Macroeconomic Implications of COVID-19: Can Negative Supply Shocks Cause Demand Shortages?

By Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub, and Iván Werning

American Economic Review, May 2022

Motivated by the effects of the COVID-19 pandemic, we present a theory of Keynesian supply shocks: shocks that reduce potential output in a sector of the economy, but that, by reducing demand in other sectors, ultimately push aggregate activity below pote...

Effective Demand Failures and the Limits of Monetary Stabilization Policy

By Michael Woodford

American Economic Review, May 2022

The challenge for stabilization policy presented by the COVID-19 pandemic stems above all from disruption of the circular flow of payments, resulting in a failure of what Keynes (1936) calls "effective demand." As a consequence, economic activity in many ...

Bargaining over Contingent Contracts under Incomplete Information

By Geoffroy de Clippel, Jack Fanning, and Kareen Rozen

American Economic Review, May 2022

We study bargaining over contingent contracts in problems where private information becomes public or verifiable when the time comes to implement the agreement. We suggest a simple, two-stage game that incorporates important aspects of bargaining. We char...

Rebel on the Canal: Disrupted Trade Access and Social Conflict in China, 1650–1911

By Yiming Cao and Shuo Chen

American Economic Review, May 2022

This paper examines the effects of the abandonment of China's Grand Canal—the world's largest and oldest artificial waterway—which served as a disruption to regional trade access. Using an original dataset covering 575 counties over 262 years, we show...

Looking Inside the Labor Market: A Review Article

By Peter Howitt

Journal of Economic Literature, March 2002

When unemployed workers are available, why don't firms cut wages until the excess supply is eliminated? In his book, Why Wages Don't Fall During a Recession, Truman F. Bewley concludes, based on interviews with managers and labor leaders, that the most im...

Bargaining over a Divisible Good in the Market for Lemons

By Dino Gerardi, Lucas Maestri, and Ignacio Monzón

American Economic Review, May 2022

We study bargaining with divisibility and interdependent values. A buyer and a seller trade a divisible good. The seller is privately informed about its quality, which can be high or low. Gains from trade are positive and decreasing in quantity. The buyer...

The Demand for Insurance and Rationale for a Mandate: Evidence from Workers' Compensation Insurance

By Marika Cabral, Can Cui, and Michael Dworsky

American Economic Review, May 2022

Workers' compensation insurance, which provides no-fault coverage for work-related injuries, is mandatory in nearly all states. We use administrative data from a unique market without a coverage mandate to estimate the demand for workers' compensation ins...

Signaling and Employer Learning with Instruments

By Gaurab Aryal, Manudeep Bhuller, and Fabian Lange

American Economic Review, May 2022

This paper considers the use of instruments to identify and estimate private and social returns to education within a model of employer learning. What an instrument identifies depends on whether it is hidden from, or transparent (i.e., observed) to, the e...

Multidimensional Auctions of Contracts: An Empirical Analysis

By Yunmi Kong, Isabelle Perrigne, and Quang Vuong

American Economic Review, May 2022

In this paper, we conduct a structural analysis of multi-attribute auctions of contracts with a general allocation rule when private information is multidimensional. Upon modeling bidders' contract value that accounts for their endogenous ex post actions,...

How Do National Firms Respond to Local Cost Shocks?

By R. Andrew Butters, Daniel W. Sacks, and Boyoung Seo

American Economic Review, May 2022

Recent research shows prices are insensitive to local demand conditions because national chains charge geographically uniform prices. We examine the price response to local cost shocks, including 68 excise tax changes, 76 sales tax changes, and other geog...

Can We Trust Social Capital?

By Joel Sobel

Journal of Economic Literature, March 2002

This essay looks at the literature on social capital from the perspective of game theory. It reviews Bowling Alone by Robert Putnam and Social Capital: A Multifaceted Approach edited by Partha Dasgupta and Ismail Serageldin.

Front Matter

American Economic Journal: Economic Policy, May 2022

Drug Diffusion through Peer Networks: The Influence of Industry Payments

By Leila Agha and Dan Zeltzer

American Economic Journal: Economic Policy, May 2022

Pharmaceutical companies market to physicians through individual detailing accompanied by monetary or in-kind transfers. Large compensation payments to a small number of physicians account for most of this promotional spending. Studying US promotional pay...

The Long-Term Effects of Measles Vaccination on Earnings and Employment

By Alicia Atwood

American Economic Journal: Economic Policy, May 2022

The measles vaccine was introduced in 1963. Take-up of the vaccine in the United States occurred quickly and universally, leading to reductions in morbidity and mortality. New biological evidence on how the measles virus interacts with our immune system i...

Engaging Teachers with Technology Increased Achievement, Bypassing Teachers Did Not

By Sabrin Beg, Waqas Halim, Adrienne M. Lucas, and Umar Saif

American Economic Journal: Economic Policy, May 2022

Using two RCTs in middle schools in Pakistan, we show that brief, expert-led, curriculum-based videos integrated into the classroom experience improved teaching effectiveness: student test scores in math and science increased by 0.3 standard deviations, 6...

Raising the Bar: Minimum Wages and Employers' Hiring Standards

By Sebastian Butschek

American Economic Journal: Economic Policy, May 2022

Many scholars have studied the employment effects of minimum wages, but little is known about effects on the composition of hires. I investigate whether Germany's minimum wage introduction raised hiring standards, using worker fixed effects as a proxy for...

Do Environmental Regulations Affect the Decision to Export?

By Jevan Cherniwchan and Nouri Najjar

American Economic Journal: Economic Policy, May 2022

This paper investigates how a common form of environmental regulation—air quality standards—affects exporters. We develop a simple theoretical model to show how the design of these standards causes (i) some firms to stop exporting and (ii) a reduction...

Mortality, Temperature, and Public Health Provision: Evidence from Mexico

By François Cohen and Antoine Dechezleprêtre

American Economic Journal: Economic Policy, May 2022

We examine the impact of temperature on mortality in Mexico using daily data over the period 1998–2017 and find that 3.8 percent of deaths in Mexico are caused by suboptimal temperature (26,000 every year). However, 92 percent of weather-related deaths ...

Homeownership, Labor Supply, and Neighborhood Quality

By Naomi Hausman, Tamar Ramot-Nyska, and Noam Zussman

American Economic Journal: Economic Policy, May 2022

This paper provides evidence on the external benefits of homeownership among low-income populations. A natural experiment in Israel generated large changes in neighborhood homeownership rates while holding fixed the residents and housing stock, two primar...

Does Hospital Crowding Matter? Evidence from Trauma and Orthopedics in England

By Thomas P. Hoe

American Economic Journal: Economic Policy, May 2022

This paper estimates the impact of hospital crowding on medical treatment decisions and patient health outcomes. Exploiting pseudorandom variation in emergency admissions, I find that a one-standard-deviation admission shock increases the unplanned readmi...