American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Front Matter i i http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.i 10.1257/mic.2.3.i American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Tracing the Woes: An Empirical Analysis of the Airline Industry StevenBerryYale U PanleJiaMIT 1 43 The US airline industry went through tremendous turmoil in the early 2000s, with four major bankruptcies, two major mergers, and various changes in network structure. This paper presents a structural model of the industry, and estimates the impact of demand and supply changes on profitability. Compared with 1999, we find that, in 2006, air-travel demand was 8 percent more price sensitive, passengers displayed a stronger preference for nonstop flights, and changes in marginal cost significantly favored nonstop flights. Together with the expansion of low-cost carriers, they explain more than 80 percent of legacy carriers' variable profit reduction. (JEL L13, L25, L93) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.1 10.1257/mic.2.3.1 http://www.aeaweb.org/aej/mic/data/2008-0100_data.zip American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article The Political Economy of Debt Bondage Ulfvon Lilienfeld-ToalStockholm School of Economics DilipMookherjeeBoston U 44 84 What are the effects of restricting bonded labor clauses in tenancy or debt contracts? While such restrictions reduce agents' ability to credibly commit ex ante to repay principals in states where they default on their financial obligations, they also generate a pecuniary externality on other principal-agent pairs by reducing the equilibrium profit earned by principals. This turns out to imply that on both political and normative grounds, restrictions on bonded labor become more attractive when borrowers become wealthier or the range of collateral instruments widens. (JEL D82, D86, J82, K12) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.44 10.1257/mic.2.3.44 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Why Tie a Product Consumers Do Not Use? Dennis W.CarltonU Chicago Joshua S.GansU Melbourne MichaelWaldmanCornell U 85 105 We provide an explanation for tying not based on any of the standard arguments: efficiency, price discrimination, or exclusion. In our analysis a monopolist ties a complementary good to its monopolized good, but consumers do not use the tied good. The tie is profitable because it shifts profits from a complementary good rival to the monopolist. We show such tying is socially inefficient, but arises only when the tie is socially efficient in the absence of the rival. We relate this form of tying to several examples, discuss how it can also arise under competition, and explore its antitrust implications. (JEL D42, K21, L12, L25, L40) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.85 10.1257/mic.2.3.85 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Which Inequality? The Inequality of Endowments versus the Inequality of Rewards EdHopkinsU Edinburgh TatianaKornienkoU Edinburgh 106 37 We introduce a new distinction between inequality in initial endowments (e.g., ability, inherited wealth) and inequality of what one can obtain as rewards (e.g., prestigious positions, money). We show that, when society allocates resources via tournaments, these two types of inequality have opposing effects on equilibrium behavior and well-being. Greater inequality of rewards hurts most people -- both the middle class and the poor -- who are forced into greater effort. Conversely, greater inequality of endowments benefits the middle class. Thus, the correctness of our intuitions about the implications of inequality is hugely affected by the type of inequality considered. (JEL D63, D82) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.106 10.1257/mic.2.3.106 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Preventing Crime Waves PhilipBondU PA KathleenHagertyNorthwestern U 138 59 We study the design of enforcement mechanisms when enforcement resources are chosen ex ante and are inelastic ex post. Multiple equilibria arise naturally. We identify a new answer to the old question of why non-maximal penalties are used to punish moderate actions: "marginal" penalties are much more attractive in the Pareto inferior crime wave equilibrium. Specifically, although marginal penalties have both costs and benefits, the net benefit is strictly positive in the crime wave equilibrium. In contrast, marginal penalties frequently have a net cost in the noncrime wave equilibrium. We also show that increasing enforcement resources may worsen crime. (JEL D82, K42) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.138 10.1257/mic.2.3.138 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Ascending Prices and Package Bidding: A Theoretical and Experimental Analysis John H.KagelOH State U YuanchuanLienCA Institute of Technology PaulMilgromStanford U 160 85 We use theory and experiment to explore the performance of multi-round, price-guided, combinatorial auctions. We define efficiency-relevant and core-relevant packages and show that if bidders bid aggressively on these and losing bidders bid to their limits, then the auction leads to efficient or core allocations. We study the theoretically relevant behaviors and hypothesize that subjects will make only a few significant bids, and that certain simulations with auto-bidders will predict variations in performance across different environments. Testing the combinatorial clock auction (CCA) design, we find experimental support for these two hypotheses. We also compare the CCA to a simultaneous ascending auction. (JEL D44) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.160 10.1257/mic.2.3.160 http://www.aeaweb.org/aej/mic/app/2009-0122_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 2 3 August 2010 http://www.aeaweb.org/issue.php?journal=MIC&volume=2&issue=3 Journal Article Money, Political Ambition, and the Career Decisions of Politicians Michael P.KeaneU Technology Sydney AntonioMerloU PA 186 215 We assess the impact of a variety of policies that may influence the career decisions of members of the US Congress. These policies alter incentives to run for re-election, run for higher office or leave Congress, by altering wages, non-pecuniary rewards and career prospects (both in and out of Congress). We find that the effect of most policies varies considerably across different types of politicians. For example, a reduction in the congressional wage would disproportionately induce exit from Congress by "skilled" politicians, Democrats, and politicians who were relatively young when first elected, but not by politicians who most value legislative accomplishments ("achievers"). (JEL D72) http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.186 10.1257/mic.2.3.186 http://www.aeaweb.org/aej/mic/data/2007-0001_data.zip