American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 121 Catching Up with the Economy Robert W.Fogel http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 2246 The Voracity Effect AaronTornellPhilip R.Lane The authors analyze an economy that lacks a strong legal-political institutional infrastructure and is populated by multiple powerful groups. Powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock. In equilibrium, this leads to slow economic growth and a 'voracity effect,' by which a shock, such as a terms of trade windfall, perversely generates a more-than-proportionate increase in fiscal redistribution and reduces growth. The authors also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 4777 Endogenous Technological Change and Wage Inequality HuwLloyd-Ellis Although microeconomic studies find a positive relationship between R&D and skill premia, much of the recent rise in U.S. wage inequality was accompanied by slowing labor-productivity growth and relatively slow introduction of new technologies. These conflicting observations are consistent with the effects of a skewed distribution of 'absorptive capacities'--the rate at which technology-specific skills can be acquired--in a model of endogenous technological change. The framework is used to assess whether the productivity slowdown and the rise in wage inequality can be jointly accounted for by the contemporaneous decline in the growth rate of labor quality. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 78102 Technological Revolutions FrancescoCaselli In skill-biased (deskilling) technological revolutions, learning investments required by new machines are greater (smaller) than those required by preexisting machines. Skill-biased (deskilling) revolutions trigger reallocations of capital from slow- (fast-) to fast- (slow-) learning workers, thereby reducing the relative and absolute wages of the former. The model of skill-biased (deskilling) revolutions provides insight into developments since the mid-1970s (in the 1910s). The empirical work documents a large increase in the interindustry dispersion of capital-labor ratios since 1975. Changes in industry capital intensity are related to the skill composition of the labor force. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 103124 Doing It Now or Later TedO'DonoghueMatthewRabin The authors examine self-control problems--modeled as time-inconsistent, present-biased preferences--in a model where a person must do an activity exactly once. They emphasize two distinctions: do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate--do too soon--immediate-reward activities. Sophistication mitigates procrastination but exacerbates preproperation. Moreover, with immediate costs, a small present bias can severely harm only naive people, whereas with immediate rewards it can severely harm only sophisticated people. Lessons for savings, addiction, and elsewhere are discussed. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 125147 Cooperative Investments and the Value of Contracting Yeon-KooCheDonald B.Hausch Recent articles have shown that contracts can support the efficient outcome for bilateral trade even in the face of specific investments and incomplete contracting. These studies typically considered 'selfish' investments that benefit the investor (e.g., the seller's investment reduces her production costs). The authors find very different results for 'cooperative' investments that directly benefit the investor's partner (e.g., the seller's investment improves the buyer's value of the good). Most importantly, if committing not to renegotiate the contract is impossible, then contracting has no value, i.e., the parties cannot do better than to abandon contracting altogether in favor of ex post negotiation. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 148174 Rules of Thumb versus Dynamic Programming MartinLettauHaraldUhlig This paper studies decisionmaking with rules of thumb in the context of dynamic decision problems and compares it to dynamic programming. A rule is a fixed mapping from a subset of states into actions. Rules are compared by averaging over past experiences. This can lead to favoring rules which are only applicable in good states. Correcting this good state bias requires solving the dynamic program. The authors provide a general framework and characterize the asymptotic properties. They apply it to provide a candidate explanation for the sensitivity of consumption to transitory income. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 175189 The Generalized War of Attrition JeremyBulowPaulKlemperer The authors model a war of attrition with N+K firms competing for N prizes. In a 'natural oligopoly' context, the K - 1 lowest-value firms drop out instantaneously, even though each firm's value is private information to itself. In a 'standard setting' context, in which every competitor suffers losses until a standard is chosen, even after giving up on its own preferred alternative, each firm's exit time is independent both of K and of other players' actions. The authors' results explain how long it takes to form a winning coalition in politics. Solving the model is facilitated by the revenue equivalence theorem. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 190214 The Role of Multilateral Institutions in International Trade Cooperation GiovanniMaggi The World Trade Organization (WFO) lacks the power to directly enforce agreements. It is, therefore, important to understand what role the WTO can play to facilitate international cooperation and whether a multilateral institution can offer distinct advantages over a web of bilateral agreements. This paper examines two potential benefits of a multilateral trade institution: first, verifying violations of the agreements and informing third parties, thus facilitating multilateral reputation mechanisms; second, promoting multilateral trade negotiations rather than a web of bilateral negotiations. The model suggests that a multilateral approach is particularly important when there are strong imbalances in bilateral trading relationships. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 215248 An Economic Theory of GATT KyleBagwellRobert W.Staiger The authors propose a unified theoretical framework within which to interpret and evaluate the foundational principles of GATT. Working within a general equilibrium trade model, they represent government preferences in a way that is consistent with national income maximization but also allows for the possibility of distributional concerns as emphasized in leading political-economy models. Using this general framework, the authors establish that GATT's principles of reciprocity and nondiscrimination can be viewed as simple rules that assist governments in their effort to implement efficient trade agreements. From this perspective, the authors argue that preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 249271 Technology, Employment, and the Business Cycle: Do Technology Shocks Explain Aggregate Fluctuations? JordiGali The author estimate a decomposition of productivity and hours into technology and nontechnology components. Two results stand out: (1) the estimated conditional correlations of hours and productivity are negative for technology shocks, positive for nontechnology shocks; and (2) hours show a persistent decline in response to a positive technology shock. Most of the results hold for a variety of model specifications and for the majority of G7 countries. The picture that emerges is hard to reconcile with a conventional real-business-cycle interpretation of business cycles but is shown to be consistent with a simple model with monopolistic competition and sticky prices. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 272290 Scale Economies and Industry Agglomeration Externalities: A Dynamic Cost Function Approach Catherine J. MorrisonPaulDonald S.Siegel Scale economies and agglomeration externalities are alleged to be important determinants of economic growth. To assess these effects, the authors outline and estimate a microfoundations model based on a dynamic cost function specification. This model provides for the separate identification of the impacts of externalities and cyclical utilization on short- and long-run scale economies and input substitution patterns. The authors find that scale economies are prevalent in U.S manufacturing; cost savings and scale effects often attributed to internal inputs may be due to external factors; and supply-side agglomeration effects are greater than demand-side, especially in the long run. http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 291305 Can Affirmative Action Be Cost Effective? An Experimental Examination of Price-Preference Auctions AllanCornsAndrewSchotter http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 306318 Overconfidence and Excess Entry: An Experimental Approach ColinCamererDanLovallo http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 319324 The Winner's Curse and Public Information in Common Value Auctions: Comment James C.CoxSamuel H.DinkinVernon L.Smith http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 325334 The Winner's Curse and Public Information in Common Value Auctions: Reply Colin M.CampbellJohn H.KagelDanLevin http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 335339 Social Distance and Other-Regarding Behavior in Dictator Games: Comment IrisBohnetBruno S.Frey http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 340341 Social Distance and Other-Regarding Behavior in Dictator Games: Reply ElizabethHoffmanKevinMcCabeVernon L.Smith http://www.aeaweb.org/aer/contents/mar1999.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 89 1 March 1999 342347 Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts: Comment Roel M. W. J.BeetsmaHenrikJensen http://www.aeaweb.org/aer/contents/mar1999.html