Running to Keep in the Same Place: Consumer Choice as a Game of Status

By Ed Hopkins and Tatiana Kornienko

American Economic Review, September 2004

If individuals care about their status, defined as their rank in the distribution of consumption of one "positional" good, then the consumer's problem is strategic as her utility depends on the consumption choices of others. In the symmetric Nash equilibr...

The Home-Market Effect and Bilateral Trade Patterns

By Gordon H. Hanson and Chong Xiang

American Economic Review, September 2004

We develop a monopolistic-competition model of trade with many industries to examine how home-market effects vary with industry characteristics. Industries with high transport costs and more differentiated products tend to be more concentrated in large co...

Insurance, Consumption, and Saving: A Dynamic Analysis in Continuous Time

By R.A. Somerville

American Economic Review, September 2004

This paper shows how the demand for non-life insurance interacts with consumption and saving. The analysis is set in continuous time, using the maximum principle. When insurance is actuarially fair, the insurance and consumption decisions are separable. W...

Rational Overoptimism (and Other Biases)

By Eric Van den Steen

American Economic Review, September 2004

Rational agents with differing priors tend to be overoptimistic about their chances of success. In particular, an agent who tries to choose the action that is most likely to succeed, is more likely to choose an action of which he overestimated, rather tha...

Effects of Technology on Incentive Design of Share Contracts

By Priyanka Pandey

American Economic Review, September 2004

Saving, Risk Sharing, and Preferences for Risk

By Maurizio Mazzocco

American Economic Review, September 2004

Balance Sheets and Exchange Rate Policy

By Luis Felipe Céspedes, Roberto Chang, and Andrés Velasco

American Economic Review, September 2004

Real Exchange Rate Fluctuations and the Dynamics of Retail Trade Industries on the U. S.-Canada Border

By Jeffrey R. Campbell and Beverly Lapham

American Economic Review, September 2004

Policy Gambles

By Sumon Majumdar and Sharun W. Mukand

American Economic Review, September 2004

A Comment on the Economics of Labor Adjustment: Mind the Gap

By Russell Cooper and Jonathan L. Willis

American Economic Review, September 2004

A Comment on the Economics of Labor Adjustment: Mind the Gap: Reply

By Ricardo J. Caballero and Eduardo M.R.A. Engel

American Economic Review, September 2004

A Comment on the Economics of Labor Adjustment: Mind the Gap: Rejoinder

By Russell Cooper and Jonathan L. Willis

American Economic Review, September 2004

Bad Beta, Good Beta

By John Y. Campbell and Tuomo Vuolteenaho

American Economic Review, December 2004

This paper explains the size and value "anomalies" in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market's future cash flows and on...

Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization

By Joseph Chen, Harrison Hong, Ming Huang, and Jeffrey D. Kubik

American Economic Review, December 2004

We investigate the effect of scale on performance in the active money management industry. We first document that fund returns, both before and after fees and expenses, decline with lagged fund size, even after accounting for various performance benchmark...

The Interest Rate, Learning, and Inventory Investment

By Louis J. Maccini, Bartholomew J. Moore, and Huntley Schaller

American Economic Review, December 2004

This paper presents a model that provides an explanation, based on regime switching in the real interest rate and learning, of why tests based on stock adjustment models, Euler equations, or decision rules—which emphasize short-run fluctuations in inven...

Markups, Aggregation, and Inventory Adjustment

By Daniele Coen-Pirani

American Economic Review, December 2004

In this paper I suggest a unified explanation for two puzzles in the inventory literature: first, estimates of inventory speeds of adjustment in aggregate data are very small relative to the apparent rapid reaction of stocks to unanticipated variations in...

Intergenerational Persistence of Earnings: The Role of Early and College Education

By Diego Restuccia and Carlos Urrutia

American Economic Review, December 2004

Recent empirical evidence from the United States indicates a high degree of persistence in earnings across generations. Designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and...

Constructing Price Indexes across Space and Time: The Case of the European Union

By Robert J. Hill

American Economic Review, December 2004

This paper considers the problem of how to construct and reconcile price indexes across space and time. A general taxonomy of panel price index methods, containing four broad classes, is proposed, along with five criteria for discriminating between them. ...

Rationalizing the Penn World Table: True Multilateral Indices for International Comparisons of Real Income

By J. Peter Neary

American Economic Review, December 2004

Real incomes are routinely compared internationally using methods that "correct" for deviations from purchasing power parity. The most widely used of these is the Geary method which, though theoretically suspect, underlies the Penn World Table. This paper...

Gibrat's Law for (All) Cities

By Jan Eeckhout

American Economic Review, December 2004

Two empirical regularities concerning the size distribution of cities have repeatedly been established: Zipf's law holds (the upper tail is Pareto), and city growth is proportionate. Census 2000 data are used covering the entire size distribution, not jus...