AEAweb: AER: Contents: December 2001

The American Economic Review
Vol. 91, No. 5, December 2001

Contents

The Stock Market and Capital Accumulation
Robert E. Hall      1185-1202

The Information-Technology Revolution and the Stock Market: Evidence
Bart Hobijn and Boyan Jovanovic     1203-1220

Is the Price Level Determined by the Needs of Fiscal Solvency?
Matthew B. Canzoneri, Robert E. Cumby, and Behzad T. Diba      1221-1238

Does Money Illusion Matter?
Ernst Fehr and Jean-Robert Tyran    1239-1262

Financing Investment
Joao F. Gomes      1263-1285

Financial Markets and Firm Dynamics
Thomas F. Cooley and Vincenzo Quadrini    1286-1310

Competition in Loan Contracts
Christine A. Parlour and Uday Rajan      1311-1328

Why Regulate Insider Trading? Evidence from the First Great Merger Wave (1897–1903)
Ajeyo Banerjee and E. Woodrow Eckard      1329-1349

Learning from Experience and Learning from Others: An Exploration of Learning and Spillovers in Wartime Shipbuilding
Rebecca Achee Thornton and Peter Thompson    1350-1368

The Colonial Origins of Comparative Development: An Empirical Investigation
Daron Acemoglu, Simon Johnson, and James A. Robinson     1369-1401

Ten Little Treasures of Game Theory and Ten Intuitive Contradictions
Jacob K. Goeree and Charles A. Holt      1402-1422

An Account of Global Factor Trade
Donald R. Davis and David E. Weinstein     1423-1453

Nursery Cities: Urban Diversity, Process Innovation, and the Life Cycle of Products
Gilles Duranton and Diego Puga      1454-1477

Conflicts and Common Interests in Committees
Hao Li, Sherwin Rosen, and Wing Suen    1478-1497

Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards
John A. List      1498-1507

Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions
Angela A. Hung and Charles R. Plott      1508-1520

Minimax Play at Wimbledon
Mark Walker and John Wooders   1521-1538

GARP for Kids: On the Development of Rational Choice Behavior
William T. Harbaugh, Kate Krause, and Timothy R. Berry      1539-1545

A Test of Game-Theoretic and Behavioral Models of Play in Exchange and Insurance Environments
Cary A. Deck      1546-1555

Reversing the Keynesian Asymmetry
John Bennett and Manfredi M. A. La Manna      1556-1563

Iceland’s Natural Experiment in Supply-Side Economics
Marco Bianchi, Björn R. Gudmundsson, and Gylfi Zoega    1564-1579

International Coordination of Trade and Domestic Policies
Josh Ederington     1580-1593

Monetary Policy and Market Interest Rates
Tore Ellingsen and Ulf Söderström      1594-1607

Output and Welfare Effects of Inflation with Costly Price and Quantity Adjustments
Leif Danziger    1608-1620

Inflation Is Always and Everywhere a Monetary Phenomenon: Richmond vs. Houston in 1864
Richard C. K. Burdekin and Marc D. Weidenmier      1621-1630

The value of a firm’s securities measures the value of the firm’s productive assets. If the assets include only capital goods and not a permanent monopoly franchise, the value of the securities measures the value of the capital. Finally, if the price of the capital can be measured or inferred, the quantity of capital is the value divided by the price. A standard model of adjustment costs enables the inference of the price of installed capital. Data from U.S. corporations over the past 50 years imply that corporations have formed large amounts of intangible capital, especially in the past decade. (JEL E44, G12)

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

Why did the stock market decline so much in the early 1970’s and remain low until the early 1980’s? We argue that it was because information technology arrived on the scene and the stock-market incumbents of the day were not ready to implement it. Instead, new firms would bring in the new technology after the mid-1980’s. Investors foresaw this in the early 1970’s and stock prices fell right away. In our model, new capital destroys old capital, but with a lag. The prospect of this causes the value of the old capital to fall right away. (JEL G12, O16, O33)

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

The fiscal theory of price determination suggests that if primary surpluses evolve independently of government debt, the equilibrium price level “jumps” to assure fiscal solvency. In this non-Ricardian regime, fiscal policy—not monetary policy— provides the nominal anchor. Alternatively, in a Ricardian regime, primary surpluses are expected to respond to debt in a way that assures fiscal solvency, and the price level is determined in conventional ways. This paper argues that Ricardian regimes are as theoretically plausible as non-Ricardian regimes, and provide a more plausible interpretation of certain aspects of the postwar U.S. data than do non-Ricardian regimes. (JEL E60, E63)

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

Does Money Illusion Matter?
Ernst Fehr and Jean-Robert Tyran              

This paper shows that a small amount of individual-level money illusion may cause considerable aggregate nominal inertia after a negative nominal shock. In addition, our results indicate that negative and positive nominal shocks have asymmetric effects because of money illusion. While nominal inertia is quite substantial and long lasting after a negative shock, it is rather small after a positive shock. (JEL C92, E32, E52)

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

Financing Investment
Joao F. Gomes       

We examine investment behavior when firms face costs in the access to external funds. We find that despite the existence of liquidity constraints, standard investment regressions predict that cash flow is an important determinant of investment only if one ignores q. Conversely, we also obtain significant cash flow effects even in the absence of financial frictions. These findings provide support to the argument that the success of cash-flow-augmented investment regressions is probably due to a combination of measurement error in q and identification problems. (JEL E22, E44, G31)

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

Financial Markets and Firm Dynamics
Thomas F. Cooley and Vincenzo Quadrini           

Recent studies have shown that the dynamics of firms (growth, job reallocation, and exit) are negatively correlated with the initial size of the firm and its age. In this paper we analyze whether financial factors, in addition to technological differences, are important in generating these dynamics. We introduce financial-market frictions in a basic model of industry dynamics with persistent shocks and show that the combination of persistent shocks and financial frictions can account for the simultaneous dependence of firm dynamics on size (once we control for age) and on age (once we control for size). (JEL D21, G3, L2)

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

We present a model of an unsecured loan market. Many lenders simultaneously offer loan contracts (a debt level and an interest rate) to a borrower. The borrower may accept more than one contract. Her payoff if she defaults increases in the total amount borrowed. If this payoff is high enough, deterministic zero-profit equilibria cannot be sustained. Lenders earn a positive profit, and may even charge the monopoly price. The positive-profit equilibria are robust to increases in the number of lenders. Despite the absence of asymmetric information, the competitive outcome does not obtain in the limit. (JEL D43, L13, L14)

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

We use event-time methodology to study legal insider trading associated with mergers circa 1900. For mergers with “prospective” disclosures similar to today’s, we find substantial value gains at announcement, implying participation by “outside” shareholders despite the absence of insider constraints. Furthermore, preannouncement stock-price runups, relative to total value gain, are no more than those observed for modern mergers. Insider regulation apparently has produced little benefit for outsiders, with the inside information-pricing function and related gains shifting to external “information specialists.” Other results suggest market penalties for nondisclosure; i.e., insider trading is less successful in a restricted information environment. (JEL G3, K2, L5, N2)

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

A new data set facilitates study of learning spillovers in World War II shipbuilding. Our results contain two principal but contrasting themes. First, learning spillovers were a significant source of productivity growth, and may have contributed more than conventional learning effects. Second, the size of the learning externalities across yards, as measured by Spence’s θ, were small. These findings, which are not mutually inconsistent, suggest an optimistic view of learning spillovers: they are a significant source of productivity growth, but the market failures induced by learning externalities may be modest. (JEL D24, N72, O3)

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

The Colonial Origins of Comparative Development: An Empirical Investigation
Daron Acemoglu, Simon Johnson, and James A. Robinson    

We exploit differences in European mortality rates to estimate the effect of institutions on economic performance. Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present. Exploiting differences in European mortality rates as an instrument for current institutions, we estimate large effects of institutions on income per capita. Once the effect of institutions is controlled for, countries in Africa or those closer to the equator do not have lower incomes. (JEL O11, P16, P51)

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

Ten Little Treasures of Game Theory and Ten Intuitive Contradictions
Jacob K. Goeree and Charles A. Holt       

This paper reports laboratory data for games that are played only once. These games span the standard categories: static and dynamic games with complete and incomplete information. For each game, the treasure is a treatment in which behavior conforms nicely to predictions of the Nash equilibrium or relevant refinement. In each case, however, a change in the payoff structure produces a large inconsistency between theoretical predictions and observed behavior. These contradictions are generally consistent with simple intuition based on the interaction of payoff asymmetries and noisy introspection about others’ decisions. (JEL C72, C92)

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

A half century of empirical work attempting to predict the factor content of trade in goods has failed to bring theory and data into congruence. Our study shows how the Heckscher-Ohlin-Vanek theory, when modified to permit technical differences, a breakdown in factor price equalization, the existence of nontraded goods, and costs of trade, is consistent with data from ten OECD countries and a rest-of-world aggregate. (JEL F1, F11, D5)

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

Nursery Cities: Urban Diversity, Process Innovation, and the Life Cycle of Products
Gilles Duranton and Diego Puga         

This paper develops microfoundations for the role that diversified cities play in fostering innovation. A simple model of process innovation is proposed, where firms learn about their ideal production process by making prototypes. We build around this a dynamic general-equilibrium model, and derive conditions under which diversified and specialized cities coexist. New products are developed in diversified cities, trying processes borrowed from different activities. On finding their ideal process, firms switch to mass production and relocate to specialized cities where production costs are lower. We find strong evidence of this pattern in establishment relocations across French employment areas 1993–1996. (JEL R30, O31, D83)

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

Conflicts and Common Interests in Committees
Hao Li, Sherwin Rosen, and Wing Suen          

Committees improve decisions by pooling members’ independent information, but promote manipulation, obfuscation, and exaggeration of private information when members have conflicting preferences. Committee decision procedures transform continuous data into ordered ranks through voting. This coarsens the transmission of information, but controls strategic manipulations and allows some degree of information sharing. Each member becomes more cautious in casting the crucial vote than when he alone makes the decision based on own information. Increased quality of one member’s information results in his casting the crucial vote more often. Committees make better decisions for members than does delegation. (JEL D71, D82, C72)

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

Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards
John A. List      

No abstract available.

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

Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions
Angela A. Hung and Charles R. Plott      

No abstract available.

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

Minimax Play at Wimbledon
Mark Walker and John Wooders   

No abstract available.

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

GARP for Kids: On the Development of Rational Choice Behavior
William T. Harbaugh, Kate Krause, and Timothy R. Berry     

No abstract available.

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

A Test of Game-Theoretic and Behavioral Models of Play in Exchange and Insurance Environments
Cary A. Deck      

No abstract available.

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

Reversing the Keynesian Asymmetry
John Bennett and Manfredi M. A. La Manna      

No abstract available.

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

Iceland’s Natural Experiment in Supply-Side Economics
Marco Bianchi, Björn R. Gudmundsson, and Gylfi Zoega   

No abstract available.

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

International Coordination of Trade and Domestic Policies
Josh Ederington     

No abstract available.

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

Monetary Policy and Market Interest Rates
Tore Ellingsen and Ulf Söderström      

No abstract available.

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

Output and Welfare Effects of Inflation with Costly Price and Quantity Adjustments
Leif Danziger    

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