Economic Catastrophe Bonds

By Joshua D. Coval, Jakub W. Jurek, and Erik Stafford

American Economic Review, June 2009

The central insight of asset pricing is that a security's value depends both on its distribution of payoffs across economic states and on state prices. In fixed income markets, many investors focus exclusively on estimates of expected payoffs, such as ...

Distributional and Efficiency Impacts of Increased US Gasoline Taxes

By Antonio M. Bento, Lawrence H. Goulder, Mark R. Jacobsen, and Roger H. von Haefen

American Economic Review, June 2009

We examine the impacts of increased US gasoline taxes in a model that links the markets for new, used, and scrapped vehicles and recognizes the considerable heterogeneity among households and cars. Household choice parameters derive from an estimation ...

Should Urban Transit Subsidies Be Reduced?

By Ian W. H. Parry and Kenneth A. Small

American Economic Review, June 2009

This paper derives empirically tractable formulas for the welfare effects of fare adjustments in passenger peak and off-peak rail and bus transit, and for optimal pricing of those services. The formulas account for congestion, pollution, accident exter...

Trade, Tragedy, and the Commons

By Brian R. Copeland and M. Scott Taylor

American Economic Review, June 2009

We develop a theory of resource management where the degree to which countries escape the tragedy of the commons, and hence the de facto property rights regime, is endogenously determined. Three forces determine success or failure in resource managemen...

Strategic Leniency and Cartel Enforcement

By Nathan H. Miller

American Economic Review, June 2009

The cornerstone of cartel enforcement in the United States and elsewhere is a commitment to the lenient prosecution of early confessors. A burgeoning gametheoretical literature is ambiguous regarding the impacts of leniency. I develop a theoretical mod...

Optimal Sticky Prices under Rational Inattention

By Bartosz Mackowiak and Mirko Wiederholt

American Economic Review, June 2009

This paper presents a model in which price setting firms decide what to pay attention to, subject to a constraint on information flow. When idiosyncratic conditions are more variable or more important than aggregate conditions, firms pay more attention...

The Young, the Old, and the Restless: Demographics and Business Cycle Volatility

By Nir Jaimovich and Henry E. Siu

American Economic Review, June 2009

We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in cyclical volatility observed in the G7. Since World...

Tricks with Hicks: The EASI Demand System

By Arthur Lewbel and Krishna Pendakur

American Economic Review, June 2009

We invent Implicit Marshallian demands, which combine desirable features of Hicksian and Marshallian demands. We propose and estimate the Exact Affine Stone Index (EASI) implicit Marshallian demand system. Like the Almost Ideal Demand (AID) system, EAS...

Observational Learning: Evidence from a Randomized Natural Field Experiment

By Hongbin Cai, Yuyu Chen, and Hanming Fang

American Economic Review, June 2009

We report results from a randomized natural field experiment conducted in a restaurant dining setting to distinguish the observational learning effect from the saliency effect. We find that, when customers are given ranking information of the five most...

Misselling through Agents

By Roman Inderst and Marco Ottaviani

American Economic Review, June 2009

This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's "suitability" for the specific needs of customers. When structuring salesforce...

Reference-Dependent Consumption Plans

By Botond Kőszegi and Matthew Rabin

American Economic Review, June 2009

We develop a rational dynamic model in which people are loss averse over changes in beliefs about present and future consumption. Because changes in wealth are news about future consumption, preferences over money are reference-dependent. If news reson...

Evolution of Time Preferences and Attitudes toward Risk

By Nick Netzer

American Economic Review, June 2009

This paper explores a general model of the evolution and adaption of hedonic utility. It is shown that optimal utility will be increasing strongly in regions where choices have to be made often and decision mistakes have a severe impact on fitness. Sev...

Cooperation and Competition in Intergenerational Experiments in the Field and the Laboratory

By Gary Charness and Marie-Claire Villeval

American Economic Review, June 2009

There is economic pressure to postpone the retirement age, but employers are still reluctant to employ older workers. We investigate the comparative behavior of juniors and seniors in experiments conducted both onsite with the employees of two large fi...

Cooperation among Strangers under the Shadow of the Future

By Gabriele Camera and Marco Casari

American Economic Review, June 2009

We study the emergence of norms of cooperation in experimental economies populated by strangers interacting indefinitely. Can these economies achieve full efficiency even without formal enforcement institutions? Which institutions for monitoring and en...

Under the Weather: Health, Schooling, and Economic Consequences of Early-Life Rainfall

By Sharon Maccini and Dean Yang

American Economic Review, June 2009

We examine the effect of early-life rainfall on the health, education, and socioeconomic outcomes of Indonesian adults. We link historical rainfall for each individual's birth year and birth location with adult outcomes from the 2000 Indonesia Family Life...

Anchoring Effects: Evidence from Art Auctions

By Alan Beggs and Kathryn Graddy

American Economic Review, June 2009

This paper shows that the price of a painting sold at an art auction and the experts' pre-sale valuations are anchored on the price at which the painting previously sold at auction. We are able to separate anchoring from rational learning by using the id...

On the Welfare Cost of Inflation and the Recent Behavior of Money Demand

By Peter N. Ireland

American Economic Review, June 2009

Post-1980 US data trace out a stable long-run money demand relationship of Cagan's semi-log form between the M1-income ratio and the nominal interest rate, with an interest semielasticity below 2. Integrating under this money demand curve yields estimates...

Not All Oil Price Shocks Are Alike: Disentangling Demand and Supply Shocks in the Crude Oil Market

By Lutz Kilian

American Economic Review, June 2009

Shocks to the real price of oil may reflect oil supply shocks, shocks to the global demand for all industrial commodities, or demand shocks that are specific to the crude oil market. Each shock has different effects on the real price of oil and on US macr...

Exclusive Dealing and Entry, When Buyers Compete: Comment

By Julian Wright

American Economic Review, June 2009

In a recent paper, Chiara Fumagalli and Massimo Motta (2006) challenge the idea that an incumbent can foreclose efficient entry in the face of scale economies by using exclusive contracts. They claim that inefficient exclusion does not arise when buyers a...

Corrigendum: Women, Wealth, and Mobility

By Lena Edlund and Wojciech Kopczuk

American Economic Review, June 2009