Detecting Illegal Arms Trade

By Stefano DellaVigna and Eliana La Ferrara

American Economic Journal: Economic Policy, November 2010

We propose a method to detect illegal arms trade based on investor knowledge. We focus on countries under arms embargo and identify events that suddenly increase or decrease conflict intensity. If a weapon-making company is trading illegally, an event tha...

International Trade in Used Vehicles: The Environmental Consequences of NAFTA

By Lucas W. Davis and Matthew E. Kahn

American Economic Journal: Economic Policy, November 2010

Since trade restrictions were eliminated in 2005, Mexico has imported over 2.5 million used vehicles from the United States. Using a unique, vehicle-level dataset, we find that traded vehicles are dirtier than the stock of vehicles in the United States an...

Sharing Demographic Risk--Who Is Afraid of the Baby Bust?

By Alexander Ludwig and Michael Reiter

American Economic Journal: Economic Policy, November 2010

We model the reaction of a PAYG pension system to demographic shocks. We compare the ex ante first best and second best solution of a Ramsey planner with full commitment to the outcome under simple third best rules. The model is calibrated to the German e...

Short-Run Impacts of Accountability on School Quality

By Jonah Rockoff and Lesley J. Turner

American Economic Journal: Economic Policy, November 2010

In the fall of 2007, New York City began using student tests and other measures to assign each school a grade (A to F), and linked grades to rewards and consequences, including possible school closure. These grades were released in late September, arguabl...

Appropriation, Property Rights Institutions, and International Trade

By Christodoulos Stefanadis

American Economic Journal: Economic Policy, November 2010

In producer-friendly economies—economies that are ruled by productive agents and have strong property rights institutions—international trade causes an institutional improvement and an aggregate shift of talent towards production, and away fro...

Domestic Institutions and the Bypass Effect of Financial Globalization

By Jiandong Ju and Shang-Jin Wei

American Economic Journal: Economic Policy, November 2010

This paper proposes a simple model to study how domestic institutions affect patterns of international capital flows. Inefficient financial system, and poor corporate governance, may be bypassed by two-way capital flows in which domestic savings leave the...

Front Matter

American Economic Journal: Microeconomics, November 2010

Optimal Provision of Multiple Excludable Public Goods

By Hanming Fang and Peter Norman

American Economic Journal: Microeconomics, November 2010

This paper studies the optimal provision mechanism for multiple excludable public goods. For a class of problems with symmetric goods and binary valuations, we show that the optimal mechanism involves bundling if a regularity condition, akin to a hazard r...

Inequality and Markets: Some Implications of Occupational Diversity

By Dilip Mookherjee and Debraj Ray

American Economic Journal: Microeconomics, November 2010

This paper studies income distribution in an economy with borrowing constraints. Parents leave both financial and educational bequests; these determine the occupational choices of children. Occupational returns are determined by market conditions. If the ...

Organizing for Synergies

By Wouter Dessein, Luis Garicano, and Robert Gertner

American Economic Journal: Microeconomics, November 2010

Large companies are usually organized into business units, yet some activities are almost always centralized in a company-wide functional unit. We first show that organizations endogenously create an incentive conflict between functional managers (who de...

Intergenerational Cultural Transmission as an Evolutionary Game

By James D. Montgomery

American Economic Journal: Microeconomics, November 2010

We generalize the Bisin-Verdier model of intergenerational transmission to permit an arbitrary number of cultural traits. A key observation—that this model is equivalent to an evolutionary game under replicator dynamics—facilitates our analysi...

Security Price Informativeness with Delegated Traders

By Gary Gorton, Ping He, and Lixin Huang

American Economic Journal: Microeconomics, November 2010

Trade in securities markets is conducted by agents acting for principals, using "mark-to-market" contracts whereby performance is assessed using security market prices. We endogenize contract choices, information production, informed trading, and security...

Hicksian Welfare Measures and the Normative Endowment Effect

By Thomas A. Weber

American Economic Journal: Microeconomics, November 2010

We show that the Hicksian welfare measures of compensating variation and equivalent variation coincide if one of them is evaluated at a compensated income. The measures are nondecreasing in income if the varied attribute and income are complementary, and...

Identification and Semiparametric Estimation of Equilibrium Models of Local Jurisdictions

By Dennis Epple, Michael Peress, and Holger Sieg

American Economic Journal: Microeconomics, November 2010

We develop a new model of household sorting in a system of residential neighborhoods. We show that this model is partially identified without imposing parametric restrictions on the distribution of unobserved tastes for neighborhood quality and the shape...

Naïve Herding in Rich-Information Settings

By Erik Eyster and Matthew Rabin

American Economic Journal: Microeconomics, November 2010

In social-learning environments, we investigate implications of the assumption that people naïvely believe that each previous person's action reflects solely that person's private information. Naïve herders inadvertently over-weight early movers...

Front Matter

Journal of Economic Perspectives, Fall 2010

Why Does the Economy Fall to Pieces after a Financial Crisis?

[Symposium: Macroeconomics after the Financial Crisis]

By Robert E. Hall

Journal of Economic Perspectives, Fall 2010

The worst financial crisis in the history of the United States and many other countries started in 1929. The Great Depression followed. The second-worst struck in the fall of 2008 and the Great Recession followed. Commentators have dwelt endlessly on the ...

Financial Intermediation and Macroeconomic Analysis

[Symposium: Macroeconomics after the Financial Crisis]

By Michael Woodford

Journal of Economic Perspectives, Fall 2010

Understanding phenomena such as the recent financial crisis, and possible policy responses, requires the use of a macroeconomic framework in which financial intermediation matters for the allocation of resources. Neither standard macroeconomic models that...

The Economic Crisis from a Neoclassical Perspective

[Symposium: Macroeconomics after the Financial Crisis]

By Lee E. Ohanian

Journal of Economic Perspectives, Fall 2010

This paper assesses the 2007-2009 recession using neoclassical business cycle theory. I find that the 2007-2009 U.S. recession differs substantially from other postwar U.S. recessions, and also from the 2008 recession in other countries, in that lower lab...

Natural Expectations and Macroeconomic Fluctuations

[Symposium: Macroeconomics after the Financial Crisis]

By Andreas Fuster, David Laibson, and Brock Mendel

Journal of Economic Perspectives, Fall 2010

A large body of empirical evidence suggests that beliefs systematically deviate from perfect rationality. Much of the evidence implies that economic agents tend to form forecasts that are excessively influenced by recent changes. We present a parsimonious...