The Response of Household Saving to the Large Shock of German Reunification

By Nicola Fuchs-Schundeln

American Economic Review, December 2008

German reunification was a large, unexpected shock for East Germans. Exploiting German reunification as a natural experiment, I analyze the validity of the life-cycle consumption model. I derive three stylized features concerning the saving behavior of...

The Demand for, and Impact of, Learning HIV Status

By Rebecca L. Thornton

American Economic Review, December 2008

This paper evaluates an experiment in which individuals in rural Malawi were randomly assigned monetary incentives to learn their HIV results after being tested. Distance to the HIV results centers was also randomly assigned. Without any incentive, 34 ...

Does Job Corps Work? Impact Findings from the National Job Corps Study

By Peter Z. Schochet, John Burghardt, and Sheena McConnell

American Economic Review, December 2008

This paper presents findings from an experimental evaluation of Job Corps, the nation’s largest training program for disadvantaged youths. The study uses survey data collected over four years and tax data over nine years on a nationwide sample of 15,...

Consumption Inequality and Partial Insurance

By Richard Blundell, Luigi Pistaferri, and Ian Preston

American Economic Review, December 2008

This paper examines the link between income and consumption inequality. We create panel data on consumption for the Panel Study of Income Dynamics using an imputation procedure based on food demand estimates from the Consumer Expenditure Survey. We doc...

Liquidity and Insurance for the Unemployed

By Robert Shimer and Ivan Werning

American Economic Review, December 2008

We study unemployment insurance for workers who sequentially sample job opportunities. We focus on the optimal timing of benefits and the desirability of allowing borrowing and saving. When workers have constant absolute risk aversion, a simple policy ...

Zombie Lending and Depressed Restructuring in Japan

By Ricardo J. Caballero, Takeo Hoshi, and Anil K. Kashyap

American Economic Review, December 2008

Large Japanese banks often engaged in sham loan restructurings that kept credit flowing to otherwise insolvent borrowers (which we call zombies). We examine the implications of suppressing the normal competitive process whereby the zombies would shed w...

Trading Tasks: A Simple Theory of Offshoring

By Gene M. Grossman and Esteban Rossi-Hansberg

American Economic Review, December 2008

We propose a theory of the global production process that focuses on tradeable tasks, and use it to study how falling costs of offshoring affect factor prices in the source country. We identify a productivity effect of task trade that benefits the fact...

Pricing-to-Market, Trade Costs, and International Relative Prices

By Andrew Atkeson and Ariel Burstein

American Economic Review, December 2008

International relative prices across industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in a quantitative model of international trade. We ...

Optimal Tariffs and Market Power: The Evidence

By Christian Broda, Nuno Limao, and David E. Weinstein

American Economic Review, December 2008

We find that prior to World Trade Organization membership, countries set import tariffs 9 percentage points higher on inelastically supplied imports relative to those supplied elastically. The magnitude of this effect is similar to the size of average ...

Stocks as Lotteries: The Implications of Probability Weighting for Security Prices

By Nicholas Barberis and Ming Huang

American Economic Review, December 2008

We study the asset pricing implications of Tversky and Kahneman's (1992) cumulative prospect theory, with a particular focus on its probability weighting component. Our main result, derived from a novel equilibrium with nonunique global optima, is that...

Trend Inflation, Indexation, and Inflation Persistence in the New Keynesian Phillips Curve

By Timothy Cogley and Argia M. Sbordone

American Economic Review, December 2008

Purely forward-looking versions of the New Keynesian Phillips curve (NKPC) generate too little inflation persistence. Some authors add ad hoc backwardlooking terms to address this shortcoming. We hypothesize that inflation persistence results mainly fr...

Contextual Inference in Markets: On the Informational Content of Product Lines

By Emir Kamenica

American Economic Review, December 2008

Context can influence decisions. This malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings. In a market equilibrium, however, context conveys payoff-relevant information to consumers. Consequentl...

Conversations among Competitors

By Jeremy C. Stein

American Economic Review, December 2008

I develop a model of bilateral conversations in which players honestly exchange ideas with their competitors. The key to incentive compatibility is complementarity in the information structure: a player can generate a new insight only if he has access to ...

The Effect of Credit Constraints on the College Drop-Out Decision: A Direct Approach Using a New Panel Study

By Ralph Stinebrickner and Todd Stinebrickner

American Economic Review, December 2008

A serious difficulty in determining the importance of credit constraints in education arises because standard data sources do not provide a direct way of identifying which students are credit constrained. This paper differentiates itself from previous wor...

On the Salience of Ethnic Conflict

By Joan Esteban and Debraj Ray

American Economic Review, December 2008

A classical theme in social analysis views economic class divisions as the main cause of social conflict. Yet many, if not most of the conflicts we observe today appear to be ethnic in nature. It appears that the "vertical" nature of class divisions is of...

How Do Budget Deficits and Economic Growth Affect Reelection Prospects? Evidence from a Large Panel of Countries

By Adi Brender and Allan Drazen

American Economic Review, December 2008

We test whether good economic conditions and expansionary fiscal policy help incumbents get reelected in a large panel of democracies. We find no evidence that deficits help reelection in any group of countries independent of income level, level of democr...

Changes in the Consumption, Income, and Well-Being of Single Mother Headed Families

By Bruce D. Meyer and James X. Sullivan

American Economic Review, December 2008

We investigate well-being changes for single mother headed families targeted by recent tax and welfare reforms. Measured income changes sharply differ from consumption changes. We examine disaggregated consumption, time use, and health insurance coverage....

The Impact of Nearly Universal Insurance Coverage on Health Care Utilization: Evidence from Medicare

By David Card, Carlos Dobkin, and Nicole Maestas

American Economic Review, December 2008

The onset of Medicare eligibility at age 65 leads to sharp changes in the health insurance coverage of the US population. These changes lead to increases in the use of medical services, with a pattern of gains across socioeconomic groups that varies by ty...

Can Hepatitis B Mothers Account for the Number of Missing Women? Evidence from Three Million Newborns in Taiwan

By Ming-Jen Lin and Ming-Ching Luoh

American Economic Review, December 2008

The "missing women" phenomenon in many Asian countries has previously been regarded as the result of son preference. However, some studies have argued half of the missing women can be explained by infection with Hepatitis B virus (HBV). We demonstrate tha...

Front Matter

American Economic Review, December 2008

The front matter for the December 2008 issue contains the table of contents as well as information on Oliver E. Williamson, Distinguished Fellow, 2007.