Notes

Journal of Economic Perspectives, Winter 2007

The Missing Motivation in Macroeconomics

By George A. Akerlof

American Economic Review, March 2007

Competence Implies Credibility

By Giuseppe Moscarini

American Economic Review, March 2007

The (reputation for) competence of a central bank at doing its job makes monetary policy under discretion credible and transparent. Based on its reading of the state of the economy, the central bank announces its policy intentions to the public in a ch...

Modeling the Transition to a New Economy: Lessons from Two Technological Revolutions

By Andrew Atkeson and Patrick J. Kehoe

American Economic Review, March 2007

Many view the period after the Second Industrial Revolution as a paradigm of a transition to a new economy following a technological revolution, including the Information Technology Revolution. We build a quantitative model of diffusion and growth duri...

The Cross Section of Foreign Currency Risk Premia and Consumption Growth Risk

By Hanno Lustig and Adrien Verdelhan

American Economic Review, March 2007

Aggregate consumption growth risk explains why low interest rate currencies do not appreciate as much as the interest rate differential and why high interest rate currencies do not depreciate as much as the interest rate differential. Domestic investor...

Inefficiency in Legislative Policymaking: A Dynamic Analysis

By Marco Battaglini and Stephen Coate

American Economic Review, March 2007

This paper develops an infinite horizon model of public spending and taxation in which policy decisions are determined by legislative bargaining. The policy space incorporates both productive and distributive public spending and distortionary taxation....

Decision Making in Committees: Transparency, Reputation, and Voting Rules

By Gilat Levy

American Economic Review, March 2007

In this paper I analyze the effect of transparency on decision making in committees. I focus on committees whose members are motivated by career concerns. The main result is that when the decision-making process is secretive (when individual votes are ...

Bureaucrats or Politicians? Part I: A Single Policy Task

By Alberto Alesina and Guido Tabellini

American Economic Review, March 2007

This paper investigates the normative criteria that guide the allocation of a policy task to an elected politician versus an independent bureaucrat. The bureaucrat is preferable for technical tasks for which ability is more important than effort, or if ...

The Motivation and Bias of Bureaucrats

By Canice Prendergast

American Economic Review, March 2007

Many individuals are motivated to exert effort because they care about their jobs, rather than because there are monetary consequences to their actions. The intrinsic motivation of bureaucrats is the focus of this paper, and three primary results are s...

Urban Evolutions: The Fast, the Slow, and the Still

By Gilles Duranton

American Economic Review, March 2007

With the use of French and US data, new and systematic evidence is provided about the rapid location changes of industries across cities (the fast). Cities are also slowly moving up and down the urban hierarchy (the slow), while the size distribution o...

Market Share Dynamics and the "Persistence of Leadership" Debate

By John Sutton

American Economic Review, March 2007

A new 45-industry, 23-year, dataset for Japan is used to investigate the duration of industry leadership. A new scaling relationship linking a firm's current market share with the standard deviation of market share changes is reported. This relationshi...

Internet Advertising and the Generalized Second-Price Auction: Selling Billions of Dollars Worth of Keywords

By Benjamin Edelman, Michael Ostrovsky, and Michael Schwarz

American Economic Review, March 2007

We investigate the "generalized second-price" (GSP) auction, a new mechanism used by search engines to sell online advertising. Although GSP looks similar to the Vickrey-Clarke-Groves (VCG) mechanism, its properties are very different. Unlike the VCG m...

Credible Sales Mechanisms and Intermediaries

By David McAdams and Michael Schwarz

American Economic Review, March 2007

We consider a seller who faces several buyers and lacks access to an institution to credibly close a sale. If buyers anticipate that the seller may negotiate further, they will prefer to wait before making their best and final offers. This in turn induc...

Imprecision as an Account of the Preference Reversal Phenomenon

By David J. Butler and Graham C. Loomes

American Economic Review, March 2007

Many individuals' choices and valuations involve a degree of uncertainty/imprecision. This paper reports an experiment designed to obtain some measure of imprecision and to examine the extent to which it can explain preference reversals of two opposite...

Do Workers Work More if Wages Are High? Evidence from a Randomized Field Experiment

By Ernst Fehr and Lorenz Goette

American Economic Review, March 2007

Most previous studies on intertemporal labor supply found very small or insignificant substitution effects. It is possible that these results are due to constraints on workers' labor supply choices. We conducted a field experiment in a setting in which ...

The Effect of Court-Ordered Hiring Quotas on the Composition and Quality of Police

By Justin McCrary

American Economic Review, March 2007

Arguably the most aggressive affirmative action program ever implemented in the United States was a series of court-ordered racial hiring quotas imposed on municipal police departments. My best estimate of the effect of court-ordered affirmative action...

The Economic Impacts of Climate Change: Evidence from Agricultural Output and Random Fluctuations in Weather

By Olivier Deschênes and Michael Greenstone

American Economic Review, March 2007

This paper measures the economic impact of climate change on US agricultural land by estimating the effect of random year-to-year variation in temperature and precipitation on agricultural profits. The preferred estimates indicate that climate change w...

What Are Stock Investors’ Actual Historical Returns? Evidence from Dollar-Weighted Returns

By Ilia D. Dichev

American Economic Review, March 2007

The existing literature typically does not differentiate between security returns and the returns of investors in these securities. This study clarifies that investor and security returns differ because of the timing and magnitude of investor capital f...

Consumer Bankruptcy: A Fresh Start

By Igor Livshits, James MacGee, and Michèle Tertilt

American Economic Review, March 2007

Consumer bankruptcy provides partial insurance against bad luck, but, by driving up interest rates, makes life-cycle smoothing more difficult. We argue that to assess this trade-off one needs a quantitative model of consumer bankruptcy with three key feat...

Simple Cost-Sharing Contracts

By Leon Yang Chu and David E. M. Sappington

American Economic Review, March 2007

We extend William Rogerson's (2003) intriguing analysis of simple procurement contracts to settings where the supplier’s innate production cost is not necessarily distributed uniformly. Although the simple contract that Rogerson analyzes performs remark...