Input Sourcing and Multinational Production

By Stefania Garetto

American Economic Journal: Macroeconomics, April 2013

I propose a general equilibrium framework where firms decide whether to outsource or integrate input manufacturing, domestically or abroad. By outsourcing, firms may benefit from suppliers' technologies, but pay mark-up prices. By sourcing intrafirm, th...

Blunt Instruments: Avoiding Common Pitfalls in Identifying the Causes of Economic Growth

By Samuel Bazzi and Michael A. Clemens

American Economic Journal: Macroeconomics, April 2013

Concern has intensified in recent years that many instrumental variables used in widely-cited growth regressions may be invalid, weak, or both. Attempts to remedy this general problem remain inadequate. We show how a range of published studies can offer m...

Monetary Commitment and Fiscal Discretion: The Optimal Policy Mix

By Stefano Gnocchi

American Economic Journal: Macroeconomics, April 2013

We study a noncooperative policy game between monetary and fiscal policy, where only monetary policy can commit to future actions. The equilibrium outcome of the game depends on the strategies available to the monetary policymaker. If strategies are le...

Uncertainty and Economic Activity: Evidence from Business Survey Data

By Rüdiger Bachmann, Steffen Elstner, and Eric R. Sims

American Economic Journal: Macroeconomics, April 2013

This paper uses survey expectations data to construct empirical proxies for time-varying business-level uncertainty. Access to the micro data from the German IFO Business Climate Survey permits construction of uncertainty measures based on both ex ante di...

Front Matter

American Economic Journal: Macroeconomics, April 2013

Paper Money

By Christopher A. Sims

American Economic Review, April 2013

Drastic changes in central bank operations and monetary institutions in recent years have made previously standard approaches to explaining the determination of the price level obsolete. Recent expansions of central bank balance sheets and of the levels...

Designing Random Allocation Mechanisms: Theory and Applications

By Eric Budish, Yeon-Koo Che, Fuhito Kojima, and Paul Milgrom

American Economic Review, April 2013

Randomization is commonplace in everyday resource allocation. We generalize the theory of randomized assignment to accommodate multi-unit allocations and various real-world constraints, such as group-specific quotas ("controlled choice") in school choi...

Inferring Strategic Voting

By Kei Kawai and Yasutora Watanabe

American Economic Review, April 2013

We estimate a model of strategic voting and quantify the impact it has on election outcomes. Because the model exhibits multiplicity of outcomes, we adopt a set estimator. Using Japanese general-election data, we find a large fraction (63.4 percent, 84...

Dynamic Matching and Bargaining Games: A General Approach

By Stephan Lauermann

American Economic Review, April 2013

Dynamic matching and bargaining games are models of decentralized markets with trading frictions. A central objective is to investigate how equilibrium outcomes depend on the level of frictions. In particular, does the trading outcome become Walrasian ...

The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets

By M. Keith Chen

American Economic Review, April 2013

Languages differ widely in the ways they encode time. I test the hypothesis that the languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of la...

Intermediary Asset Pricing

By Zhiguo He and Arvind Krishnamurthy

American Economic Review, April 2013

We model the dynamics of risk premia during crises in asset markets where the marginal investor is a financial intermediary. Intermediaries face an equity capital constraint. Risk premia rise when the constraint binds, reflecting the capital scarcity. T...

Job Selection and Wages over the Business Cycle

By Marcus Hagedorn and Iourii Manovskii

American Economic Review, April 2013

We consider a model with on-the-job search where current wages depend only on current aggregate labor market conditions and idiosyncratic match-specific productivities. We show theoretically that the model replicates the findings in Bils (1985) and Beau...

Optimal Expectations and Limited Medical Testing: Evidence from Huntington Disease

By Emily Oster, Ira Shoulson, and E. Ray Dorsey

American Economic Review, April 2013

We use novel data to study genetic testing among individuals at risk for Huntington disease (HD), a hereditary disease with limited life expectancy. Although genetic testing is perfectly predictive and carries little economic cost, presymptomatic testi...

Public Monopoly and Economic Efficiency: Evidence from the Pennsylvania Liquor Control Board's Entry Decisions

By Katja Seim and Joel Waldfogel

American Economic Review, April 2013

We estimate a spatial model of liquor demand to analyze the impact of government-controlled retailing on entry patterns. In the absence of the Pennsylvania Liquor Control Board, the state would have roughly 2.5 times the current number of stores, highe...

Commercial Imperialism? Political Influence and Trade during the Cold War

By Daniel Berger, William Easterly, Nathan Nunn, and Shanker Satyanath

American Economic Review, April 2013

We provide evidence that increased political influence, arising from CIA interventions during the Cold War, was used to create a larger foreign market for American products. Following CIA interventions, imports from the US increased dramatically, while...

Assessing the Incidence and Efficiency of a Prominent Place Based Policy

By Matias Busso, Jesse Gregory, and Patrick Kline

American Economic Review, April 2013

This paper empirically assesses the incidence and efficiency of Round I of the federal urban Empowerment Zone (EZ ) program using confidential microdata from the Decennial Census and the Longitudinal Business Database. Using rejected and future applica...

Selection, Agriculture, and Cross-Country Productivity Differences

By David Lagakos and Michael E. Waugh

American Economic Review, April 2013

Cross-country labor productivity differences are larger in agriculture than in non-agriculture. We propose a new explanation for these patterns in which the self-selection of heterogeneous workers determines sector productivity. We formalize our theory...

Testing for Racial Differences in the Mental Ability of Young Children

By Roland G. Fryer Jr. and Steven D. Levitt

American Economic Review, April 2013

Using a new nationally representative dataset, we find minor differences in test outcomes between black and white infants that disappear with a limited set of controls. However, relative to whites, all other races lose substantial ground by age two. Combi...

Merger Policy with Merger Choice

By Volker Nocke and Michael D. Whinston

American Economic Review, April 2013

We analyze the optimal policy of an antitrust authority towards horizontal mergers when merger proposals are endogenous and firms choose among alternative mergers. In our model, the optimal policy of an antitrust authority that seeks to maximize expected ...

Inferior Good and Giffen Behavior for Investing and Borrowing

By Felix Kubler, Larry Selden, and Xiao Wei

American Economic Review, April 2013

The standard assumption that asset demand increases in income and decreases in price has its origin in Arrow's classic model with one risky and one risk free asset, where both are held long, and preferences exhibit decreasing absolute and increasing relat...