Falling Dominoes: A Theory of Rare Events and Crisis Contagion

By Heng Chen and Wing Suen

American Economic Journal: Microeconomics, February 2016

Crises, such as revolutions and currency attacks, rarely occur; but when they do they typically arrive in waves. The rarity of crises is an important contagion mechanism in a multiple-country dynamic global game model. When players are uncertain about the...

Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth

By Samuel Bazzi and Michael A. Clemens

American Economic Journal: Macroeconomics, April 2013

Concern has intensified in recent years that many instrumental variables used in widely-cited growth regressions may be invalid, weak, or both. Attempts to remedy this general problem remain inadequate. We show how a range of published studies can offer m...

Heterogeneity and Aggregation: Implications for Labor-Market Fluctuations: Reply

By Yongsung Chang and Sun-Bin Kim

American Economic Review, April 2014

Takahashi (2014) has uncovered coding errors in our paper, Chang and Kim (2007)-henceforth, CK. We acknowledge and are embarrassed by these mistakes. We are grateful to Takahashi for uncovering them. While the correction decreases the volatility of the...

Evidence on Discrimination in Employment: Codes of Color, Codes of Gender

[Symposium: Discrimination in Product, Credit and Labor Markets]

By William A. Darity and Patrick L. Mason

Journal of Economic Perspectives, Spring 1998

There is substantial racial and gender disparity in the American economy. As we will demonstrate, discriminatory treatment within the labor market is a major cause of this inequality. Yet, there appear to have been particular periods in which racial minor...

Evaluating US Fuel Economy Standards in a Model with Producer and Household Heterogeneity

By Mark R. Jacobsen

American Economic Journal: Economic Policy, May 2013

This paper employs an empirically estimated model to study the equilibrium effects of an increase in the US corporate average fuel economy (CAFE) standards. I identify and model heterogeneity across firms and find that the profit impacts of CAFE fall alm...

Asymmetric Information and Intermediation Chains

By Vincent Glode and Christian Opp

American Economic Review, September 2016

We propose a parsimonious model of bilateral trade under asymmetric information to shed light on the prevalence of intermediation chains that stand between buyers and sellers in many decentralized markets. Our model features a classic problem in economics...

New Trade Models, New Welfare Implications

By Marc J. Melitz and Stephen J. Redding

American Economic Review, March 2015

We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfar...

Learning from Others? Decision Rights, Strategic Communication, and Reputational Concerns

By Otto H. Swank and Bauke Visser

American Economic Journal: Microeconomics, November 2015

We examine centralized versus decentralized decision making when experience of agents is private information and communication is necessary to learn from others. An agent has reputational concerns and his market may or may not observe what the other agent...

From State to Market: A Survey of Empirical Studies on Privatization

By William L. Megginson and Jeffry M. Netter

Journal of Economic Literature, June 2001

This study surveys the literature examining the privatization of state-owned enterprises (SOEs) We review the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types ...

Correlation Neglect, Voting Behavior, and Information Aggregation

By Gilat Levy and Ronny Razin

American Economic Review, April 2015

In this paper we analyze elections when voters underestimate the correlation between their information sources ("correlation neglect"). We find that this cognitive bias can improve political outcomes. We show that the extreme beliefs which result from cor...

The Billion Prices Project: Using Online Prices for Measurement and Research

By Alberto Cavallo and Roberto Rigobon

Journal of Economic Perspectives, Spring 2016

A large and growing share of retail prices all over the world are posted online on the websites of retailers. This is a massive and (until recently) untapped source of retail price information. Our objective with the Billion Prices Project, created at MIT...

Taxing across Borders: Tracking Personal Wealth and Corporate Profits

[Symposium: Tax Enforcement and Compliance]

By Gabriel Zucman

Journal of Economic Perspectives, Fall 2014

This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a tenfold increase since the 1980; their effective tax rate ha...

Overconfidence and Excess Entry: An Experimental Approach

By Colin Camerer and Dan Lovallo

American Economic Review, March 1999

The RAND Health Insurance Experiment, Three Decades Later

By Aviva Aron-Dine, Liran Einav, and Amy Finkelstein

Journal of Economic Perspectives, Winter 2013

Between 1974 and 1981, the RAND health insurance experiment provided health insurance to more than 5,800 individuals from about 2,000 households in six different locations across the United States, a sample designed to be representative of families with ...

Observational Learning: Evidence from a Randomized Natural Field Experiment

By Hongbin Cai, Yuyu Chen, and Hanming Fang

American Economic Review, June 2009

We report results from a randomized natural field experiment conducted in a restaurant dining setting to distinguish the observational learning effect from the saliency effect. We find that, when customers are given ranking information of the five most...

Financial Liberalization, Debt Mismatch, Allocative Efficiency, and Growth

By Romain Rancière and Aaron Tornell

American Economic Journal: Macroeconomics, April 2016

Financial liberalization increases growth, but leads to more crises and costly bailouts. We present a two-sector model in which liberalization, by allowing debt-denomination mismatch, relaxes borrowing limits in the financially constrained sector, but en...

Observational Learning and Demand for Search Goods

By Kenneth Hendricks, Alan Sorensen, and Thomas Wiseman

American Economic Journal: Microeconomics, February 2012

We develop a model of herds in which consumers observe only the aggregate purchase history, not the complete ordered history of search actions. We show that the purchasing information changes the conditions under which herds can occur for both low- and hi...

Distinguished Fellow: Houthakker's Contributions to Economics

By Robert A. Pollak

Journal of Economic Perspectives, Spring 1990

Hendrik Houthakker's contributions to economics defy capsule description. A better strategy than providing abstracts of the books and articles on his long and impressive vita is discussing one or two topics in detail, placing at least some of his contribu...

Parental Education and Child Health: Evidence from a Natural Experiment in Taiwan

By Shin-Yi Chou, Jin-Tan Liu, Michael Grossman, and Ted Joyce

American Economic Journal: Applied Economics, January 2010

In 1968, the Taiwanese government extended compulsory education from 6 to 9 years and opened over 150 new junior high schools at a differential rate among regions. Within each region, we exploit variations across cohorts in new junior high school openi...

Credit Externalities: Macroeconomic Effects and Policy Implications

By Javier Bianchi

American Economic Review, May 2010