American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Macroeconomics for a Modern Economy Edmund S.Phelps 543 561 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=1&issue_date=June 2007 10.1257/aer.97.3.543 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Relative Prices and Relative Prosperity Chang-TaiHsieh Peter J.Klenow 562 585 The positive correlation between real investment rates and real income levels across countries is driven largely by differences in the price of investment relative to output. The high relative price of investment in poor countries is due to the low price of consumption goods in those countries. Investment prices are no higher in poor countries. Thus, the low real investment rates in poor countries are not driven by high tax or tariff rates on investment. Poor countries, instead, appear to be plagued by low efficiency in producing investment goods and in producing consumer goods to trade for them. (JEL E22, E23, O16, O47) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=2&issue_date=June 2007 10.1257/aer.97.3.562 http://www.e-aer.org/data/june07/20040953_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Shocks and Frictions in US Business Cycles: A Bayesian DSGE Approach FrankSmets RafaelWouters 586 606 Using a Bayesian likelihood approach, we estimate a dynamic stochastic general equilibrium model for the US economy using seven macroeconomic time series. The model incorporates many types of real and nominal frictions and seven types of structural shocks. We show that this model is able to compete with Bayesian Vector Autoregression models in out-of-sample prediction. We investigate the relative empirical importance of the various frictions. Finally, using the estimated model, we address a number of key issues in business cycle analysis: What are the sources of business cycle fluctuations? Can the model explain the cross correlation between output and inflation? What are the effects of productivity on hours worked? What are the sources of the "Great Moderation"? (JEL D58, E23, E31, E32) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=3&issue_date=June 2007 10.1257/aer.97.3.586 http://www.e-aer.org/data/june07/20041254_data.zip http://www.e-aer.org/data/june07/20041254_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Generalizing the Taylor Principle TroyDavig Eric M.Leeper 607 635 The paper generalizes the Taylor principle—the proposition that central banks can stabilize the macroeconomy by raising their interest rate instrument more than one-for-one in response to higher inflation—to an environment in which reaction coefficients in the monetary policy rule change regime, evolving according to a Markov process. We derive a long-run Taylor principle which delivers unique bounded equilibria in two standard models. Policy can satisfy the Taylor principle in the long run, even while deviating from it substantially for brief periods or modestly for prolonged periods. Macroeconomic volatility can be higher in periods when the Taylor principle is not satisfied, not because of indeterminacy, but because monetary policy amplifies the impacts of fundamental shocks. Regime change alters the qualitative and quantitative predictions of a conventional new Keynesian model, yielding fresh interpretations of existing empirical work. (JEL E31, E43, E52) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=4&issue_date=June 2007 10.1257/aer.97.3.607 http://www.e-aer.org/data/june07/20050277_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles The Timing of Monetary Policy Shocks GiovanniOlivei SilvanaTenreyro 636 663 A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock. When the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a dynamic general equilibrium model, we show that a realistic amount of uneven staggering can generate differences in output responses quantitatively similar to those found in the data. (JEL E23, E24, E58, J41) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=5&issue_date=June 2007 10.1257/aer.97.3.636 http://www.e-aer.org/data/june07/20040541_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Job Displacement Risk and the Cost of Business Cycles TomKrebs 664 686 This paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk. The paper uses a simple macroeconomic model with incomplete markets to show that cyclical variations in the long-term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the variance of individual income changes is constant over the cycle. In addition to the theoretical analysis, this paper conducts a quantitative study of the cost of business cycles using empirical evidence on the long-term earnings losses of US workers. The quantitative analysis shows that realistic variations in job displacement risk generate sizable costs of business cycles, even though a second-moment analysis would suggest negligible costs. (JEL E21, E24, E32, J63) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=6&issue_date=June 2007 10.1257/aer.97.3.664 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Learning Your Earning: Are Labor Income Shocks Really Very Persistent? FatihGuvenen 687 712 The current literature offers two views on the nature of the labor income process. According to the first view, individuals are subject to very persistent income shocks while facing similar life-cycle income profiles (the RIP process, Thomas MaCurdy 1982). According to the alternative, individuals are subject to shocks with modest persistence while facing individual-specific profiles (the HIP process, Lee A. Lillard and Yoram A. Weiss 1979). In this paper we study the restrictions imposed by these two processes on consumption data—in the context of a life-cycle model—to distinguish between the two views. We find that the life-cycle model with a HIP process, which has not been studied in the previous literature, is consistent with several features of consumption data, whereas the model with a RIP process is consistent with some, but not with others. We conclude that the HIP model could be a credible contender to—and along some dimensions, a more coherent alternative than—the RIP model. (JEL D83, D91, E21, J31) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=7&issue_date=June 2007 10.1257/aer.97.3.687 http://www.e-aer.org/data/june07/20050688_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Valuing New Goods in a Model with Complementarity: Online Newspapers MatthewGentzkow 713 744 Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study competition between print and online newspapers. Using new micro data from Washington, DC, I estimate the relationship between the print and online papers in demand, the welfare impact of the online paper's introduction, and the expected impact of charging positive online prices. (JEL C25, L11, L82) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=8&issue_date=June 2007 10.1257/aer.97.3.713 http://www.e-aer.org/data/june07/20050374_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Estimating Risk Preferences from Deductible Choice AlmaCohen LiranEinav 745 788 We develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts. We account for adverse selection by modeling unobserved heterogeneity in both risk (claim rate) and risk aversion. We find large and skewed heterogeneity in risk attitudes. In addition, women are more risk averse than men, risk aversion exhibits a U-shape with respect to age, and proxies for income and wealth are positively associated with absolute risk aversion. Finally, unobserved heterogeneity in risk aversion is greater than that of risk, and, as we illustrate, has important implications for insurance pricing. (JEL D81, G22) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=9&issue_date=June 2007 10.1257/aer.97.3.745 http://www.e-aer.org/data/june07/20050644_data.zip http://www.e-aer.org/data/june07/20050644_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Estimating the Effects of Private School Vouchers in Multidistrict Economies Maria MartaFerreyra 789 817 This paper estimates a general equilibrium model of school quality and household residential and school choice for economies with multiple public school districts and private (religious and nonsectarian) schools. The estimates, obtained through full-solution methods, are used to simulate two large-scale private school voucher programs in the Chicago metropolitan area: universal vouchers and vouchers restricted to nonsectarian schools. In the simulations, both programs increase private school enrollment and affect household residential choice. Under nonsectarian vouchers, however, private school enrollment expands less than under universal vouchers, and religious school enrollment declines for large nonsectarian vouchers. Fewer households benefit from nonsectarian vouchers. (JEL H75, I21, I22) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=10&issue_date=June 2007 10.1257/aer.97.3.789 http://www.e-aer.org/data/june07/20030801_data.zip http://www.e-aer.org/data/june07/20030801_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles The Pluralism of Fairness Ideals: An Experimental Approach Alexander W.Cappelen Astri DrangeHole Erik ØSørensen BertilTungodden 818 827 A core question in the contemporary debate on distributive justice is how to understand fairness in situations involving production. Important theories of distributive justice, such as strict egalitarianism, liberal egalitarianism, and libertarianism, provide different answers to this question. This paper presents the results from a dictator game where the distribution phase is preceded by a production phase. Each player's contribution is a result of a freely chosen investment level and an exogenously given rate of return. We estimate simultaneously the prevalence of three principles of distributive justice among the players and the distribution of the weight they attach to fairness. (JEL D63) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=11&issue_date=June 2007 10.1257/aer.97.3.818 http://www.e-aer.org/data/june07/20050838_data.zip http://www.e-aer.org/data/june07/20050838_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Efficient Kidney Exchange: Coincidence of Wants in Markets with Compatibility-Based Preferences Alvin E.Roth TayfunSönmez M. UtkuÜnver 828 851 Patients needing kidney transplants may have donors who cannot donate to them because of blood or tissue incompatibility. Incompatible patient-donor pairs can exchange donor kidneys with other pairs only when there is a "double coincidence of wants." Developing infrastructure to perform three-way as well as two-way exchanges will have a substantial effect on the number of transplants that can be arranged. Larger than three-way exchanges have less impact on efficiency. In a general model of type-compatible exchanges, the size of the largest exchanges required to achieve efficiency equals the number of types. (JEL C78, I12) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=12&issue_date=June 2007 10.1257/aer.97.3.828 http://www.e-aer.org/data/june07/20051331_data.zip http://www.e-aer.org/data/june07/20051331_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Signaling Character in Electoral Competition NavinKartik R. PrestonMcAfee 852 870 We study a one-dimensional Hotelling-Downs model of electoral competition with the following innovation: a fraction of candidates have "character" and are exogenously committed to a campaign platform; this is unobservable to voters. Character is desirable, and a voter's utility is a convex combination of standard policy preferences and her assessment of a candidate's character. This structure induces a signaling game between strategic candidates and voters, since a policy platform affects voters' utilities not only directly, but also indirectly through inferences about a candidate's character. The model generates a number of predictions, starting with a failure of the median voter theorem. (JEL D72, D82) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=13&issue_date=June 2007 10.1257/aer.97.3.852 http://www.e-aer.org/data/june07/20060106_app/pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Harmonization and Side Payments in Political Cooperation BårdHarstad 871 889 For two districts or countries that try to internalize externalities, I analyze a bargaining game under private information. I derive conditions for when it is efficient with uniform policies across regions—with and without side payments— and when it is efficient to prohibit side payments in the negotiations. While policy differentiation and side payments allow the policy to better reflect local conditions, they create conflicts between the regions and, thus, delay. The results also describe when political centralization outperforms decentralized cooperation, and they provide a theoretical foundation for the controversial "uniformity assumption" traditionally used by the fiscal federalism literature. (JEL C78, D72, D82, H77) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=14&issue_date=June 2007 10.1257/aer.97.3.871 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Meeting Strangers and Friends of Friends: How Random Are Social Networks? Matthew O.Jackson Brian W.Rogers 890 915 We present a dynamic model of network formation where nodes find other nodes with whom to form links in two ways: some are found uniformly at random, while others are found by searching locally through the current structure of the network (e.g., meeting friends of friends). This combination of meeting processes results in a spectrum of features exhibited by large social networks, including the presence of more high- and low-degree nodes than when links are formed independently at random, having low distances between nodes in the network, and having high clustering of links on a local level. We fit the model to data from six networks and impute the relative ratio of random to network-based meetings in link formation, which turns out to vary dramatically across applications. We show that as the random/network-based meeting ratio varies, the resulting degree distributions can be ordered in the sense of stochastic dominance, which allows us to infer how the formation process affects average utility in the network. (JEL D85, Z13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=15&issue_date=June 2007 10.1257/aer.97.3.890 http://www.e-aer.org/data/june07/20050069_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Articles Contracts and Technology Adoption DaronAcemoglu PolAntràs ElhananHelpman 916 943 We develop a tractable framework for the analysis of the relationship between contractual incompleteness, technological complementarities, and technology adoption. In our model, a firm chooses its technology and investment levels in contractible activities by suppliers of intermediate inputs. Suppliers then choose investments in noncontractible activities, anticipating payoffs from an ex post bargaining game. We show that greater contractual incompleteness leads to the adoption of less advanced technologies, and that the impact of contractual incompleteness is more pronounced when there is greater complementary among the intermediate inputs. We study a number of applications of the main framework and show that the mechanism proposed in the paper can generate sizable productivity differences across countries with different contracting institutions, and that differences in contracting institutions lead to endogenous comparative advantage differences. (JEL D86, O33) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=16&issue_date=June 2007 10.1257/aer.97.3.916 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Leadership and Information ManaKomai MarkStegeman Benjamin E.Hermalin 944 947 An organization makes collective decisions through neither markets nor contracts. Instead, rational agents voluntarily choose to follow a leader. In many cases, incentive problems are solved: the unique nondegenerate equilibrium achieves the first best, even though every agent has incentives to free ride. The leader has no special talents but is distinguished by getting exclusive access to information. A crucial feature is that the leader reveals part but not all of her information. It is this maintenance of informational asymmetry that permits achieving the first best. (JEL D23, M54) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=17&issue_date=June 2007 10.1257/aer.97.3.944 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Social Interactions in High School: Lessons from an Earthquake PieroCipollone AlfonsoRosolia 948 965 After an earthquake hit Southern Italy in 1980, young men from certain towns were exempted from compulsory military service. We show that the exemption raised high-school-graduation rates of boys by more than 2 percentage points. We do this by comparing high-school-graduation rates of young exempt men and older nonexempt men from the least damaged areas and men of the same age groups from nearby towns that were not hit by the quake. Similar comparisons show that graduation rates of young women in the affected areas also increased. Since in Italy women are not subject to the draft, the findings suggest the presence of spillover effects. (JEL I21, J13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=18&issue_date=June 2007 10.1257/aer.97.3.948 http://www.e-aer.org/data/june07/20040922_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Measuring Self-Control Problems JohnAmeriks AndrewCaplin JohnLeahy TomTyler 966 972 We develop a survey instrument to measure self-control problems in a sample of highly educated adults. This measure relates in the manner that theory predicts to liquid wealth accumulation and personality measures. Yet while self-control problems are typically seen as resulting in overconsumption and low wealth, we identify a significant group who underconsume and thereby accumulate high levels of wealth. In addition, self-control problems are smaller in scale for older than for younger respondents. Those who put money aside in retirement accounts may be delaying access to a point at which self-control problems are no longer important. (JEL D12, D14) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=19&issue_date=June 2007 10.1257/aer.97.3.966 http://www.e-aer.org/data/june07/20040440_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Regulation, Capital, and the Evolution of Organizational Form in US Life Insurance GeorgeZanjani 973 983 This paper studies the association between regulation and the organizational form of new life insurers between 1900 and 1949. The mutual form was popular in states with low initial capital requirements for mutual companies and differentially higher requirements for stock companies, but was rarely used elsewhere. This suggests that entrepreneurs took a "path of least resistance" when choosing organizational form and that the mutual's disadvantage in raising capital contributed to its decline–a decline that accelerated as states raised requirements and eliminated the aforementioned differentials. Contrary to previous analysis, the paper finds little evidence connecting other regulations to mutual decline. (JEL G21, L51, N21, N22) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=20&issue_date=June 2007 10.1257/aer.97.3.973 http://www.e-aer.org/data/june07/20040720_data.zip http://www.e-aer.org/data/june07/20040720_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Sticky-Price Models and Durable Goods Robert B.Barsky Christopher L.House Miles S.Kimball 984 998 The inclusion of a durable goods sector in sticky-price models has strong and unexpected implications. Even if most prices are flexible, a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky. In contrast, flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models. In a limiting case, flexibly priced durables cause monetary policy to have no effect on aggregate output. Our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity. (JEL E21, E23, E31, E52) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=21&issue_date=June 2007 10.1257/aer.97.3.984 http://www.e-aer.org/data/june07/20040634_data.zip http://www.e-aer.org/data/june07/20040634_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Trust as a Signal of a Social Norm and the Hidden Costs of Incentive Schemes DirkSliwka 999 1012 An explanation for motivation crowding-out phenomena is developed in a social preferences framework. Besides selfish and fair or altruistic types, a third type of agent is introduced. These "conformists" have social preferences if they believe that sufficiently many of the others do as well. When there is asymmetric information about the distribution of preferences (the "social norm"), the incentive scheme offered or autonomy granted can reveal a principal's beliefs about that norm. High-powered incentives may crowd out motivation as pessimism about the norm is conveyed. But by choosing fixed wages or granting autonomy, trust in a favorable norm may be signaled. (JEL D64, D82, J41, Z13) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=22&issue_date=June 2007 10.1257/aer.97.3.999 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Tradeoffs from Integrating Diagnosis and Treatment in Markets for Health Care Christopher C.Afendulis Daniel P.Kessler 1013 1020 To identify the important tradeoffs in consulting a single expert for both diagnosis and treatment, we examine the costs and health outcomes of elderly Medicare beneficiaries with coronary artery disease. We compare the empirical consequences of diagnosis by cardiologists who can provide surgical treatment – "integrated" cardiologists – to the consequences of diagnosis by a nonintegrated cardiologist. Diagnosis by an integrated cardiologist leads, on net, to higher health spending but similar health outcomes. The net effect contains three components: reduced spending and improved outcomes from better allocation of patients to surgical treatment options; increased spending conditional on treatment option; and worse outcomes from poorer provision of nonsurgical care. (JEL I11, I18) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=23&issue_date=June 2007 10.1257/aer.97.3.1013 http://www.e-aer.org/data/june07/20050655_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers ABCs (and Ds) of Understanding VARs JesúsFernández-Villaverde Juan F.Rubio-Ramírez Thomas J.Sargent Mark W.Watson 1021 1026 The dynamics of a linear (or linearized) dynamic stochastic economic model can be expressed in terms of matrices (A, B, C, D) that define a state space system for a vector of observables. An associated state space system (A,ˆB,C,ˆD) determines a vector autoregression for those same observables. We present a simple condition for checking when these two state space systems match up and when they do not when there are equal numbers of economic and VAR shocks. We illustrate our condition with a permanent income example. (JEL C32, E32) http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=24&issue_date=June 2007 10.1257/aer.97.3.1021 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Matching and Price Competition: Comment FuhitoKojima 1027 1031 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=25&issue_date=June 2007 10.1257/aer.97.3.1027 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Shorter Papers Effects of Environmental and Land Use Regulation in the Oil and Gas Industry Using the Wyoming Checkerboard as a Natural Experiment: Retraction ShelbyGerking William E.Morgan 1032 1032 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=26&issue_date=June 2007 10.1257/aer.97.3.1032 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 97 3 June 2007 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=97&issue=3&issue_date=June 2007 Journal Article Auditors’ Report/Audited Financial Statements 1033 1041 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=97&issue=3&article=27&issue_date=June 2007 10.1257/aer.97.3.1033