Mechanism Design: How to Implement Social Goals

By Eric S. Maskin

American Economic Review, June 2008

But Who Will Guard the Guardians?

By Leonid Hurwicz

American Economic Review, June 2008

Perspectives on Mechanism Design in Economic Theory

By Roger B. Myerson

American Economic Review, June 2008

The Time-Varying Volatility of Macroeconomic Fluctuations

By Alejandro Justiniano and Giorgio E. Primiceri

American Economic Review, June 2008

We investigate the sources of the important shifts in the volatility of US macroeconomic variables in the postwar period. To this end, we propose the estimation of DSGE models allowing for time variation in the volatility of the structural innovations....

The Difference That CEOs Make: An Assignment Model Approach

By Marko Tervio

American Economic Review, June 2008

This paper presents an assignment model of CEOs and firms. The distributions of CEO pay levels and firms' market values are analyzed as the competitive equilibrium of a matching market where talents, as well as CEO positions, are scarce. It is shown ho...

What's the Matter with Tie-Breaking? Improving Efficiency in School Choice

By Aytek Erdil and Haluk Ergin

American Economic Review, June 2008

In several school choice districts in the United States, the student proposing deferred acceptance algorithm is applied after indifferences in priority orders are broken in some exogenous way. Although such a tie-breaking procedure preserves stability,...

Default Risk and Income Fluctuations in Emerging Economies

By Cristina Arellano

American Economic Review, June 2008

Recent sovereign defaults are accompanied by interest rate spikes and deep recessions. This paper develops a small open economy model to study default risk and its interaction with output and foreign debt. Default probabilities and interest rates depen...

Do Wealth Fluctuations Generate Time-Varying Risk Aversion? Micro-evidence on Individuals

By Markus K. Brunnermeier and Stefan Nagel

American Economic Review, June 2008

We use data from the Panel Study of Income Dynamics to investigate how households portfolio allocations change in response to wealth fluctuations. Persistent habits, consumption commitments, and subsistence levels can generate time-varying risk aversio...

Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation

By Christopher L. House and Matthew D. Shapiro

American Economic Review, June 2008

The intertemporal elasticity of investment for long-lived capital goods is nearly infinite. Consequently, investment prices should fully reflect temporary tax subsidies, regardless of the investment supply elasticity. Since prices move one-for-one with...

How the Electoral College Influences Campaigns and Policy: The Probability of Being Florida

By David Stromberg

American Economic Review, June 2008

This paper analyzes how US presidential candidates should allocate resources across states to maximize the probability of winning the election, by developing and estimating a probabilistic-voting model of political competition under the Electoral Colle...

Income and Democracy

By Daron Acemoglu, Simon Johnson, James A. Robinson, and Pierre Yared

American Economic Review, June 2008

Existing studies establish a strong cross-country correlation between income and democracy but do not control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes th...

Do People Vote with Their Feet? An Empirical Test of Tiebout

By H. Spencer Banzhaf and Randall P. Walsh

American Economic Review, June 2008

Charles Tiebout's suggestion that people "vote with their feet" for communities with optimal bundles of taxes and public goods has played a central role in local public finance for over 50 years. Using a locational equilibrium model, we derive formal t...

Information Aggregation in Polls

By John Morgan and Phillip C. Stocken

American Economic Review, June 2008

We study information transmission via polling. A policymaker polls constituents, who differ in their information and ideology, to determine policy. Full revelation is an equilibrium in a poll with a small sample, but not with a large one. In large poll...

Stability in Supply Chain Networks

By Michael Ostrovsky

American Economic Review, June 2008

This paper studies matching in vertical networks, generalizing the theory of matching in two-sided markets. It gives sufficient conditions for the existence of stable networks and presents an algorithm for finding two of them. One is the best stable ne...

Thar She Blows: Can Bubbles Be Rekindled with Experienced Subjects?

By Reshmaan N. Hussam, David Porter, and Vernon L. Smith

American Economic Review, June 2008

We report 28 new experiment sessions consisting of up to three experience levels to examine the robustness of learning and "error" elimination among participants in a laboratory asset market and its effect on price bubbles. Our answer to the title ques...

Stationary Concepts for Experimental 2x2-Games

By Reinhard Selten and Thorsten Chmura

American Economic Review, June 2008

Five stationary concepts for completely mixed 2 x 2-games are experimentally compared: Nash equilibrium, quantal response equilibrium, action-sampling equilibrium, payoff-sampling equilibrium (Martin J. Osborne and Ariel Rubinstein 1998), and impulse b...

Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India

By Rachel Kranton and Anand V. Swamy

American Economic Review, June 2008

Trade and export, it is argued, spur economic growth. This paper studies the microeconomics of exporting. We build a heuristic model of transactions between exporters and producers and relate it to East India Company (EIC) operations in colonial Bengal...

Pride and Prejudice: The Human Side of Incentive Theory

By Tore Ellingsen and Magnus Johannesson

American Economic Review, June 2008

Desire for social esteem is a source of prosocial behavior. We develop a model in which actors' utility of esteem depends on the audience. In a principal agent setting, we show that the model can account for motivational crowding out. Control systems a...

Historical Property Rights, Sociality, and the Emergence of Impersonal Exchange in Long-Distance Trade

By Erik O. Kimbrough, Vernon L. Smith, and Bart J. Wilson

American Economic Review, June 2008

This laboratory experiment explores the extent to which impersonal exchange emerges from personal exchange with opportunities for long-distance trade. We design a three-commodity production and exchange economy in which agents in three geographically ...

Credit Elasticities in Less-Developed Economies: Implications for Microfinance

By Dean S. Karlan and Jonathan Zinman

American Economic Review, June 2008

Policymakers often prescribe that microfinance institutions increase interest rates to eliminate their reliance on subsidies. This strategy makes sense if the poor are rate insensitive: then microlenders increase profitability (or achieve sustainabilit...