Index Number Issues in the Consumer Price Index

[Symposium: Measuring the CPI]

By W. Erwin Diewert

Journal of Economic Perspectives, Winter 1998

This paper addresses the following issues: what is an appropriate theoretical consumer price index that statistical agencies should attempt to measure; what are some of the possible sources of biases between the fixed base Laspeyres price index that stati...

Transfer Payments and the Macroeconomy: The Effects of Social Security Benefit Increases, 1952-1991

By Christina D. Romer and David H. Romer

American Economic Journal: Macroeconomics, October 2016

This paper uses Social Security benefit increases from 1952 to 1991 to investigate the macroeconomic effects of changes in transfers. It finds a large, immediate, and significant positive response of consumption to permanent benefit increases. The respons...

The Age of Milton Friedman

By Andrei Shleifer

Journal of Economic Literature, March 2009

Between 1980 and 2005, as the world embraced free market policies, living standards rose sharply, while life expectancy, educational attainment, and democracy improved and absolute poverty declined. Is this a coincidence? A collection of essays edited ...

Payday Lending

By Michael A. Stegman

Journal of Economic Perspectives, Winter 2007

A "payday loan" is a short-term loan made for seven to 30 days for a small amount. Fees charged on payday loans generally range from $15 to $30 on each $100 advanced. A typical example would be that in exchange for a $300 advance until the next payday, th...

Nash Equilibrium and the History of Economic Theory

By Roger B. Myerson

Journal of Economic Literature, September 1999

John Nash's formulation of noncooperative game theory was one of the great breakthroughs in the history of social science. Nash's work in this area is reviewed in its historical context to better understand how the fundamental ideas of noncooperative game...

Doing It Now or Later

By Ted O'Donoghue and Matthew Rabin

American Economic Review, March 1999

The authors examine self-control problems--modeled as time-inconsistent, present-biased preferences--in a model where a person must do an activity exactly once. They emphasize two distinctions: do activities involve immediate costs or immediate rewards, a...

Contracting with Heterogeneous Externalities

By Shai Bernstein and Eyal Winter

American Economic Journal: Microeconomics, May 2012

We model situations in which a principal offers contracts to a group of agents to participate in a project. Agents' benefits from participation depend on the identity of other participating agents. We assume heterogeneous externalities and characterize th...

Trust, Reciprocity, and Favors in Cooperative Relationships

By Atila Abdulkadiroğlu and Kyle Bagwell

American Economic Journal: Microeconomics, May 2013

We study trust, reciprocity, and favors in a repeated trust game with private information. In our main analysis, players are willing to exhibit trust and thereby facilitate cooperative gains only if such behavior is regarded as a favor that must be rec...

Evaluating Welfare Reform Waivers under Section 1115

By Carol Harvey, Michael J. Camasso, and Radha Jagannathan

Journal of Economic Perspectives, Fall 2000

Beginning in 1962, Section 1115 of the Social Security Act allowed the U.S. Secretary of Health and Human Services to waive specific provisions of the act within individual states, allowing them to implement welfare experiments or demonstration projects t...

Giving Mom a Break: The Impact of Higher EITC Payments on Maternal Health

By William N. Evans and Craig L. Garthwaite

American Economic Journal: Economic Policy, May 2014

The 1993 expansions of the Earned Income Tax Credit created the first meaningful separation in benefits between families containing two or more children and those with only one child. If income is protective of health, we should see improvements over t...

Firm-Level Dispersion in Productivity: Is the Devil in the Details?

By Lucia Foster, Cheryl Grim, John Haltiwanger, and Zoltan Wolf

American Economic Review, May 2016

We explore current interpretations of firm-level dispersion in revenue-based productivity measures. Since revenue function estimates using proxy methods differ from factor elasticities, the residual emerging from this method remains a combination of deman...

Housing, Health, and Happiness

By Matias D. Cattaneo, Sebastian Galiani, Paul J. Gertler, Sebastian Martinez, and Rocio Titiunik

American Economic Journal: Economic Policy, February 2009

We investigate the impact of a large-scale Mexican program to replace dirt floors with cement floors on child health and adult happiness. We find that replacing dirt floors with cement significantly improves the health of young children measured by dec...

Testing the General Validity of the Heckscher-Ohlin Theorem

By Daniel M. Bernhofen and John C. Brown

American Economic Journal: Microeconomics, November 2016

We exploit Japan's mid-nineteenth century transition from autarky to open trade to test Alan Deardorff's (1982) seminal and parsimonious autarky price formulation of the Heckscher-Ohlin theorem. Factor price data from Japan's late autarky period impose a ...

Tax Morale

[Symposium: Tax Enforcement and Compliance]

By Erzo F. P. Luttmer and Monica Singhal

Journal of Economic Perspectives, Fall 2014

There is an apparent disconnect between much of the academic literature on tax compliance and the administration of tax policy. In the benchmark economic model, the key policy parameters affecting tax evasion are the tax rate, the detection probability, a...

Dividend and Corporate Taxation in an Agency Model of the Firm

By Raj Chetty and Emmanuel Saez

American Economic Journal: Economic Policy, August 2010

Recent evidence on the effect of dividend taxes on firm behavior is inconsistent with neoclassical theories of dividend and corporate taxation. We develop a simple agency model in which managers and shareholders have conflicting interests to explain the e...

Hedge Funds: Past, Present, and Future

By René M. Stulz

Journal of Economic Perspectives, Spring 2007

Assets managed by hedge funds have grown faster over the last ten years than assets managed by mutual funds. Hedge funds and mutual funds perform the same economic function, but hedge funds are largely unregulated while mutual funds are tightly regulated....

Innovation, Trade, and Finance

By Peter Egger and Christian Keuschnigg

American Economic Journal: Microeconomics, May 2015

Heterogeneous firms invest in R&D and expansion investment. Venture capital specializes in R&D financing where problems are largest. Marginal firms get funded by venture capital, while firms with larger debt capacity obtain cheaper bank financing. In the ...

The Tax Gradient: Spatial Aspects of Fiscal Competition

By David R. Agrawal

American Economic Journal: Economic Policy, May 2015

State borders create a discontinuous tax treatment of retail sales. In a Nash game, local tax rates will be higher on the low state tax side of a border. Local taxes will decrease from the nearest high-tax border and increase from the low-tax border. Usin...

Nudging Farmers to Use Fertilizer: Theory and Experimental Evidence from Kenya

By Esther Duflo, Michael Kremer, and Jonathan Robinson

American Economic Review, October 2011

We model farmers as facing small fixed costs of purchasing fertilizer and assume some are stochastically present biased and not fully sophisticated about this bias. Such farmers may procrastinate, postponing fertilizer purchases until later periods, when ...

Implementation Details for Frequent Batch Auctions: Slowing Down Markets to the Blink of an Eye

By Eric Budish, Peter Cramton, and John Shim

American Economic Review, May 2014

Our recent research (Budish, Cramton, and Shim 2013) proposes frequent batch auctions—uniform-price sealed-bid double auctions conducted at frequent but discrete time intervals—as a market design alternative to continuous-time trading in finan...