AEAweb: AER: Contents: December 1999

American Economic Review
Vol. 89, No. 5, December 1999

Contents

Using Field Experiments to Test Equivalence between Auction Formats: Magic on the Internet
David Lucking-Reiley      1063-1080

The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart
Jeffrey Milyo and Joel Waldfogel      1081-1096

Adverse Selection in Durable Goods Markets
Igal Hendel and Alessandro Lizzeri      1097-1115

Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination
Devashish Mitra      1116-1134

Protection for Sale: An Empirical Investigation
Pinelopi Koujianou Goldberg and Giovanni Maggi      1135-1155

On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model
Per Krusell and Jose-Victor Rios-Rull      1156-1181

Bicameralism and Its Consequences for the Internal Organization of Legislatures
Daniel Diermeier and Roger B. Myerson      1182-1196

Marginal Tax Rates and Income Inequality in a Life-Cycle Model
David Altig and Charles T. Carlstrom      1197-1215

Monopoly Rights: A Barrier to Riches
Stephen L. Parente and Edward C. Prescott      1216-1233

On the Driving Forces behind Cyclical Movements in Employment and Job Reallocation
Steven J. Davis and John Haltiwanger      1234-1258

Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence
Daron Acemoglu      1259-1278

Do Investors Trade Too Much?
Terrance Odean      1279-1298

New Evidence on the Money's Worth of Individual Annuities
Olivia S. Mitchell, et al.      1299-1318

A Simple Approach for Deciding When to Invest
Jonathan B. Berk      1319-1326

Policy Persistence
Stephen Coate and Stephen Morris      1327-1336

Illegal Immigration, Border Enforcement, and Relative Wages: Evidence from Apprehensions at the U.S.-Mexico Border
Gordon H. Hanson and Antonio Spilimbergo      1337-1357

Longevity Complementarities under Competing Risks
William H. Dow, Tomas J. Philipson and Xavier Sala-i-Martin      1358-1371

Intrinsic Bubbles: The Case of Stock Prices: Comment
Lucy F. Ackert and William C. Hunter      1372-1376

Voting on the Budget Deficit: Comment
Ben D. Peletier, Robert A. J. Dur and Otto H. Swank      1377-1381

The Economics of Child Labor: Comment
Kenneth A. Swinnerton and Carol Ann Rogers      1382-1385

The Economics of Child Labor: Reply
Kaushik Basu and Pham Hoang Van      1386-1388

William Vickrey's predicted equivalences between first-price sealed-bid and Dutch auctions, and between second-price sealed-bid and English auctions, are tested using field experiments that auctioned off collectible trading cards over the Internet. The results indicate that the Dutch auction produces 30-percent higher revenues than the first-price auction format, a violation of the theoretical prediction and a reversal of previous laboratory results, and that the English and second-price formats produce roughly equivalent revenues.

View article in pdf format (AEA members only)
Sign up for e-AER

The 44 Liquormart decision, eliminating Rhode Island's ban on liquor price advertising, made Rhode Island the subject of a natural experiment for measuring the effect of advertising on prices. Using Massachusetts prices as controls, we find that advertising stores substantially cut only prices of the products that they advertise. Prices of other products, at both advertising and nonadvertising stores, do not change. Advertising stores cut their prices on products advertised by rivals, while nonadvertising stores do not. We find no reductions in price dispersion across stores. Newspaper-advertising stores appear to draw a higher share of customers after they advertise.

View article in pdf format (AEA members only)
Sign up for e-AER

We present a dynamic model of adverse selection to examine the interactions between new and used goods markets. We find that the used market never shuts down, the volume of trade can be large, and distortions are lower than previously thought. New cars prices can be higher under adverse selection than in its absence. An extension to several brands that differ in reliability leads to testable predictions of the effects of adverse selection. Unreliable brands have steeper price declines and lower volumes of trade. We contrast these predictions with those of a model where brands physically depreciate at different rates.

View article in pdf format (AEA members only)
Sign up for e-AER

This paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions. Under certain conditions, free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare. Moreover, greater inequality in asset distribution results in a greater number of lobbies and, in most cases, more protection for each of these lobbies. Furthermore, industries with higher levels of capital stock, fewer capitalists, more inelastic demand, and smaller geographical dispersion are the ones that get organized.

View article in pdf format (AEA members only)
Sign up for e-AER

The Grossman-Helpman "Protection for Sale" model, concerning the political economy of trade protection, yields clear predictions for the cross-sectional structure of import barriers. Our objective is to check whether the predictions of the Grossman-Helpman model are consistent with the data and, if the model finds support, to estimate its key structural parameters. We find that the pattern of protection in the United States in 1983 is broadly consistent with the predictions of the model. A surprising finding is that the weight of welfare in the government's objective function is many times larger than the weight of contributions.

View article in pdf format (AEA members only)
Sign up for e-AER

We study a dynamic version of Meltzer and Richard's median-voter model of the size of government. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place periodically over time, and each consumer votes for the tax rate that maximizes his equilibrium utility. We calibrate the model to U.S. data. Key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices. The total size of transfers predicted by our political-economy model is quite close to the size of transfers in the data.

View article in pdf format (AEA members only)
Sign up for e-AER

Theories of organization of legislatures have mainly focused on the U.S. Congress, explaining why committee systems emerge there, but not explaining variance in organization across legislatures of different countries. To analyze the effects of different constitutional features on the internal organization of legislatures, we adopt a vote-buying model and consider the incentives to delegate decision rights in a game among legislative chambers. We show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules, while a unicameral structure can encourage legislators to delegate power to a leader.

View article in pdf format (AEA members only)
Sign up for e-AER

In this paper we study the quantitative impact of marginal tax rates on the distribution of income. Our methodology builds on computable general-equilibrium framework. We find that distortions from marginal tax rate changes of the sort implied by the Tax Reform Act of 1986 have sizable effects on income inequality in a reasonably quantified life-cycle setting: In our model rate changes alone capture half the increase in the pretax Gini that actually occurred between 1984 and 1989.

View article in pdf format (AEA members only)
Sign up for e-AER

Our thesis is that poor countries are poor because they employ arrangements for which the equilibrium outcomes are characterized by inferior technologies being used, and being used inefficiently. In this paper, we analyze the consequences of one such arrangement. In each industry, the arrangement enables a coalition of factor suppliers to be the monopoly seller of its input services to all firms using a particular production process. We find that eliminating this monopoly arrangement could well increase output by roughly a factor of 3 without any increase in inputs.

View article in pdf format (AEA members only)
Sign up for e-AER

Theory restricts short-run job creation and destruction responses and cumulative employment and job reallocation responses to allocative and aggregate shocks. We formulate these restrictions and implement them for postwar data on U.S. manufacturing. Allocative shocks are the main driving force behind cyclical movements in job reallocation, but their contribution to employment fluctuations varies greatly across alternative identification assumptions. Also, the data compel one or both of the following inferences: aggregate shocks greatly alter the shape and not just the mean of the cross-sectional density of employment growth rates; allocative shocks cause short-run reductions in aggregate employment.

View article in pdf format (AEA members only)
Sign up for e-AER

I present a model where firms decide what types of jobs to create and then search for suitable workers. When there are few skilled workers and the skilled-unskilled productivity gap is small, firms create a single type of job and recruit all workers. An increase in the proportion of skilled workers or skill-biased technical change can create a qualitative change in the composition of jobs, increasing the demand for skills, wage inequality, and unemployment. I provide some evidence that there has been a change in the composition of jobs in the United States during the past two decades.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

New Evidence on the Money's Worth of Individual Annuities
Olivia S. Mitchell, et al.

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

No abstract available.

View article in pdf format (AEA members only)
Sign up for e-AER

Back to Contents