Judging Experimental Evidence on Dynamic Inconsistency

By Charles Sprenger

American Economic Review, May 2015

This article briefly summarizes and judges recent experimental developments exploring the predictions of dynamically inconsistent models. An opinion is provided as to how the literature may evolve given these recent advances.

Loyalty, Exit, and Enforcement: Evidence from a Kenya Dairy Cooperative

By Lorenzo Casaburi and Rocco Macchiavello

American Economic Review, May 2015

Organizations depend on members' "loyalty" for their success. Studying a cooperative's attempt to increase deliveries by members, we show that the threat of sanctions leads to highly heterogeneous response among members. Despite the cooperative not actual...

Ex Post (In) Efficient Negotiation and Breakdown of Trade

By Rajkamal Iyer and Antoinette Schoar

American Economic Review, May 2015

This paper examines frictions in contract renegotiation and its implications for allocative efficiency of contracts. Using a novel audit study methodology, we find that contracting parties in general are reluctant to engage in hold up. However, many effic...

The Catch-22 of External Validity in the Context of Constraints to Firm Growth

By Greg Fischer and Dean Karlan

American Economic Review, May 2015

We document the presence of multiple and varied constraints to small and medium firm growth. This presents both a practical problem for business training programs and a challenge to academic economists trying to identify mechanisms though which these p...

The Market for Training Services: A Demand Experiment with Bangladeshi Garment Factories

By Rocco Macchiavello, Atonu Rabbani, and Christopher Woodruff

American Economic Review, May 2015

We marketed a training program for lower level managers (line supervisors) to large factories in the Bangladeshi ready-made garment industry. Take-up of the program (even for a free slot) was low, due to intense production pressures, fire-fighting and con...

Lending Booms, Smart Bankers, and Financial Crises

By Anjan Thakor

American Economic Review, May 2015

This paper develops a theory that explains why financial crises follow profitable lending booms. When agents exhibit the "availability heuristic" and there is a long period of banking profitability, all agents—banks, their investors, and regulators&...

Neglected Risks: The Psychology of Financial Crises

By Nicola Gennaioli, Andrei Shleifer, and Robert Vishny

American Economic Review, May 2015

We model a financial market in which investor beliefs are shaped by representativeness. Investors overreact to a series of good news, because such a series is representative of a good state. A few bad news do not change investor minds because the good sta...

Do Strict Capital Requirements Raise the Cost of Capital? Bank Regulation, Capital Structure, and the Low-Risk Anomaly

By Malcolm Baker and Jeffrey Wurgler

American Economic Review, May 2015

Traditional capital structure theory predicts that reducing banks' leverage reduces the risk and cost of equity but does not change the weighted average cost of capital, and thus the rates for borrowers. We confirm that the equity of better-capitalized ba...

Does a Bank's History Affect Its Risk-Taking?

By Christa H. S. Bouwman and Ulrike Malmendier

American Economic Review, May 2015

We ask whether past macro-economic and bank-specific shocks experienced and survived by a bank affect its current capitalization and risk-taking. Using Call Report data from 1984 to 2010, we find that a bank's experience shapes its capital structure and r...

Why Do Firms Have "Purpose"? The Firm's Role as a Carrier of Identity and Reputation

By Rebecca Henderson and Eric Van den Steen

American Economic Review, May 2015

This article develops a theory in which a firm's adoption of a prosocial purpose can increase profitability by strengthening employees' reputation and identity—leading to higher effort and lower wages—as long as implementing purpose is costly ...

Organizational Culture and Performance

By Elizabeth A. Martinez, Nancy Beaulieu, Robert Gibbons, Peter Pronovost, and Thomas Wang

American Economic Review, May 2015

Organizations are all around us. Culture is trickier—to analyze and even to see. We consider both the effect of management on culture and the effect of culture on performance. We begin by describing an intervention that dramatically improved outcome...

Corporate Culture, Societal Culture, and Institutions

By Luigi Guiso, Paola Sapienza, and Luigi Zingales

American Economic Review, May 2015

While both cultural and legal norms (institutions) help foster cooperation, culture is the more primitive of the two and itself sustains formal institutions. Cultural changes are rarer and slower than changes in legal institutions, which makes it difficul...

Understanding Ethnic Identity in Africa: Evidence from the Implicit Association Test (IAT)

By Sara Lowes, Nathan Nunn, James A. Robinson, and Jonathan Weigel

American Economic Review, May 2015

We use a variant of the Implicit Association Test (IAT) to examine individuals' implicit attitudes towards various ethnic groups. Using a population from the Democratic Republic of Congo, we find that the IAT measures show evidence of an implicit bias ...

Religion and Innovation

By Roland Bénabou, Davide Ticchi, and Andrea Vindigni

American Economic Review, May 2015

In earlier work we identified a robust negative association between religiosity and patents per capita, holding across countries as well as US states. In this paper we relate 11 indicators of individual openness to innovation (e.g., attitudes toward scien...

Measuring Vote-Selling: Field Evidence from the Philippines

By Allen Hicken, Stephen Leider, Nico Ravanilla, and Dean Yang

American Economic Review, May 2015

Using data from an anti-vote-buying field experiment we conducted in the Philippines, we report and validate a proxy measure for vote-selling. We demonstrate that our proxy measure, vote-switching, changes as expected with voter preferences and monetary o...

More Money, More Problems? Can High Pay Be Coercive and Repugnant?

By Sandro Ambuehl, Muriel Niederle, and Alvin E. Roth

American Economic Review, May 2015

IRBs can disallow high incentives they deem coercive. A vignette study on MTurk concerning participation in medical trials shows that a substantial minority of subjects concurs. They think high incentives cause more regret, and that more people would be b...

Sacred Values? The Effect of Information on Attitudes toward Payments for Human Organs

By Julio J. Elias, Nicola Lacetera, and Mario Macis

American Economic Review, May 2015

Are attitudes about morally controversial (and often prohibited) market transactions affected by information about their costs and benefits? We address this question for the case of payments for human organs. We find in a survey experiment with US residen...

Deciding When to Quit: Reference-Dependence over Slot Machine Outcomes

By Jaimie W. Lien and Jie Zheng

American Economic Review, May 2015

We conduct tests for reference dependent loss aversion using slot machine gamblers' decisions on when to quit playing for a visit to a casino. Evidence for a lagged status-quo reference point is found in the aggregate, while endogenously determined refere...

Testing for the Disposition Effect on Optimal Stopping Decisions

By Jacopo Magnani

American Economic Review, May 2015

This paper develops a new laboratory test of the hypothesis that individual investors sell winners too early and ride losers too long. In the experiment, subjects invest in a risky asset, whose price evolves in near-continuous time, and they are provided ...

Loss Aversion in Post-Sale Purchases of Consumer Products and Their Substitutes

By Debajyoti Ray, Matthew Shum, and Colin F. Camerer

American Economic Review, May 2015

This paper considers the measurement of consumer loss aversion in product markets. We introduce a test based on a "substitution effect," focusing on how the end of a sale affects sales not of the good itself, but a substitute good. Such an effect cannot b...