American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Front Matter Note from the Editor: Online Comments for American Economic Association Journals David H.AutorMIT 3 4 http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.3 10.1257/jep.23.2.3 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Symposia Market-Based Policy Options to Control U.S. Greenhouse Gas Emissions Gilbert E.MetcalfTufts U 5 27 The United States is moving closer to enacting a policy to reduce domestic emissions of greenhouse gases. A key element in any plan to reduce emissions will be to place a price on greenhouse gas emissions. This paper discusses the different approaches that can be taken to price emissions and assesses their strengths and weaknesses. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.5 10.1257/jep.23.2.5 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Symposia The Economic Effects of Climate Change Richard S. J.TolESRI, Dublin and Free U, Amsterdam 29 51 I review the literature on the economic impacts of climate change, an externality that is unprecedentedly large, complex, and uncertain. Only 14 estimates of the total damage cost of climate change have been published, a research effort that is in sharp contrast to the urgency of the public debate and the proposed expenditure on greenhouse gas emission reduction. These estimates show that climate change initially improves economic welfare. However, these benefits are sunk. Impacts would be predominantly negative later in the century. Global average impacts would be comparable to the welfare loss of a few percent of income, but substantially higher in poor countries. Still, the impact of climate change over a century is comparable to economic growth over a few years. There are over 200 estimates of the marginal damage cost of carbon dioxide emissions. The uncertainty about the social cost of carbon is large and right-skewed. For a standard discount rate, the expected value is $50/tC, which is much lower than the price of carbon in the European Union but much higher than the price of carbon elsewhere. Current estimates of the damage costs of climate change are incomplete, with positive and negative biases. Most important among the missing impacts are the indirect effects of climate change on economic development; large-scale biodiversity loss; low-probability, high-impact scenarios; the impact of climate change on violent conflict; and the impacts of climate change beyond 2100. From a welfare perspective, the impact of climate change is problematic because population is endogenous, and because policy analyses should separate impatience, risk aversion, and inequity aversion between and within countries. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.29 10.1257/jep.23.2.29 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Symposia The Coming Global Climate-Technology Revolution ScottBarrettColumbia U 53 75 Emissions of CO2 and other greenhouse gases can be reduced significantly using existing technologies, but stabilizing concentrations will require a technological revolution—a “revolution” because it will require fundamental change, achieved within a relatively short period of time. Inspiration for a climate–technology revolution is often drawn from the Apollo space program or the Manhattan Project, but averting dangerous climate change cannot be "solved" by a single new technology, deployed by a single government. The technological changes needed to address climate change fundamentally will have to be pervasive; they will have to involve markets; and they will have to be global in scope. My focus in this paper is not on the moderate emission reductions that can be achieved using existing technologies, but on the breakthrough technologies that are needed to reduce emissions dramatically. The challenges are formidable. Indeed, it is possible that the revolution needed to dramatically reduce emissions of greenhouse gases will fail. Should the climate change abruptly, the incentive to "engineer" the climate will be strong. There will be a climate-technology revolution, but its nature will depend on the institutions we develop to address the challenge we face. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.53 10.1257/jep.23.2.53 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Symposia The Role of Prices in Measuring the Poor's Living Standards ChristianBrodaU Chicago EphraimLeibtagEconomic Research Service, USDA David E.WeinsteinColumbia U 77 97 In this paper, we revisit two pieces of conventional wisdom in the current debate about poverty, paying close attention to the price data underlying these findings: that the poor pay more than households of higher income for the goods and services they purchase; and that poverty rates, at least as measured by the U.S. Census, have remained essentially flat since the late 1960s, raising questions about the success of the policies implemented to reduce poverty. By examining scanner data on thousands of household purchases, we find that the poor pay less—not more—for the goods they purchase. And by extending the advances on price measurement in the recent decade back to the 1970s, we find that current poverty rates are less than half of the official numbers. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.77 10.1257/jep.23.2.77 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Symposia Consumer Shopping Behavior: How Much Do Consumers Save? RachelGriffithU College London and Institute for Fiscal Studies, London EphraimLeibtagEconomic Research Service, USDA AndrewLeicesterU College London and Institute for Fiscal Studies, London AvivNevoNorthwestern U 99 120 This paper documents the potential and actual savings that consumers realize from four particular types of purchasing behavior: purchasing on sale; buying in bulk (at a lower per unit price); buying generic brands; and choosing outlets. How much can and do households save through each of these behaviors? How do these patterns vary with consumer demographics? We use data collected by a marketing firm on all food purchases brought into the home for a large, nationally representative sample of U.K. households in 2006. We are interested in how consumer choice affects the measurement of price changes. In particular, a standard price index based on a fixed basket of goods will overstate the rise in the true cost of living because it does not properly consider sales and bulk purchasing. According to our measures, the extent of this bias might be of the same or even greater magnitude than the better-known substitution and outlet biases. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.99 10.1257/jep.23.2.99 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Articles The Nominal Share Price Puzzle William C.WeldU WI RoniMichaelyCornell U and Interdisciplinary Center, Herzelia Richard H.ThalerU Chicago ShlomoBenartziUCLA 121 42 The average nominal share prices of common stocks traded on the New York Stock Exchange have remained constant at approximately $35 per share since the Great Depression as a result of stock splits. It is surprising that U.S. firms actively maintained constant nominal prices for their shares while general prices in the economy went up more than tenfold. This is especially puzzling given that commissions paid by investors on trading ten $35 shares are about ten times those paid on a single $350 share. We review potential explanations including signaling and optimal trading ranges and find that none of the existing theories are able to explain the observed constant nominal prices. We suggest that the evidence is consistent with the idea that customs and norms can explain the nominal price puzzle. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.121 10.1257/jep.23.2.121 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Articles (Un)happiness in Transition SergeiGurievCenter for Economic and Financial Research, New Economic School, Moscow EkaterinaZhuravskayaCenter for Economic and Financial Research, New Economic School, Moscow 143 68 Despite strong growth performance in transition economies in the last decade, residents of transition countries report abnormally low levels of life satisfaction. Using data from the World Values Survey and other sources, we study various explanations of this phenomenon. First, we document that the disparity in life satisfaction between residents of transition and nontransition countries is much larger among the elderly. Second, we find that deterioration in public goods provision, an increase in macroeconomic volatility, and a mismatch of human capital of residents educated before transition (which disproportionately affects the aged population) explain a great deal of the difference in life satisfaction between transition countries and other countries with similar income and other macroeconomic conditions. The rest of the gap is explained by the difference in the quality of the samples. As in other countries, life satisfaction in transition countries is strongly related to income; but, due to a higher nonresponse of high-income individuals in transition countries, the survey-data estimates of the recent increase in life satisfaction, driven by 10-year sustained economic growth in transition region, are biased downwards. The evidence suggests that if the region keeps growing, life satisfaction in transition countries will catch up with the "normal" level in the near future. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.143 10.1257/jep.23.2.143 http://www.aeaweb.org/jep/app/2302_guriev_zhuravskaya_appendix.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Articles Faculty without Students: Resource Allocation in Higher Education William R.JohnsonU VA SarahTurnerU VA 169 89 Colleges and universities display substantial differences in the ratio of students to faculty across fields or disciplines. At Harvard University, for example, economics has about 16 students majoring in the subject per full-time-teaching equivalent, while in other departments such as astronomy, Slavic, German, and Celtic, the number of teaching faculty exceeds the number of student majors. We begin by presenting some evidence on the extent of the variation in faculty resource allocation by field and the broad changes over the last several decades. We then consider potential economic explanations for these striking patterns. For example, a basic education production function, which seeks to maximize aggregate student learning subject to a faculty salary budget constraint, will require that faculty be allocated across fields so that relative marginal gains in student learning equal relative faculty salaries. Differences across fields in student-faculty ratios could then arise either from differences in the pedagogical technology across fields or variation in relative faculty salaries. Additional university goals, such as research and graduate program productivity, or adjustment costs, as imposed by the tenure system, could also generate variation across fields in student-faculty ratios. However, we have only limited evidence that these arguments can explain the ongoing disparities in student-faculty ratios across fields and disciplines, which suggests that a substantial part of the explanation may reside in the politics rather than the economics of decision making in institutions of higher education. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.169 10.1257/jep.23.2.169 http://www.aeaweb.org/jep/app/2302_johnson_turner_appendix.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Articles Legal Realism for Economists Matthew C.StephensonHarvard U 191 211 Economists have made great progress in understanding the incentives and behavior of actors who operate outside of traditional economic markets, including voters, legislators, and bureaucrats. The incentives and behavior of judges, however, remain largely opaque. Do judges act as neutral third-party enforcers of substantive decisions made by others? Are judges "ordinary" policymakers who advance whatever outcomes they favor without any special consideration for law as such? Emerging recent scholarship has started to explore more nuanced conceptions of how law, facts, and judicial preferences may interact to influence judicial decisions. This work develops a perspective on judging that can usefully be understood as the modern manifestation of American Legal Realism, a jurisprudential movement of lawyers, judges, and law professors that flourished in the early twentieth century. The purpose of this essay is to introduce, in simplified form, the Realist account of judicial decision making; to contrast this view with alternative theories about law and judging; and to sketch out how a more explicit integration of the Realists' conceptual insights about law and judicial behavior might enrich the rapidly expanding economic work in this field. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.191 10.1257/jep.23.2.191 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Features Retrospectives: Who Said "Debauch the Currency": Keynes or Lenin? Michael V.WhiteMonash U KurtSchulerUS Department of the Treasury 213 22 One frequently quoted passage from the work of John Maynard Keynes is that "the best way to destroy the capitalist system [is] to debauch the currency." The passage, attributed to Vladimir Illyich Lenin, appears in Keynes' book The Economic Consequences of the Peace, which became an international bestseller when it was published in 1919. Economic historian Frank W. Fetter and others have expressed doubt that Keynes was really quoting Lenin because they found no such statement in Lenin's collected published writings. Fetter suggested that Keynes based his remark on stories about what the Soviets were supposed to be saying that he heard at the Paris peace conference of 1919. It is now possible to show that Keynes based his remark on a report of an interview with Lenin published by London and New York newspapers in April 1919. Keynes' discussion of inflation in the Economic Consequences can then be read as an extended commentary on the remarks attributed to Lenin in the interview. While the report of the interview was not reprinted after 1919, it will be also shown here that Lenin responded to Keynes in a speech that was reprinted in his Collected Works. http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.213 10.1257/jep.23.2.213 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Features Recommendations for Further Reading TimothyTaylorMacalester College 223 30 http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.223 10.1257/jep.23.2.223 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 23 2 Spring 2009 http://www.aeaweb.org/issue.php?journal=JEP&volume=23&issue=2 Features Notes 231 233 http://www.aeaweb.org/articles.php?doi=10.1257/jep.23.2.231 10.1257/jep.23.2.231