American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Risk and Volatility: Econometric Models and Financial Practice RobertEngle 405 420 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=1&issue_date=June 2004 10.1257/0002828041464597 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Time Series Analysis, Cointegration, and Applications Clive W.G.Granger 421 425 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=2&issue_date=June 2004 10.1257/0002828041464669 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article The Effects of Social Networks on Employment and Inequality AntoniCalvó-Armengol Matthew O.Jackson 426 454 We develop a model where agents obtain information about job opportunities through an explicitly modeled network of social contacts. We show that employment is positively correlated across time and agents. Moreover, unemployment exhibits duration dependence: the probability of obtaining a job decreases in the length of time that an agent has been unemployed. Finally, we examine inequality between two groups. If staying in the labor market is costly and one group starts with a worse employment status, then that group's drop-out rate will be higher and their employment prospects will be persistently below that of the other group. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=3&issue_date=June 2004 10.1257/0002828041464542 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Liquidity, Efficiency, and Bank Bailouts GaryGorton LixinHuang 455 483 Governments can efficiently provide liquidity, as when the banking system is bailed out. We study a model in which not all assets can be used to purchase all other assets at every date. Agents sometimes want to sell projects. The market price of the projects sold depends on the supply of liquidity, which is determined in general equilibrium. While private liquidity provision is socially beneficial since it allows valuable reallocations, it is also socially costly since liquidity suppliers could have made more efficient investments ex ante. There is a role for the government to supply liquidity by issuing government securities. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=4&issue_date=June 2004 10.1257/0002828041464650 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Distinguishing Informational Cascades from Herd Behavior in the Laboratory BoğaçhanÇelen ShacharKariv 484 498 This paper reports an experimental test of how individuals learn from the behavior of others. By using techniques only available in the laboratory, we elicit subjects' beliefs. This allows us to distinguish informational cascades from herd behavior. By adding a setup with continuous signal and discrete action, we enrich the ball-andurn observational learning experiments paradigm of Lisa R. Anderson and Charles Holt (1997). We attempt to understand subjects' behavior by estimating a model that allows for the possibility of errors in earlier decisions. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=5&issue_date=June 2004 10.1257/0002828041464461 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Referrals LuisGaricano TanoSantos 499 525 This paper studies the matching of opportunities with talent when costly diagnosis confers an informational advantage to the agent undertaking it. When this agent is underqualified, adverse selection prevents efficient referrals through fixed-price contracts. Spot-market contracts that rely on income sharing can match opportunities with talent but induce a team-production problem which, if severe enough, can prevent the referral of valuable opportunities. Partnership contracts, in which agents agree in advance to the allocation of opportunities and of the revenues they generate, support referrals where the market cannot, but often at the expense of distortions on those opportunities that are not referred. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=6&issue_date=June 2004 10.1257/0002828041464506 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article The Role of Social Capital in Financial Development LuigiGuiso PaolaSapienza LuigiZingales 526 556 To identify the effect of social capital on financial development, we exploit social capital differences within Italy. In high-social-capital areas, households are more likely to use checks, invest less in cash and more in stock, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less educated people. These results are not driven by omitted environmental variables, since we show that the behavior of movers is still affected by the level of social capital of the province where they were born. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=7&issue_date=June 2004 10.1257/0002828041464498 http://www.e-aer.org/data/june2004_guiso_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Irreversible Decisions and Record-Setting News Principles SvetlanaBoyarchenko 557 568 In the now-classical real options theory, the price of an underlying asset is modeled as a geometric Brownian motion, and optimal exercise strategies are described by simple explicit formulas. This paper extends the classical theory to allow any geometric Le´vy process to model prices. Such processes may account for fat tails and skewness of probability distributions of commodity prices. The optimal exercise strategies are specified in the paper in terms of statistics of record-setting low or high prices. The formulas derived extend those observed in the Gaussian case, but the form of the result is novel even for that case. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=8&issue_date=June 2004 10.1257/0002828041464452 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article In-Kind Finance: A Theory of Trade Credit MikeBurkart ToreEllingsen 569 590 It is typically less profitable for an opportunistic borrower to divert inputs than to divert cash. Therefore, suppliers may lend more liberally than banks. This simple argument is at the core of our contract theoretic model of trade credit in competitive markets. The model implies that trade credit and bank credit can be either complements or substitutes. Among other things, the model explains why trade credit has short maturity, why trade credit is more prevalent in less developed credit markets, and why accounts payable of large unrated firms are more countercyclical than those of small firms. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=9&issue_date=June 2004 10.1257/0002828041464579 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article What's in a Grade? School Report Cards and the Housing Market David N.Figlio Maurice E.Lucas 591 604 This paper investigates whether the housing market responds to the information incorporated in state-administered school grades. We study whether school grades affect families' residential locations and house prices. Using detailed data on repeated sales of individual residential properties in the state of Florida, we find evidence that there is an independent effect of these grades on house prices and residential location, above and beyond the estimated effects of test scores and the other components of the school grades. Because these grades have a large stochastic component, however, we find that over time the estimated effects of the grades has diminished. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=10&issue_date=June 2004 10.1257/0002828041464489 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages BeataSmarzynska Javorcik 605 627 Many countries strive to attract foreign direct investment (FDI) hoping that knowledge brought by multinationals will spill over to domestic industries and increase their productivity. In contrast with earlier literature that failed to find positive intraindustry spillovers from FDI, this study focuses on effects operating across industries. The analysis, based on firm-level data from Lithuania, produces evidence consistent with positive productivity spillovers from FDI taking place through contacts between foreign affiliates and their local suppliers in upstream sectors. The data indicate that spillovers are associated with projects with shared domestic and foreign ownership but not with fully owned foreign investments. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=11&issue_date=June 2004 10.1257/0002828041464605 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Pareto-Improving Campaign Finance Policy StephenCoate 628 655 This paper argues that campaign finance policy, in the form of contribution limits and matching public financing, can be Pareto improving even under very optimistic assumptions concerning the role of campaign advertising and the rationality of voters. The optimistic assumptions are that candidates use campaign contributions to convey truthful information to voters about their qualifications for office and that voters update their beliefs rationally on the basis of the information they have seen. The argument also assumes that campaign contributions are provided by interest groups and that candidates can offer to provide policy favors to attract higher contributions. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=12&issue_date=June 2004 10.1257/0002828041464443 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Workers' Education, Spillovers, and Productivity: Evidence from Plant-Level Production Functions EnricoMoretti 656 690 I assess the magnitude of human capital spillovers by estimating production functions using a unique firm-worker matched data set. Productivity of plants in cities that experience large increases in the share of college graduates rises more than the productivity of similar plants in cities that experience small increases in the share of college graduates. These productivity gains are offset by increased labor costs. Using three alternative measures of economic distance—input-output flows, technological specialization, and patent citations—I find that within a city, spillovers between industries that are economically close are larger than spillovers between industries that are economically distant. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=13&issue_date=June 2004 10.1257/0002828041464623 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Efficient Patent Pools JoshLerner JeanTirole 691 711 The paper builds a tractable model of patent pools, agreements among patent owners to license sets of their patents. It provides a necessary and sufficient condition for patent pools to enhance welfare and shows that requiring pool members to be able to independently license patents matters if and only if the pool is otherwise welfare reducing. The paper allows patents to differ in importance, asymmetric blocking patterns, and licensors to also be licensees. We undertake some initial exploration of the impact of pools on innovation. The analysis has broader applicability than pools, being relevant to a number of co-marketing arrangements. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=14&issue_date=June 2004 10.1257/0002828041464641 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Is There a Politically Optimal Level of Judicial Independence? F. AndrewHanssen 712 729 Independent courts render current policy more durable (by raising the cost of future policy changes) but may also engage in policy-making of their own. This paper asks: Is there an optimal level of judicial independence from the perspective of incumbent officials in the other branches? To answer that question, the paper develops a model of strategic institutional choice, and tests it on the judicial institutions of the American states. Consistent with the model's predictions, the most independenceenhancing institutions are found where political competition between rival parties is tightest and differences between party platforms are largest. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=15&issue_date=June 2004 10.1257/0002828041464470 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Money Does Matter! Evidence from Increasing Real Income and Life Satisfaction in East Germany Following Reunification PaulFrijters John P.Haisken-DeNew Michael A.Shields 730 740 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=16&issue_date=June 2004 10.1257/0002828041464551 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Examining the Role of Social Isolation on Stated Preferences John A.List Robert P.Berrens Alok K.Bohara JoeKerkvliet 741 752 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=17&issue_date=June 2004 10.1257/0002828041464614 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article After the Big Bang? Obstacles to the Emergence of the Rule of Law in Post-Communist Societies KarlaHoff Joseph E.Stiglitz 753 763 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=18&issue_date=June 2004 10.1257/0002828041464533 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Incentives and Discrimination EyalWinter 764 773 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=19&issue_date=June 2004 10.1257/0002828041464434 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Aid, Policies, and Growth: Comment WilliamEasterly RossLevine DavidRoodman 774 780 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=20&issue_date=June 2004 10.1257/0002828041464560 http://www.e-aer.org/data/june2004_easterly_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Aid, Policies, and Growth: Reply CraigBurnside DavidDollar 781 784 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=21&issue_date=June 2004 10.1257/0002828041464524 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty: Comment AntonioCiccone 785 795 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=22&issue_date=June 2004 10.1257/0002828041464425 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Comment Leslie M.Marx GregShaffer 796 801 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=23&issue_date=June 2004 10.1257/0002828041464588 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity: Reply R. PrestonMcAfee MariusSchwartz 802 803 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=24&issue_date=June 2004 10.1257/0002828041464632 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 3 June 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=3&issue_date=June 2004 Journal Article Independent Auditors' Report 805 812 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=3&article=25&issue_date=June 2004 10.1257/0002828041464515 al=AER&volume=93&issue=4&article=22&issue_date=September 2003 10.1257/000282803769206395 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 93 4 September 2003 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=93&issue=4&issue_date=September 2003 Journal Article Elephants: Comment Erwin H.Bulte Richard D.Horan Jason F.Shogren 1437 1445 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=93&issue=4&article=23&issue_date=September 2003 10.1257/000282803769206403 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 93 4 September 2003 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=93&issue=4&issue_date=September 2003 Journal Article Elephants: Reply MichaelKremer CharlesMorcom 1446 1448 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=93&issue=4&article=24&issue_date=September 2003 10.1257/000282803769206412