Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade: Comment

By Jürgen Meckl

American Economic Review, December 2006

Empathy or Antipathy? The Impact of Diversity

By Johanne Boisjoly, Greg J. Duncan, Michael Kremer, Dan M. Levy, and Jacque Eccles

American Economic Review, December 2006

Mixing across racial and ethnic lines could spur understanding or inflame tensions between groups. We find that white students at a large state university randomly assigned African American roommates in their first year were more likely to endorse affirma...

Declining Volatility in the U.S. Automobile Industry

By Valerie A. Ramey and Daniel J. Vine

American Economic Review, December 2006

Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, which in ...

How Special Is the Special Relationship? Using the Impact of U.S. R&D Spillovers on U.K. Firms as a Test of Technology Sourcing

By Rachel Griffith, Rupert Harrison, and John Van Reenen

American Economic Review, December 2006

We examine the "technology sourcing" hypothesis that foreign research labs located in the U.S. tap into U.S. R&D spillovers and improve home country productivity. We show that U.K. firms that established a high proportion of inventors based in the U.S. by...

The Japanese Saving Rate

By Kaiji Chen, Ayşe İmrohoroğlu, and Selahattin İmrohoroğlu

American Economic Review, December 2006

Despite much work, economists have not been able to quantitatively account for the differences in the Japanese and U.S. saving rates after World War II. In this paper, we show that the use of actual Japanese total factor productivity growth rates in a sta...

Phased-In Tax Cuts and Economic Activity

By Christopher L. House and Matthew D. Shapiro

American Economic Review, December 2006

This paper uses a dynamic general equilibrium model to analyze and quantify the aggregate effects of the timing of tax rate changes enacted in 2001 (which called for successive rate reductions through 2006) and 2003 (which made immediate tax rate cuts sch...

A New Method of Estimating Risk Aversion

By Raj Chetty

American Economic Review, December 2006

I show existing evidence on labor supply behavior places an upper bound on risk aversion in the expected utility model. I derive a formula for the coefficient of relative risk aversion (γ) in terms of the ratio of the income elasticity of labor supply to...

Child Labor and the Labor Supply of Other Household Members: Evidence from 1920 America

By Marco Manacorda

American Economic Review, December 2006

This paper exploits the variation in the legal minimum working age across states in 1920 America in order to identify households' labor supply responses to exogenous changes in children's labor force participation. Using micro data on urban households fro...

Did Unilateral Divorce Laws Raise Divorce Rates? A Reconciliation and New Results

By Justin Wolfers

American Economic Review, December 2006

Applying the Coase Theorem to marital bargaining suggests that shifting from consent to unilateral divorce laws will not affect divorce rates. I show that existing evidence suggesting large effects of divorce laws on divorce rates reflect a failure to exp...

Self-Fulfilling Currency Crises: The Role of Interest Rates

By Christian Hellwig, Arijit Mukherji, and Aleh Tsyvinski

American Economic Review, December 2006

We develop a model of currency crises, in which traders are heterogeneously informed, and interest rates are endogenously determined in a noisy rational expectations equilibrium. In our model, multiple equilibria result from distinct roles an interest ...

Cognition and Behavior in Two-Person Guessing Games: An Experimental Study

By Miguel A. Costa-Gomes and Vincent P. Crawford

American Economic Review, December 2006

This paper reports an experiment that elicits subjects’ initial responses to 16 dominance-solvable two-person guessing games. The structure is publicly announced except for varying payoff parameters, to which subjects are given free access. Varying th...

Crises and Prices: Information Aggregation, Multiplicity, and Volatility

By George-Marios Angeletos and Iván Werning

American Economic Review, December 2006

Crises are volatile times when endogenous sources of information are closely monitored. We study the role of information in crises by introducing a financial market in a coordination game with imperfect information. The asset price aggregates dispersed...

Storable Good Monopoly: The Role of Commitment

By Paolo Dudine, Igal Hendel, and Alessandro Lizzeri

American Economic Review, December 2006

We study dynamic monopoly pricing of storable goods in an environment where demand changes over time. The literature on durables has focused on incentives to delay purchases. Our analysis focuses on a different intertemporal demand incentive. The key f...

In the Right Place at the Wrong Time: The Role of Firms and Luck in Young Workers' Careers

By Till von Wachter and Stefan Bender

American Economic Review, December 2006

We examine administrative data on young German workers and their employers to study the long-term effects of an early career job loss. To account for nonrandom sorting of workers into firms with different turnover rates and for selective job mobility, ...

Incentives and Prosocial Behavior

By Roland Bénabou and Jean Tirole

American Economic Review, December 2006

We develop a theory of prosocial behavior that combines heterogeneity in individual altruism and greed with concerns for social reputation or self-respect. Rewards or punishments (whether material or image-related) create doubt about the true motive fo...

Globalization and Emerging Markets: With or Without Crash?

By Philippe Martin and Hélène Rey

American Economic Review, December 2006

We analyze the effects of financial and trade globalization on the likelihood of financial crashes in emerging markets. While trade globalization always makes crashes less likely, financial globalization may make them more likely, especially when trade...

The Hidden Costs of Control

By Armin Falk and Michael Kosfeld

American Economic Review, December 2006

We analyze the consequences of control on motivation in an experimental principalagent game, where the principal can control the agent by implementing a minimum performance requirement before the agent chooses a productive activity. Our results show th...

Household Expenditure and the Income Tax Rebates of 2001

By David S. Johnson, Jonathan A. Parker, and Nicholas S. Souleles

American Economic Review, December 2006

Using questions expressly added to the Consumer Expenditure Survey, we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis. We exploit the unique, randomized timing of r...

Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment

By Gary E. Bolton and Axel Ockenfels

American Economic Review, December 2006

Regulating Infrastructure: The Impact on Risk and Investment

By Graeme Guthrie

Journal of Economic Literature, December 2006

The last thirty years have witnessed a fundamental change in the regulation of infrastructure industries. Whereas firms were subject to rate of return regulation and protected from entry in the past, they now face various forms of incentive regulation, ...