, suggests that in the presence of punishment opportunities there will be less free riding. Testing this conjecture is the other major aim of our paper.
3,161 citations
TL;DR: In this paper, the effect of the increase in the minimum wage in New Jersey and Pennsylvania was investigated. And the authors found that restaurants that were initially paying $5.00 per hour or more (and were therefore largely unaffected by the new law) had the same employment growth as stores in Pennsylvania, while stores that had to increase their wages increased their employment.
Abstract: On April 1, 1992 New Jersey's minimum wage rose from $4.25 to $5.05 per hour. To evaluate the impact of the new law we surveyed over 400 fast food restaurants in New Jersey and Pennsylvania before and after the rise in the minimum. Comparisons of the changes in wages, employment, and prices at stores in New Jersey relative to stores in Pennsylvania (where the minimum remained constant at $4.25 per hour) provide simple robust estimates of the effect of the increased minimum wage. Our empirical findings challenge the conventional notion that a rise in the minimum causes employment to decline. Relative to stores in Pennsylvania, fast food restaurants in New Jersey increased employment by 2.5 employees per store. We also compare employment changes at stores in New Jersey that were initially paying $5.00 per hour or more (and were therefore largely unaffected by the new law) to the employment changes at lower-wage stores, where the new law raised wages by 10-15 percent. Stores that were unaffected by the minimum wage had the same employment growth as stores in Pennsylvania, while stores that had to increase their wages increased their employment. Finally, we evaluate theoretical models that might explain these results.
2,942 citations
TL;DR: The authors found that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets, i.e., banks with lower ratios of securities to assets, and that this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution.
Abstract: We study the monetary-transmission mechanism with a data set that includes quarterly observations of every insured U.S. commercial bank from 1976 to 1993. We find that the impact of monetary policy on lending is stronger for banks with less liquid balance sheets--i.e., banks with lower ratios of securities to assets. Moreover, this pattern is largely attributable to the smaller banks, those in the bottom 95 percent of the size distribution. Our results support the existence of a "bank lending channel" of monetary transmission, though they do not allow us to make precise statements about its quantitative importance.
2,416 citations
TL;DR: This article found that direct measures of labor-force quality from international mathematics and science test scores are strongly related to growth and that home-country quality differences of immigrants are directly related to U.S. earnings if the immigrants are educated in their own country but not in the United States.
Abstract: Direct measures of labor-force quality from international mathematics and science test scores are strongly related to growth. Indirect specification tests are generally consistent with a causal link: direct spending on schools is unrelated to student performance differences; the estimated growth effects of improved labor-force quality hold when East Asian countries are excluded; and, finally, home-country quality differences of immigrants are directly related to U.S. earnings if the immigrants are educated in their own country but not in the United States. The last estimates of micro productivity effects, however, introduce uncertainty about the magnitude of the growth effects.
2,073 citations
TL;DR: In this paper, a model is examined in which the ability to build on the human capital of one's elders plays an important role in linking growth to schooling, and it is shown that the impact of schooling on growth explains less than one third of the empirical cross-country relationship.
Abstract: A number of economists find that growth and schooling are highly correlated across countries. A model is examined in which the ability to build on the human capital of one's elders plays an important role in linking growth to schooling. The model is calibrated to quantify the strength of the effect of schooling on growth by using evidence from the labor literature on Mincerian returns to education. The upshot is that the impact of schooling on growth explains less than one-third of the empirical cross-country relationship. The ability of reverse causality to explain this empirical relationship is also investigated.
1,910 citations
TL;DR: In this paper, the authors used an improved data set on income inequality which not only reduces measurement error, but also allows estimation via a panel technique, and found that in the short and medium term, an increase in a country's level of income inequality has a significant positive relationship with subsequent economic growth.
Abstract: This paper challenges the current belief that income inequality has a negative relationship with economic growth. It uses an improved data set on income inequality which not only reduces measurement error, but also allows estimation via a panel technique. Results suggest that in the short and medium term, an increase in a country's level of income inequality has a significant positive relationship with subsequent economic growth.
1,903 citations
TL;DR: In this paper, a new data set for the Safelite Glass Corporation was used to test the predictions that average productivity will rise, the firm will attract a more able workforce, and variance in output across individuals at the company will rise when it shifts to piece rates.
Abstract: Much of the theory in personnel economics relates to effects of monetary incentives on output, but the theory was untested because appropriate data were unavailable. A new data set for the Safelite Glass Corporation tests the predictions that average productivity will rise, the firm will attract a more able workforce, and variance in output across individuals at the firm will rise when it shifts to piece rates. In Safelite, productivity effects amount to a 44-percent increase in output per worker. This firm apparently had selected a suboptimal compensation system, as profits also increased with the change.
1,840 citations
TL;DR: In this article, the authors developed a unied growth model that captures the historical evolution of population, technology, and output, which encompasses the endogenous transition between three regimes that have characterized economic development.
Abstract: This paper develops a unied growth model that captures the historical evolution of population,technology,and output. It encompasses theendogenous transitionbetween three regimes that have characterized economic development. The economy evolves from aMalthusianregime,wheretechnologicalprogressis slow andpopulationgrowthprevents anysustainedriseinincomepercapita,intoaPost-Malthusianregime,wheretechnological progress rises and population growth absorbs only part of output growth. Ultimately, a demographic transition reverses the positive relationship between income and population growth,andtheeconomyentersaModernGrowthregimewithreducedpopulationgrowth
1,554 citations
TL;DR: In this article, the authors document a structural break in the volatility of U.S. GDP growth in the first quarter of 1984 and provide evidence that this break emanates from a reduction in the volatile of durable goods production.
Abstract: In this paper, we document a structural break in the volatility of U.S. GDP growth in the first quarter of 1984 and provide evidence that this break emanates from a reduction in the volatility of durable goods production. Further, the reduction in durables volatility corresponds to a decline in the share of durable goods accounted for by inventories. We find no evidence of increased stability in the nondurables, services or structures sectors of the economy. Our evidence is compatible with a scenario in which changes in inventory management techniques in the durable goods sector have reduced the variability of aggregate output.
1,527 citations
TL;DR: In a dynamic model of moral hazard, competition can undermine prudent bank behavior as mentioned in this paper, thus encouraging gambling, which can be mitigated by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values.
Abstract: In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation can induce prudent behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by putting bank equity at risk. However, they also have a perverse effect of harming banks' franchise values, thus encouraging gambling. Pareto-efficient outcomes can be achieved by adding deposit-rate controls as a regulatory instrument, since they facilitate prudent investment by increasing franchise values. Even if deposit-rate ceilings are not binding on the equilibrium path, they may be useful in deterring gambling off the equilibrium path.
TL;DR: A change in the way symphony orchestras recruit musicians provides an unusual way to test for sex-biased hiring and it is found that the screen increases by 50% the probability a woman will be advanced out of certain preliminary rounds and enhances the likelihood a female contestant will be the winner in the final round.
Abstract: A change in the audition procedures of symphony orchestras--adoption of "blind" auditions with a "screen" to conceal the candidate's identity from the jury--provides a test for sex-biased hiring. Using data from actual auditions, in an individual fixed-effects framework, we find that the screen increases the probability a woman will be advanced and hired. Although some of our estimates have large standard errors and there is one persistent effect in the opposite direction, the weight of the evidence suggests that the blind audition procedure fostered impartiality in hiring and increased the proportion women in symphony orchestras.
TL;DR: This paper explored a monetary policy model with habit formation for consumers, in which consumers' utility depends in part on current consumption relative to past consumption, and found that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication (JEL D12, E52, E43).
Abstract: This paper explores a monetary policy model with habit formation for consumers, in which consumers’ utility depends in part on current consumption relative to past consumption The empirical tests developed in the paper show that one can reject the hypothesis of no habit formation with tremendous condence, largely because the habit formation model captures the gradual hump-shaped response of real spending to various shocks The paper then embeds the habit consumption specication in a monetary policy model and nds that the responses of both spending and inflation to monetary policy actions are signicantly improved by this modication (JEL D12, E52, E43)
TL;DR: This paper showed that both the determinants of visceral factors and their impact on behavior are not only systematic, but also amenable to formal modeling, and that both determinants and their effects on behavior can be found in the literature.
Abstract: Economists have not explicitly denied the existence and significance of visceral factors but have traditionally left them out of their analyses, whether because their influence is perceived as transient and hence unimportant, or because they are seen as too unpredictable and complex to be amenable to formal modeling. An attempt is made to show that both of these assumptions are false. Visceral factors have important, but often underappreciated, consequences for behavior. Moreover, both the determinants of visceral factors and their impact on behavior are not only systematic, but amenable to formal modeling.
TL;DR: In this paper, the Japanese banking crisis provides a natural experiment to test whether a loan supply shock can affect real economic activity, and they exploit the variation across geographically distinct commercial real estate markets to establish conclusively that loan supply shocks emanating from Japan had real effects on economic activity in the United States.
Abstract: The Japanese banking crisis provides a natural experiment to test whether a loan supply shock can affect real economic activity. Because the shock was external to U.S. credit markets, yet connected through the Japanese bank penetration of U.S. markets, this event allows us to identify an exogenous loan supply shock and ultimately link that shock to construction activity in U.S. commercial real estate markets. We exploit the variation across geographically distinct commercial real estate markets to establish conclusively that loan supply shocks emanating from Japan had real effects on economic activity in the United States. (JEL E44, F36)
TL;DR: This paper developed a theory of inequality and the social contract aiming to explain how countries with similar economic and political "fundamentals" can sustain such different systems of social insurance, fiscal redistribution, and education finance as those, of the United States and Western Europe.
Abstract: This paper develops a theory of inequality and the social contract aiming to explain how countries with similar economic and political "fundamentals" can sustain such different systems of social insurance, fiscal redistribution, and education finance as those, of the United States and Western Europe. With imperfect credit and insurance markets some redistributive policies can improve ex ante welfare, and this implies that their political support tends to decrease with inequality. Conversely, with credit constraints, lower redistribution translates into more persistent inequality; hence the potential for multiple steady states, with mutually reinforcing high inequality and low redistribution, or vice versa.
TL;DR: In this paper, the authors describe a model of two-party electoral competition with "probabilistic" voting behavior and lobbying by special interest groups that helps identify determinants of relative capture at different levels of government.
Abstract: 135 Despite the importance of this issue, not much systematic research appears to have been devoted to assessing the relative susceptibility of national and local governments to interestgroup capture. Here we describe a model of two-party electoral competition with “probabilistic” voting behavior and lobbying by specialinterest groups based on David Baron (1994) and Gene Grossman and Elhanan Helpman (1996) that helps identify determinants of relative capture at different levels of government. These include relative levels of voter awareness and interest-group cohesiveness, electoral uncertainty, electoral competition, heterogeneity of districts with respect to inequality, and the electoral system. While some of these uphold the traditional Madisonian presumption, others are likely to create a tendency for lower capture at the local level, so the net effect is theoretically ambiguous. This suggests that the extent of relative capture may be context-specific and needs to be assessed empirically.
TL;DR: In this article, the existence of asymmetric information between the Federal Reserve and the public was tested by examining Fed and commercial inflation forecasts, showing that monetary-policy actions provide signals of the Fed's information and that commercial forecasters modify their forecasts in response to those signals.
Abstract: This paper tests for the existence of asymmetric information between the Federal Reserve and the public by examining Federal Reserve and commercial inflation forecasts. It demonstrates that the Federal Reserve has considerable information about inflation beyond what is known to commercial forecasters. It also shows that monetary-policy actions provide signals of the Federal Reserve's information and that commercial forecasters modify their forecasts in response to those signals. These findings may explain why long-term interest rates typically rise in response to shifts to tighter monetary policy. (JEL E52, E43, D82) Asymmetric information between the Federal Reserve and the public is a phenomenon that is often posited but rarely tested. Numerous models of central-bank behavior, for example, show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency.' Yet, there
TL;DR: In this paper, the authors propose a theory of decision making that attempts to elucidate the roles of fairness, self-interest, and selfdeception in the allocation of economic rewards.
Abstract: Everyone has observed people invoking fairness arguments in defense of their opinions or actions, and it is not uncommon for such arguments to be wielded on both sides of an issue about which views conflict. For example, during a televised debate Representative Charles B. Rangel said, “I think [Affirmative Action] has to involve a search for fairness,” whereas commentator Avi Nelson opined that “you promote more unfairness than fairness when you depart from the basic criterion, which is that individuals should be treated as individuals” (Annenberg/CPB Collection, 1984). On the 1986 tax reform legislation, Senator Robert Packwood stated: “Taxes are about more than money and they’re about more than economics. They’re about fairness, and this bill is fair,” whereas Senator Carl M. Levin argued: “For our economy, this is the wrong bill at the wrong time ... making deficit reduction more difficult and less fair” (Los Angeles Times, September 28, 1986 pp. A1, A8). Such cases contribute to the frequent conclusion that justice is merely a ploy, a vacuous concept used opportunistically by selfinterested and self-serving agents. If fairness arguments were sheer subterfuge, however, it would be difficult to account for their use at all, let alone their frequent use or earnest consideration by others. That they have at least occasional impact on outcomes may be inferred from the very fact that they are advanced. Those who take justice seriously also claim more direct evidence of its effects on legal proceedings, government regulatory and taxation policies, wage and benefit structures in the workplace, results of bargaining experiments in the laboratory, and even pricing policies in the market (e.g., Daniel Kahneman et al., 1986b; R. Mark Isaac et al., 1991; H. Peyton Young, 1994; Linda Babcock et al., 1995). On the other hand, the ostensibly self-serving manipulation of fairness arguments also presents a problem for proponents of justice and defenders of its importance in social interaction. If people value equity so highly that they make personal sacrifices for its sake, how is it that they also apparently distort it for their own selfish ends? Although most studies of bargaining behavior suggest nontrivial deviations from narrow self-interest (e.g., Werner Güth et al., 1982; Alvin E. Roth et al., 1991), some of these same studies reject the “fairness hypothesis” that fairness alone accounts for this behavior (e.g., Gary E. Bolton, 1991; Robert Forsythe et al., 1994). This paper proposes and tests a theory of decision making that attempts to elucidate the roles of fairness, self-interest, and selfdeception in the allocation of economic rewards. Fairness is treated as a genuine value, but there also exists an incentive and a potential for changing beliefs about it. This suggests an explanation for why arguments about it are advanced and considered, but sometimes conflict, as in the affirmative action and taxation examples cited earlier. In addition to the standard “material utility” from the agent’s own allocation of a good, the theory integrates concepts of fairness and cognitive dissonance into the objective function. When the decision maker has * Department of Economics, Loyola Marymount University, 7900 Loyola Boulevard, Los Angeles, CA 90045. The author gratefully acknowledges the helpful comments and suggestions of two anonymous referees of this Review and of Reinhard Selten, Werner Güth, Gabriel Fuentes, Gary Biglaiser, and of seminar participants at the University of Bonn, the University of Arizona, Humboldt University, and the 1997 Economic Science Association meetings. I also thank Tim Cason, John Conlisk, Joseph Earley, Zaki Eusufzai, Gabriel Fuentes, and Petra Konow for their advice or assistance conducting the experiments, and the LMU Research Committee and College of Liberal Arts for financial support. Any remaining errors are, of course, my own. 1 Material utility is what is meant when (narrow) selfinterest or selfishness are mentioned in this paper. Of course, if fairness is assumed to be a goal of the agent, one may argue that it is in his or her self-interest to be, to some
TL;DR: This article found that students are equally segregated by school in metropolitan areas with greater and lesser degrees of tiebout choice among districts, and showed that the effect of Tiebout Choice works through its effect on household sorting.
Abstract: Tiebout choice among districts is the most powerful market force in American public education. Naive estimates of its effects are biased by endogenous district formation. I derive instruments from the natural boundaries in a metropolitan area. My results suggest that metropolitan areas with greater Tiebout choice have more productive public schools and less private schooling. Little of the effect of Tiebout choice works through its effect on household sorting. This finding may be explained by another finding: students are equally segregated by school in metropolitan areas with greater and lesser degrees of Tiebout choice among districts.
TL;DR: In this article, the authors provide a formal model of the relationship between openness and the equilibrium number and size of countries, and successfully test two implications of the model: the economic benefits of country size are mediated by the degree of openness to trade, and the history of nation-state creation and secessions is influenced by the trade regime.
Abstract: In a world of trade restrictions, large countries enjoy economic benefits, because political boundaries determine the size of the market. Under free trade and global markets even relatively small cultural, linguistic or ethnic groups can benefit from forming small, homogeneous political jurisdictions. This paper provides a formal model of the relationship between openness and the equilibrium number and size of countries, and successfully tests two implications of the model. Firstly, the economic benefits of country size are mediated by the degree of openness to trade. Secondly, the history of nation-state creations and secessions is influenced by the trade regime.
TL;DR: Jorgenson as mentioned in this paper argues that the social importance of what economists do has profound implications for the lives of literally billions of their fellow citizens, and that there is no greater challenge for any economist than providing a coherent account of significant events to his scientific peers.
Abstract: Dale Jorgenson has bestowed a great honor and no small challenge by inviting me to give this lecture: a great honor because of the distinguished list of economists who have preceded me; a challenge because of the standard they have set, and because there is no greater challenge for any economist than providing a coherent account of significant events to his scientific peers. I am sometimes asked by friends about the differences between academic life and life as a public official. There are many. Two stand out. First, as an academic, the gravest sin one can commit is to sign one’s name to something one did not write. As a public official it is a mark of effectiveness to do so as often as possible. Second, as an academic, if a problem is too hard and does not admit of a satisfactory solution, there is an obvious response: work on a different problem. That is not a luxury that one has in government. I have been reminded of this often in recent years as we have grappled with financial crises in a number of what had previously been considered emerging markets with unrestrained futures. Anyone who doubts the social importance of what economists do should consider the debates surrounding these crises. Hundreds of millions of people who expected rapidly rising standards of living have seen their living standards fall; hundreds of thousands if not millions of children have been forced to drop out of school and go to work; hundreds of billions of dollars of apparent wealth has been lost; the stability of large nations as nations has been called into question; and the United States has made its largest nonmilitary foreign-policyrelated financial commitments since the Marshall Plan. Almost all the issues involved in understanding, preventing, and mitigating these crises are the stuff of economics courses and research: fixed versus flexible exchange rates, moral hazard and multiple equilibria, speculation and liquidity, fiscal and monetary policies, regulation and competition. What economists think, say, and do has profound implications for the lives of literally billions of their fellow citizens. Whether it is discussing the role of derivatives in signaling exchange-rate commitments with Chinese Premier Zhu Rongji, or discussing an NBER working paper on inflation targeting with the Brazilian central bank governor Arminio Fraga, or discussing alternative approaches to bankruptcy law with Indonesia’s economic team, or optimal debt durations with the Mexican authorities, I am consistently struck by the impact of the kind of research discussed at the AEA meetings. The future well-being of the world’s people in large part will depend on how the ongoing process of global integration works out. This is a strong statement, but one that is supported by the global economy’s post-World War I failure and its post-World War II success. Central to global integration is financial integration: the flow of funds and of capital across international borders. And as the events of the late 1920’s and early 1930’s remind us, central to global disintegration can be international financial breakdowns. Today, I want to reflect on the issue of global financial integration in light of the dramatic and largely unpredicted events of recent years. It is perhaps a good time for reflection: there has been enough repair that priority can shift from * U.S. Department of the Treasury, 1500 Pennsylvania Avenue, Washington, DC 20005. This lecture reflects many things I have learned from experiences I have shared with colleagues in the United States government and governments around the world. I thank Brad DeLong, Marty Feldstein, Stephanie Flanders, Ken Rogoff, Andrei Shleifer, and Ted Truman for useful comments and suggestions. I am especially grateful to Nouriel Roubini and Stephanie Flanders for valuable discussions and assistance in the preparation of this lecture. The usual disclaimer applies.
TL;DR: The optimal degree of government intervention may be non-monotonic in the level of income as mentioned in this paper, which is not necessarily the case for all corruptions, since the second-best intervention may involve a certain fraction of corrupt officials accepting bribes.
Abstract: Because government intervention transfers resources from one party to another, it creates room for corruption. As corruption often undermines the purpose of the intervention, governments will try to prevent it. They may create rents for bureaucrats, induce a misallocation of resources, and increase the size of the bureaucracy. Since preventing all corruption is excessively costly, second-best intervention may involve a certain fraction of bureaucrats accepting bribes. When corruption is harder to prevent, there may be both more bureaucrats and higher public-sector wages. Also, the optimal degree of government intervention may be nonmonotonic in the level of income.
TL;DR: In this article, a multicountry Schumpeterian growth model is constructed, and transition dynamics for each country and for the world economy are analyzed for the two countries and the world.
Abstract: In this study, a multicountry Schumpeterian growth model is constructed. Because of technology transfer, RD other countries stagnate. A parameter change that would have raised a country's growth rate in standard Schumpeterian theory will permanently raise its productivity and per capita income relative to other countries and raise the world growth rate. Transitional dynamics are analyzed for each country and for the world economy.
TL;DR: In this paper, Morris and Shin showed that for small uncertainty currency crises depend on the critical mass of capital needed for success, and that direct capital controls are effective even when fundamentals are fairly transparent to all market participants.
Abstract: In a recent issue of this journal, Stephen Morris and Hyun Song Shin (1998a) prove the uniqueness of an equilibrium in a model of self-fulfilling currency attacks, when speculators face uncertainty in their signals about macroeconomic fundamentals. In Theorem 2 of their paper, Morris and Shin characterize the equilibrium as uncertainty approaches zero. They claim that the threshold of the fundamental state, up to which a currency attack will occur with probability one, is independent of the critical mass of capital needed for an attack to be successful. Hence, direct capital controls are less effective when speculators have fairly precise information about fundamentals. Yet, their Theorem 2 holds only for a special case. This Comment gives the correct generalization and proves that for small uncertainty currency crises depend on the critical mass of capital needed for success. Thus, direct capital controls are effective even when fundamentals are fairly transparent to all market participants. The reduced-game structure is given by the following assumptions: Fundamentals of the economy are characterized by some parameter u unknown to agents. There is a continuum of agents receiving independently and identically distributed (i.i.d.) signals x about the fundamentals. Each agent must decide whether or not to attack the currency, which is associated with transaction costs t . 0. If a proportion a(u ) of all traders attacks the currency, the attack is successful and each attacking agent obtains a reward R(u ) 5 e* 2 f(u ). a and R are continuous; there is a state u with a(u ) 5 0 for all u # u; a is strictly increasing above u; and a(u ) , 1 for all u. R is strictly decreasing and there is a state u# . u with R(u# ) 5 t. u is uniformly distributed over an interval, say [0, 1]. Given u, signals have a uniform distribution in [u 2 «, u 1 «]. Critical levels u and u# must be at least 2« away from the margins of the interval [0, 1]. In Section II of their paper, Morris and Shin show that a unique equilibrium switching point x* and a threshold u* exist, such that an agent attacks [does not attack] the currency if her signal x is smaller [larger] than x*, and that a successful speculative attack occurs with probability one [zero] if state u is below [above] u*. In Section III, Theorem 2 states that “In the limit as « tends to zero, u* is given by the unique solution to the equation f(u*) 5 e* 2 2t” (p. 594). As stated, this theorem holds only for the special case where a(u*) 5 1⁄2. It should therefore be generalized as follows.
TL;DR: In this paper, a survey of R&D managers who were interviewed to test whether the picture of knowledge flows produced by patent citations was consistent with the managers' impressions is presented.
Abstract: It is well understood that the non-rival nature of knowledge as a productive asset creates the possibility of "knowledge spillovers," whereby investments in knowledge creation by one party produce external benefits by facilitating innovation by other parties. At least since Zvi Griliches's (1979) seminal paper on measuring the contributions of R&D to economic growth, economists have been attempting to quantify the extent and impact of knowledge spillovers. One line of research of this type has utilized patent citations to identify a "paper trail" that may be associated with knowledge flows between firms.' Very little of this research has attempted to determine the modes or mechanisms of communication that actually permit knowledge to flow. Further, most of the work has simply assumed that citations or other proxies are sufficiently correlated with knowledge flows to allow statistical analysis of the proxies to be informative regarding the underlying phenomenon of interest. This paper reports on a preliminary attempt to improve this situation. The idea for this survey came from R&D managers whom we were interviewing to test whether the picture of knowledge flows produced by patent citations was consistent with the managers' impressions. One of these managers commented that he could not let us talk to the scientists who worked for him, but that he could not stop uls from contacting them via the postal address that appears on their issued patents. The survey results suggest that communication between inventors is reasonably irnportant, and that patent citations do provide an indication of communication, albeit one that also carries a fair amount of noise.
TL;DR: The authors show that if utility depends partly on how consumption compares to a "habit stock" determined by past consumption, an otherwise-standard growth model can imply that increases in growth can cause increased saving.
Abstract: Saving and growth are strongly positively correlated across countries. Recent empirical evidence suggests that this correlation holds largely because high growth leads to high saving, not the other way around. This evidence is difficult to reconcile with standard growth models, since forward-looking consumers with standard utility should save less in a fast-growing economy because they know they will be richer in the future than they are today. We show that if utility depends partly on how consumption compares to a ‘habit stock’ determined by past consumption, an otherwise-standard growth model can imply that increases in growth can cause increased saving
TL;DR: In this article, the authors consider propagation of aggregate shocks in a dynamic general-equilibrium model with labor market matching and endogenous job destruction and show that cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent.
Abstract: This paper considers propagation of aggregate shocks in a dynamic general-equilibrium model with labor-market matching and endogenous job destruction Cyclical fluctuations in the job-destruction rate magnify the output effects of shocks, as well as making them much more persistent Interactions between capital adjustment and the job-destruction rate play an important role in generating persistence Propagation effects are shown to be quantitatively substantial when the model is calibrated using job-flow data incorporating costly capital adjustment leads to significantly greater propagation
TL;DR: In this paper, the role of tax policies in productivity-shock driven economies with catching-up-with-the-Joneses utility functions was examined and the optimal tax policy was shown to affect the economy countercyclically via procyclical taxes.
Abstract: This paper examines the role for tax policies in productivity-shock driven economies with catching-up-with-the-Joneses utility functions. The optimal tax policy is shown to affect the economy countercyclically via procyclical taxes, i.e., "cooling down" the economy with higher taxes when it is "overheating" in booms and "stimulating" the economy with lower taxes in recessions to keep consumption up. Thus, models with catching-up-with-the-Joneses utility functions call for traditional Keynesian demand-management policies but for rather unorthodox reasons.
TL;DR: In this paper, the authors address the assumptions that humans everywhere deploy the same cognitive machinery for making economic decisions and consequently will respond similarly when faced with comparable economic circumstances, using experimental evidence from the Peruvian Amazon.
Abstract: This article addresses the assumptions that humans everywhere deploy the same cognitive machinery for making economic decisions and, consequently, will respond similarly when faced with comparable economic circumstances. These assumptions are addressed with experimental evidence from the Peruvian Amazon.