American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Journal Article Front Matter i vi http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.i 10.1257/jep.24.3.i American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Understanding the Mechanisms of Economic Development AngusDeatonPrinceton U 3 16 In this paper, I advocate the investigation, testing, and modification of mechanisms as a progressive empirical research strategy for the field of economic development (and other areas of applied economics). I discuss three lines of work that have elucidated mechanisms that are relevant for development: 1) connections between saving and growth; 2) the determinants of commodity prices, which are a key source of income for many developing countries; and 3) some unexpected puzzles that arise in considering the linkages between income and food consumption. In each case, my discussion illustrates the positivist approach to the hypotheticodeductive method. In this approach, mechanisms are proposed, key predictions derived and tested, and if falsified, the mechanisms are rejected or modified. If the predictions of a mechanism are confirmed, if they are sufficiently specific, and if they are hard to explain in other ways, we attach additional credence to the mechanism, albeit provisionally since later evidence may undermine it. Sometimes the falsifications can be repaired by changing supplementary assumptions, and sometimes they involve long steps backwards where the model is abandoned; and often there is disagreement about which is the correct response. But the end result is an accumulation of useful knowledge and understanding. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.3 10.1257/jep.24.3.3 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Theory, General Equilibrium, and Political Economy in Development Economics DaronAcemogluMIT 17 32 I discuss the role of economic theory in empirical work in development economics with special emphasis on general equilibrium and political economy considerations. I argue that economic theory plays (should play) a central role in formulating models, estimates of which can be used for counterfactual and policy analysis. I discuss why counterfactual analysis based on microdata that ignores general equilibrium and political economy issues may lead to misleading conclusions. I illustrate the main arguments using examples from recent work in development economics and political economy. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.17 10.1257/jep.24.3.17 http://www.aeaweb.org/jep/app/2403_acemoglu_app.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Diagnostics before Prescription DaniRodrikHarvard U 33 44 Development economists should stop acting as categorical advocates (or detractors) for specific approaches to development. They should instead be diagnosticians, helping decisionmakers choose the right model (and remedy) for their specific realities, among many contending models (and remedies). In this spirit, Ricardo Hausmann, Andres Velasco, and I have developed a "growth diagnostics" framework that sketches a systematic process for identifying binding constraints and prioritizing policy reforms in multilateral agencies and bilateral donors. Growth diagnostics is based on the idea that not all constraints bind equally and that a sensible and practical strategy consists of identifying the most serious constraint(s) at work. The practitioner works with a decision tree to do this. The second step in growth diagnostics is to identify remedies for relaxing the constraint that are appropriate to the context and take cognizance of potential second-best complications. Successful countries are those that have implemented these two steps in an ongoing manner: identify sequentially the most binding constraints and remove them with locally suited remedies. Diagnostics requires pragmatism and eclecticism, in the use of both theory and evidence. It has no room for dogmatism, imported blueprints, or empirical purism. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.33 10.1257/jep.24.3.33 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Uneven Growth: A Framework for Research in Development Economics DebrajRayNYU 45 60 The textbook paradigm of economywide development rests on the premise of "balanced growth": that is, on the presumption that all sectors will grow in unison over time as a country gets richer. Of course, we would all agree that balanced growth is an abstraction. In many developing countries, economic growth has been fundamentally uneven. The question really is not whether growth is balanced -- it isn't -- but whether the abstraction is a useful one. For many important development questions, I believe the answer is no. This is why I would like to take the reality of "uneven growth" seriously and use it as an organizing device for a research program. I divide my research agenda into roughly two parts: the sources and nature of uneven growth, and the reactions to uneven growth -- how forces are set in motion to restore balance or perhaps even to thwart the growth process. To help us think about the effects of uneven growth, I present a version of Albert Hirschmann's tunnel parable: You're in a multi-lane tunnel, all lanes in the same direction, and you're caught in a serious traffic jam. After a while, the cars in the other lane begin to move. Do you feel better or worse? At first, movement in the other lane may seem like a good sign: you hope that your turn to move will come soon, and indeed that might happen. However, if the other lane keeps whizzing by, with no gaps to enter and with no change on your lane, your reactions may well become quite negative. Unevenness without corresponding redistribution can be tolerated or even welcomed if it raises expectations everywhere, but it will be tolerated for only so long. Thus, uneven growth will set forces in motion to restore a greater degree of balance, even (in some cases) actions that may thwart the growth process itself. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.45 10.1257/jep.24.3.45 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Giving Credit Where It Is Due Abhijit V.BanerjeeMIT EstherDufloMIT 61 80 In the last few years, field experiments have emerged as an attractive new tool in the effort to elaborate our understanding of economic issues relevant to poor countries and poor people. By enabling the researcher to precisely control the variation in the data, field experiments allow the estimation of parameters and testing of hypotheses that would be very difficult to implement with observational data. The results of this body of empirical work, in turn, have pushed theory in new directions. Much of this paper illustrates the power of this interplay between experimental and theoretical thinking. Rather than discussing this in the abstract, we focus on one area where the recent empirical work has been particularly exciting and useful -- credit. Credit markets in developing countries offer up many facts and puzzles that lead us to build theories based on informational constraints and psychological limitations. The empirical work inspired by these theories, in turn, has generated both support for the theories, which then influenced policy thinking, and new puzzles, which have prompted new efforts to improve the theory. We see the substantive, two-way conversation taking place between theory and data around credit markets in developing economies as a promising template for the field. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.61 10.1257/jep.24.3.61 http://www.aeaweb.org/jep/app/2403_banerjee_app.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Microeconomic Approaches to Development: Schooling, Learning, and Growth Mark R.RosenzweigYale U 81 96 Within the field of economic development over the past 15 years or so, particularly significant advances have been made in what can be loosely called micro-development, an area defined principally by the units that are examined, not by a particular methodological approach. The units may be individuals, households, networks, banks, government agencies and so on, as opposed to countries. Within this area, economists use a wide variety of empirical methods informed to different degrees by economic models, they use data from developed and developing countries, and some use no data at all, to shed light on development questions. The best of this work speaks to the major questions of development and even informs, if not provides the foundation for, macro models of development and growth. I will illustrate the variety of approaches to development issues that microeconomists have employed by focusing on studies that illuminate and quantify the major mechanisms posited by growth theorists who highlight the role of education in fostering growth. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.81 10.1257/jep.24.3.81 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Searching for Effective Teachers with Imperfect Information Douglas O.StaigerDartmouth College Jonah E.RockoffColumbia U 97 118 Over the past four decades, empirical researchers -- many of them economists -- have accumulated an impressive amount of evidence on teachers. In this paper, we ask what the existing evidence implies for how school leaders might recruit, evaluate, and retain teachers. We begin by summarizing the evidence on five key points, referring to existing work and to evidence we have accumulated from our research with the nation's two largest school districts: Los Angeles and New York City. First, teachers display considerable heterogeneity in their effects on student achievement gains. Second, estimates of teacher effectiveness based on student achievement data are noisy measures. Third, teachers' effectiveness rises rapidly in the first year or two of their teaching careers but then quickly levels out. Fourth, the primary cost of teacher turnover is not the direct cost of hiring and firing, but rather is the loss to students who will be taught by a novice teacher rather than one with several years of experience. Fifth, it is difficult to identify at the time of hire those teachers who will prove more effective. As a result, better teachers can only be identified after some evidence on their actual job performance has accumulated. We then explore what these facts imply for how principals and school districts should act, using a simple model in which schools must search for teachers using noisy signals of teacher effectiveness. The implications of our analysis are strikingly different from current practice. Rather than screening at the time of hire, the evidence on heterogeneity of teacher performance suggests a better strategy would be identifying large differences between teachers by observing the first few years of teaching performance and retaining only the highest-performing teachers. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.97 10.1257/jep.24.3.97 http://www.aeaweb.org/jep/app/2403_staiger_app.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Aiming for Efficiency Rather Than Proficiency DerekNealU Chicago 119 32 The No Child Left Behind law is flawed for many reasons, but the most important is that it is built around proficiency targets. Proficiency rates are not useful metrics of school performance because universal proficiency is not a socially efficient goal for principals and teachers. Further, the variation in proficiency rates among schools reflects, in large part, interschool differences in student background characteristics. The designers of accountability systems must move away from systems designed around a one-size-fits-all standard and begin designing systems that organize and promote competition among schools. Well-organized competition among schools is the best vehicle for making sure that schools use public funds efficiently. If education officials pursue this paradigm, they must develop relative performance measures that assess the outcomes of these contests while making reasonable allowance for differences in student populations served by public schools. I will discuss a method for deriving context-specific measures of school performance. A percentile performance index tells public officials how often the students in a particular school or classroom perform better than students in other schools who began the year in similar circumstances with respect to their prior achievements, the compositions of their classmates, and their family backgrounds. This index of relative performance provides the information policymakers need to make preliminary judgments concerning when to reorganize a given school and give a new staff the opportunity to prove they can do better. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.119 10.1257/jep.24.3.119 http://www.aeaweb.org/jep/app/2403_neal_app.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia The Quality and Distribution of Teachers under the No Child Left Behind Act Eric A.HanushekHoover Institution, Stanford U and U TX, Dallas Steven G.RivkinAmherst College and U TX, Dallas 133 50 The main effects of No Child Left Behind on the quality of teaching are likely to come through two provisions of the act. First, NCLB establishes benchmarks based on test score pass rates that schools must meet in order to remain in good standing and avoid sanctions. Since teachers are central to student performance, this accountability component of NCLB is likely to have direct effects on both the demand for and supply of teachers and therefore on both the composition of the stock of public school teachers and the distribution of those teachers among schools. Second, NCLB explicitly requires districts to have "highly qualified" teachers, and the enunciation and enforcement of such a standard might have an additional effect on the composition of teachers. We will discuss three avenues by which these requirements might affect the quality of teachers. First, we will argue that the requirements for "highly qualified" teachers are unlikely to have had any perceptible effect on the performance of students. Second, the combination of quality requirements and the more-stringent testing environment could make teaching appear more costly and risky as a profession and thus alter the composition of new entrants, but at least so far, we find no evidence of such effects. Finally, the accountability provisions might change the dynamics of the labor market for teachers, including decisions about hiring and job separation. While not completely understood, this channel might be quite important, especially at low-performing schools where the stress of the accountability requirements is highest. We will provide new evidence from Texas on the relationship between school accountability ratings and teacher transitions both out of schools and out of grades three through eight, the grades subject to NCLB testing requirements. Finally, we offer some observations about potential policy implications and a future research agenda. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.133 10.1257/jep.24.3.133 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Teachers' Views on No Child Left Behind: Support for the Principles, Concerns about the Practices Richard J.MurnaneHarvard U John P.PapayHarvard U 151 66 In this article, we describe teachers' views of the behavioral responses the No Child Left Behind legislation has elicited and the extent to which research reveals evidence of these responses and their effects on the distribution of student achievement. We focus on teachers' reactions to three aspects of NCLB that are particularly relevant to them: 1) the testing requirements and the rules determining "Adequate Yearly Progress" (AYP) under NCLB; 2) the sanctions imposed on schools that fail to meet AYP; and 3) the requirement that all teachers of core academic subjects be "highly qualified" in their areas of teaching assignment. Overall, we find that teachers overwhelmingly support the principles underlying the No Child Left Behind legislation, including that schools should be held accountable for educating all children well. However, teachers are concerned that the incentives created by some provisions of the law have elicited unintended responses that reduce the quality of education provided to at least some children. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.151 10.1257/jep.24.3.151 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Symposia Measurement Matters: Perspectives on Education Policy from an Economist and School Board Member KevinLangBoston U and IZA, Bonn 167 82 One of the potential strengths of the No Child Left Behind (NCLB) Act enacted in 2002 is that the law requires the production of an enormous amount of data, particularly from tests, which, if used properly, might help us improve education. As an economist and as someone who served 13 years on the School Committee1 in Brookline Massachusetts, until May 2009, I have been appalled by the limited ability of districts to analyze these data; I have been equally appalled by the cavalier manner in which economists use test scores and related measures in their analyses. The summary data currently provided are very hard to interpret, and policymakers, who typically lack statistical sophistication, cannot easily use them to assess progress. In some domains, most notably the use of average test scores to evaluate teachers or schools, the education community is aware of the biases and has sought better measures. The economics and statistics communities have both responded to and created this demand by developing value-added measures that carry a scientific aura. However, economists have largely failed to recognize many of the problems with such measures. These problems are sufficiently important that they should preclude any automatic link between these measures and rewards or sanctions. They do, however, contain information and can be used as a catalyst for more careful evaluation of teachers and schools, and as a lever to induce principals and other administrators to act on their knowledge. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.167 10.1257/jep.24.3.167 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Articles Emmanuel Saez: 2009 John Bates Clark Medalist B. DouglasBernheimStanford U 183 206 Emmanuel Saez, winner of the 2009 John Bates Clark Medal, has distinguished himself by making fundamental contributions concerning critical theoretical and empirical issues within the field of public economics. He is one of those exceptional scholars whose work reflects a broad and thoroughly integrated vision. In carefully and creatively implementing that vision, he has led a remarkable resurgence of interest in tax policy research over the last decade. Emmanuel's work can be divided into five areas: the theory of optimal taxes and transfers; the measurement of income and wealth distributions; the measurement of behavioral responses to personal taxation; the taxation of corporate dividends; and retirement saving. A great deal of his work is closely interrelated across these topics, which makes the whole considerably greater than the sum of the parts. In effect, he has bridged the chasm between theory and practical policymaking by attacking the policy design problem from both sides at once. This article provides a survey of Emmanuel's work. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.183 10.1257/jep.24.3.183 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Articles Mobile Phones and Economic Development in Africa Jenny C.AkerTufts U and Center for Global Development, Washington, DC Isaac M.MbitiSouthern Methodist U 207 32 Access to and use of mobile telephony in sub-Saharan Africa has increased dramatically over the past decade. Mobile telephony has brought new possibilities to the continent. Across urban-rural and rich-poor divides, mobile phones connect individuals to individuals, information, markets, and services. These effects can be particularly dramatic in rural Africa, where in many places mobile phones have represented the first modern telecommunications infrastructure of any kind. Mobile phones have greatly reduced communication costs, thereby allowing individuals and firms to send and to obtain information quickly and cheaply on a variety of economic, social, and political topics. An emerging body of research shows that the reduction in communication costs associated with mobile phones has tangible economic benefits, improving agricultural and labor market efficiency and producer and consumer welfare in specific circumstances and countries. This paper first examines the evolution of mobile phone coverage and adoption in sub-Saharan Africa over the past decade. We then explore the main channels through which mobile phones can effect economic outcomes and appraise current evidence of its potential to improve economic development. We conclude with directions for future research and outline the necessary conditions for mobile phones to promote broader economic development in Africa. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.207 10.1257/jep.24.3.207 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Features Markets: State Franchise Laws, Dealer Terminations, and the Auto Crisis FrancineLafontaineU MI FionaScott MortonYale U 233 50 In fall 2008, General Motors and Chrysler were both on the brink of bankruptcy, and Ford was not far behind. As the government stepped in and restructuring began, GM and Chrysler announced their plan to terminate about 2,200 dealerships. In this paper, we first provide an overview of franchising in car distribution, how it came about, and the legal framework within which it functions. States earn about 20 percent of all state sales taxes from auto dealers. As a result, new car dealerships, and especially local or state car dealership associations, have been able to exert influence over local legislatures. This has led to a set of state laws that almost guarantee dealership profitability and survival -- albeit at the expense of manufacturer profits. Available evidence and theory suggests that as a result of these laws, distribution costs and retail prices are higher than they otherwise would be; and this is particularly true for Detroit's Big Three car manufacturers -- which is likely a factor contributing to their losses in market share vis-á-vis other manufacturers. After discussing the evidence on the effects of the car franchise laws on dealer profit and car prices, we turn to the interaction of the franchise laws and manufacturers' response to the auto crisis. Last, we consider what car distribution might be like if there were no constraints on organization. We conclude that although the state-level franchise laws came about for a reason, the current crisis perhaps provides an opportunity to reconsider the kind of regulatory framework that would best serve consumers, rather than carmakers or car dealers. http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.233 10.1257/jep.24.3.233 http://www.aeaweb.org/jep/app/2403_morton_app.pdf American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Features Recommendations for Further Reading TimothyTaylorMacalester College 251 58 http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.251 10.1257/jep.24.3.251 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 24 3 Summer 2010 http://www.aeaweb.org/issue.php?journal=JEP&volume=24&issue=3 Features Notes 259 262 http://www.aeaweb.org/articles.php?doi=10.1257/jep.24.3.259 10.1257/jep.24.3.259