American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Front Matter 1 4 http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.1 10.1257/jel.50.2.1 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Articles Macroeconomics and the Term Structure Refet S.GurkaynakBilkent U Jonathan H.WrightJohns Hopkins U 331 67 This paper provides an overview of the analysis of the term structure of interest rates with a special emphasis on recent developments at the intersection of macroeconomics and finance. The topic is important to investors and also to policymakers, who wish to extract macroeconomic expectations from longer-term interest rates, and take actions to influence those rates. The simplest model of the term structure is the expectations hypothesis, which posits that long-term interest rates are expectations of future average short-term rates. In this paper, we show that many features of the configuration of interest rates are puzzling from the perspective of the expectations hypothesis. We review models that explain these anomalies using time-varying risk premia. Although the quest for the fundamental macroeconomic explanations of these risk premia is ongoing, inflation uncertainty seems to play a large role. Finally, while modern finance theory prices bonds and other assets in a single unified framework, we also consider an earlier approach based on segmented markets. Market segmentation seems important to understand the term structure of interest rates during the recent financial crisis. (JEL E31, E43, E52, E58) http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.331 10.1257/jel.50.2.331 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Articles Economic Incentives and Social Preferences: Substitutes or Complements? SamuelBowlesSanta Fe Institute and U Siena SandraPolania-ReyesU Siena and U College London 368 425 Explicit economic incentives designed to increase contributions to public goods and to promote other pro-social behavior sometimes are counterproductive or less effective than would be predicted among entirely self-interested individuals. This may occur when incentives adversely affect individuals' altruism, ethical norms, intrinsic motives to serve the public, and other social preferences. The opposite also occurs--crowding in--though it appears less commonly. In the fifty experiments that we survey, these effects are common, so that incentives and social preferences may be either substitutes (crowding out) or complements (crowding in). We provide evidence for four mechanisms that may account for these incentive effects on preferences: namely that incentives may (i) provide information about the person who implemented the incentive, (ii) frame the decision situation so as to suggest appropriate behavior, (iii) compromise a control averse individual's sense of autonomy, and (iv) affect the process by which people learn new preferences. An implication is that the evaluation of public policy must be restricted to allocations that are supportable as Nash equilibria when account is taken of these crowding effects. We show that well designed fines, subsidies, and the like minimize crowding out and may even do the opposite, making incentives and social preferences complements rather than substitutes. (JEL D02, D03, D04, D83, E61, H41, Z13) http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.368 10.1257/jel.50.2.368 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Articles What Does Human Capital Do? A Review of Goldin and Katz's The Race between Education and Technology DaronAcemogluMIT DavidAutorMIT 426 63 Goldin and Katz's The Race between Education and Technology is a monumental achievement that supplies a unified framework for interpreting how the demand and supply of human capital have shaped the distribution of earnings in the U.S. labor market over the twentieth century. This essay reviews the theoretical and conceptual underpinnings of this work and documents the success of Goldin and Katz's framework in accounting for numerous broad labor market trends. The essay also considers areas where the framework falls short in explaining several key labor market puzzles of recent decades and argues that these shortcomings can potentially be overcome by relaxing the implicit equivalence drawn between workers' skills and their job tasks in the conceptual framework on which Goldin and Katz build. The essay argues that allowing for a richer set of interactions between skills and technologies in accomplishing job tasks both augments and refines the predictions of Goldin and Katz's approach and suggests an even more important role for human capital in economic growth than indicated by their analysis. (JEL I20, J24, J31, O30) http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.426 10.1257/jel.50.2.426 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Articles Micro and Macro Labor Supply Elasticities: A Reassessment of Conventional Wisdom MichaelKeaneU New South Wales RichardRogersonPrinceton U 464 76 The response of aggregate labor supply to various changes in the economic environment is central to many economic issues, especially the optimal design of tax policies. Conventional wisdom based on studies in the 1980s and 1990s has long held that the analysis of micro data leads one to conclude that aggregate labor supply elasticities are quite small. In this paper we argue that this conventional wisdom does not hold up to empirically reasonable and relevant extensions of simple life cycle models that served as the basis for these conclusions. In particular, we show that several pieces of conventional wisdom fail in the presence of human capital accumulation or labor supply decisions that allow for adjustment along both the extensive and intensive margin. We conclude that previous estimates of small labor supply elasticities based on micro data are fully consistent with large aggregate labor supply elasticities. (JEL D91, E24, J22) http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.464 10.1257/jel.50.2.464 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Forum: Do Consumers Need More Protection in Financial Markets? Consumer Protection and Contingent Charges MarkArmstrongU Oxford JohnVickersU Oxford 477 93 Contingent charges for financial services, such as fees for unauthorized overdrafts, are often controversial. We study the economics of contingent charges in a stylized setting with naive and sophisticated consumers. We contrast situations where the naive benefit from the presence of sophisticated consumers with situations where competition works to subsidize the sophisticated at the expense of the naive, arguably unfairly. The case for regulatory intervention in these situations depends in good part, but not only, on the weight placed on distributional concerns. The economic and legal issues at stake are well illustrated by a case on bank charges recently decided by the U.K. Supreme Court. (JEL D14, D18, G21, G28, L51) http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.477 10.1257/jel.50.2.477 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Forum: Do Consumers Need More Protection in Financial Markets? Financial Advice RomanInderstGoethe U Frankfurt MarcoOttavianiBocconi U and Northwestern U 494 512 Financial advice could play an essential role in well-functioning markets for retail financial products, given that many consumers find it difficult to evaluate the complex products on offer. However, conflicts of interest, which are pervasive in some parts of the industry, can turn advice into a curse rather than a blessing for consumers, especially when consumers are not sufficiently wary. Through a simple model of financial advice, we overview the pros and cons of various policy interventions, such as imposing mandatory disclosure, banning commissions, and regulating contract cancellation terms. (JEL D14, D18, G21, G28) http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.494 10.1257/jel.50.2.494 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Journal Article Book Reviews 513 46 http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.513 10.1257/jel.50.2.513 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Journal Article Annotated Listing of New Books 547 626 http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.547 10.1257/jel.50.2.547 American Economic Association Nashville, TN 0022-8282 Journal of Economic Literature http://www.aeaweb.org/journal.html 50 2 June 2012 http://www.aeaweb.org/issue.php?journal=JEL&volume=50&issue=2 Journal Article JEL Classification System 627 641 http://www.aeaweb.org/articles.php?doi=10.1257/jel.50.2.627 10.1257/jel.50.2.627