Partially Specified Probabilities: Decisions and Games

By Ehud Lehrer

American Economic Journal: Microeconomics, February 2012

The paper develops a theory of decision making based on partially specified probabilities. It takes an axiomatic approach using Anscombe and Aumann's (1963) setting, and is based on the concave integral for capacities. This theory is then expanded to inte...

The Impact of Social Ties on Group Interactions: Evidence from Minimal Groups and Randomly Assigned Real Groups

By Lorenz Goette, David Huffman, and Stephan Meier

American Economic Journal: Microeconomics, February 2012

Economists are increasingly interested in how group membership affects individual behavior. The standard method assigns individuals to "minimal" groups, i.e. arbitrary labels, in a lab. But real group often involve social interactions leading to social ti...

Fraternities and Labor-Market Outcomes

By Sergey V. Popov and Dan Bernhardt

American Economic Journal: Microeconomics, February 2012

We model how student choices to rush a fraternity, and fraternity admission choices, interact with signals firms receive about student productivities to determine labor-market outcomes. The fraternity and students value wages and fraternity socializing va...

Competitive Nonlinear Taxation and Constitutional Choice

By Massimo Morelli, Huanxing Yang, and Lixin Ye

American Economic Journal: Microeconomics, February 2012

In an economy where agents have different productivities and mobility, we compare a unified nonlinear optimal taxation with the equilibrium taxation that would be chosen by two competing tax authorities if the same economy were divided into two states. T...

Matching in Networks with Bilateral Contracts

By John William Hatfield and Scott Duke Kominers

American Economic Journal: Microeconomics, February 2012

We introduce a model in which firms trade goods via bilateral contracts which specify a buyer, a seller, and the terms of the exchange. This setting subsumes (many-to-many) matching with contracts, as well as supply chain matching. When firms' relationshi...

Diverging Opinions

By James Andreoni and Tymofiy Mylovanov

American Economic Journal: Microeconomics, February 2012

People often see the same evidence but draw opposite conclusions, becoming polarized over time. More surprisingly, disagreements persist even when they are commonly known. We derive a model and present an experiment showing that opinions can diverge when ...

Front Matter

American Economic Review, February 2012

Optimal Interventions in Markets with Adverse Selection

By Thomas Philippon and Vasiliki Skreta

American Economic Review, February 2012

We study the design of interventions to stabilize financial markets plagued by adverse selection. Our contribution is to analyze the information revealed by participation decisions. Taking part in a government program carries a stigma, and outside option...

Overcoming Adverse Selection: How Public Intervention Can Restore Market Functioning

By Jean Tirole

American Economic Review, February 2012

The paper provides a first analysis of market jump starting and its two-way interaction between mechanism design and participation constraints. The government optimally overpays for the legacy assets and cleans up the market of its weakest assets, through...

Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts

By Emmanuel Farhi and Jean Tirole

American Economic Review, February 2012

The article shows that time-consistent, imperfectly targeted support to distressed institutions makes private leverage choices strategic complements. When everyone engages in maturity mismatch, authorities have little choice but intervening, creating both...

New Trade Models, Same Old Gains?

By Costas Arkolakis, Arnaud Costinot, and Andrés Rodríguez-Clare

American Economic Review, February 2012

Micro-level data have had a profound influence on research in international trade over the last ten years. In many regards, this research agenda has been very successful. New stylized facts have been uncovered and new trade models have been developed to e...

The Environment and Directed Technical Change

By Daron Acemoglu, Philippe Aghion, Leonardo Bursztyn, and David Hemous

American Economic Review, February 2012

This paper introduces endogenous and directed technical change in a growth model with environmental constraints. The final good is produced from "dirty" and "clean" inputs. We show that: (i) when inputs are sufficiently substitutable, sustainable growth c...

Americans Do IT Better: US Multinationals and the Productivity Miracle

By Nicholas Bloom, Raffaella Sadun, and John Van Reenen

American Economic Review, February 2012

US productivity growth accelerated after 1995 (unlike Europe's), particularly in sectors that intensively use information technologies (IT). Using two new micro panel datasets we show that US multinationals operating in Europe also experienced a "produc...

The Value of Information in the Court: Get It Right, Keep It Tight

By Matias Iaryczower and Matthew Shum

American Economic Review, February 2012

We estimate an equilibrium model of decision making in the US Supreme Court that takes into account both private information and ideological differences between justices. We measure the value of information in the court by the probability that a justice ...

Macroeconomic Effects of Financial Shocks

By Urban Jermann and Vincenzo Quadrini

American Economic Review, February 2012

We document the cyclical properties of US firms' financial flows and show that equity payout is procyclical and debt payout is countercyclical. We then develop a model with debt and equity financing to explore how the dynamics of real and financial variab...

The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery

By Brian A. Jacob and Jens Ludwig

American Economic Review, February 2012

This study estimates the effects of means-tested housing programs on labor supply using data from a randomized housing voucher wait-list lottery in Chicago. Economic theory is ambiguous about the expected sign of any labor supply response. We find that am...

Standard Setting Committees: Consensus Governance for Shared Technology Platforms

By Timothy Simcoe

American Economic Review, February 2012

Voluntary Standard Setting Organizations (SSOs) use a consensus process to create new compatibility standards. Practitioners have suggested that SSOs are increasingly politicized and perhaps incapable of producing timely standards. This article develops a...

A Continuous Dilemma

By Daniel Friedman and Ryan Oprea

American Economic Review, February 2012

We study prisoners' dilemmas played in continuous time with flow payoffs accumulated over 60 seconds. In most cases, the median rate of mutual cooperation is about 90 percent. Control sessions with repeated matchings over eight subperiods achieve less tha...

Understanding International Prices: Customers as Capital

By Lukasz A. Drozd and Jaromir B. Nosal

American Economic Review, February 2012

The article develops a new theory of pricing to market driven by dynamic frictions of building market shares. Our key innovation is a capital theoretic model of marketing in which relations with customers are valuable. We discipline the introduced frictio...

Compulsory Licensing: Evidence from the Trading with the Enemy Act

By Petra Moser and Alessandra Voena

American Economic Review, February 2012

Compulsory licensing allows firms in developing countries to produce foreign-owned inventions without the consent of foreign patent owners. This paper uses an exogenous event of compulsory licensing after World War I under the Trading with the Enemy Act t...