Immigrants Equilibrate Local Labor Markets: Evidence from the Great Recession

By Brian C. Cadena and Brian K. Kovak

American Economic Journal: Applied Economics, January 2016

This paper demonstrates that low-skilled Mexican-born immigrants' location choices respond strongly to changes in local labor demand, which helps equalize spatial differences in employment outcomes for low-skilled native workers. We leverage the substanti...

Front Matter

American Economic Journal: Applied Economics, January 2016

Technology and the Changing Family: A Unified Model of Marriage, Divorce, Educational Attainment, and Married Female Labor-Force Participation

By Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos

American Economic Journal: Macroeconomics, January 2016

Marriage has declined since 1960, with the drop being more significant for noncollege-educated individuals versus college-educated ones. Divorce has increased, more so for the noncollege-educated. Additionally, positive assortative mating has risen. Incom...

Rational Inattention to News: The Perils of Forward Guidance

By Gaetano Gaballo

American Economic Journal: Macroeconomics, January 2016

This paper studies the social value of information about the future. In a stylized OLG model, agents need to forecast the future price level, they observe the current price and perceive with idiosyncratic noise the expectation announced by a more informed...

Optimal Intermediary Rents

By Josef Schroth

American Economic Journal: Macroeconomics, January 2016

This paper studies a dynamic production economy with financial intermediation. It is assumed that claims held on intermediaries cannot be fully enforced such that intermediation is subject to intermediary equity requirements. It is shown that competitive ...

Optimal Contracts, Aggregate Risk, and the Financial Accelerator

By Charles T. Carlstrom, Timothy S. Fuerst, and Matthias Paustian

American Economic Journal: Macroeconomics, January 2016

This paper derives the optimal lending contract in the financial accelerator model of Bernanke, Gertler, and Gilchrist (1999), henceforth, BGG. The optimal contract includes indexation to the aggregate return on capital, household consumption, and the ret...

Market Exposure and Endogenous Firm Volatility over the Business Cycle

By Ryan A. Decker, Pablo N. D'Erasmo, and Hernan Moscoso Boedo

American Economic Journal: Macroeconomics, January 2016

We propose a theory of endogenous firm-level risk over the business cycle based on endogenous market exposure. Firms that reach a larger number of markets diversify market-specific demand shocks at a cost. The model is driven only by total factor producti...

In the Wrong Hands: Complementarities, Resource Allocation, and TFP

By Simeon D. Alder

American Economic Journal: Macroeconomics, January 2016

I explore mismatch between firms and their managers as a source of variation in aggregate output and total factor productivity (TFP). The model is calibrated to match observations on the size distribution of US manufacturing firms, managerial compensation...

Financial Innovation, Collateral, and Investment

By Ana Fostel and John Geanakoplos

American Economic Journal: Macroeconomics, January 2016

Financial innovations that change how promises are collateralized affect prices and investment, even in the absence of any change in fundamentals. In C-models, the ability to leverage an asset always generates overinvestment compared to Arrow-Debreu. Cred...

Time and State Dependence in an Ss Decision Experiment

By Jacopo Magnani, Aspen Gorry, and Ryan Oprea

American Economic Journal: Macroeconomics, January 2016

Flow earnings in a laboratory experiment decline the further a Brownian state variable, z, evolves from its optimal level, z*. Optimal state dependent models predict subjects will pay a fixed cost to return z to z* only when z strays outside a critical in...

Front Matter

American Economic Journal: Macroeconomics, January 2016

Betting on Secession: Quantifying Political Events Surrounding Slavery and the Civil War

By Charles W. Calomiris and Jonathan Pritchett

American Economic Review, January 2016

Lincoln's election produced Southern secession, war, and abolition. Using a new dataset on slave sales, we examine connections between news and slave prices for the period 1856-1861. By August 1861, slave prices had declined by roughly one-third from thei...

Generalized Social Marginal Welfare Weights for Optimal Tax Theory

By Emmanuel Saez and Stefanie Stantcheva

American Economic Review, January 2016

This paper proposes to evaluate tax reforms by aggregating money metric losses and gains of different individuals using "generalized social marginal welfare weights." Optimum tax formulas take the same form as standard welfarist tax formulas by simply sub...

Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap

By Kaivan Munshi and Mark Rosenzweig

American Economic Review, January 2016

We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption smoothing, provided by caste-based rural insurance networks, and the income gains from migration. Our theory genera...

The Market Impacts of Pharmaceutical Product Patents in Developing Countries: Evidence from India

By Mark Duggan, Craig Garthwaite, and Aparajita Goyal

American Economic Review, January 2016

In 2005, as the result of a World Trade Organization mandate, India implemented a patent reform for pharmaceuticals that was intended to comply with the 1995 Trade-Related Aspects of Intellectual Property Rights (TRIPS). Exploiting variation in the timing...

Patents and the Global Diffusion of New Drugs

By Iain M. Cockburn, Jean O. Lanjouw, and Mark Schankerman

American Economic Review, January 2016

Analysis of the timing of launches of 642 new drugs in 76 countries during 1983-2002 shows that patent and price regulation regimes strongly affect how quickly new drugs become commercially available in different countries. Price regulation delays launch,...

Are Sticky Prices Costly? Evidence from the Stock Market

By Yuriy Gorodnichenko and Michael Weber

American Economic Review, January 2016

We show that after monetary policy announcements, the conditional volatility of stock market returns rises more for firms with stickier prices than for firms with more flexible prices. This differential reaction is economically large and strikingly robust...

Real Rigidity, Nominal Rigidity, and the Social Value of Information

By George-Marios Angeletos, Luigi Iovino, and Jennifer La'O

American Economic Review, January 2016

Does welfare improve when firms are better informed about the state of the economy and can thus better coordinate their production and pricing decisions? We address this question in an elementary business-cycle model that highlights how the dispersion of ...

Front Matter

American Economic Review, January 2016

Exploitative Innovation

By Paul Heidhues, Botond Kőszegi, and Takeshi Murooka

American Economic Journal: Microeconomics, February 2016

We analyze innovation incentives when firms can invest either in increasing the product's value (value-increasing innovation) or in increasing the hidden prices they collect from naive consumers (exploitative innovation). We show that if firms cannot retu...