Crises and Capital Requirements in Banking

By Alan D. Morrison and Lucy White

American Economic Review, December 2005

We analyze a general equilibrium model in which there is both adverse selection of, and moral hazard by, banks. The regulator can screen banks prior to giving them a licence, audit them ex post to learn the success probability of their projects, and impos...

Annuities and Individual Welfare

By Thomas Davidoff, Jeffrey R. Brown, and Peter A. Diamond

American Economic Review, December 2005

Advancing annuity demand theory, we present sufficient conditions for the optimality of full annuitization under market completeness which are substantially less restrictive than those used by Menahem E. Yaari (1965). We examine demand with market incompl...

Cooperation under the Shadow of the Future: Experimental Evidence from Infinitely Repeated Games

By Pedro Dal Bó

American Economic Review, December 2005

While there is an extensive literature on the theory of infinitely repeated games, empirical evidence on how "the shadow of the future" affects behavior is scarce and inconclusive. I simulate infinitely repeated prisoner's dilemma games in the lab with a ...

Tax-Motivated Trading by Individual Investors

By Zoran Ivković, James Poterba, and Scott Weisbenner

American Economic Review, December 2005

We analyze stock trades made by individuals holding stock in both taxable and tax-deferred accounts. By comparing trades across these two types of accounts, we uncover a capital gains lock-in effect in taxable accounts. The lock-in effect is more pronounc...

On the Irrelevance of Input Prices for Make-or-Buy Decisions

By David E. M Sappington

American Economic Review, December 2005

This paper demonstrates that input prices need not reflect the costs of an efficient incumbent supplier in order to induce entrants to implement efficient make-or-buy decisions. Because of strategic downstream considerations, entrants may always undertake...

Estimating the Value of Proposal Power

By Brian Knight

American Economic Review, December 2005

This paper investigates the role of proposal power in the allocation of transportation projects across U.S. congressional districts in 1991 and 1998. The evidence supports the key qualitative prediction of legislative bargaining models: members with propo...

Human Capital Formation, Life Expectancy, and the Process of Development

By Matteo Cervellati and Uwe Sunde

American Economic Review, December 2005

We provide a unified theory of the transition in income, life expectancy, education, and population size from a nondeveloped environment to sustained growth. Individuals optimally trade off the time cost of education with its lifetime returns. Initially, ...

The Impact of Outsourcing to China on Hong Kong's Labor Market

By Chang-Tai Hsieh and Keong T. Woo

American Economic Review, December 2005

We measure the impact of China's decision to open its economy in 1980 on outsourcing from Hong Kong and the relative demand for less-skilled workers. We show that the relative demand for skilled workers in Hong Kong increased at the same time outsourcing ...

Using Experimental Economics to Measure Social Capital and Predict Financial Decisions

By Dean S. Karlan

American Economic Review, December 2005

Questions remain as to whether results from experimental economics are generalizable to real decisions in nonlaboratory settings. Furthermore, questions persist about whether social capital helps mitigate information asymmetries in credit markets. I exami...

Manufacturer Liability for Harms Caused by Consumers to Others

By Bruce Hay and Kathryn E. Spier

American Economic Review, December 2005

Should the manufacturer of a product be held legally responsible when a consumer, while using the product, harms someone else? We show that if consumers have deep pockets, then manufacturer liability is not desirable. If homogeneous consumers have limited...

Are Banks Really Special? New Evidence from the FDIC-Induced Failure of Healthy Banks

By Adam B. Ashcraft

American Economic Review, December 2005

Recent bank failures are followed by significant and permanent negative declines in real county income. These declines are larger for small failures than for large failures per dollar of assets, are larger for bank failures than thrift failures, and are l...

Bubbles and Experience: An Experiment

By Martin Dufwenberg, Tobias Lindqvist, and Evan Moore

American Economic Review, December 2005

We investigate the occurrence of bubble-crash pricing patterns in laboratory financial markets with a mixture of experienced and inexperienced traders. We find that even with a minority of experienced traders, bubbles are substantially abated.

Does Increasing Women's Schooling Raise the Schooling of the Next Generation? Comment

By Kate L. Antonovics and Arthur S. Goldberger

American Economic Review, December 2005

"Does increasing women's schooling raise the schooling of the next generation?" is the question posed by Jere R. Behrman and Mark R. Rosenzweig (2002). Their answer to the question is no. In fact, they conclude that raising women's schooling may lower the...

Does Increasing Women's Schooling Raise the Schooling of the Next Generation? Reply

By Jere R. Behrman and Mark R. Rosenzweig

American Economic Review, December 2005

We reassess the empirical robustness of the empirical findings in Jere R. Berhman and Mark R. Rosenzweig (2002) using new information on schooling which was collected and coded independently of codings carried out by both Kate Antonovics and Arthur Goldbe...

The Savers-Spenders Theory of Fiscal Policy: Corrigendum

By N. Gregory Mankiw

American Economic Review, December 2005

Free Markets and Fettered Consumers

By Daniel McFadden

American Economic Review, March 2006

Money in a Theory of Banking

By Douglas W. Diamond and Raghuram G. Rajan

American Economic Review, March 2006

We examine the role of banks in the transmission of monetary policy. In economies where banks use real demand deposits to finance their lending, fluctuations in the timing of production can force banks to scramble for real liquidity, or even fail, which c...

Were There Regime Switches in U.S. Monetary Policy?

By Christopher A. Sims and Tao Zha

American Economic Review, March 2006

A multivariate regime-switching model for monetary policy is confronted with U.S. data. The best fit allows time variation in disturbance variances only. With coefficients allowed to change, the best fit is with change only in the monetary policy rule and...

Odious Debt

By Seema Jayachandran and Michael Kremer

American Economic Review, March 2006

Trade sanctions are often criticized as ineffective because they create incentives for evasion or as harmful to the target country's population. Loan sanctions, in contrast, could be self-enforcing and could protect the population from being saddled with ...

Advertising Content

By Simon P. Anderson and Régis Renault

American Economic Review, March 2006

Empirical evidence suggests that most advertisements contain little direct information. Many do not mention prices. We analyze a monopoly firm's choice of advertising content and the information disclosed to consumers. The firm advertises only product inf...