American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Land and Power: Theory and Evidence from Chile Jean-MarieBalandU Notre-Dame de la Paix James A.RobinsonHarvard U 1737 65 Many employment relationships concede rents to workers. Depending on the political institutions, the presence of such rents allows employers to use the threat of withdrawing them to control their workers’ political behavior, such as their votes in the absence of secret ballot. We examine the effects of the introduction of the secret ballot in Chile in 1958 on voting behavior. Before the reforms, localities with more pervasive patron-client relationships tended to exhibit a much stronger support for the right-wing parties, traditionally associated with the landed oligarchy. After the reform, however, this difference across localities completely disappeared. (JEL D72, N46, O13, O15, O17) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=1&issue_date=December 2008 10.1257/aer.98.5.1737 http://www.e-aer.org/data/dec08/20041237_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles The Costs of Remoteness: Evidence from German Division and Reunification Stephen J.ReddingLondon School of Economics Daniel M.SturmLondon School of Economics 1766 97 This paper exploits the division of Germany after the Second World War and the reunification of East and West Germany in 1990 as a natural experiment to provide evidence for the importance of market access for economic development. In line with a standard new economic geography model, we find that, following division, cities in West Germany close to the East-West German border experienced a substantial decline in population growth relative to other West German cities. We show that the model can account for the quantitative magnitude of our findings and provide additional evidence against alternative possible explanations. (JEL F15, N94, R12, R23) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=2&issue_date=December 2008 10.1257/aer.98.5.1766 http://www.e-aer.org/data/dec08/20050315_data.zip http://www.e-aer.org/data/dec08/20050315_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles The Response of Household Saving to the Large Shock of German Reunification NicolaFuchs-SchundelnHarvard U 1798 1828 German reunification was a large, unexpected shock for East Germans. Exploiting German reunification as a natural experiment, I analyze the validity of the life-cycle consumption model. I derive three stylized features concerning the saving behavior of East versus West Germans after reunification: (i) East Germans have higher saving rates than West Germans; (ii) this East-West gap is increasing in age at reunification; and (iii) for every cohort, this gap is declining over time. I show that a comprehensive life-cycle model can replicate these features. The precautionary saving motive is essential for the success of the model. (JEL D14, D91, E21) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=3&issue_date=December 2008 10.1257/aer.98.5.1798 http://www.e-aer.org/data/dec08/20060121_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles The Demand for, and Impact of, Learning HIV Status Rebecca L.ThorntonU MI 1829 63 This paper evaluates an experiment in which individuals in rural Malawi were randomly assigned monetary incentives to learn their HIV results after being tested. Distance to the HIV results centers was also randomly assigned. Without any incentive, 34 percent of the participants learned their HIV results. However, even the smallest incentive doubled that share. Using the randomly assigned incentives and distance from results centers as instruments for the knowledge of HIV status, sexually active HIV-positive individuals who learned their results are three times more likely to purchase condoms two months later than sexually active HIV-positive individuals who did not learn their results; however, HIV-positive individuals who learned their results purchase only two additional condoms than those who did not. There is no significant effect of learning HIV-negative status on the purchase of condoms. (JEL I12, O15) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=4&issue_date=December 2008 10.1257/aer.98.5.1829 http://www.e-aer.org/data/dec08/20060732_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Does Job Corps Work? Impact Findings from the National Job Corps Study Peter Z.SchochetMathematica Policy Research, Inc, Princeton, NJ JohnBurghardtMathematica Policy Research, Inc, Princeton, NJ SheenaMcConnellMathematica Policy Research, Inc, Princeton, NJ 1864 86 This paper presents findings from an experimental evaluation of Job Corps, the nation’s largest training program for disadvantaged youths. The study uses survey data collected over four years and tax data over nine years on a nationwide sample of 15,400 treatments and controls. The Job Corps model has promise; program participation increases educational attainment, reduces criminal activity, and increases earnings for several postprogram years. Based on tax data, however, the earnings gains were not sustained except for the oldest participants. Nonetheless, Job Corps is the only federal training program that has been shown to increase earnings for this population. (JEL I28, I38, J13, J24) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=5&issue_date=December 2008 10.1257/aer.98.5.1864 http://www.e-aer.org/data/dec08/20060076_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Consumption Inequality and Partial Insurance RichardBlundellU College London and Institute for Fiscal Studies LuigiPistaferriStanford U IanPrestonU College London and Institute for Fiscal Studies 1887 1921 This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We document a disjuncture between income and consumption inequality over the 1980s and show that it can be explained by changes in the persistence of income shocks. We find some partial insurance of permanent shocks, especially for the college educated and those near retirement. We find full insurance of transitory shocks except among poor households. Taxes, transfers, and family labor supply play an important role in insuring permanent shocks. (JEL D12, D31, D91, E21) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=6&issue_date=December 2008 10.1257/aer.98.5.1887 http://www.e-aer.org/data/dec08/20050545_data.zip http://www.e-aer.org/data/dec08/20050545_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Liquidity and Insurance for the Unemployed RobertShimerU Chicago IvanWerningMIT 1922 42 We study unemployment insurance for workers who sequentially sample job opportunities. We focus on the optimal timing of benefits and the desirability of allowing borrowing and saving. When workers have constant absolute risk aversion, a simple policy is optimal: a constant benefit during unemployment, a constant tax during employment, and free access to a riskless asset. With constant relative risk aversion, optimal policy involves nearly constant benefits; more elaborate policies offer minuscule welfare gains. We highlight two distinct policy roles: ensuring workers have sufficient liquidity to smooth their consumption; and providing unemployment subsidies to insure against uncertain spell duration. (JEL J65) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=7&issue_date=December 2008 10.1257/aer.98.5.1922 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Zombie Lending and Depressed Restructuring in Japan Ricardo J.CaballeroMIT TakeoHoshiU CA, San Diego and Tokyo Center for Economic Research Anil K.KashyapU Chicago and Federal Reserve Bank of Chicago 1943 77 Large Japanese banks often engaged in sham loan restructurings that kept credit flowing to otherwise insolvent borrowers (which we call zombies). We examine the implications of suppressing the normal competitive process whereby the zombies would shed workers and lose market share. The congestion created by the zombies reduces the profits for healthy firms, which discourages their entry and investment. We confirm that zombie-dominated industries exhibit more depressed job creation and destruction, and lower productivity. We present firm-level regressions showing that the increase in zombies depressed the investment and employment growth of non-zombies and widened the productivity gap between zombies and non-zombies. (JEL G21, G32, L25) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=8&issue_date=December 2008 10.1257/aer.98.5.1943 http://www.e-aer.org/data/dec08/20060307_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Trading Tasks: A Simple Theory of Offshoring Gene M.GrossmanPrinceton U EstebanRossi-HansbergPrinceton U 1978 97 We propose a theory of the global production process that focuses on tradeable tasks, and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the factor whose tasks are more easily moved offshore. In the light of this effect, reductions in the cost of trading tasks can generate shared gains for all domestic factors, in contrast to the distributional conflict that typically results from reductions in the cost of trading goods. (JEL F11, F16) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=9&issue_date=December 2008 10.1257/aer.98.5.1978 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Pricing-to-Market, Trade Costs, and International Relative Prices AndrewAtkesonUCLA ArielBursteinUCLA 1998 2031 International relative prices across industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in a quantitative model of international trade. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the United States, it can reproduce deviations from relative purchasing power parity similar to those observed in the data because firms choose to price-to-market. We then examine how pricing-to-market depends on the presence of international trade costs and various features of market structure. (JEL F12, F14, F31) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=10&issue_date=December 2008 10.1257/aer.98.5.1998 http://www.e-aer.org/data/dec08/20060638_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Optimal Tariffs and Market Power: The Evidence ChristianBrodaU Chicago NunoLimaoU MD David E.WeinsteinColumbia U 2032 65 We find that prior to World Trade Organization membership, countries set import tariffs 9 percentage points higher on inelastically supplied imports relative to those supplied elastically. The magnitude of this effect is similar to the size of average tariffs in these countries, and market power explains more of the tariff variation than a commonly used political economy variable. Moreover, US trade restrictions not covered by the WTO are significantly higher on goods where the United States has more market power. We find strong evidence that these importers have market power and use it in setting noncooperative trade policy. (JEL F12, F13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=11&issue_date=December 2008 10.1257/aer.98.5.2032 http://www.e-aer.org/data/dec08/20060147_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Stocks as Lotteries: The Implications of Probability Weighting for Security Prices NicholasBarberisYale U MingHuangCornell U and Cheung Kong Graduate School of Business 2066 2100 We study the asset pricing implications of Tversky and Kahneman's (1992) cumulative prospect theory, with a particular focus on its probability weighting component. Our main result, derived from a novel equilibrium with nonunique global optima, is that, in contrast to the prediction of a standard expected utility model, a security's own skewness can be priced: a positively skewed security can be "overpriced" and can earn a negative average excess return. We argue that our analysis offers a unifying way of thinking about a number of seemingly unrelated financial phenomena. (JEL D81, G11, G12) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=12&issue_date=December 2008 10.1257/aer.98.5.2066 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve TimothyCogleyU CA, Davis Argia M.SbordoneFederal Reserve Bank of New York 2101 26 Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backwardlooking terms to address this shortcoming. We hypothesize that inflation persistence results mainly from variation in the long-run trend component of inflation, which we attribute to shifts in monetary policy. We derive a version of the NKPC that incorporates a time-varying inflation trend and examine whether it explains the dynamics of inflation. When drift in trend inflation is taken into account, a purely forward-looking version of the model fits the data well, and there is no need for backward-looking components. (JEL E12, E31, E52) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=13&issue_date=December 2008 10.1257/aer.98.5.2101 http://www.e-aer.org/data/dec08/20050242_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Articles Contextual Inference in Markets: On the Informational Content of Product Lines EmirKamenicaU Chicago 2127 49 Context can influence decisions. This malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings. In a market equilibrium, however, context conveys payoff-relevant information to consumers. Consequently, these consumers rationally violate naïve formulations of standard choice theoretic principles. I identify informational asymmetries under which apparently anomalous behaviors, namely the compromise effect and choice overload, arise as market equilibria. Firms respond to consumers’ contextual inference; in case of the compromise effect, a firm may introduce premium loss leaders (expensive goods of overly high quality that increase the demand for other goods). (JEL D11, D83, M31) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=14&issue_date=December 2008 10.1257/aer.98.5.2127 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers Conversations among Competitors Jeremy C.SteinHarvard U 2150 62 I develop a model of bilateral conversations in which players honestly exchange ideas with their competitors. The key to incentive compatibility is complementarity in the information structure: a player can generate a new insight only if he has access to his counterpart’s previous thoughts on a topic. I then examine a social network in which A has a conversation with B, then B has a conversation with C, and so on. Relatively underdeveloped ideas can travel long distances over the network. More valuable ideas, by contrast, tend to remain localized among small groups of agents. (JEL D83) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=15&issue_date=December 2008 10.1257/aer.98.5.2150 http://www.e-aer.org/data/dec08/20071005_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study RalphStinebricknerBerea College ToddStinebricknerU Western Ontario 2163 84 A serious difficulty in determining the importance of credit constraints in education arises because standard data sources do not provide a direct way of identifying which students are credit constrained. This paper differentiates itself from previous work by taking a direct approach, made possible by unique longitudinal data from the Berea Panel Study. The results from our study of Berea College students suggest that, while credit constraints likely play an important role in the drop-out decisions of some students, the large majority of attrition of students from low-income families should be primarily attributed to reasons other than credit constraints. (JEL I21, I22) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=16&issue_date=December 2008 10.1257/aer.98.5.2163 http://www.e-aer.org/data/dec08/20060347_data.zip http://www.e-aer.org/data/dec08/20060347_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers On the Salience of Ethnic Conflict JoanEstebanCSIC DebrajRayNYU 2185 2202 A classical theme in social analysis views economic class divisions as the main cause of social conflict. Yet many, if not most of the conflicts we observe today appear to be ethnic in nature. It appears that the "vertical" nature of class divisions is often dominated by the "horizontal" antagonisms across groups delineated by noneconomic markers. This paper highlights the perverse synergy of economic inequality within ethnic groups, and its role in the salience of ethnic conflict. In a model of group formation which allows both class and ethnic groupings to emerge, we show that ethnic, as opposed to class, conflict may be focal, and precisely in the presence of economic inequality. (JEL D72, D74) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=17&issue_date=December 2008 10.1257/aer.98.5.2185 http://www.e-aer.org/data/dec08/20070003_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries AdiBrenderBank of Israel AllanDrazenU MD 2203 20 We test whether good economic conditions and expansionary fiscal policy help incumbents get reelected in a large panel of democracies. We find no evidence that deficits help reelection in any group of countries independent of income level, level of democracy, or government or electoral system. In developed countries and old democracies, deficits in election years or over the term of office reduce reelection probabilities. Higher growth rates over the term raise reelection probabilities only in developing countries and new democracies. Low inflation is rewarded by voters only in developed countries. These effects are both statistically significant and quite substantial quantitatively. (JEL D72, E62, H62, O47) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=18&issue_date=December 2008 10.1257/aer.98.5.2203 http://www.e-aer.org/data/dec08/20060492_data.zip http://www.e-aer.org/data/dec08/20060492_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers Changes in the Consumption, Income, and Well-Being of Single Mother Headed Families Bruce D.MeyerU Chicago James X.SullivanU Notre Dame 2221 41 We investigate well-being changes for single mother headed families targeted by recent tax and welfare reforms. Measured income changes sharply differ from consumption changes. We examine disaggregated consumption, time use, and health insurance coverage. Increases in housing and transportation spending mostly account for the rise in consumption in the bottom quintiles. We find modest improvement in housing quality, but the evidence is less strong at the very bottom. The consumption of nonmarket time for those in the bottom half of the consumption distribution falls sharply, indicating a loss in utility for those families if nonmarket time is valued above $3 per hour. (JEL D12, I31, I32, J12, J16) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=19&issue_date=December 2008 10.1257/aer.98.5.2221 http://www.e-aer.org/data/dec08/20060064_data.zip http://www.e-aer.org/data/dec08/20060064_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers The Impact of Nearly Universal Insurance Coverage on Health Care Utilization: Evidence from Medicare DavidCardU CA, Berkeley CarlosDobkinU CA, Santa Cruz NicoleMaestasRAND Corporation 2242 58 The onset of Medicare eligibility at age 65 leads to sharp changes in the health insurance coverage of the US population. These changes lead to increases in the use of medical services, with a pattern of gains across socioeconomic groups that varies by type of service. While routine doctor visits increase more for groups that previously lacked insurance, hospital admissions for relatively expensive procedures like bypass surgery and joint replacement increase more for previously insured groups that are more likely to have supplementary coverage after 65, reflecting the relative generosity of their combined insurance package under Medicare. (JEL I11, I18) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=20&issue_date=December 2008 10.1257/aer.98.5.2242 http://www.e-aer.org/data/dec08/20051296_data.zip http://www.e-aer.org/data/dec08/20051296_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Shorter Papers Can Hepatitis B Mothers Account for the Number of Missing Women? Evidence from Three Million Newborns in Taiwan Ming-JenLinNational Taiwan U Ming-ChingLuohNational Taiwan U 2259 73 The "missing women" phenomenon in many Asian countries has previously been regarded as the result of son preference. However, some studies have argued half of the missing women can be explained by infection with Hepatitis B virus (HBV). We demonstrate that the probability of having a male birth is only slightly higher for HBV mothers than for mothers without HBV. The sex ratio at birth rises for the higher birth order and that in families where the first two children are female. Our findings suggest that HBV status has little impact on the missing women phenomenon. (JEL I12, J16) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=21&issue_date=December 2008 10.1257/aer.98.5.2259 http://www.e-aer.org/data/dec08/20061050_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 5 December 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=5&issue_date=December 2008 Journal Article Front Matter i i The front matter for the December 2008 issue contains the table of contents as well as information on Oliver E. Williamson, Distinguished Fellow, 2007. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=5&article=0&issue_date=December 2008 10.1257/aer.98.5.i