American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Mechanism Design: How to Implement Social Goals Eric S.MaskinInstitute for Advanced Study, Princeton, NJ 567 76 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=1&issue_date=June 2008 10.1257/aer.98.3.567 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles But Who Will Guard the Guardians? LeonidHurwiczU MN 577 85 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=2&issue_date=June 2008 10.1257/aer.98.3.577 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Perspectives on Mechanism Design in Economic Theory Roger B.MyersonU Chicago 586 603 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=3&issue_date=June 2008 10.1257/aer.98.3.586 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles The Time-Varying Volatility of Macroeconomic Fluctuations AlejandroJustinianoFederal Reserve Bank of Chicago Giorgio E.PrimiceriNorthwestern U 604 41 We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations. We apply our estimation strategy to a large-scale model of the business cycle and find that shocks specific to the equilibrium condition of investment account for most of the sharp decline in volatility of the last two decades. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=4&issue_date=June 2008 10.1257/aer.98.3.604 http://www.e-aer.org/data/june08/20060122_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles The Difference That CEOs Make: An Assignment Model Approach MarkoTervioU CA, Berkeley 642 68 This paper presents an assignment model of CEOs and firms. The distributions of CEO pay levels and firms' market values are analyzed as the competitive equilibrium of a matching market where talents, as well as CEO positions, are scarce. It is shown how the observed joint distribution of CEO pay and market value can then be used to infer the economic value of underlying ability differences. The variation in CEO pay is found to be mostly due to variation in firm characteristics, whereas implied differences in managerial ability are small and make relatively little difference to shareholder value. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=5&issue_date=June 2008 10.1257/aer.98.3.642 http://www.e-aer.org/data/june08/20070234_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles What's the Matter with Tie-Breaking? Improving Efficiency in School Choice AytekErdilNuffield College, U Oxford HalukErginWashington U in Saint Louis 669 89 In several school choice districts in the United States, the student proposing deferred acceptance algorithm is applied after indifferences in priority orders are broken in some exogenous way. Although such a tie-breaking procedure preserves stability, it adversely affects the welfare of the students since it introduces artificial stability constraints. Our main finding is a polynomial-time algorithm for the computation of a student-optimal stable matching when priorities are weak. The idea behind our construction relies on a new notion which we call a stable improvement cycle. We also investigate the strategic properties of the student-optimal stable mechanism. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=6&issue_date=June 2008 10.1257/aer.98.3.669 http://www.e-aer.org/data/june08/20060525_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Default Risk and Income Fluctuations in Emerging Economies CristinaArellanoU MN and Federal Reserve Bank of Minneapolis 690 712 Recent sovereign defaults are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output and foreign debt. Default probabilities and interest rates depend on incentives for repayment. Default is more likely in recessions because this is when it is more costly for a risk averse borrower to repay noncontingent debt. The model closely matches business cycles in Argentina predicting high volatility of interest rates, higher volatility of consumption relative to output, and negative correlations of output with interest rates and the trade balance. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=7&issue_date=June 2008 10.1257/aer.98.3.690 http://www.e-aer.org/data/june08/20050350_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Do Wealth Fluctuations Generate Time-Varying Risk Aversion? Micro-evidence on Individuals Markus K.BrunnermeierPrinceton U StefanNagelStanford U 713 36 We use data from the Panel Study of Income Dynamics to investigate how households portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversion with the consequence that when the level of liquid wealth changes, the proportion a household invests in risky assets should also change in the same direction. In contrast, our analysis shows that the share of liquid assets that households invest in risky assets is not affected by wealth changes. Instead, one of the major drivers of household portfolio allocation seems to be inertia: households rebalance only very slowly following inflows and outflows or capital gains and losses. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=8&issue_date=June 2008 10.1257/aer.98.3.713 http://www.e-aer.org/data/june08/20050872_data.zip http://www.e-aer.org/data/june08/20050872_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation Christopher L.HouseU MI Matthew D.ShapiroU MI 737 68 The intertemporal elasticity of investment for long-lived capital goods is nearly infinite. Consequently, investment prices should fully reflect temporary tax subsidies, regardless of the investment supply elasticity. Since prices move one-for-one with the subsidy, elasticities can be inferred from quantities alone. This paper uses a recent tax policy--bonus depreciation--to estimate the investment supply elasticity. Investment in qualified capital increased sharply. The estimated elasticity is high--between 6 and 14. There is no evidence that market prices reacted to the subsidy, suggesting that adjustment costs are internal, or that measurement error masks the price changes. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=9&issue_date=June 2008 10.1257/aer.98.3.737 http://www.e-aer.org/data/june08/20060888_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles How the Electoral College Influences Campaigns and Policy: The Probability of Being Florida DavidStrombergIIES, Stockholm U 769 807 This paper analyzes how US presidential candidates should allocate resources across states to maximize the probability of winning the election, by developing and estimating a probabilistic-voting model of political competition under the Electoral College system. Actual campaigns act in close agreement with the model. There is a 0.9 correlation between equilibrium and actual presidential campaign visits across states, both in 2000 and 2004. The paper shows how presidential candidate attention is affected by the states' number of electoral votes, forecasted state-election outcomes, and forecast uncertainty. It also analyzes the effects of a direct national popular vote for president. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=10&issue_date=June 2008 10.1257/aer.98.3.769 http://www.e-aer.org/data/june08/20050711_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Income and Democracy DaronAcemogluMIT SimonJohnsonMIT and International Monetary Fund James A.RobinsonHarvard U PierreYaredColumbia U 808 42 Existing studies establish a strong cross-country correlation between income and democracy but do not control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We present instrumental-variables estimates that also show no causal effect of income on democracy. The cross-country correlation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years. This pattern is consistent with the idea that societies embarked on divergent political-economic development paths at certain critical junctures. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=11&issue_date=June 2008 10.1257/aer.98.3.808 http://www.e-aer.org/data/june08/20050219_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Do People Vote with Their Feet? An Empirical Test of Tiebout H. SpencerBanzhafGA State U Randall P.WalshU CO 843 63 Charles Tiebout's suggestion that people "vote with their feet" for communities with optimal bundles of taxes and public goods has played a central role in local public finance for over 50 years. Using a locational equilibrium model, we derive formal tests of his premise. The model predicts increased population density in neighborhoods experiencing exogenous improvements in public goods and, for large improvements, increased relative mean incomes. We test these hypotheses in the context of changing air quality. Our results provide strong empirical support for the notion that households "vote with their feet" for environmental quality. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=12&issue_date=June 2008 10.1257/aer.98.3.843 http://www.e-aer.org/data/june08/20060190_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Information Aggregation in Polls JohnMorganU CA, Berkeley Phillip C.StockenDartmouth College 864 96 We study information transmission via polling. A policymaker polls constituents, who differ in their information and ideology, to determine policy. Full revelation is an equilibrium in a poll with a small sample, but not with a large one. In large polls, full information aggregation can arise in an equilibrium where constituents endogenously sort themselves into centrists, who respond truthfully, and extremists, who do not. We find polling statistics that ignore strategic behavior yield biased estimators and mischaracterize the poll's margin of error. We construct estimators that account for strategic behavior. Finally, we compare polls and elections. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=13&issue_date=June 2008 10.1257/aer.98.3.864 http://www.e-aer.org/data/june08/20051222_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Stability in Supply Chain Networks MichaelOstrovskyStanford U 897 923 This paper studies matching in vertical networks, generalizing the theory of matching in two-sided markets. It gives sufficient conditions for the existence of stable networks and presents an algorithm for finding two of them. One is the best stable network for the agents on the "upstream" end of an industry. The other is best for the agents on the "downstream" end. The paper describes several properties of the set of stable networks and discusses applications of the theory to the design of matching markets with more than two types of agents and to the empirical analysis of supply chains. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=14&issue_date=June 2008 10.1257/aer.98.3.897 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects? Reshmaan N.HussamMIT DavidPorterEconomic Science Institute, Chapman U Vernon L.SmithEconomic Science Institute, Chapman U 924 37 We report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and "error" elimination among participants in a laboratory asset market and its effect on price bubbles. Our answer to the title question is: "yes." We impose a large increase in liquidity and dividend uncertainty to shock the environment of experienced subjects who have converged to equilibrium, and this treatment rekindles a bubble. However, in replications of that same challenging environment across three experience levels, we discover that the environment yields a rare residual tendency to bubble even in the third experience session. Therefore, a caveat must be placed on the effect of twice-experienced subjects in asset markets: in order for price bubbles to be extinguished, the environment in which the participants engage in exchange must be stationary and bounded by a range of parameters. Experience, including possible "error" elimination, is not robust to major new environment changes in determining the characteristics of a price bubble. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=15&issue_date=June 2008 10.1257/aer.98.3.924 http://www.e-aer.org/data/june08/20060312_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Stationary Concepts for Experimental 2x2-Games ReinhardSeltenLaboratory of Experimental Economics, Bonn ThorstenChmuraShanghai Jiao Tong U 938 66 Five stationary concepts for completely mixed 2 x 2-games are experimentally compared: Nash equilibrium, quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium (Martin J. Osborne and Ariel Rubinstein 1998), and impulse balance equilibrium. Experiments on 12 games, 6 constant sum games, and 6 nonconstant sum games were run with 12 independent subject groups for each constant sum game and 6 independent subject groups for each nonconstant sum game. Each independent subject group consisted of four players 1 and four players 2, interacting anonymously over 200 periods with random matching. The comparison of the five theories shows that the order of performance from best to worst is as follows: impulse balance equilibrium, payoff-sampling equilibrium, action-sampling equilibrium, quantal response equilibrium, Nash equilibrium. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=16&issue_date=June 2008 10.1257/aer.98.3.938 http://www.e-aer.org/data/june08/20051147_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India RachelKrantonDuke U Anand V.SwamyWilliams College 967 89 Trade and export, it is argued, spur economic growth. This paper studies the microeconomics of exporting. We build a heuristic model of transactions between exporters and producers and relate it to East India Company (EIC) operations in colonial Bengal. Our model and the historical record stress two difficulties: the exporter and its agents might not uphold payment agreements, and producers might not honor sales contracts. The model shows when procurement succeeds or fails, highlighting the tension between these two hold-up problems. We analyze several cases, including the EIC's cotton textile venture, the famous Opium Monopoly, and present-day contract farming. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=17&issue_date=June 2008 10.1257/aer.98.3.967 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Pride and Prejudice: The Human Side of Incentive Theory ToreEllingsenStockholm School of Economics MagnusJohannessonStockholm School of Economics 990 1008 Desire for social esteem is a source of prosocial behavior. We develop a model in which actors' utility of esteem depends on the audience. In a principal agent setting, we show that the model can account for motivational crowding out. Control systems and pecuniary incentives erode morale by signaling to the agent that the principal is not worth impressing. The model also offers an explanation for why agents are motivated by unconditionally high pay and by mission-oriented principals. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=18&issue_date=June 2008 10.1257/aer.98.3.990 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Historical Property Rights, Sociality, and the Emergence of Impersonal Exchange in Long-Distance Trade Erik O.KimbroughInterdisciplinary Center for Economic Science, George Mason U Vernon L.SmithEconomic Science Institute, Chapman U Bart J.WilsonEconomic Science Institute, Chapman U 1009 39 This laboratory experiment explores the extent to which impersonal exchange emerges from personal exchange with opportunities for long-distance trade. We design a three-commodity production and exchange economy in which agents in three geographically separated villages must develop multilateral exchange networks to import a good only available abroad. For treatments, we induce two distinct institutional histories to investigate how past experience with property rights affects the evolution of specialization and exchange. We find that a history of unenforced property rights hinders our subjects' ability to develop the requisite personal social arrangements to support specialization and effectively exploit impersonal long-distance trade. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=19&issue_date=June 2008 10.1257/aer.98.3.1009 http://www.e-aer.org/data/june08/20061025_data.zip http://www.e-aer.org/data/june08/20061025_app.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Regular Articles Credit Elasticities in Less-Developed Economies: Implications for Microfinance Dean S.KarlanYale U JonathanZinmanDartmouth College 1040 68 Policymakers often prescribe that microfinance institutions increase interest rates to eliminate their reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainability) without reducing the poor's access to credit. We test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in South Africa. The demand curves are downward sloping, and steeper for price increases relative to the lender's standard rates. We also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates, which is consistent with binding liquidity constraints. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=20&issue_date=June 2008 10.1257/aer.98.3.1040 http://www.e-aer.org/data/june08/20070848_data.zip http://www.e-aer.org/data/june08/20070848_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Reference-Dependent Preferences and Labor Supply: The Case of New York City Taxi Drivers Henry S.FarberPrinceton U 1069 82 I develop a model of daily labor supply where preferences are dependent on a reference daily income level, and I apply this model to data on the labor supply of New York City taxi drivers. I find that there may be a reference level of income on a given day that affects labor supply. However, there is substantial day-to-day variation in a given driver's reference level, and most shifts end before reaching the reference income level. This pattern is inconsistent with an important role for reference-dependent preferences. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=21&issue_date=June 2008 10.1257/aer.98.3.1069 http://www.e-aer.org/data/june08/20030605_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers The Interaction of Public and Private Insurance: Medicaid and the Long-Term Care Insurance Market Jeffrey R.BrownU IL AmyFinkelsteinMIT 1083 1102 We show that even incomplete public insurance can crowd out private insurance demand. We estimate that Medicaid could explain the lack of private long-term care insurance for about two-thirds of the wealth distribution, even if no other factors limited the market's size. Yet Medicaid provides incomplete consumption smoothing for most individuals. Medicaid's crowd-out effect stems from the large implicit tax (about 60-75 percent for a median-wealth individual) that Medicaid imposes on private insurance. An implication is that public policies designed to stimulate the private insurance market will have limited efficacy as long as Medicaid's large implicit tax remains. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=22&issue_date=June 2008 10.1257/aer.98.3.1083 http://www.e-aer.org/data/june08/20050525_data.zip http://www.e-aer.org/data/june08/20050525_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Estimates of the Impact of Crime Risk on Property Values from Megan LeighLindenColumbia U Jonah E.RockoffColumbia U 1103 27 We estimate the willingness to pay for reductions in crime risk using the location and move-in dates of sex offenders. We find significant effects of sex offenders' locations that are geographically localized. House prices within 0.1 miles of a sex offender fall by 4 percent on average. We then use this finding to estimate the costs to victims of sexual offenses, and find costs of over $1 million per victim--far greater than previous estimates. However, we cannot reject the alternative hypotheses that individuals overestimate risks posed by offenders or that living near an offender poses significant costs exclusive of crime risk. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=23&issue_date=June 2008 10.1257/aer.98.3.1103 http://www.e-aer.org/data/june08/20060620_data.zip http://www.e-aer.org/data/june08/20060620_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Ordering the Extraction of Polluting Nonrenewable Resources UjjayantChakravortyU Alberta MichelMoreauxU Toulouse I MabelTidballINRA-LAMETA, Montpellier 1128 44 A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such "vacillation" does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=24&issue_date=June 2008 10.1257/aer.98.3.1128 http://www.e-aer.org/data/june08/20060998_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Strotz Meets Allais: Diminishing Impatience and the Certainty Effect YoramHalevyU British Columbia 1145 62 Decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward. This work argues that diminishing impatience originates from the distinction between the certain present and the risky future. A simple functional representation of preferences, exhibiting time inconsistency when the future is uncertain, is derived. Experimental evidence, which is inconsistent with other formulations that account for diminishing impatience, supports the proposed approach. The new theory uncovers a tight relation between diminishing impatience and well-known behavioral regularities in choice under risk and uncertainty. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=25&issue_date=June 2008 10.1257/aer.98.3.1145 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Monetary Policy, Judgment, and Near-Rational Exuberance JamesBullardFederal Reserve Bank of St Louis George W.EvansU OR SeppoHonkapohjaBank of Finland 1163 77 We study how the use of judgment or "add-factors" in macroeconomic forecasting may disturb the set of equilibrium outcomes when agents learn using recursive methods. We examine the possibility of a new phenomenon, which we call exuberance equilibria, in the New Keynesian monetary policy framework. Inclusion of judgment in forecasts can lead to self-fulfilling fluctuations in a subset of the determinacy region. We study how policymakers can minimize the risk of exuberance equilibria. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=26&issue_date=June 2008 10.1257/aer.98.3.1163 http://www.e-aer.org/data/june08/20051011_data.zip American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Evolution of Time Preference by Natural Selection: Comment Arthur J.RobsonSimon Fraser U BalazsSzentesU Chicago 1178 88 We reexamine Alan R. Rogers' (1994) analysis of the biological basis of the rate of time preference. Although his basic insight concerning the derivation of the utility function holds up, the functional form he uses does not generate equilibrium evolutionary behavior. Moreover, Rogers relies upon an interior solution for a particular kind of intergenerational transfer. We show such interior solutions need not generally arise. Hence Rogers most striking prediction, namely that the real interest rate should be about 2 percent per annum, does not follow. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=27&issue_date=June 2008 10.1257/aer.98.3.1178 http://www.e-aer.org/data/june08/20070247_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers Matching with Contracts: Comment John WilliamHatfieldStanford U FuhitoKojimaHarvard U 1189 94 Hatfield and Milgrom (2005) present a unified model of matching with contracts phrased in terms of hospitals and doctors, which subsumes the standard two-sided matching and some package auction models. They show that a stable allocation exists if contracts are substitutes for each hospital. They further claim that if a hospital's preferences violate the substitutes condition, there exist singleton preferences for the other hospitals and doctors such that no stable allocation exists. We show this last claim does not hold in general. We further present a weaker condition that is necessary to guarantee the existence of stable allocations. http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=28&issue_date=June 2008 10.1257/aer.98.3.1189 http://www.e-aer.org/data/june08/20070593_app.pdf American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Shorter Papers When Does Coordination Require Centralization? Corrigendum RicardoAlonsoU Southern CA, Los Angeles WouterDesseinU Chicago NikoMatouschekNorthwestern U 1195 96 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=29&issue_date=June 2008 10.1257/aer.98.3.1195 American Economic Association Nashville, TN 0002-8282 American Economic Review http://www.aeaweb.org/aer/ 98 3 June 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=AER&volume=98&issue=3&issue_date=June 2008 Reports Independent Auditors' Report 1197 1205 http://www.aeaweb.org/articles/article_detail.php?journal=AER&volume=98&issue=3&article=30&issue_date=June 2008 10.1257/aer.98.3.1197