American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach XavierSala-I-Martin GernotDoppelhofer Ronald I.Miller 813 835 This paper examines the robustness of explanatory variables in cross-country economic growth regressions. It introduces and employs a novel approach, Bayesian Averaging of Classical Estimates (BACE), which constructs estimates by averaging OLS coefficients across models. The weights given to individual regressions have a Bayesian justification similar to the Schwarz model selection criterion. Of 67 explanatory variables we find 18 to be significantly and robustly partially correlated with long-term growth and another three variables to be marginally related. The strongest evidence is for the relative price of investment, primary school enrollment, and the initial level of real GDP per capita. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=1&issue_date=September 2004 10.1257/0002828042002570 http://www.e-aer.org/data/sept04_bace_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Why Does the Cyclical Behavior of Real Wages Change Over Time? Kevin X.D.Huang ZhengLiu LouisPhaneuf 836 856 The cyclical behavior of real wages has evolved from mildly countercyclical during the interwar period to modestly procyclical in the postwar era. This paper presents a general-equilibrium business-cycle model that helps explain the evolution. In the model, changes in the real wage cyclicality arise from interactions between nominal wage and price rigidities and an evolving input-output structure. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=2&issue_date=September 2004 10.1257/0002828042002552 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments DirkEngelmann MartinStrobel 857 869 We present simple one-shot distribution experiments comparing the relative importance of efficiency concerns, maximin preferences, and inequality aversion, as well as the relative performance of the fairness theories by Gary E Bolton and Axel Ockenfels and by Ernst Fehr and Klaus M. Schmidt. While the Fehr-Schmidt theory performs better in a direct comparison, this appears to be due to being in line with maximin preferences. More importantly, we find that a combination of efficiency concerns, maximin preferences, and selfishness can rationalize most of the data while the Bolton-Ockenfels and Fehr-Schmidt theories are unable to explain important patterns. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=3&issue_date=September 2004 10.1257/0002828042002741 http://www.e-aer.org/data/sept04_data_engelmann.txt American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article The Long and Short of the Canada-U. S. Free Trade Agreement DanielTrefler 870 895 The Canada-U. S. Free Trade Agreement provides a unique window onto the effects of a reciprocal trade agreement on an industrialized economy (Canada). For industries that experienced the deepest Canadian tariff cuts, the contraction of low-productivity plants reduced employment by 12 percent while raising industrylevel labor productivity by 15 percent. For industries that experienced the largest U. S. tariff cuts, plant-level labor productivity soared by 14 percent. These results highlight the conflict between those who bore the short-run adjustment costs (displaced workers and struggling plants) and those who are garnering the long-run gains (consumers and efficient plants). http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=4&issue_date=September 2004 10.1257/0002828042002633 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Sunk Investments Lead to Unpredictable Prices George J.Mailath AndrewPostlewaite LarrySamuelson 896 918 We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine investment levels and prices may make it impossible for buyers and sellers to predict the prices at which they will trade, leading to inefficient levels of investment and trade. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=5&issue_date=September 2004 10.1257/0002828042002660 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Desegregation and Black Dropout Rates JonathanGuryan 919 943 In 1954 the United States Supreme Court ruled that separate schools for black and white children were "inherently unequal." This paper studies whether the desegregation plans of the next 30 years benefited black and white students in desegregated school districts. Data from the 1970 and 1980 censuses suggest desegregation plans of the 1970's reduced high school dropout rates of blacks by two to three percentage points during this decade. No significant change is observed among whites. The results are robust to controls for family income, parental education, and state- and region-specific trends, as well as to tests for selective migration. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=6&issue_date=September 2004 10.1257/0002828042002679 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article The Macroeconomics of Labor and Credit Market Imperfections EtienneWasmer PhilippeWeil 944 963 Credit market imperfections influence the labor market and aggregate economic activity. In turn, macroeconomic factors have an impact on the credit sector. To assess these effects in a tractable general-equilibrium framework, we introduce endogenous search frictions, in the spirit of Peter Diamond (1990), in both credit and labor markets. We demonstrate that credit frictions amplify macroeconomic volatility through a financial accelerator. The magnitude of this general-equilibrium accelerator is proportional to the credit gap, defined as the deviation of actual output from its perfect credit market level. We explore various extensions, notably endogenous wages. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=7&issue_date=September 2004 10.1257/0002828042002525 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article The Cost of Business Cycles Under Endogenous Growth GadiBarlevy 964 990 Robert E. Lucas, Jr. argued that the welfare gains from reducing aggregate consumption volatility are negligible. Subsequent work that revisited his calculation continued to find small welfare benefits, further reinforcing the perception that business cycles do not matter. This paper argues instead that fluctuations can affect welfare, by affecting the growth rate of consumption. I show that fluctuations can reduce growth starting from a given initial consumption, which can imply substantial welfare effects as Lucas himself observed. Empirical evidence suggests the welfare effects are likely to be substantial, about two orders of magnitude greater than Lucas' original estimates. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=8&issue_date=September 2004 10.1257/0002828042002615 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Are Emily and Greg More Employable Than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination MarianneBertrand SendhilMullainathan 991 1013 We study race in the labor market by sending fictitious resumes to help-wanted ads in Boston and Chicago newspapers. To manipulate perceived race, resumes are randomly assigned African-American- or White-sounding names. White names receive 50 percent more callbacks for interviews. Callbacks are also more responsive to resume quality for White names than for African-American ones. The racial gap is uniform across occupation, industry, and employer size. We also find little evidence that employers are inferring social class from the names. Differential treatment by race still appears to still be prominent in the U. S. labor market. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=9&issue_date=September 2004 10.1257/0002828042002561 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article The Opportunity Criterion: Consumer Sovereignty Without the Assumption of Coherent Preferences RobertSugden 1014 1033 This paper proposes a formulation of consumer sovereignty, for use in normative economics, which does not presuppose individuals' preferences to be coherent. The fundamental intuition, that opportunity and responsibility have moral value, is formalized as an "opportunity criterion" for assessing resource allocation systems. A model of an exchange economy is presented in which rational arbitrageurs compete to make profits by trading with nonrational consumers. In equilibrium, this economy satisfies the opportunity criterion. One interpretation of this result is that, in a competitive environment, the overall effects of money pumps are benign, even if individuals' preferences are unstable or incoherent. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=10&issue_date=September 2004 10.1257/0002828042002714 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article The Politician and the Judge: Accountability in Government EricMaskin JeanTirole 1034 1054 We build a simple model to capture the major virtues and drawbacks of making public officials accountable (i. e., subjecting them to reelection): On the one hand, accountability allows the public to screen and discipline their officials; on the other, it may induce those officials to pander to public opinion and put too little weight on minority welfare. We study when decision-making powers should be allocated to the public directly (direct democracy), to accountable officials (called "politicians"), or to nonaccountable officials (called "judges"). http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=11&issue_date=September 2004 10.1257/0002828042002606 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article A New Measure of Monetary Shocks: Derivation and Implications Christina D.Romer David H.Romer 1055 1084 This paper develops a measure of U. S. monetary policy shocks for the period 1969–1996 that is relatively free of endogenous and anticipatory movements. Quantitative and narrative records are used to infer the Federal Reserve's intentions for the federal funds rate around FOMC meetings. This series is regressed on the Federal Reserve's internal forecasts to derive a measure free of systematic responses to information about future developments. Estimates using the new measure indicate that policy has large, relatively rapid, and statistically significant effects on both output and inflation. The effects are substantially stronger and quicker than those obtained using conventional indicators. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=12&issue_date=September 2004 10.1257/0002828042002651 http://www.e-aer.org/data/sept04_data_romer.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Running to Keep in the Same Place: Consumer Choice as a Game of Status EdHopkins TatianaKornienko 1085 1107 If individuals care about their status, defined as their rank in the distribution of consumption of one "positional" good, then the consumer's problem is strategic as her utility depends on the consumption choices of others. In the symmetric Nash equilibrium, each individual spends an inefficiently high amount on the status good. Using techniques from auction theory, we analyze the effects of exogenous changes in the distribution of income. In a richer society, almost all individuals spend more on conspicuous consumption, and individual utility is lower at each income level. In a more equal society, the poor are worse off. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=13&issue_date=September 2004 10.1257/0002828042002705 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article The Home-Market Effect and Bilateral Trade Patterns Gordon H.Hanson ChongXiang 1108 1129 We develop a monopolistic-competition model of trade with many industries to examine how home-market effects vary with industry characteristics. Industries with high transport costs and more differentiated products tend to be more concentrated in large countries than industries with low transport costs and less differentiated products. We test this prediction using a difference-in-difference gravity specification that controls for import tariffs, importing-country remoteness, home bias in demand, and the tendency for large countries to export more of all goods. We find strong evidence of home-market effects whose intensity varies across industries in a manner consistent with theory. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=14&issue_date=September 2004 10.1257/0002828042002688 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Insurance, Consumption, and Saving: A Dynamic Analysis in Continuous Time R.A.Somerville 1130 1140 This paper shows how the demand for non-life insurance interacts with consumption and saving. The analysis is set in continuous time, using the maximum principle. When insurance is actuarially fair, the insurance and consumption decisions are separable. With loaded premiums, and alternatively without insurance, optimal consumption is dynamically related to the growth rate of the loss probability, and a growing loss probability generates precautionary saving. With loaded premiums, less than full insurance is demanded at each instant, and optimal cover varies over time, whether or not the loss probability is constant. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=15&issue_date=September 2004 10.1257/0002828042002642 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Rational Overoptimism (and Other Biases) EricVan den Steen 1141 1151 Rational agents with differing priors tend to be overoptimistic about their chances of success. In particular, an agent who tries to choose the action that is most likely to succeed, is more likely to choose an action of which he overestimated, rather than underestimated, the likelihood of success. After studying the comparative statics of this mechanism, I show that it also causes agents to attribute failure to exogenous factors but success to their own choice of action, to disproportionately believe that they will outperform others, to overestimate the precision of their estimates, and to overestimate their control over the outcome. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=16&issue_date=September 2004 10.1257/0002828042002697 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Effects of Technology on Incentive Design of Share Contracts PriyankaPandey 1152 1168 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=17&issue_date=September 2004 10.1257/0002828042002543 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Saving, Risk Sharing, and Preferences for Risk MaurizioMazzocco 1169 1182 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=18&issue_date=September 2004 10.1257/0002828042002516 http://www.e-aer.org/data/sept04_data_mazzocco.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Balance Sheets and Exchange Rate Policy Luis FelipeCéspedes RobertoChang AndrésVelasco 1183 1193 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=19&issue_date=September 2004 10.1257/0002828042002589 http://www.aeaweb.org/aer/contents/appendices/sept04_data_chang.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border Jeffrey R.Campbell BeverlyLapham 1194 1206 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=20&issue_date=September 2004 10.1257/0002828042002723 http://www.aeaweb.org/aer/contents/appendices/sept04_data_campbell.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article Policy Gambles SumonMajumdar Sharun W.Mukand 1207 1222 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=21&issue_date=September 2004 10.1257/0002828042002624 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article A Comment on the Economics of Labor Adjustment: Mind the Gap RussellCooper Jonathan L.Willis 1223 1237 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=22&issue_date=September 2004 10.1257/0002828042002534 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article A Comment on the Economics of Labor Adjustment: Mind the Gap: Reply Ricardo J.Caballero Eduardo M.R.A.Engel 1238 1244 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=23&issue_date=September 2004 10.1257/0002828042002732 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 94 4 September 2004 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=94&issue=4&issue_date=September 2004 Journal Article A Comment on the Economics of Labor Adjustment: Mind the Gap: Rejoinder RussellCooper Jonathan L.Willis 1245 1247 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=94&issue=4&article=24&issue_date=September 2004 10.1257/0002828042002598 fo> 93 3 June 2003 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=93&issue=3&issue_date=June 2003 Journal Article An Empirical Analysis of the Risk Properties of Human Capital Returns IgnacioPalacios-Huerta 948 964 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=93&issue=3&article=25&issue_date=June 2003 10.1257/000282803322157197 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 93 3 June 2003 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=93&issue=3&issue_date=J