American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Accounting for the Growth of MNC-Based Trade Using a Structural Model of U.S. MNCs Susan E.Feinberg Michael P.Keane 1515 1558 In recent decades, U.S. foreign trade grew much faster than GDP, but there is no consensus why. Notably lacking is an understanding of the role of multinational corporations (MNCs), which mediate over half of world trade. We use Bureau of Economic Analysis data on U.S. MNCs to study the rapid growth of MNC-based trade from 1983 to 1996. Using a model of U.S. MNCs and Canadian affiliates, we decompose this growth by source. Tariff reductions can largely explain increases in arms-length MNC-based trade. But intra-firm trade growth is attributed mostly to ?technical change.? We present additional evidence suggesting just-in-time production facilitated intra-firm trade. (JEL F13, F14, F23) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=6&issue_date=December 2006 10.1257/aer.96.5.1515 http://www.e-aer.org/data/dec06/20031095_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Inherited Control and Firm Performance FranciscoPérez-González 1559 1588 I use data from chief executive officer (CEO) successions to examine the impact of inherited control on firms? performance. I find that firms where incoming CEOs are related to the departing CEO, to a founder, or to a large shareholder by either blood or marriage underperform in terms of operating profitability and market-to-book ratios, relative to firms that promote unrelated CEOs. Consistent with wasteful nepotism, lower performance is prominent in firms that appoint family CEOs who did not attend ?selective? undergraduate institutions. Overall, the evidence indicates that nepotism hurts performance by limiting the scope of labor market competition. (JEL G32, G34, L25, M13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=7&issue_date=December 2006 10.1257/aer.96.5.1559 http://www.e-aer.org/data/dec06/20020615_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Estimating the Effects of Global Patent Protection in Pharmaceuticals: A Case Study of Quinolones in India ShubhamChaudhuri Pinelopi K.Goldberg PanleGia 1477 1514 Under the Agreement on Trade-Related Intellectual Property Rights, the World Trade Organization members are required to enforce product patents for pharmaceuticals. In this paper we empirically investigate the welfare effects of this requirement on developing countries using data for the fluoroquinolones subsegment of the systemic anti-bacterials segment of the Indian pharmaceuticals market. Our results suggest that concerns about the potential adverse welfare effects of TRIPS may have some basis. We estimate that the withdrawal of all domestic products in this subsegment is associated with substantial welfare losses to the Indian economy, even in the presence of price regulation. The overwhelming portion of this welfare loss derives from the loss of consumer welfare. (JEL F13, L65, O34) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=5&issue_date=December 2006 10.1257/aer.96.5.1477 http://www.e-aer.org/data/dec06/20031330_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles A Dual-Self Model of Impulse Control DrewFudenberg David K.Levine 1449 1476 We propose that a simple ?dual-self? model gives a unified explanation for several empirical regularities, including the apparent time inconsistency that has motivated models of quasi-hyperbolic discounting and Rabin?s paradox of risk aversion in the large and small. The model also implies that self-control costs imply excess delay, as in the O?Donoghue and Rabin models of quasi-hyperbolic utility, and it explains experimental evidence that increased cognitive load makes temptations harder to resist. The base version of our model is consistent with the Gul-Pesendorfer axioms, but we argue that these axioms must be relaxed to account for the effect of cognitive load. (JEL D11, D81) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=4&issue_date=December 2006 10.1257/aer.96.5.1449 http://www.e-aer.org/data/dec06/20050971_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Are Technology Improvements Contractionary? SusantoBasu John G.Fernald Miles S.Kimball 1418 1448 Yes. We construct a measure of aggregate technology change, controlling for aggregation effects, varying utilization of capital and labor, nonconstant returns, and imperfect competition. On impact, when technology improves, input use and nonresidential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. The standard one-sector real-business-cycle model is not consistent with this evidence. The evidence is consistent, however, with simple sticky-price models, which predict the results we find: when technology improves, inputs and investment generally fall in the short run, and output itself may also fall. (JEL E22, E32, O33) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=3&issue_date=December 2006 10.1257/aer.96.5.1418 http://www.e-aer.org/data/dec06/20040577_data.zip http://www.e-aer.org/data/dec06/20040577_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Quantitative Aggregate Economics Finn E.Kydland 1373 1383 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=1&issue_date=December 2006 10.1257/aer.96.5.1373 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Assessing the Impact of a School Subsidy Program in Mexico: Using a Social Experiment to Validate a Dynamic Behavioral Model of Child Schooling and Fertility Petra E.Todd Kenneth I.Wolpin 1384 1417 This paper uses data from a randomized social experiment in Mexico to estimate and validate a dynamic behavioral model of parental decisions about fertility and child schooling, to evaluate the effects of the PROGRESA school subsidy program, and to perform a variety of counterfactual experiments of policy alternatives. Our method of validation estimates the model without using post-program data and then compares the model?s predictions about program impacts to the experimental impact estimates. The results show that the model?s predicted program impacts track the experimental results. Our analysis of counterfactual policies reveals an alternative subsidy schedule that would induce a greater impact on average school attainment at similar cost to the existing program. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=2&issue_date=December 2006 10.1257/aer.96.5.1384 http://www.e-aer.org/data/dec06/20031016_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment ErnstFehr MichaelNaef Klaus M.Schmidt 1912 1917 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=26&issue_date=December 2006 10.1257/aer.96.5.1912 http://www.e-aer.org/data/dec06/20030873_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Reply DirkEngelmann MartinStrobel 1918 1923 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=27&issue_date=December 2006 10.1257/aer.96.5.1918 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade: Comment JürgenMeckl 1924 1930 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=28&issue_date=December 2006 10.1257/aer.96.5.1924 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Empathy or Antipathy? The Impact of Diversity JohanneBoisjoly Greg J.Duncan MichaelKremer Dan M.Levy JacqueEccles 1890 1905 Mixing across racial and ethnic lines could spur understanding or inflame tensions between groups. We find that white students at a large state university randomly assigned African American roommates in their first year were more likely to endorse affirmative action and view a diverse student body as essential for a high-quality education. They were also more likely to say they have more personal contact with, and interact more comfortably with, members of minority groups. Although sample sizes are too small to provide definitive evidence, these results suggest students become more empathetic with the social groups to which their roommates belong. (JEL I28, J15, J18, Z13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=24&issue_date=December 2006 10.1257/aer.96.5.1890 http://www.e-aer.org/data/dec06/20040819_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Declining Volatility in the U.S. Automobile Industry Valerie A.Ramey Daniel J.Vine 1876 1889 Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, which in earlier decades stemmed primarily from plants hiring and laying off workers, were more often accomplished with changes in average hours per worker after the mid- 1980s. Using a linear quadratic inventory model with intensive and extensive labor adjustments, we show how all of these changes could have stemmed from one underlying factor?a decline in the persistence of motor vehicle sales. (JEL G31, L25, L62, M11) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=23&issue_date=December 2006 10.1257/aer.96.5.1876 http://www.e-aer.org/data/dec06/20040244_data.zip http://www.e-aer.org/data/dec06/20040244_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers How Special Is the Special Relationship? Using the Impact of U.S. R&D Spillovers on U.K. Firms as a Test of Technology Sourcing RachelGriffith RupertHarrison JohnVan Reenen 1859 1875 We examine the "technology sourcing" hypothesis that foreign research labs located in the U.S. tap into U.S. R&D spillovers and improve home country productivity. We show that U.K. firms that established a high proportion of inventors based in the U.S. by 1990 benefited disproportionately from the growth of U.S. R&D stock over the next ten years. We estimate that U.S. R&D during the 1990s was associated with 5 percent higher Total Factor Productivity for U.K. manufacturing firms in 2000 (about $13 billion), with the majority of benefits accruing to firms with an innovative presence in the U.S. (JEL F23, O32, O33) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=22&issue_date=December 2006 10.1257/aer.96.5.1859 http://www.e-aer.org/data/dec06/20040910_data.zip http://www.e-aer.org/data/dec06/20040910_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers The Japanese Saving Rate KaijiChen Ayşeİmrohoroğlu Selahattinİmrohoroğlu 1850 1858 Despite much work, economists have not been able to quantitatively account for the differences in the Japanese and U.S. saving rates after World War II. In this paper, we show that the use of actual Japanese total factor productivity growth rates in a standard growth model generates saving rates that are reasonably similar to the Japanese data between 1956 and 2000. (JEL E21, E22, O41, O47) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=21&issue_date=December 2006 10.1257/aer.96.5.1850 http://www.e-aer.org/data/dec06/20050105_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Phased-In Tax Cuts and Economic Activity Christopher L.House Matthew D.Shapiro 1835 1849 This paper uses a dynamic general equilibrium model to analyze and quantify the aggregate effects of the timing of tax rate changes enacted in 2001 (which called for successive rate reductions through 2006) and 2003 (which made immediate tax rate cuts scheduled for 2004 and 2006). The phased-in nature contributed to the slow recovery from the 2001 recession, while the elimination of the phase-in helped explain the increase in economic activity in 2003. The simulations suggest while the tax policy was a drag on the economy in 2001 and 2002, it increased economic growth in 2003, once phase-ins were eliminated. (JEL D58, E32, E62, H24, H25, O41) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=20&issue_date=December 2006 10.1257/aer.96.5.1835 http://www.e-aer.org/data/dec06/20040257_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers A New Method of Estimating Risk Aversion RajChetty 1821 1834 I show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion (γ) in terms of the ratio of the income elasticity of labor supply to wage elasticity and degree of complementarity between consumption and labor. I bound the degree of complementarity using data on consumption choices when labor supply varies across states. Using labor supply elasticity estimates, I find a mean estimate of γ ≈ 1, then show generating γ > 2 requires that wage increases cause sharper labor supply reductions. (JEL D81 J22 ) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=19&issue_date=December 2006 10.1257/aer.96.5.1821 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Child Labor and the Labor Supply of Other Household Members: Evidence from 1920 America MarcoManacorda 1788 1801 This paper exploits the variation in the legal minimum working age across states in 1920 America in order to identify households' labor supply responses to exogenous changes in children's labor force participation. Using micro data on urban households from the U.S. Census, I find evidence that as a child moves to the labor market his siblings are less likely to work and more likely to attend school. I find no significant effect on parents' labor supply. (JEL J13, J22, K31, N32) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=17&issue_date=December 2006 10.1257/aer.96.5.1788 http://www.e-aer.org/data/dec06/20031208_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results JustinWolfers 1802 1820 Applying the Coase Theorem to marital bargaining suggests that shifting from consent to unilateral divorce laws will not affect divorce rates. I show that existing evidence suggesting large effects of divorce laws on divorce rates reflect a failure to explicitly model the dynamic response of divorce rates to a shock to the legal regime. When accounting for these dynamics, I find that unilateral divorce spiked following the adoption of unilateral divorce laws, but that this rise largely reversed itself within a decade. Overall, these changes in family law explain very little of the rise in divorce over the past half-century. (JEL C78, J12) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=18&issue_date=December 2006 10.1257/aer.96.5.1802 http://www.e-aer.org/data/dec06/20030906_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Self-Fulfilling Currency Crises: The Role of Interest Rates ChristianHellwig ArijitMukherji AlehTsyvinski 1769 1787 We develop a model of currency crises, in which traders are heterogeneously informed, and interest rates are endogenously determined in a noisy rational expectations equilibrium. In our model, multiple equilibria result from distinct roles an interest rate plays in determining domestic asset market allocations and the devaluation outcome. Except for special cases, this finding is not affected by the introduction of noisy private signals. We conclude that the global games results on equilibrium uniqueness do not apply to market-based models of currency crises. (JEL D84, E43, F32) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=16&issue_date=December 2006 10.1257/aer.96.5.1769 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Cognition and Behavior in Two-Person Guessing Games: An Experimental Study Miguel A.Costa-Gomes Vincent P.Crawford 1737 1768 This paper reports an experiment that elicits subjects? initial responses to 16 dominance-solvable two-person guessing games. The structure is publicly announced except for varying payoff parameters, to which subjects are given free access. Varying the parameters allows very strong separation of the behavior implied by leading decision rules. Subjects? decisions and searches show that most subjects understood the games and sought to maximize payoffs, but many had simplified models of others? decisions that led to systematic deviations from equilibrium. The predictable component of their deviations is well explained by a structural nonequilibrium model of initial responses based on level-k thinking. (JEL C72, C92, D83) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=15&issue_date=December 2006 10.1257/aer.96.5.1737 http://www.e-aer.org/data/dec06/20041028_data.zip http://www.e-aer.org/data/dec06/20041028_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Crises and Prices: Information Aggregation, Multiplicity, and Volatility George-MariosAngeletos IvánWerning 1720 1736 Crises are volatile times when endogenous sources of information are closely monitored. We study the role of information in crises by introducing a financial market in a coordination game with imperfect information. The asset price aggregates dispersed private information acting as a public noisy signal. In contrast to the case with exogenous information, our main result is that uniqueness may not obtain as a perturbation from perfect information: multiplicity is ensured with small noise. In addition, we show that: (a) multiplicity may emerge in the financial price itself; (b) less noise may contribute toward nonfundamental volatility even when the equilibrium is unique; and (c) similar results obtain for a model where individuals observe one another?s actions, highlighting the importance of endogenous information more generally. (JEL D53, D82, D83) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=14&issue_date=December 2006 10.1257/aer.96.5.1720 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Storable Good Monopoly: The Role of Commitment PaoloDudine IgalHendel AlessandroLizzeri 1706 1719 We study dynamic monopoly pricing of storable goods in an environment where demand changes over time. The literature on durables has focused on incentives to delay purchases. Our analysis focuses on a different intertemporal demand incentive. The key force on the consumer side is advance purchases or stockpiling. In the case of storable goods, the stockpiling motive has recently been documented empirically. We show that, in this environment, if the monopolist cannot commit, then prices are higher in all periods, and social welfare is lower, than in the case in which the monopolist can commit. This is in contrast with the analysis in the literature on the Coase conjecture. (JEL D21, D42, L12) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=13&issue_date=December 2006 10.1257/aer.96.5.1706 http://www.e-aer.org/data/dec06/20050522_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers Tillvon Wachter StefanBender 1679 1705 We examine administrative data on young German workers and their employers to study the long-term effects of an early career job loss. To account for nonrandom sorting of workers into firms with different turnover rates and for selective job mobility, we use changes over time in firm- and age-specific labor demand as an instrument for displacement. We find that wage losses of young job losers are initially 15 percent, but drop to zero within five years. Only workers leaving very large establishments suffer persistent losses. A comparison of estimators implies that initial sorting, negative selection, and voluntary job mobility biases ordinary least squares estimates toward finding permanent negative effects of early displacements. (JEL J13, J23, J24, J62, J63, M53) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=12&issue_date=December 2006 10.1257/aer.96.5.1679 http://www.e-aer.org/data/dec06/20040969_data.pdf http://www.e-aer.org/data/dec06/20040969_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Incentives and Prosocial Behavior RolandBénabou JeanTirole 1652 1678 We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive for which good deeds are performed, and this ?overjustification effect? can induce a partial or even net crowding out of prosocial behavior by extrinsic incentives. We also identify the settings that are conducive to multiple social norms and, more generally, those that make individual actions complements or substitutes, which we show depends on whether stigma or honor is (endogenously) the dominant reputational concern. Finally, we analyze the socially optimal level of incentives and how monopolistic or competitive sponsors depart from it. Sponsor competition is shown to potentially reduce social welfare. (JEL D11, D64, D82, Z13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=11&issue_date=December 2006 10.1257/aer.96.5.1652 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Globalization and Emerging Markets: With or Without Crash? PhilippeMartin HélèneRey 1631 1651 We analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets. While trade globalization always makes crashes less likely, financial globalization may make them more likely, especially when trade costs are high. Pessimistic expectations can be self-fulfilling and lead to a collapse in demand for goods and assets. Such a crash comes with a current account reversal and drops in income and investment. Lower-income countries are more prone to such demand-based financial crises. A quantitative evaluation shows our model is consistent with the main stylized facts of financial crashes in emerging markets. (JEL F12, F32, F37, F41, O16) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=10&issue_date=December 2006 10.1257/aer.96.5.1631 http://www.e-aer.org/data/dec06/20020553_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles The Hidden Costs of Control ArminFalk MichaelKosfeld 1611 1630 We analyze the consequences of control on motivation in an experimental principalagent game, where the principal can control the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our results show that control entails hidden costs since most agents reduce their performance as a response to the principal?s controlling decision. Overall, the effect of control on the principal?s payoff is nonmonotonic. When asked for their emotional perception of control, most agents who react negatively say that they perceive the controlling decision as a signal of distrust and a limitation of their choice autonomy. (JEL D82, Z13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=9&issue_date=December 2006 10.1257/aer.96.5.1611 http://www.e-aer.org/data/dec06/20040599_data.zip http://www.e-aer.org/data/dec06/20040599_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Articles Household Expenditure and the Income Tax Rebates of 2001 David S.Johnson Jonathan A.Parker Nicholas S.Souleles 1589 1610 Using questions expressly added to the Consumer Expenditure Survey, we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis. We exploit the unique, randomized timing of rebate receipt across households. Households spent 20 to 40 percent of their rebates on nondurable goods during the three-month period in which their rebates arrived, and roughly two-thirds of their rebates cumulatively during this period and the subsequent three-month period. The implied effects on aggregate consumption demand are substantial. Consistent with liquidity constraints, responses are larger for households with low liquid wealth or low income. (JEL D12, D91, E21, E62, H24, H31) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=8&issue_date=December 2006 10.1257/aer.96.5.1589 http://www.e-aer.org/data/dec06/20040878_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 96 5 December 2006 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=96&issue=5&issue_date=December 2006 Shorter Papers Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment Gary EBolton AxelOckenfels 1906 1911 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=96&issue=5&article=25&issue_date=December 2006 10.1257/aer.96.5.1906 http://www.e-aer.org/data/dec06/20031020_data.zip