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Showing papers in "The American Economic Review in 2008"


Journal ArticleDOI
TL;DR: In this article, the authors show that consumers underreact to taxes that are not salient, and that even policies that induce no change in behavior can create efficiency losses, implying that the economic incidence of a tax depends on its statutory incidence.
Abstract: Using two strategies, we show that consumers underreact to taxes that are not salient. First, using a field experiment in a grocery store, we find that posting tax-inclusive price tags reduces demand by 8 percent. Second, increases in taxes included in posted prices reduce alcohol consumption more than increases in taxes applied at the register. We develop a theoretical framework for applied welfare analysis that accommodates salience effects and other optimization failures. The simple formulas we derive imply that the economic incidence of a tax depends on its statutory incidence, and that even policies that induce no change in behavior can create efficiency losses. ( JEL C93, D12, H25, H71)

1,903 citations


Journal ArticleDOI
TL;DR: In this article, the impact of cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan was examined by exploiting crossbank liquidity variations induced by the nuclear tests, and it was shown that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1 percent larger decline in liquidity drops by an additional 0.6 percent.
Abstract: We examine the impact of liquidity shocks by exploiting cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan. We show that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1 percent larger decline in liquidity drops by an additional 0.6 percent. While banks pass their liquidity shocks on to firms, large firms-particularly those with strong business or political ties-completely compensate this loss by additional borrowing through the credit market. Small firms are unable to do so and face large drops in overall borrowing and increased financial distress.

1,444 citations


Journal ArticleDOI
TL;DR: In this article, the authors develop a simple and tractable model of offshoring based on the trade able tasks, which can be used to model the trade in tasks in the manufacturing process.
Abstract: The nature of international trade is changing. For centuries, trade mostly entailed an exchange of goods . Now it increasingly involves bits of value being added in many different locations, or what might be called trade in tasks . Revolutionary advances in transportation and communications technology have weakened the link between labor specialization and geographic concentration, making it increasingly viable to separate tasks in time and space. When instructions can be delivered instantaneously, components and unfinished goods can be moved quickly and cheaply, and the output of many tasks can be conveyed electronically, firms can take advantage of factor cost disparities in different countries without sacrificing the gains from specialization. The result has been a boom in “offshoring” of both manufacturing tasks and other business functions. 1 In this paper, we develop a simple and tractable model of offshoring based on the trade able tasks. We conceptualize production in terms of the many tasks that must be performed by each factor of production. A firm can perform each of the continuum of tasks required for the realization of its product either in close proximity to its headquarters or at an offshore location. Offshoring may be attractive, if some factors can be hired more cheaply abroad than at home, but it also is costly, because remote performance of a task limits the opportunities for monitoring and coordinating workers. 2 To capture this aspect of reality, our model features heterogeneous offshoring costs for the various tasks. In each industry, firms choose the geographic organization

1,436 citations


Journal ArticleDOI
TL;DR: The authors showed that the impact of trade barriers on trade flows is dampened by the elasticity of substitution, and not magnified by trade barriers, and that trade barriers have little impact on bilateral trade flows.
Abstract: By considering a model with identical firms, Paul Krugman (1980) predicts that a higher elas ticity of substitution between goods magnifies the impact of trade barriers on trade flows. In this paper, I introduce firm heterogeneity in a simple model of international trade. When the distribu tion of productivity across firms is Pareto, which is close to the observed size distribution of US firms, the predictions of the Krugman model with representative firms are overturned: the impact of trade barriers on trade flows is dampened by the elasticity of substitution, and not magnified. In Krugman (1980), identical countries trade differentiated goods despite the presence of trade barriers because consumers have a preference for variety. If goods are less substitutable, con sumers are willing to buy foreign varieties even at a higher cost, and trade barriers have little impact on bilateral trade flows. Total exports from country A to country B are given by the following expression:

1,402 citations


Journal ArticleDOI
TL;DR: In this paper, the authors investigate the nature of selection and productivity growth in industries where they observe producer-level quantities and prices separately and show that there are important differences between revenue and physical productivity.
Abstract: We investigate the nature of selection and productivity growth in industries where we observe producer-level quantities and prices separately. We show there are important differences between revenue and physical productivity. Because physical productivity is inversely correlated with price while revenue productivity is positively correlated with price, previous work linking (rev- enue-based) productivity to survival confounded the separate and opposing effects of technical efficiency and demand on survival, understating the true impacts of both. Further, we find that young producers charge lower prices than incumbents. Thus the literature understates new producers' productivity advantages and entry's contribution to aggregate productivity growth. (JEL D24, L11, L25)

1,093 citations


Journal ArticleDOI
TL;DR: This paper showed that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari- ous measures of democracy, and presented instrumental-variables estimates that also show no causal effect of income on democracy.
Abstract: Existing studies establish a strong cross-country correlation between income and democracy but do not control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and vari- ous measures of democracy. We present instrumental-variables estimates that also show no causal effect of income on democracy. The cross-country corre - lation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years. This pattern is con - sistent with the idea that societies embarked on divergent political-economic development paths at certain critical junctures. (JEL D7�, E�1)

1,045 citations


Journal ArticleDOI
TL;DR: Acemoglu et al. as mentioned in this paper studied the impact of financial and political shocks on output in a broad set of countries, particularly whether output losses are recovered from financial or political shocks.
Abstract: Although researchers have documented that many financial crises are associated with severe recessions (Graciela Kaminsky and Carmen Reinhart 1999), very little attention has been paid to whether countries recover from such large negative shocks in the sense that output losses are reversed. A few recent papers show persistent output loss from financial crises in a small set of countries. For instance, Cerra and Saxena (2005a) demonstrate that six Asian countries suffered permanent output loss from the Asian crisis, and Cerra and Saxena (2005b) show that only a tiny fraction of the output loss from Sweden's banking crisis in the early 1990s was recuperated. The graphs in Figure 1 illustrate persistent output loss for selected countries following the 1997-1998 Asian financial crisis and the debt crisis of the early 1980s. In addition to financial crises, many countries experience large negative political shocks, which could include violent conflicts such as civil wars, as well as a deterioration in the country's governance. Such political shocks have the potential for significant disruption to economic activ? ity, as illustrated for a few episodes of civil war (Figure 2). This paper systematically documents the behavior of output following financial and political crises in a large set of 190 countries. While the graphs in Figures 1 and 2 are suggestive, our aim is to formally analyze the impact of financial and political shocks on output in a broad set of countries, particularly whether output losses are recovered. Financial shocks comprise currency, banking, and twin financial crises. For political shocks, we examine civil wars, a deterioration in the quality of political governance, and twin political crises comprising both shocks. We choose civil wars rather than interstate conflicts to ensure that the war occurs on the country's own soil. The military theater for some interstate conflicts may not directly encompass all parties to the conflict. In addition, the increase in wartime spending for an international conflict may boost economic activity in some countries. We also examine the economic impact of a deterioration in a country's political governance or institutional quality. Daron Acemoglu, Simon Johnson, and James Robinson (2001) and Acemoglu et al. (2003) use constraints on the power of the political executive as a measure of institutional quality, and find that it is linked to growth and volatility. Thus, we use this measure to study the shock to political governance. Potential endogeneity of the financial or political crisis is an important issue in estimating the output impact of the crisis. That is, the crisis itself may be a function of a slowdown of economic growth or changes in expectations of future growth. We attempt to address this issue using a few methods that are far from definite, but nonetheless uncover some interesting facts. In particular, we find that the forecasts of growth from an autoregressive model and from consensus surveys are optimistic relative to actual growth occurring during and after a crisis.

1,001 citations


Journal ArticleDOI
TL;DR: In this paper, the authors study the pricing of financial securities when investors make decisions according to cumulative prospect theory, which is a modified version of "prospect theory" (Kahneman and Tversky 1979).
Abstract: Over the past few decades, economists and psychologists have accumulated a large body of experimental evidence on attitudes to risk. This evidence reveals that, when people make deci sions under risk, they often depart from the predictions of expected utility. In an effort to cap ture the experimental data more accurately, researchers have developed a number of so-called nonexpected utility models. Perhaps the most prominent of these is Amos Tversky and Daniel Kahneman’s (1992) “cumulative prospect theory.” In this paper, we study the pricing of financial securities when investors make decisions according to cumulative prospect theory. Our goal is to see if a model like cumulative prospect theory, which captures attitudes to risk in experimental settings very well, can also help us understand investor behavior in financial markets. Of course, there is no guarantee that this will be the case. Nonetheless, given the difficulties the expected utility framework has encountered in addressing a number of financial phenomena, it may be useful to document the pricing pre dictions of nonexpected utility models and to see if these predictions shed any light on puzzling aspects of the data. Cumulative prospect theory is a modified version of “prospect theory” (Kahneman and Tversky 1979). Under cumulative prospect theory, people evaluate risk using a value function that is defined over gains and losses, that is concave over gains and convex over losses, and that is kinked at the origin; and using transformed rather than objective probabilities, where the transformed probabilities are obtained from objective probabilities by applying a weighting function. The main effect of the weighting function is to overweight the tails of the distribution it is applied to. The overweighting of tails does not represent a bias in beliefs; it is simply a model

991 citations


Journal ArticleDOI
TL;DR: The authors investigated the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period and proposed the esti- mation of DSGE models allowing for time variation in the variance of the structural innovations, and applied their estimation strategy to a large-scale model of the business cycle.
Abstract: We investigate the sources of the important shifts in the volatility of US mac - roeconomic variables in the postwar period. To this end, we propose the esti - mation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades. (JEL C51, E32)

906 citations


Journal ArticleDOI
TL;DR: The authors found that women display much lower levels of financial literacy than the older population as a whole, and women who are less financially literate are also less likely to plan for retirement and be successful planners.
Abstract: Many older US households have done little or no planning for retirement, and there is a substantial population that seems to undersave for retirement. Of particular concern is the relative position of older women, who are more vulnerable to old-age poverty due to their longer longevity. This paper uses data from a special module we devised on planning and financial literacy in the 2004 Health and Retirement Study. It shows that women display much lower levels of financial literacy than the older population as a whole. In addition, women who are less financially literate are also less likely to plan for retirement and be successful planners. These findings have important implications for policy and for programs aimed at fostering financial security at older ages.

872 citations


Journal ArticleDOI
TL;DR: This article explored the role that misdirected bank lending played in prolonging the Japanese macroeconomic stagnation that began in the early 1990s, focusing on the wide spread practice of Japanese banks of continuing to lend to otherwise insolvent firms.
Abstract: This paper explores the role that misdirected bank lending played in prolonging the Japanese macroeconomic stagnation that began in the early 1990s. The investigation focuses on the wide spread practice of Japanese banks of continuing to lend to otherwise insolvent firms. We docu ment the prevalence of this forbearance lending and show its distorting effects on healthy firms that were competing with the impaired firms. The paper by Hoshi (2000) was the first to call attention to this phenomenon, and its ramifi

Journal ArticleDOI
TL;DR: This article developed a small open economy model to study default risk and its interaction with output, consumption, and foreign debt, which predicts that default incentives and interest rates are higher in recessions, as observed in the data.
Abstract: Recent sovereign defaults in emerging countries are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output, consumption, and foreign debt. Default probabilities and interest rates depend on incentives for repayment. Default occurs in equilibrium because asset markets are incomplete. The model predicts that default incentives and interest rates are higher in recessions, as observed in the data. The reason is that in a recession, a risk averse borrower finds it more costly to repay non-contingent debt and is more likely to default. In a quantitative exercise the model matches various features of the business cycle in Argentina such as: high volatility of interest rates, higher volatility of consumption relative to output, a negative correlation of interest rates and output and a negative correlation of the trade balance and output. The model can also predict the recent default episode in Argentina.

Journal ArticleDOI
TL;DR: This article proposed a new calibration strategy of the standard search model that uses data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters - the value of nonmarket activity and the bargaining weights.
Abstract: Recently, a number of authors have argued that the standard search model cannot generate the observed business-cycle-frequency fluctuations in unemployment and job vacancies, given shocks of a plausible magnitude. We propose a new calibration strategy of the standard model that uses data on the cost of vacancy creation and cyclicality of wages to identify the two key parameters - the value of nonmarket activity and the bargaining weights. Our calibration implies that the model is consistent with the data.

Journal ArticleDOI
TL;DR: In this article, the authors construct a model to study the implications of changes in political insti? tutions for economic institutions and provide conditions under which economic or policy outcomes will be invariant to changes in the political institutions, and economic institutions them? selves will persist over time.
Abstract: We construct a model to study the implications of changes in political insti? tutions for economic institutions. A change in political institutions alters the distribution of de jure political power, but creates incentives for investments in de facto political power to partially or even fully offset change in de jure power. The model can imply a pattern of captured democracy, whereby a democratic regime may survive but choose economic institutions favoring an elite. The model provides conditions under which economic or policy outcomes will be invariant to changes in political institutions, and economic institutions them? selves will persist over time. (JEL D02, D72) The domination of an organized minority ... over the unor? ganized majority is inevitable. The power of any minority is irresistible as against each single individual in the majority, who stands alone before the totality of the organized minor? ity. At the same time, the minority is organized for the very reason that it is a minority.

Journal ArticleDOI
TL;DR: In this paper, a job-seeker and an employer meet, find a prospective joint surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may have limited influence.
Abstract: When a job-seeker and an employer meet, find a prospective joint surplus, and bargain over the wage, conditions in the outside labor market, including especially unemployment, may have limited influence. The job-seeker's only credible threat during bargaining is to hold out for a better deal. The employer's threat is to delay bargaining. Consequently, the outcome of the bargain depends on the relative costs of delays to the parties, rather than on the payoffs that result from exiting negotiations. Modeling bargaining in this way makes wages less responsive to unemployment. A stochastic model of the labor market with credible bargaining and reasonable parameter values yields larger employment fluctuations than does the standard Mortensen-Pissarides model. (JEL J22, J23, J31, J64)

Posted Content
TL;DR: In this paper, it was shown that for the case of a single price change, which is also the situation in which consumer's surplus is often used in applied work, no approximation is necessary.
Abstract: Consumer's surplus is a widely used tool in applied welfare economics. Both economic theorists and cost benefit analysis often use consumer's surplus despite its somewhat dubious reputation. The basic idea is to evaluate the value to a consumer or his "willingness to pay" for a change in price of a good from say pricep? to pricep'. Because price changes affect consumer welfare, an evaluation of this effect is often a key input to public policy decisions. Yet consumer's surplus is probably the most controversial of widely used economic concepts. Both Paul Samuelson and Ian Little conclude that the economics profession would be better off without it. It is my feeling of the situation that substantial agreement exists on the correct quantities to be measured: the amount the consumer would pay or would need to be paid to be just as well off after the price change as he was before the price change. The quantities correspond to John Hicks' compensating variation measures. An alternative measure which takes ex post price change utility as the basis of comparison is Hicks' equivalent variation.' The controversy arises in the measurement of these quantities. The usual measurement procedure is to use the area to the left of the Marshallian (market) demand curve between two price levels. Jules Dupuit originated this measure of welfare change, and Alfred Marshall and Hicks derived appropriate conditions for its use. The primary condition for the area to the left of the demand curve to correspond to the compensating variation is to have constant marginal utility of income. Marshall gave this condition, and if it holds, the same quantity will be derived as the area to the left of the compensated (Hicksian) demand curve. This area to the left of the compensated demand curve is exactly what the compensating variation and equivalent variation measure. Thus the constant marginal utility of income is a sufficient condition for Marshallian consumer's surplus to be equal to Hicks' consumer's surplus. In this case Arnold Harberger's plea to use the welfare triangle as one-half times the product of the price change times the quantity change to measure deadweight loss corresponds to the correct theoretical amount of welfare change. In a recent paper, Robert Willig derives bounds for the percentage difference between the correct measure of either the compensating or equivalent variation and the Marshallian measure derived form the market demand curve. His bounds, which depend on the income elasticity of demand for the single good in the region of price change being considered as well as the proportion of the consumer's income spent on the good, demonstrate that the Marshallian consumer's surplus is often a good approximation to Hicks' consumer's surplus. The fact that the proportion of the consumer's income spent matters as well as the income elasticity was first pointed out by Harold Hotelling. Willig contends that the approximation error will be less than the errors involved in estimating the demand curve. Thus he hopes to remove the need for apology that applied economists often need to give to theorists who remark on the inappropriateness of using Marshallian consumer's surplus to measure welfare change. However, in this paper I show that for the case primarily considered by Willig of a single price change, which is also the situation in which consumer's surplus is often used in applied work, no approximation is necessary. *Professor of economics, Massachusetts Institute of Technology, and research associate, National Bureau of Economic Research. I would like to thank Peter Diamond, Erwin Diewert, Daniel McFadden, Robert Merton, Robert Solow, Hal Varian, Joel Yellin, and the referees for help and comments. Research support from the National Science Foundation is acknowledged. 'The reason that we still have two, rather than one, of Samuelson's six measures of consumer's surplus arises from an index number problem of the correct basis for the welfare comparison. I will give both measures but plan to concentrate on the compensating variation.

Journal ArticleDOI
TL;DR: The authors rationalizes these facts as an equilibrium outcome when different regions of the world differ in their capacity to generate financial assets from real investments, and extends the basic model generate exchange rate and foreign direct investment excess returns broadly consistent with the recent trends in these variables.
Abstract: The sustained rise in US current account deficits, the stubborn decline in long- run real rates, and the rise in US assets in global portfolios appear as anoma - lies from the perspective of conventional models. This paper rationalizes these facts as an equilibrium outcome when different regions of the world differ in their capacity to generate financial assets from real investments. Extensions of the basic model generate exchange rate and foreign direct investment excess returns broadly consistent with the recent trends in these variables. The frame - work is flexible enough to shed light on a range of scenarios in a global equilib - rium environment. (JEL: E44, F21, F31, F32)


Journal ArticleDOI
TL;DR: In this paper, the authors present a theory of asset pricing that will shed light on the problems of emerging assets (like emerging markets) that are not yet mature enough to be attractive to the general public, and argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses.
Abstract: ing opportunities for emerging economies. Their access to international markets has turned out to be very volatile, with frequent periods of market closures. Even worse, as we will show, emerging economies with sound fundamentals are the ones that issue less debt during these closures. The goal of this paper is to present a theory of asset pricing that will shed light on the problems of emerging assets (like emerging markets) that are not yet mature enough to be attractive to the general public. Their marginal buyers are liquidity constrained investors with small wealth relative to the whole economy, who are also marginal buyers of other risky assets. We will use our theory to argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses.

Journal ArticleDOI
TL;DR: In this article, the authors consider the extent to which Guillermo Calvo's (1983) model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward-looking terms and derive a version of the New Keynesian Phillips curve that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation.
Abstract: Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backward looking terms to address this shortcoming. We hypothesize that inflation per? sistence results mainly from variation in the long-run trend component of inflation, which we attribute to shifts in monetary policy. We derive a version of the NKPC that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation. When drift in trend inflation is taken into account, a purely forward-looking version of the model fits the data well, and there is no need for backward-looking components. (JEL E12, E31, E52) In this paper we consider the extent to which Guillermo Calvo's (1983) model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward-looking terms. In its baseline formulation, the Calvo model leads to a purely forward-looking New Keynesian

Journal ArticleDOI
TL;DR: This paper used a locational equilibrium model to derive formal tests of Tiebout's premise that people "vote with their feet" for communi? ties with optimal bundles of taxes and public goods.
Abstract: Charles Tiebout's suggestion that people "vote with their feet" for communi? ties with optimal bundles of taxes and public goods has played a central role in local public finance for over 50 years. Using a locational equilibrium model, we derive formal tests of his premise. The model predicts increased popula? tion density in neighborhoods experiencing exogenous improvements in public goods and, for large improvements, increased relative mean incomes. We test these hypotheses in the context of changing air quality. Our results provide strong empirical support for the notion that households "vote with their feet" for environmental quality. (JEL H41, H73, Q53, R23)


Journal ArticleDOI
TL;DR: In this paper, the impact of financial constraints on firm size distribution (FSD) was studied and it was found that financially constrained firms, identified using various proxies, are smaller than the others (their FSD is more skewed to the right).
Abstract: We study the impact of financial constraints on firm size distribution (FSD). We find that financially constrained firms, identified using various proxies, are smaller than the others (their FSD is more skewed to the right). However, among OECD countries, the FSD of nonconstrained firms virtually overlaps that of the entire sample, suggesting that the overall impact of financial constraints on the FSD is modest. The difference is more pronounced in our sample of firms from non-OECD countries. We conclude that financial constraints cannot be considered the main determinant of the FSD evolution in developed economies. (JEL L11, L25)

Journal ArticleDOI
TL;DR: For example, this paper found that people take risks less willingly when the agent of uncertainty is another person rather than nature, and that people's willingness to accept the risky rather than the sure payoff indicates betrayal aversion.
Abstract: Due to betrayal aversion, people take risks less willingly when the agent of uncertainty is another person rather than nature. Individuals in six countries (Brazil, China, Oman, Switzerland, Turkey, and the United States) confronted a binary-choice trust game or a risky decision offering the same payoffs and probabilities. Risk acceptance was calibrated by asking individuals their "min - imum acceptable probability" (MAP) for securing the high payoff that would make them willing to accept the risky rather than the sure payoff. People's MAPs are generally higher when another person, rather than nature, deter - mines the outcome. This indicates betrayal aversion. (JEL C72, D81, Z13)

Journal ArticleDOI
TL;DR: The authors found no evidence that deficits help reelection in any group of countries - developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with varying levels of democracy.
Abstract: Conventional wisdom is that good economic conditions and expansionary fiscal policy help incumbents get reelected, but this has not been tested in a large cross-section of countries. We test these arguments in a sample of 74 countries over the period 1960-2003. We find no evidence that deficits help reelection in any group of countries - developed and less developed, new and old democracies, countries with different government or electoral systems, and countries with different levels of democracy. In developed countries and in old democracies, election-year deficits actually reduce the probability that a leader is reelected, with similar, although smaller, negative electoral effects of deficits in the earlier years of an incumbent's term in office. Higher growth rates of real GDP per-capita raise the probability of reelection only in the less developed countries and in new democracies, but voters are affected by growth over the leader's term in office rather than in the election year itself and apparently only by growth not attributed to global growth. Low inflation is rewarded by voters only in the developed countries. The effects we find are not only statistically significant, but also quite substantial quantitatively. We also suggest how the absence of a positive electoral effect of deficits can be consistent with the political deficit cycle found in new democracies.

Journal ArticleDOI
TL;DR: This article used data from the Panel Study of Income Dynamics (PSI) to investigate how households' portfolio allocations change in response to wealth fluctuations and found that the share of liquid assets that households invest in risky assets is not affected by wealth changes.
Abstract: We use data from the Panel Study of Income Dynamics to investigate how households' portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversion with the consequence that when the level of liquid wealth changes, the proportion a household invests in risky assets should also change in the same direction. In contrast, our analysis shows that the share of liquid assets that households invest in risky assets is not affected by wealth changes. Instead, one of the major drivers of household portfolio allocation seems to be inertia: households rebalance only very slowly following inflows and outflows or capital gains and losses.

Journal ArticleDOI
TL;DR: In this article, the authors estimate the willingness to pay for reductions in crime risk using the location and move-in dates of sex offenders and find significant effects of sex offender's locations that are geographically localized.
Abstract: We estimate the willingness to pay for reductions in crime risk using the location and move-in dates of sex offenders. We find significant effects of sex offenders' locations that are geographically localized. House prices within 0.1 miles of a sex offender fall by 4 percent on average. We then use this finding to estimate the costs to victims of sexual offenses, and find costs of over $1 million per victim—far greater than previous estimates. However, we cannot reject the alternative hypotheses that individuals overestimate risks posed by offenders or that living near an offender poses significant costs exclusive of crime risk. (JEL K42, R23, R31)

Journal ArticleDOI
TL;DR: In this article, the authors studied the effects of the progressive elimination of the system of industrial regulations on entry and production, known as the "license raj," on registered manufacturing output, employment, entry and investment across Indian states with different labor market regulations.
Abstract: We study the effects of the progressive elimination of the system of industrial regulations on entry and production, known as the "license raj," on registered manufacturing output, employment, entry and investment across Indian states with different labor market regulations. The effects are found to be unequal depending on the institutional environment in which industries are embedded. In particular, following delicensing, industries located in states with pro-employer labor market institutions grew more quickly than those in pro-worker environments.

Journal ArticleDOI
TL;DR: This paper constructed a panel of zero-coupon nominal government bond yields spanning ten industrialized countries and nearly two decades and computed forward rates and then used two different methods to decompose these forward rates into expected future short-term interest rates and term premiums.
Abstract: This paper provides cross-country empirical evidence on bond risk premia. I construct a panel of zero-coupon nominal government bond yields spanning ten industrialized countries and nearly two decades. I hence compute forward rates and then use two different methods to decompose these forward rates into expected future short-term interest rates and term premiums. The first method uses an affine term structure model with macroeconomic variables as unspanned risk factors; the second method uses surveys. I find that term premium estimates declined across countries over the sample period, especially in countries that appear to have reduced inflation uncertainty by making substantial changes in the monetary policy frameworks of their central banks. During the recent financial crisis, term premiums have remained flat and even declined further in some countries, perhaps reflecting the effects of quantitative easing actions by many central banks.

Journal ArticleDOI
TL;DR: The authors developed a model in which actors' utility of esteem depends on the audience, and showed that the model can account for motivational crowding out in a principal agent setting, which erodes morale by signaling to the agent that the principal is not worth impressing.
Abstract: Desire for social esteem is a source ofprosocial behavior. We develop a model in which actors' utility of esteem depends on the audience. In a principal agent setting, we show that the model can account for motivational crowding out. Control systems and pecuniary incentives erode morale by signaling to the agent that the principal is not worth impressing. The model also offers an explanation for why agents are motivated by unconditionally high pay and by mission-oriented principals. (JELDOl, D82) Nature, when she formed man for society, endowed him with an original desire to please, and an original aversion to offend his brethren. She taught him to feel pleasure in their favourable, and pain in their unfavourable regard. She rendered their approbation most flattering and most agreeable to him for its own sake; and their disapprobation most mor? tifying and most offensive.