American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article Front Matter i vi http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.i 10.1257/mic.3.2.i American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article Bankruptcy, Finance Constraints, and the Value of the Firm DouglasGaleNYU PieroGottardiEuropean U Institute, Florence and U Venice 1 37 We study a competitive model in which market incompleteness implies that debt-financed firms may default in some states of nature, and default may lead to the sale of the firms' assets at fire sale prices when a finance constraint is binding. The anticipation of such "losses" alone may distort firms' investment decisions. We characterize the conditions under which fire sales occur in equilibrium, and their consequences on firms' investment decisions. We also show that endogenous financial crises may arise in this environment, with asset prices collapsing as a result of pure self-fulfilling beliefs. Finally, we examine alternative interventions to restore the efficiency of equilibria. (JEL D83, G31, G32, G33) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.1 10.1257/mic.3.2.1 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article A Theory of Outsourcing and Wage Decline Thomas J.HolmesU MN and Federal Reserve Bank of Minneapolis Julia ThorntonSniderUCLA 38 59 This paper develops a theory of outsourcing in which the circumstances under which factors of production can grab rents play the leading role. One factor has monopoly power (call this labor) while a second factor does not (call this capital). There are two kinds of production tasks: labor-intensive and capital-intensive. We show that if frictions limiting outsourcing are not too large, in equilibrium labor-intensive tasks are separated from capital-intensive tasks into distinct firms. When a capital-intensive country is opened to free trade, outsourcing increases and labor rents decline. A decrease in outsourcing frictions lowers labor rents. (JEL J31, L22, L24) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.38 10.1257/mic.3.2.38 http://www.aeaweb.org/aej/mic/app/2009-0043_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article Zeros, Quality, and Space: Trade Theory and Trade Evidence RichardBaldwinGraduate Institute, Geneva JamesHarriganU VA 60 88 Bilateral, product-level data exhibit a number of strong patterns that can be used to evaluate international trade theories, notably the spatial incidence of "export zeros" (correlated with distance and importer size), and of export unit values (positively related to distance). We show that leading theoretical trade models fail to explain at least some of these facts, and propose a variant of the Melitz model that can account for all the facts. In our model, high quality firms are the most competitive, with heterogeneous quality increasing with firms' heterogeneous cost. (JEL F11, F14, F40) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.60 10.1257/mic.3.2.60 http://www.aeaweb.org/aej/mic/data/2009-0032_data.zip http://www.aeaweb.org/aej/mic/app/2009-0032_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article The Principal-Agent Approach to Testing Experts WojciechOlszewskiNorthwestern U MarcinPeskiU TX 89 113 Recent literature on testing experts shows that it is often impossible to determine whether an expert knows the stochastic process that generates data. Despite this negative result, we show that there often exist contracts that allow a decision maker to attain the first-best payoff without learning the expert's type. This kind of full-surplus extraction is always possible in infinite-horizon models in which future payoffs are not discounted. If future payoffs are discounted (but the discount factor tends to 1), the possibility of full-surplus extraction depends on a constraint involving the forecasting technology. (JEL D82) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.89 10.1257/mic.3.2.89 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself DavidEilU CA, San Diego Justin M.RaoYahoo! Research Labs, Santa Clara, CA 114 38 We study processing and acquisition of objective information regarding qualities that people care about, intelligence and beauty. Subjects receiving negative feedback did not respect the strength of these signals, were far less predictable in their updating behavior and exhibited an aversion to new information. In response to good news, inference conformed more closely to Bayes' Rule, both in accuracy and precision. Signal direction did not affect updating or acquisition in our neutral control. Unlike past work, our design varied direction and agreement with priors independently. The results indicate that confirmation bias is driven by direction; confirmation alone had no effect. (JEL D82, D83) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.114 10.1257/mic.3.2.114 http://www.aeaweb.org/aej/mic/data/2010-0077_data.zip American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article Taboos and Identity: Considering the Unthinkable ChaimFershtmanTel Aviv U UriGneezyU CA, San Diego MosheHoffmanU CA, San Diego 139 64 A taboo is an "unthinkable" action. Even the thought of violating a taboo triggers a punishment. We consider a model in which taboos are part of the definition of one's identity. Deliberating over breaking the taboo changes the individual's choice set, and provides information on possible private benefits. The strength of the taboo is determined by the number of individuals that obey it. We analyze the relationship between social heterogeneity and taboos' strength. We then examine societies in which individuals choose among several identities characterized by different taboos. We characterize the conditions that give rise to a multi-identity society. (JEL Z13) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.139 10.1257/mic.3.2.139 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article The Economics of Contingent Re-auctions SandroBruscoStony Brook U, SUNY GiuseppeLopomoDuke U Leslie M.MarxDuke U 165 93 We consider an auction environment where an object can be sold with usage restrictions that generate benefits to the seller but decrease buyers' valuations. In this environment, sellers such as the FCC have used "contingent re-auctions," offering the restricted object with a reserve price, but re-auctioning it without restrictions if the reserve is not met. We show that contingent re-auctions are generally neither efficient nor optimal for the seller. We propose an alternative "exclusive-buyer mechanism" that can implement the efficient outcome in dominant strategies. In certain environments, parameters can be chosen so the seller's surplus is maximized across all selling procedures. (JEL D44, D82, H82) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.165 10.1257/mic.3.2.165 http://www.aeaweb.org/aej/mic/app/2010-0040_app.pdf American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article Exclusive Contracts, Innovation, and Welfare YongminChenU CO David E. M.SappingtonU FL 194 220 We extend Philippe Aghion and Patrick Bolton's (1987) classic model to analyze the equilibrium incidence and impact of exclusive contracts in a setting where research and development (R&D) drives industry performance. An exclusive contract between an incumbent supplier and a buyer arises when patent protection and/or the incumbent's R&D ability are sufficiently pronounced. The exclusive contract generally reduces the entrant's R&D, and can reduce the incumbent's R&D. Exclusive contracts reduce welfare if the incumbent's R&D ability is sufficiently limited, but can increase welfare if patent protection and the incumbent's R&D ability are sufficiently pronounced. (JEL D86, L14, O31) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.194 10.1257/mic.3.2.194 American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article The Effect of Market Structure on Cellular Technology Adoption and Pricing KatjaSeimU PA V. BrianViardCheung Kong Graduate School of Business, Beijing 221 51 We examine how structural changes in the mobile telecommunications industry between 1996, when local markets were duopolies, and 1998, when varying degrees of regulated entry had occurred, affected firms' product offerings and nonlinear pricing strategies. We relate firms' digital technology adoption and the characteristics of their calling plan menus to the amount of entry in local markets. We find that entry induces firms to offer larger menus with more evenly spread plans, both directly and by accelerating the introduction of digital menus with such features. Prices decline with entry, in particular for high-valuation consumers who benefit from steeper quantity discounts. (JEL L11, L13, L96, L98, O33) http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.221 10.1257/mic.3.2.221 http://www.aeaweb.org/aej/mic/data/2008-0073_data.zip American Economic Association Nashville, TN 1945-7669 1945-7685 American Economic Journal: Microeconomics http://www.aeaweb.org/aej-micro/ 3 2 May 2011 http://www.aeaweb.org/issue.php?journal=MIC&volume=3&issue=2 Journal Article Corrigendum: Sex Selection and Gender Balance V.BhaskarU College London 252 53 http://www.aeaweb.org/articles.php?doi=10.1257/mic.3.2.252 10.1257/mic.3.2.252