American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Journal Article Front Matter: (& John Pencavel: Distinguished Fellow) i vi http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.i 10.1257/aer.100.5.i American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Sudden Stops, Financial Crises, and Leverage Enrique G.MendozaU MD 1941 66 Financial crashes were followed by deep recessions in the Sudden Stops of emerging economies. An equilibrium business cycle model with a collateral constraint explains this phenomenon as a result of the amplification and asymmetry that the constraint induces in the responses of macro-aggregates to shocks. Leverage rises during expansions, and when it rises enough it triggers the constraint, causing a Fisherian deflation that reduces credit and the price and quantity of collateral assets. Output and factor allocations fall because access to working capital financing is also reduced. Precautionary saving makes Sudden Stops low probability events nested within normal cycles, as observed in the data. (JEL E21, E23, E32, E44, G01, O11, O16) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.1941 10.1257/aer.100.5.1941 http://www.aeaweb.org/aer/data/dec2010/20060850_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles The Political Economy of the US Mortgage Default Crisis AtifMianU CA, Berkeley AmirSufiU Chicago FrancescoTrebbiU British Columbia 1967 98 We examine the effects of constituents, special interests, and ideology on congressional voting on two of the most significant pieces of legislation in US economic history. Representatives whose constituents experience a sharp increase in mortgage defaults are more likely to support the Foreclosure Prevention Act, especially in competitive districts. Interestingly, representatives are more sensitive to defaults of their own-party constituents. Special interests in the form ofhigher campaign contributions from the financial industry increase the likelihood of supporting the Emergency Economic Stabilization Act. However, ideologically conservative representatives are less responsive to both constituent and special interests. (JEL D72, G21, G28) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.1967 10.1257/aer.100.5.1967 http://www.aeaweb.org/aer/data/dec2010/20090020_data.zip http://www.aeaweb.org/aer/data/dec2010/20090020_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Margins of Multinational Labor Substitution Marc-AndreasMuendlerU CA, San Diego and CESifo, Munich Sascha O.BeckerU Warwick and Ifo, Munich 1999 2030 Employment at a multinational enterprise (MNE) responds to wages at the extensive margin, when an MNE enters a foreign location, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric and nonparametric identification. Prior studies rarely found wages to affect MNE employment. Our integrated approach documents salient labor substitution for German manufacturing MNEs and removes bias. In Central and Eastern Europe, most employment responds at the extensive margin, while in Western Europe the extensive margin accounts for around two-thirds of employment shifts. At distant locations, MNEs respond to wages only at the extensive margin. (JEL F23, J23, J31, R32) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.1999 10.1257/aer.100.5.1999 http://www.aeaweb.org/aer/data/dec2010/20080062_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles An Exploration of Technology Diffusion DiegoCominHarvard U BartHobijnFederal Reserve Bank of San Francisco 2031 59 We develop a model that, at the aggregate level, is similar to the one-sector neoclassical growth model; at the disaggregate level, it has implications for the path of observable measures of technology adoption. We estimate it using data on the diffusion of 15 technologies in 166 countries over the last two centuries. Our results reveal that, on average, countries have adopted technologies 45 years after their invention. There is substantial variation across technologies and countries. Newer technologies have been adopted faster than old ones. The cross-country variation in the adoption of technologies accounts for at least 25 percent of per capita income differences. (JEL O33, O41, O47) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2031 10.1257/aer.100.5.2031 http://www.aeaweb.org/aer/data/dec2010/20040865_data.zip http://www.aeaweb.org/aer/data/dec2010/20040865_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Inherited Trust and Growth YannAlganSciences Po, Paris PierreCahucEcole Polytechnique, Malakoff 2060 92 This paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation. We show that inherited trust of descendants of US immigrants is significantly influenced by the country of origin and the timing of arrival of their forebears. We thus use the inherited trust of descendants of US immigrants as a time-varying measure of inherited trust in their country of origin. This strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects. (JEL N11, N12, N31, N32, O47, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2060 10.1257/aer.100.5.2060 http://www.aeaweb.org/aer/data/dec2010/20080054_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles International Trade and Income Differences Michael E.WaughNYU 2093 2124 I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically asymmetric, with poor countries facing higher costs to export relative to rich countries. I provide a method to model these asymmetries and demonstrate the merits of my approach relative to alternatives in the trade literature. I then argue that these trade frictions are quantitatively important to understanding the large differences in standards of living and total factor productivity across countries. (JEL F11, F13, F14, O19 ) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2093 10.1257/aer.100.5.2093 http://www.aeaweb.org/aer/data/dec2010/20070560_data.zip http://www.aeaweb.org/aer/data/dec2010/20070560_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Early Admissions at Selective Colleges ChristopherAveryHarvard U JonathanLevinStanford U 2125 56 Early admissions are widely used by selective colleges and universities. We identify some basic facts about early admissions policies, including the admissions advantage enjoyed by early applicants and patterns in application behavior, and propose a game-theoretic model that matches these facts. The key feature of the model is that colleges want to admit students who are enthusiastic about attending, and early admissions programs give students an opportunity to signal this enthusiasm. (JEL C78, I23) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2125 10.1257/aer.100.5.2125 http://www.aeaweb.org/aer/data/dec2010/20080311_data.zip http://www.aeaweb.org/aer/data/dec2010/20080311_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles The Changing Incidence of Geography James E.AndersonBoston College Yoto V.YotovDrexel U 2157 86 The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992-2003, sellers' incidence is on average some five times higher than buyers' incidence. Sellers' incidence falls over time due to specialization, despite constant gravity coefficients. This previously unrecognized globalizing force drives big reductions in "constructed home bias," the disproportionate predicted share of local trade; and large but varying gains in real GDP. (JEL F11, F14, R12) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2157 10.1257/aer.100.5.2157 http://www.aeaweb.org/aer/data/dec2010/20081103_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Is Reputation Good or Bad? An Experiment BritGrosskopfTX A&M U RajivSarinTX A&M U 2187 2204 We investigate the impact of reputation in a laboratory experiment. We do so by varying whether the past choices of a long-run player are observable by the short-run players. Our framework allows for reputation to have either a beneficial or a harmful effect on the long-run player. We find that reputation is seldom harmful and its beneficial effects are not as strong as theory suggests. When reputational concerns are at odds with other-regarding preferences, we find th latter overwhelm the former. (JEL C91, D12, D82, D83, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2187 10.1257/aer.100.5.2187 http://www.aeaweb.org/aer/data/dec2010/20070785_data.zip http://www.aeaweb.org/aer/data/dec2010/20070785_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Institutions and Behavior: Experimental Evidence on the Effects of Democracy PedroDal BóBrown U AndrewFosterBrown U LouisPuttermanBrown U 2205 29 A novel experiment is used to show that the effect of a policy on the level of cooperation is greater when it is chosen democratically by the subjects than when it is exogenously imposed. In contrast to the previous literature, our experimental design allows us to control for selection effects (e.g., those who choose the policy may be affected differently by it). Our finding implies that democratic institutions may affect behavior directly in addition to having effects through the choice of policies. Our findings have implications for the generalizability of the results of randomized policy interventions. (JEL C91, D02, D12, D72) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2205 10.1257/aer.100.5.2205 http://www.aeaweb.org/aer/data/dec2010/20080390_data.zip http://www.aeaweb.org/aer/data/dec2010/20080390_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Asymmetric Contests with Conditional Investments RonSiegelNorthwestern U 2230 60 This paper studies equilibrium behavior in a class of games that models asymmetric competitions with unconditional and conditional investments. Such competitions include lobbying settings, labor-market tournaments, and R& races, among others. I provide an algorithm that constructs the unique equilibrium in these games and apply it to study competitions in which a fraction of each competitor's investment is sunk and the rest is paid only by the winners. Complete-information all-pay auctions are a special case. (JEL D44, D72, D82) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2230 10.1257/aer.100.5.2230 http://www.aeaweb.org/aer/data/dec2010/20090116_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts AntonioCabralesU Carlos III de Madrid RaffaeleMiniaciU Brescia MarcoPiovesanU Copenhagen GiovanniPontiLUISS Guido Carli and U Alicante 2261 78 This paper reports a three-phase experiment on a stylized labor market. In the first two phases, agents face simple games, which we use to estimate subjects' social and reciprocity concerns. In the last phase, four principals compete by offering agents a contract from a fixed menu. Then, agents "choose to work" for a principal by selecting one of the available contracts. We find that (i) (heterogeneous) social preferences are significant determinants of choices, (ii) for both principals and agents, strategic uncertainty aversion is a stronger determinant of choices than fairness, and (iii) agents display a marked propensity to work for principals with similar distributional concerns. (JEL D82, D86, J41) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2261 10.1257/aer.100.5.2261 http://www.aeaweb.org/aer/data/dec2010/20061065_data.zip http://www.aeaweb.org/aer/data/dec2010/20061065_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Exploiting Naïvete about Self-Control in the Credit Market PaulHeidhuesESMT European School of Management and Technology GmbH, Berlin BotondKőszegiU CA, Berkeley 2279 2303 We analyze contract choices, loan-repayment behavior, and welfare in a model of a competitive credit market when borrowers have a taste for immediate gratification. Consistent with many credit cards and subprime mortgages, for most types of nonsophisticated borrowers the baseline repayment terms are cheap, but they are also inefficiently front loaded and delays require paying large penalties. Although credit is for future consumption, nonsophisticated consumers overborrow, pay the penalties, and back load repayment, suffering large welfare losses. Prohibiting large penalties for deferring small amounts of repayment—akin to recent regulations in the US credit-card and mortgage markets—can raise welfare. (JEL D14, D18, D49, D86) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2279 10.1257/aer.100.5.2279 http://www.aeaweb.org/aer/data/dec2010/20080881_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Inventories, Lumpy Trade, and Large Devaluations GeorgeAlessandriaFederal Reserve Bank of Philadelphia Joseph P.KaboskiU Notre Dame VirgiliuMidriganNYU 2304 39 We document that delivery lags and transaction-level economics of scale matter for international trade, leading importers to import infrequently and hold additional inventory. In a model with these frictions calibrated to empirical measures of inventory and trade lumpiness, these frictions have a large (20 percent) tariff equivalent, mostly due to inventory carrying costs. These frictions also alter the dynamics of imports and prices. Consistent with evidence from large devaluation episodes in six developing economies, following terms-of-trade and interest rate shocks, the model generates a short-term implosion of imports and a gradual increase in the retail price of imports. (JEL D92, F14, G31, L81, M11) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2304 10.1257/aer.100.5.2304 http://www.aeaweb.org/aer/data/dec2010/20080106_data.zip http://www.aeaweb.org/aer/data/dec2010/20080106_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Do We Follow Others When We Should? A Simple Test of Rational Expectations GeorgWeizsäckerU College London and DIW Berlin 2340 60 The paper presents a meta dataset covering 13 experiments on social learning games. It is found that in situations where it is empirically optimal to follow others and contradict one's own information, the players err in the majority of cases, forgoing substantial parts of earnings. The average player contradicts her own signal only if the empirical odds ratio of the own signal being wrong, conditional on all available information, is larger than 2:1, rather than 1:1 as would be implied by rational expectations. A regression analysis formulates a straightforward test of rational expectations which strongly rejects the null. (JEL D82, D83, D84) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2340 10.1257/aer.100.5.2340 http://www.aeaweb.org/aer/data/dec2010/20080435_data.zip http://www.aeaweb.org/aer/data/dec2010/20080435_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Persuasion by Cheap Talk ArchishmanChakrabortyYork U RickHarbaughIN U 2361 82 We consider the credibility, persuasiveness, and informativeness of multidimensional cheap talk by an expert to a decision maker. We find that an expert with state-independent preferences can always make credible comparative statements that trade off the expert's incentive to exaggerate on each dimension. Such communication benefits the expert—cheap talk is "persuasive"—if her preferences are quasiconvex. Communication benefits a decision maker by allowing for a more informed decision, but strategic interactions between multiple decision makers can reverse this gain. We apply these results to topics including product recommendations, voting, auction disclosure, and advertising. (JEL D44, D72, D82, D83, M37) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2361 10.1257/aer.100.5.2361 http://www.aeaweb.org/aer/data/dec2010/20080883_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia NavaAshrafHarvard U JamesBerryCornell U Jesse M.ShapiroU Chicago 2383 2413 The controversy over how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use, either by targeting distribution to high-use households (a screening effect), or by stimulating use psychologically through a sunk-cost effect. We develop a methodology for separating these two effects. We implement the methodology in a field experiment in Zambia using door-to-door marketing of a home water purification solution. We find evidence of economically important screening effects. By contrast, we find no consistent evidence of sunk-cost effects. (JEL C93, D12, I11, M31, O12) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2383 10.1257/aer.100.5.2383 http://www.aeaweb.org/aer/data/dec2010/20080857_data.zip http://www.aeaweb.org/aer/data/dec2010/20080857_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Inheritance Law and Investment in Family Firms AndrewEllulIN U MarcoPaganoU Naples "Federico II" and CSEF FaustoPanunziBocconi U and FEEM 2414 50 Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,004 firms from 38 countries in 1990-2006, we find that stricter inheritance law is associated with lower investment in family firms but does not affect investment in nonfamily firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession. (JEL G31, G32, K22, L26, O17). http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2414 10.1257/aer.100.5.2414 http://www.aeaweb.org/aer/data/dec2010/20081011_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Articles Binary Payment Schemes: Moral Hazard and Loss Aversion FabianHerwegU Bonn DanielMullerU Bonn PhilippWeinschenkU Bonn and Max Planck Institute for Research on Collective Goods, Bonn 2451 77 We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Kőszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully contingent contract. The logic is that, due to the stochastic reference point, increasing the number of different wages reduces the agent's expected utility without providing strong additional incentives. Moreover, for diminutive occurrence probabilities for all signals the agent is rewarded with the fixed bonus if his performance exceeds a certain threshold. (JEL D82, D86, J41, M52, M12) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2451 10.1257/aer.100.5.2451 http://www.aeaweb.org/aer/data/dec2010/20090286_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Shorter Papers Organizational Structure, Communication, and Group Ethics MatthewEllmanInstitute of Economics, CSIC and Barcelona Graduate School of Economics PaulPezanis-ChristouU Strasbourg 2478 91 This paper investigates experimentally how a group's structure affects its ethical behavior towards a passive outsider. We analyze one vertical and two horizontal structures (one requiring consensus, one implementing a compromise by averaging proposals). We also control for internal communication. The data support our main predictions: (1) horizontal, averaging structures are more ethical than vertical structures (where subordinates do not feel responsible) and than consensual structures (where responsibility is dynamically diffused); (2) communication makes vertical structures more ethical (subordinates with voice feel responsible); (3) with communication, vertical structures are more ethical than consensual structures (where in-group bias hurts the outsider). (JEL C92, D23, L21, M14) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2478 10.1257/aer.100.5.2478 http://www.aeaweb.org/aer/data/dec2010/20080625_data.zip http://www.aeaweb.org/aer/data/dec2010/20080625_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Shorter Papers Doing Well by Doing Good? Green Office Buildings PietEichholtzMaastricht U NilsKokMaastricht U John M.QuigleyU CA, Berkeley 2492 2509 This paper provides the first credible evidence on the economic value of "green buildings" derived from impersonal market transactions rather than engineering estimates. We analyze clusters of certified green and nearby buildings, establishing that "rated" buildings command substantially higher rents and selling prices than otherwise identical buildings. Variations in premiums are systematically related to energy-saving characteristics. Increased energy efficiency is associated with increased selling prices -- beyond the premiums paid for a labeled building. Evidence suggests that the intangible effects of the label itself may also play a role in determining the values of green buildings in the marketplace. (JEL G31, M14, Q52, R33) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2492 10.1257/aer.100.5.2492 http://www.aeaweb.org/aer/data/dec2010/20090531_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Shorter Papers Real Business Cycles in Emerging Countries? JavierGarcía-CiccoCentral Bank of Chile RobertoPancraziDuke U MartínUribeColumbia U 2510 31 We use more than a century of Argentine and Mexican data to estimate the structural parameters of a small-open-economy real-business-cycle model driven by nonstationary productivity shocks. We find that the RBC model does a poor job of explaining business cycles in emerging countries. We then estimate an augmented model that incorporates shocks to the country premium and financial frictions. We find that the estimated financial-friction model provides a remarkably good account of business cycles in emerging markets and, importantly, assigns a negligible role to nonstationary productivity shocks. (JEL E13, E32, E44, F43, O11, O16) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2510 10.1257/aer.100.5.2510 http://www.aeaweb.org/aer/data/dec2010/20071274_data.zip http://www.aeaweb.org/aer/data/dec2010/20071274_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Shorter Papers Negative Marginal Tax Rates and Heterogeneity PhilippeChonéINSEE-CREST, Malakoff GuyLaroqueU College London and INSEE-CREST, Malakoff 2532 47 Heterogeneity is an important determinant of the shape of optimal tax schemes. This is shown here in a model à la Mirrlees. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a given unidimensional combination of these two characteristics. Conditions are provided under which marginal tax rates are everywhere nonnegative. This is the case when work opportunity costs are distributed independently of income. But one can also get negative marginal tax rates, in particular at the bottom of the income distribution. A numerical illustration is given, based on UK data. (JEL H21, H24, H31, J22) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2532 10.1257/aer.100.5.2532 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 100 5 December 2010 http://www.aeaweb.org/issue.php?journal=AER&volume=100&issue=5 Shorter Papers Psychological Pressure in Competitive Environments: Evidence from a Randomized Natural Experiment JoseApesteguiaU Pompeu Fabra IgnacioPalacios-HuertaLondon School of Economics 2548 64 Emotions can have important effects on performance and socioeconomic outcomes. We study a natural experiment where two teams of professionals compete in a tournament taking turns in a sequence. As the sequential order is determined by the random outcome of a coin flip, the treatment and control groups are determined via explicit randomization. Hence, absent any psychological effects, both teams should have the same probability of winning. Yet, we find a systematic first-mover advantage. Further, professionals are self-aware of their own psychological effects and, when given the chance, they rationally react by systematically taking advantage of these effects. (JEL C93, D03, D82, L83) http://www.aeaweb.org/articles.php?doi=10.1257/aer.100.5.2548 10.1257/aer.100.5.2548 http://www.aeaweb.org/aer/data/dec2010/20081092_data.zip http://www.aeaweb.org/aer/data/dec2010/20081092_app.pdf