Managing Growth to Achieve Efficient Coordination in Large Groups

By Roberto A. Weber

American Economic Review, March 2006

Previous experiments using the minimum-effort coordination game reveal a striking regularity—large groups never coordinate efficiently. Given the frequency with which large real-world groups, such as firms, face similarly difficult coordination problems...

An Alternative Test of Racial Prejudice in Motor Vehicle Searches: Theory and Evidence

By Shamena Anwar and Hanming Fang

American Economic Review, March 2006

We propose a simple model of trooper behavior to design empirical tests for whether troopers of different races are monolithic in their search behavior, and whether they exhibit relative racial prejudice in motor vehicle searches. Our test of relative rac...

Estimating Average and Local Average Treatment Effects of Education when Compulsory Schooling Laws Really Matter

By Philip Oreopoulos

American Economic Review, March 2006

The change to the minimum school-leaving age in the United Kingdom from 14 to 15 had a powerful and immediate effect that redirected almost half the population of 14-year-olds in the mid-twentieth century to stay in school for one more year. The magnitude...

The Long-Term Impact of Military Service on Health: Evidence from World War II and Korean War Veterans

By Kelly Bedard and Olivier Deschênes

American Economic Review, March 2006

During the World War II and Korean War era, the U.S. military freely distributed cigarettes to overseas personnel and provided low-cost tobacco products on domestic military bases. In fact, even today the military continues to sell subsidized tobacco prod...

The Evolution of Managerial Expertise: How Corporate Culture Can Run Amok

By Dan Bernhardt, Eric Hughson, and Edward Kutsoati

American Economic Review, March 2006

This paper investigates how noisy evaluation of worker skills affects human capital investments and hiring. Individuals distort investments toward skills that most managers can evaluate. Dynamically, when workers become managers, managerial expertise can ...

Why Beauty Matters

By Markus M. Mobius and Tanya S. Rosenblat

American Economic Review, March 2006

We decompose the beauty premium in an experimental labor market where "employers" determine wages of "workers" who perform a maze-solving task. This task requires a true skill which we show to be unaffected by physical attractiveness. We find a sizable be...

Wealth Concentration in a Developing Economy: Paris and France, 1807-1994

By Thomas Piketty, Gilles Postel-Vinay, and Jean-Laurent Rosenthal

American Economic Review, March 2006

Using large samples of estate tax returns, we construct new series on wealth concentration in Paris and France from 1807 to 1994. Inequality increased until 1914 because industrial and financial estates grew dramatically. Then, adverse shocks, rather than...

Inequality, Lobbying, and Resource Allocation

By Joan Esteban and Debraj Ray

American Economic Review, March 2006

This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They ...

Putting Risk in Its Proper Place

By Louis Eeckhoudt and Harris Schlesinger

American Economic Review, March 2006

This paper examines preferences toward particular classes of lottery pairs. We show how such concepts as prudence and temperance can be fully characterized by a preference relation over these lotteries. If preferences are defined in an expected-utility fr...

Economic Conditions Early in Life and Individual Mortality

By Gerard J. van den Berg, Maarten Lindeboom, and France Portrait

American Economic Review, March 2006

We analyze the effect of economic conditions early in life on individual mortality rate later in life, using business cycle conditions early in life as an exogenous indicator. Individual records from Dutch registers of birth, marriage, and death, covering...

Can Rational Expectations Sticky-Price Models Explain Inflation Dynamics?

By Jeremy Rudd and Karl Whelan

American Economic Review, March 2006

The canonical inflation specification in sticky-price rational expectations models (the new-Keynesian Phillips curve) is often criticized for failing to account for the dependence of inflation on its own lags. In response, many studies employ a "hybrid" s...

On the Workings of a Cartel: Evidence from the Norwegian Cement Industry

By Lars-Hendrik Röller and Frode Steen

American Economic Review, March 2006

Using data on prices, production, and exports, we are able to identify marginal costs as well as the effectiveness of the Norwegian cement industry cartel. We find that our marginal cost estimates are very much in line with the detailed cost accounting da...

Benefit-Cost in a Benevolent Society

By Theodore C. Bergstrom

American Economic Review, March 2006

How should benefit-cost analysis account for the value that benevolent individuals place on others' enjoyment of public goods? When adding up the benefits to be compared with costs, should we sum the private valuations, the altruistic valuations, or somet...

Do Technological Improvements in the Manufacturing Sector Raise or Lower Employment?

By Yongsung Chang and Jay H. Hong

American Economic Review, March 2006

We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas many more industries exhibit an employment incre...

Politically Connected Firms

By Mara Faccio

American Economic Review, March 2006

Examination of firms in 47 countries shows a widespread overlap of controlling shareholders and top officers who are connected with national parliaments or governments, particularly in countries with higher levels of corruption, with barriers to foreign i...

Persistent Distortionary Policies with Asymmetric Information

By Matthew F. Mitchell and Andrea Moro

American Economic Review, March 2006

Why are distortionary policies used when seemingly Pareto improvements exist? According to a standard textbook argument, a Pareto improvement can be obtained by eliminating the distortions, compensating the losers with a lump sum transfer, and redistribut...

National Treatment in the GATT

By Henrik Horn

American Economic Review, March 2006

The National Treatment (NT) clause is the first-line defense in the GATT (and in most other trade agreements) against opportunistic exploitation of the inevitable incompleteness of the agreement. This paper examines the role of NT as it applies to interna...

Do Labor Issues Matter in the Determination of U.S. Trade Policy? An Empirical Reevaluation

By Xenia Matschke and Shane M. Sherlund

American Economic Review, March 2006

Some recent empirical studies, motivated by Grossman and Helpman's (1994) "protection-for-sale" model, suggest that very few factors (none of them labor related) determine trade protection. This paper reexamines the roles that labor issues play in the det...

Information Gathering, Transaction Costs, and the Property Rights Approach

By Patrick W. Schmitz

American Economic Review, March 2006

The property rights approach to the theory of the firm suggests that ownership structures are chosen in order to provide ex ante investment incentives, while bargaining is ex post efficient. In contrast, transaction cost economics emphasizes ex post ineff...

The New York Times and the Market for Local Newspapers

By Lisa M. George and Joel Waldfogel

American Economic Review, March 2006

Recent technological advances have dramatically lowered the cost of transmitting information over large distances. In the late 1990s, the New York Times implemented a national distribution strategy, expanding delivery in over 100 cities. Using cr...