American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Behavioral Macroeconomics and Macroeconomic Behavior George A.AkerlofDepartment of Economics, University of California, Berkeley, CA 94720-3880 411 433 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=1&issue_date=June 2002 10.1257/00028280260136192 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Signaling in Retrospect and the Informational Structure of Markets MichaelSpenceStanford Business School, Stanford University, 518 Memorial Way, Stanford, CA 94305 434 459 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=2&issue_date=June 2002 10.1257/00028280260136200 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Information and the Change in the Paradigm in Economics Joseph E.StiglitzGraduate School of Business, Uris Hall, Columbia University, 3022 Broadway, New York, NY 10027. 460 501 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=3&issue_date=June 2002 10.1257/00028280260136363 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets Chang-TaiHsiehDepartment of Economics, Princeton University, Princeton, NJ 08544 502 526 This paper presents dual estimates of total factor productivity growth (TFPG) for East Asian countries. While the dual estimates of TFPG for Korea and Hong Kong are similar to the primal estimates, they exceed the primal estimates by 1 percent a year for Taiwan and by more than 2 percent for Singapore. The reason for the large discrepancy for Singapore is because the return to capital has remained constant, despite the high rate of capital accumulation indicated by Singapore's national accounts. This discrepancy is not explained by financial market controls, capital income taxes, risk premium changes, and public investment subsidies. (JEL O11, O16, O47, O53) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=4&issue_date=June 2002 10.1257/00028280260136372 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Technological Change, Technological Catch-up, and Capital Deepening: Relative Contributions to Growth and Convergence SubodhKumarProvidian Financial, 123 Mission Street, San Francisco, CA 94105 R. RobertRussellDepartment of Economics, University of California, Riverside, CA 92521 527 548 We decompose labor-productivity growth into components attributable to (1) technological change (shifts in the world production frontier), (2) technological catch-up (movements toward or away from the frontier), and (3) capital accumulation (movement along the frontier). The world production frontier is constructed using deterministic methods requiring no specification of functional form for the technology nor any assumption about market structure or the absence of market imperfections. We analyze the evolution of the cross-country distribution of labor productivity in terms of the tripartite decomposition, finding that technological change is decidedly nonneutral and that both growth and bipolar international divergence are driven primarily by capital deepening. (JEL O30, O47, D24) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=5&issue_date=June 2002 10.1257/00028280260136381 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article An Experimental Test of an Optimal Growth Model VivianLeiDepartment of Economics, University of Wisconsin, Milwaukee, WI 53201 Charles N.NoussairKrannert School of Management, Purdue University, West Lafayette, IN 47907 549 570 This paper describes the design and behavior of an experimental economy with the structure of the Ramsey-Cass-Koopmans model of optimal growth. The experiment includes three different implementations of the model: a decentralized implementation with multiple agents and a market for capital, a treatment where individual subjects are placed in the role of social planners, and a treatment where the social planner consists of five agents making a joint decision. The findings highlight the role of market institutions in facilitating convergence to the optimal steady state. (JEL C91, C92, O40) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=6&issue_date=June 2002 10.1257/00028280260136246 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Fiscal Policy, Profits, and Investment AlbertoAlesinaDepartment of Economics, Harvard University, 324 Littauer, Cambridge, MA 02138 and National Bureau of Economic Research, and Centre for Economic Policy Research SilviaArdagnaDepartment of Economics, Wellesley College, Wellesley, MA 02481 RobertoPerottiDepartment of Economics, European University Institute, via dei Roccettini 9/16, 50016 San Domenico di Fiesole (FI), Italy, and CEPR FabioSchiantarelliDepartment of Economics, Boston College, Chestnut Hill, MA 02467, and IZA 571 589 This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending—and in particular of its wage component—on profits and on business investment. This result is consistent with different theoretical models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than those of taxes. Our results can explain the so-called "non-Keynesian" (i.e., expansionary) effects of fiscal adjustments. (JEL E22, E62) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=7&issue_date=June 2002 10.1257/00028280260136255 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Tax Reform and Automatic Stabilization Thomas J.KniesnerCenter for Policy Research, 426 Eggers Hall, Syracuse University, Syracuse, NY 13244 James P.ZiliakDepartment of Economics, 1285 University of Oregon, Eugene, OR 97403 590 612 An income tax provides implicit insurance by dampening the variability of disposable income and consumption. Using an empirical framework derived from the consumption insurance literature and data from the Panel Study of Income Dynamics we examine the effect of federal income tax reforms of the 1980's on automatic stabilization of consumption. Overall, ERTA and TRA86 reduced consumption stability by about 50 percent. Recently increased EITC generosity restored or enhanced consumption insurance. The welfare cost of moving to the post-TRA86 system is sizable for relatively risk-averse households facing large income risk but is much more modest for the typical household. (JEL H21) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=8&issue_date=June 2002 10.1257/00028280260136264 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Can Expected Utility Theory Explain Gambling? RogerHartleyDepartment of Economics, University of Keele, Keele, Staffordshire, United Kingdom, ST5 5BG LisaFarrellDepartment of Economics, University of Melbourne, Melbourne, Victoria 30101, Australia 613 624 We investigate the ability of expected utility theory to account for simultaneous gambling and insurance. Contrary to a previous claim that borrowing and lending in perfect capital markets removes the demand for gambles, we show expected utility theory with nonconcave utility functions can explain gambling. When the rates of interest and time preference are equal, agents seek to gamble unless income falls in a finite set of values. When they differ, there is a range of incomes where gambles are desired. Different borrowing and lending rates can account for persistent gambling provided the rates span the rate of time preference. (JEL D81, D91) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=9&issue_date=June 2002 10.1257/00028280260136426 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Efficiency in Auctions with Private and Common Values: An Experimental Study K.GoereeDepartment of Economics, 114 Rouss Hall, University of Virginia, P.O. Box 400182, Charlottesville, VA 22904, and University of Amsterdam, Roetersstraat TheoOffermanCREED, University of Amsterdam, Roetersstraat 11, 1018 WB Amsterdam, The Netherlands 625 643 Auctions are generally not efficient when the object's expected value depends on private and common value information. We report a series of first-price auction experiments to measure the degree of inefficiency that occurs with financially motivated bidders. While some subjects fall prey to the winner's curse, they weigh their private and common value information in roughly the same manner as rational bidders, with observed efficiencies close to predicted levels. Increased competition and reduced uncertainty about the common value positively affect revenues and efficiency. The public release of information about the common value also raises efficiency, although less than predicted. (JEL C72, D44) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=10&issue_date=June 2002 10.1257/00028280260136435 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Reputation and Competition JohannesHörnerManagerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60201 644 663 This paper shows how competition generates reputation-building behavior in repeated interactions when the product quality observed by consumers is a noisy signal of firms' effort level. There are two types of firms and "good" firms try to distinguish themselves from "bad" firms. Although consumers get convinced that firms which are repeatedly successful in providing high quality are good firms, competition endogenously generates the outside option inducing disappointed consumers to leave firms. This threat of exit induces good firms to choose high effort, allowing good reputations to be valuable, but its uncompromising execution forces good firms out of the market. (JEL C7, D8) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=11&issue_date=June 2002 10.1257/00028280260136444 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Troubled Banks, Impaired Foreign Direct Investment: The Role of Relative Access to Credit Michael W.KleinFletcher School of Law and Diplomacy, Tufts University, Medford, MA 02155, and National Bureau of Economic Research JoePeekGatton College of Business and Economics, University of Kentucky, Lexington, KY 40506 Eric S.RosengrenSupervision and Regulation Department, T-10, Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, MA 02106 664 682 During the 1980's, theories were developed to explain the striking correlation between real exchange rates and foreign direct investment (FDI). However, this relationship broke down for Japanese FDI in the 1990's, as the real exchange rate appreciated while FDI plummeted. We propose the relative access to credit hypothesis and show that unequal access to credit by Japanese firms contributes to the explanation of declining Japanese FDI. Using bank-level and firm-level data sets, we find that financial difficulties at banks were economically and statistically important in reducing the number of FDI projects by Japanese firms into the United States. (JEL G21, F36) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=12&issue_date=June 2002 10.1257/00028280260136309 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Litigation Costs and Returns to Experience PaulOyerGraduate School of Business, Stanford University, 518 Memorial Way, Stanford CA 94305 ScottSchaeferKellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208 683 705 We develop a model linking maximum damage awards available to plaintiffs in wrongful termination lawsuits, workers' propensity to sue as a function of experience, and returns to experience. Using Equal Employment Opportunity Commission data on protected-worker discrimination complaints and labor-market data from the Current Population Survey, we examine how returns to experience among protected workers changed around the passage of the Civil Rights Act of 1991. We show that employers' reactions to employment protections may induce redistributive effects. Furthermore, these effects operate not merely across groups of differing protected status, but also within groups of identical protected status. (JEL D21, J31, J71, K31) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=13&issue_date=June 2002 10.1257/00028280260136318 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article The Household Bankruptcy Decision ScottFayWarrington College of Business Administration, University of Florida ErikHurstGraduate School of Business, University of Chicago Michelle J.WhiteDepartment of Economics, University of California, San Diego, and NBER 706 718 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=14&issue_date=June 2002 10.1257/00028280260136327 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 92 3 June 2002 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=92&issue=3&issue_date=June 2002 Journal Article Auditors' Report/Audited Financial Statements 719 728 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=92&issue=3&article=15&issue_date=June 2002 10.1257/00028280260136480