Sudden Stops, Financial Crises, and Leverage

By Enrique G. Mendoza

American Economic Review, December 2010

Financial crashes were followed by deep recessions in the Sudden Stops of emerging economies. An equilibrium business cycle model with a collateral constraint explains this phenomenon as a result of the amplification and asymmetry that the constraint ind...

The Political Economy of the US Mortgage Default Crisis

By Atif Mian, Amir Sufi, and Francesco Trebbi

American Economic Review, December 2010

We examine the effects of constituents, special interests, and ideology on congressional voting on two of the most significant pieces of legislation in US economic history. Representatives whose constituents experience a sharp increase in mortgage defaul...

Margins of Multinational Labor Substitution

By Marc-Andreas Muendler and Sascha O. Becker

American Economic Review, December 2010

Employment at a multinational enterprise (MNE) responds to wages at the extensive margin, when an MNE enters a foreign location, and at the intensive margin, when an MNE operates existing affiliates. We present an MNE model and conditions for parametric a...

An Exploration of Technology Diffusion

By Diego Comin and Bart Hobijn

American Economic Review, December 2010

We develop a model that, at the aggregate level, is similar to the one-sector neoclassical growth model; at the disaggregate level, it has implications for the path of observable measures of technology adoption. We estimate it using data on the diffusion ...

Inherited Trust and Growth

By Yann Algan and Pierre Cahuc

American Economic Review, December 2010

This paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation. We show that inherited trust of descendants of US immigrants is significantly influenced by t...

International Trade and Income Differences

By Michael E. Waugh

American Economic Review, December 2010

I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically a...

Early Admissions at Selective Colleges

By Christopher Avery and Jonathan Levin

American Economic Review, December 2010

Early admissions are widely used by selective colleges and universities. We identify some basic facts about early admissions policies, including the admissions advantage enjoyed by early applicants and patterns in application behavior, and propose a game-...

The Changing Incidence of Geography

By James E. Anderson and Yoto V. Yotov

American Economic Review, December 2010

The incidence of bilateral trade costs is calculated here using neglected properties of the structural gravity model, disaggregated by commodity and region, and re-aggregated into forms useful for economic geography. For Canada's provinces, 1992-2003, sel...

Is Reputation Good or Bad? An Experiment

By Brit Grosskopf and Rajiv Sarin

American Economic Review, December 2010

We investigate the impact of reputation in a laboratory experiment. We do so by varying whether the past choices of a long-run player are observable by the short-run players. Our framework allows for reputation to have either a beneficial or a harmful ef...

Institutions and Behavior: Experimental Evidence on the Effects of Democracy

By Pedro Dal Bó, Andrew Foster, and Louis Putterman

American Economic Review, December 2010

A novel experiment is used to show that the effect of a policy on the level of cooperation is greater when it is chosen democratically by the subjects than when it is exogenously imposed. In contrast to the previous literature, our experimental design all...

Asymmetric Contests with Conditional Investments

By Ron Siegel

American Economic Review, December 2010

This paper studies equilibrium behavior in a class of games that models asymmetric competitions with unconditional and conditional investments. Such competitions include lobbying settings, labor-market tournaments, and R& races, among others. I provide an...

Social Preferences and Strategic Uncertainty: An Experiment on Markets and Contracts

By Antonio Cabrales, Raffaele Miniaci, Marco Piovesan, and Giovanni Ponti

American Economic Review, December 2010

This paper reports a three-phase experiment on a stylized labor market. In the first two phases, agents face simple games, which we use to estimate subjects' social and reciprocity concerns. In the last phase, four principals compete by offering agents a ...

Exploiting Naïvete about Self-Control in the Credit Market

By Paul Heidhues and Botond Kőszegi

American Economic Review, December 2010

We analyze contract choices, loan-repayment behavior, and welfare in a model of a competitive credit market when borrowers have a taste for immediate gratification. Consistent with many credit cards and subprime mortgages, for most types of nonsophisticat...

Inventories, Lumpy Trade, and Large Devaluations

By George Alessandria, Joseph P. Kaboski, and Virgiliu Midrigan

American Economic Review, December 2010

We document that delivery lags and transaction-level economics of scale matter for international trade, leading importers to import infrequently and hold additional inventory. In a model with these frictions calibrated to empirical measures of inventory a...

Do We Follow Others When We Should? A Simple Test of Rational Expectations

By Georg Weizsäcker

American Economic Review, December 2010

The paper presents a meta dataset covering 13 experiments on social learning games. It is found that in situations where it is empirically optimal to follow others and contradict one's own information, the players err in the majority of cases, forgoing su...

Persuasion by Cheap Talk

By Archishman Chakraborty and Rick Harbaugh

American Economic Review, December 2010

We consider the credibility, persuasiveness, and informativeness of multidimensional cheap talk by an expert to a decision maker. We find that an expert with state-independent preferences can always make credible comparative statements that trade off the ...

Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia

By Nava Ashraf, James Berry, and Jesse M. Shapiro

American Economic Review, December 2010

The controversy over how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use, either by targeting distribution to high-use households (a screening effect), or by stimulating use psychologic...

Inheritance Law and Investment in Family Firms

By Andrew Ellul, Marco Pagano, and Fausto Panunzi

American Economic Review, December 2010

Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of ...

Binary Payment Schemes: Moral Hazard and Loss Aversion

By Fabian Herweg, Daniel Müller, and Philipp Weinschenk

American Economic Review, December 2010

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Kőszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where...

Organizational Structure, Communication, and Group Ethics

By Matthew Ellman and Paul Pezanis-Christou

American Economic Review, December 2010

This paper investigates experimentally how a group's structure affects its ethical behavior towards a passive outsider. We analyze one vertical and two horizontal structures (one requiring consensus, one implementing a compromise by averaging proposals). ...