American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Journal Article Front Matter and Editor's Note Robert A.MoffittJohns Hopkins U i i http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.i 10.1257/aer.101.1.i American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Centenary Symposium 100 Years of the American Economic Review: The Top 20 Articles Kenneth J.ArrowSIEPR, Stanford U B. DouglasBernheimStanford U Martin S.FeldsteinNBER Daniel L.McFaddenU CA, Berkeley James M.PoterbaMIT Robert M.SolowMIT 1 8 This paper presents a list of the top 20 articles published in the American Economic Review during its first 100 years. This list was assembled in honor of the AER's one-hundredth anniversary by a group of distinguished economists at the request of AER's editor. A brief description accompanies the citations of each article. http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.1 10.1257/aer.101.1.1 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Centenary Symposium The Economic History of the American Economic Review: A Century's Explosion of Economics Research Robert A.MargoBoston U 9 35 Written in celebration of the 100th anniversary of the American Economic Review, this paper recounts the history of the journal. The recounting has an analytic core that sees the American Economic Association as an organization supplying goods and services to its members, one of which is the Review. Early in its history the Review was a multipurpose publication with highly disparate content. Over time the economics profession expanded and more economics research was produced, primarily in the form of journal articles. Editors accommodated this shift by allocating more resources to the refereeing and editing process and more space to research papers. (JEL A14, B19, B29) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.9 10.1257/aer.101.1.9 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Centenary Symposium Some Unsettled Problems of Irrigation (1911) KatharineComan? 36 48 A reprint of the lead article in the inaugural issue of the American Economic Review, "Some Unsettled Problems of Irrigation," by Katharine Coman, who examined the common property resource problem as applied to water in the Western United States. http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.36 10.1257/aer.101.1.36 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Centenary Symposium Reflections on "Some Unsettled Problems of Irrigation" ElinorOstromIN U and Center for the Study of Institutional Diversity, AZ State U 49 63 It is instructive to read the article that Katharine Coman published in the first issue of the American Economic Review to gain insight into the problems of collective action related to irrigation in the American West. One gains further understanding of the problems Coman identifies by using a social-ecological system (Ostrom 2007, 2009) to organize the diverse variables identified by Coman. One gains a general lesson from this analysis that changing the formal governance structure of irrigation is not sufficient to ensure efficient investment in facilities or that farmers are able to acquire property and make a reasonable living. Building knowledge and trust are, however, essential for solving collective-action problems. (JEL B31, N51, Q15, Q25) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.49 10.1257/aer.101.1.49 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Centenary Symposium Institutional Path Dependence in Climate Adaptation: Coman's "Some Unsettled Problems of Irrigation" Gary D.LibecapU CA, Santa Barbara and U Cambridge 64 80 Katharine Coman's "Some Unsettled Problems of Irrigation," published in March 1911 in the first issue of the American Economic Review, addressed issues of water supply, rights, and organization. These same issues have relevance today, in the face of growing concern about the availability of fresh water worldwide. The central point of this article is that appropriative water rights and irrigation districts that emerged in the American West in the late nineteenth and early twentieth centuries in response to aridity to facilitate agricultural water delivery, use, and trade raise the transaction costs today of water markets. These markets are vital for smooth reallocation of water to higher-valued uses elsewhere in the economy and for flexible response to greater hydrological uncertainty. This institutional path dependence illustrates how past arrangements to meet conditions of the time constrain contemporary economic opportunities. They cannot be easily significantly modified or replaced ex post. (JEL N51, Q15, Q25, Q54) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.64 10.1257/aer.101.1.64 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Centenary Symposium The Problem of the Commons: Still Unsettled after 100 Years Robert N.StavinsHarvard U and Resources for the Future 81 108 The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the US and other economies have grown, the carrying capacity of the planet--in regard to natural resources and environmental quality--has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons. Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open-access. An important example is the degradation of openaccess fisheries. Critical commons problems are also associated with environmental quality. A key contribution of economics has been the development of market-based approaches to environmental protection. These instruments are key to addressing the ultimate commons problem of the twenty-first century-global climate change. (JEL Q15, Q21, Q22, Q25, Q54) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.81 10.1257/aer.101.1.81 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles Two Illustrations of the Quantity Theory of Money: Breakdowns and Revivals Thomas J.SargentNYU PaoloSuricoLondon Business School 109 28 By extending his data, we document the instability of low-frequency regression coefficients that Lucas (1980) used to express the quantity theory of money. We impute the differences in these regression coefficients to differences in monetary policies across periods. A DSGE model estimated over a subsample like Lucas's implies values of the regression coefficients that confirm Lucas's results for his sample period. But perturbing monetary policy rule parameters away from the values estimated over Lucas's subsample alters the regression coefficients in ways that reproduce their instability over our longer sample. (JEL C51, E23, E31, E43, E51, E52) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.109 10.1257/aer.101.1.109 http://www.aeaweb.org/aer/data/feb2011/20081281_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles Is Tiger Woods Loss Averse? Persistent Bias in the Face of Experience, Competition, and High Stakes Devin G.PopeU Chicago Maurice E.SchweitzerU PA 129 57 Although experimental studies have documented systematic decision errors, many leading scholars believe that experience, competition, and large stakes will reliably extinguish biases. We test for the presence of a fundamental bias, loss aversion, in a high-stakes context: professional golfers' performance on the PGA Tour. Golf provides a natural setting to test for loss aversion because golfers are rewarded for the total number of strokes they take during a tournament, yet each individual hole has a salient reference point, par. We analyze over 2.5 million putts using precise laser measurements and find evidence that even the best golfers--including Tiger Woods--show evidence of loss aversion. (JEL D03, D81, L83) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.129 10.1257/aer.101.1.129 http://www.aeaweb.org/aer/data/feb2011/20090681_data.pdf http://www.aeaweb.org/aer/data/feb2011/20090681_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles The Effect of Female Education on Fertility and Infant Health: Evidence from School Entry Policies Using Exact Date of Birth JustinMcCraryU CA, Berkeley HeatherRoyerU CA, Santa Barbara 158 95 This paper uses age-at-school-entry policies to identify the effect of female education on fertility and infant health. We focus on sharp contrasts in schooling, fertility, and infant health between women born just before and after the school entry date. School entry policies affect female education and the quality of a woman's mate and have generally small, but possibly heterogeneous, effects on fertility and infant health. We argue that school entry policies manipulate primarily the education of young women at risk of dropping out of school. (JEL I12, I21, J13, J16) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.158 10.1257/aer.101.1.158 http://www.aeaweb.org/aer/data/feb2011/20050257_data.zip http://www.aeaweb.org/aer/data/feb2011/20050257_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles Growing Like China ZhengSongFudan U and Chinese U Hong Kong KjetilStoreslettenFederal Reserve Bank of Minneapolis FabrizioZilibottiU Zurich 196 233 We construct a growth model consistent with China's economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial firms use more productive technologies, but due to financial imperfections they must finance investments through internal savings. State-owned firms have low productivity but survive because of better access to credit markets. High-productivity firms outgrow low-productivity firms if entrepreneurs have sufficiently high savings. The downsizing of financially integrated firms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China's economic transition. (JEL E21, E22, E23, F43, L60, O16, O53, P23, P24, P31) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.196 10.1257/aer.101.1.196 http://www.aeaweb.org/aer/data/feb2011/20081317_data.zip http://www.aeaweb.org/aer/data/feb2011/20081317_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles Reference Prices, Costs, and Nominal Rigidities MartinEichenbaumNorthwestern U NirJaimovichStanford U SergioRebeloNorthwestern U 234 62 We assess the importance of nominal rigidities using a new weekly scanner dataset. We find that nominal rigidities take the form of inertia in reference prices and costs, defined as the most common prices and costs within a given quarter. Reference prices are particularly inertial and have an average duration of roughly one year, even though weekly prices change roughly once every two weeks. We document the relation between prices and costs and find sharp evidence of state dependence in prices. We use a simple model to argue that reference prices and costs are useful statistics for macroeconomic analysis. (JEL L11, L25, L81) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.234 10.1257/aer.101.1.234 http://www.aeaweb.org/aer/data/feb2011/20080150_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles Bundle-Size Pricing as an Approximation to Mixed Bundling Chenghuan SeanChuFederal Reserve Board PhillipLeslieStanford U AlanSorensenStanford U 263 303 Multiproduct firms can set separate prices for all possible bundled combinations of its products "mixed bundling"). However, this is impractical for firms with more than a few products, because the number of prices increases exponentially with the number of products. We find that simple pricing strategies are often nearly optimal. Specifically, we show that bundle-size pricing--setting prices that depend only on the size of bundle purchased--tends to be more profitable than offering the individual products priced separately and tends to closely approximate the profits from mixed bundling. (JEL D24, D42, L11, L13, L25) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.263 10.1257/aer.101.1.263 http://www.aeaweb.org/aer/data/feb2011/20080227_data.zip http://www.aeaweb.org/aer/data/feb2011/20080227_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Articles Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms PaulaBustosCREI and U Pompeu Fabra 304 40 This paper studies the impact of a regional free trade agreement, MERCOSUR, on technology upgrading by Argentinean firms. To guide empirical work, I introduce technology choice in a model of trade with heterogeneous firms. The joint treatment of the technology and exporting choices shows that the increase in revenues produced by trade integration can induce exporters to upgrade technology. An empirical test of the model reveals that firms in industries facing higher reductions in Brazil's tariffs increase investment in technology faster. The effect of tariffs is highest in the upper-middle range of the firm-size distribution, as predicted by the model. (JEL F13, F15, O19, O24, O33) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.304 10.1257/aer.101.1.304 http://www.aeaweb.org/aer/data/feb2011/20081226_data.zip http://www.aeaweb.org/aer/data/feb2011/20081226_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Shorter Papers Monetary Policy, Trend Inflation, and the Great Moderation: An Alternative Interpretation OlivierCoibionCollege of William and Mary YuriyGorodnichenkoU CA, Berkeley 341 70 With positive trend inflation, the Taylor principle does not guarantee a determinate equilibrium. We provide new theoretical results on determinacy in New Keynesian models with positive trend inflation and new empirical findings on the Federal Reserve's reaction function before and after the Volcker disinflation to find that, (i) while the Fed likely satisfied the Taylor principle before Volcker, the US economy was still subject to self-fulfilling fluctuations in the 1970s, (ii) the US economy switched to determinacy during the Volcker disinflation, and (iii) the switch reflected changes in the Fed's response to macroeconomic variables and the decline in trend inflation. (JEL E12, E23, E31, E32, E52) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.341 10.1257/aer.101.1.341 http://www.aeaweb.org/aer/data/feb2011/20081378_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Shorter Papers Inflation and Unemployment in the Long Run AleksanderBerentsenU Basel GuidoMenzioU PA RandallWrightU WI and Federal Reserve Bank of Minneapolis 371 98 We study the long-run relation between money (inflation or interest rates) and unemployment. We document positive relationships between these variables at low frequencies. We develop a framework where money and unemployment are modeled using explicit microfoundations, providing a unified theory to analyze labor and goods markets. We calibrate the model and ask how monetary factors account for labor market behavior. We can account for a sizable fraction of the increase in unemployment rates during the 1970s. We show how it matters whether one uses monetary theory based on the search-and-bargaining approach or on an ad hoc cash-in-advance constraint. (JEL E24, E31, E41, E43, E52) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.371 10.1257/aer.101.1.371 http://www.aeaweb.org/aer/data/feb2011/20080300_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Shorter Papers Resolving Conflicting Preferences in School Choice: The "Boston Mechanism" Reconsidered AtilaAbdulkadirogluDuke U Yeon-KooCheColumbia U and YERI, Yonsei U YosukeYasudaNational Graduate Institute for Policy Studies, Tokyo 399 410 Despite its widespread use, the Boston mechanism has been criticized for its poor incentive and welfare performances compared to the Gale-Shapley deferred acceptance algorithm (DA). By contrast, when students have the same ordinal preferences and schools have no priorities, we find that the Boston mechanism Pareto dominates the DA in ex ante welfare, that it may not harm but rather benefit participants who may not strategize well, and that, in the presence of school priorities, the Boston mechanism also tends to facilitate greater access than the DA to good schools for those lacking priorities at those schools. (JEL D82, I21, I28) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.399 10.1257/aer.101.1.399 http://www.aeaweb.org/aer/data/feb2011/20081373_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 101 1 February 2011 http://www.aeaweb.org/issue.php?journal=AER&volume=101&issue=1 Shorter Papers The Evolution of Cooperation in Infinitely Repeated Games: Experimental Evidence PedroDal BoBrown U Guillaume R.FrochetteNYU 411 29 A usual criticism of the theory of infinitely repeated games is that it does not provide sharp predictions since there may be a multiplicity of equilibria. To address this issue, we present experimental evidence on the evolution of cooperation in infinitely repeated prisoner's dilemma games as subjects gain experience. We show that cooperation may prevail in infinitely repeated games, but the conditions under which this occurs are more stringent than the subgame perfect conditions usually considered or even a condition based on risk dominance. (JEL C71, C73) http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.1.411 10.1257/aer.101.1.411 http://www.aeaweb.org/aer/data/feb2011/20081020_data.zip http://www.aeaweb.org/aer/data/feb2011/20081020_app.pdf