Internal Geography, International Trade, and Regional Specialization

By A. Kerem Coşar and Pablo D. Fajgelbaum

American Economic Journal: Microeconomics, February 2016

We introduce an internal geography to the canonical model of international trade driven by comparative advantages to study the regional effects of external economic integration. The model features a dual-economy structure, in which locations near internat...

Dynamic Signaling with Dropout Risk

By Francesc Dilmé and Fei Li

American Economic Journal: Microeconomics, February 2016

We study the role of dropout risk in dynamic signaling. A seller privately knows the quality of an indivisible good and decides when to trade. In each period, he may draw a dropout shock that forces him to trade immediately. To avoid costly delay, the sel...

Social Learning with Costly Search

By Manuel Mueller-Frank and Mallesh M. Pai

American Economic Journal: Microeconomics, February 2016

We study a sequential social learning model where agents privately acquire information by costly search. Search costs of agents are private, and are independently and identically distributed. We show that asymptotic learning occurs if and only if search c...

Belief Elicitation with a Synchronized Lottery Choice Menu That Is Invariant to Risk Attitudes

By Charles A. Holt and Angela M. Smith

American Economic Journal: Microeconomics, February 2016

This paper uses a Bayesian information processing task to compare belief elicitation mechanisms including a quadratic scoring rule, a Becker-DeGroot-Marschak pricing procedure, and a two-stage menu of lottery choices that is structured to identify a preci...

Don't Demotivate, Discriminate

By Jurjen J. A. Kamphorst and Otto H. Swank

American Economic Journal: Microeconomics, February 2016

This paper offers a new theory of discrimination in the workplace. We consider a manager who has to assign two tasks to two employees. The manager has superior information about the employees' abilities. We show that besides an equilibrium where the manag...

Investing in Skill and Searching for Coworkers: Endogenous Participation in a Matching Market

By Chris Bidner, Guillaume Roger, and Jessica Moses

American Economic Journal: Microeconomics, February 2016

We demonstrate how search frictions have important yet subtle implications for participation in a skilled labor market by studying a model in which agents invest in skill prior to searching for coworkers. Search frictions induce the existence of acceptanc...

Reallocation Costs and Efficiency

By Yuval Salant and Ron Siegel

American Economic Journal: Microeconomics, February 2016

We study the efficient allocation of a divisible asset when reallocation is costly. Two players initially divide an asset between them. At the time of this initial division the players' valuations for the asset are uncertain. After the uncertainty resolve...

Falling Dominoes: A Theory of Rare Events and Crisis Contagion

By Heng Chen and Wing Suen

American Economic Journal: Microeconomics, February 2016

Crises, such as revolutions and currency attacks, rarely occur; but when they do they typically arrive in waves. The rarity of crises is an important contagion mechanism in a multiple-country dynamic global game model. When players are uncertain about the...

Intermediaries in Two-Sided Markets: An Empirical Analysis of the US Cable Television Industry

By Andre Boik

American Economic Journal: Microeconomics, February 2016

Local television stations are platforms in a two-sided market connecting advertisers and viewers. This paper explicitly examines the effect that important intermediaries (such as cable, telephone, and satellite distributors) may have on a platform's prici...

A Theory of Rational Demand for Index Insurance

By Daniel J. Clarke

American Economic Journal: Microeconomics, February 2016

Rational demand for index insurance products is shown to be fundamentally different to that for indemnity insurance products due to the presence of basis risk. In particular, optimal demand is zero for infinitely risk-averse individuals, and is nonmonoton...

Front Matter

American Economic Journal: Microeconomics, February 2016

The Vulnerability of Minority Homeowners in the Housing Boom and Bust

By Patrick Bayer, Fernando Ferreira, and Stephen L. Ross

American Economic Journal: Economic Policy, February 2016

This paper examines mortgage outcomes for a large sample of individual home purchases and refinances linked to credit scores in seven major US markets. Among those with similar credit scores and loan attributes, black and Hispanic homeowners had much high...

The Strategic Value of Carbon Tariffs

By Christoph Böhringer, Jared C. Carbone, and Thomas F. Rutherford

American Economic Journal: Economic Policy, February 2016

We ask whether the threat of carbon tariffs might lower the cost of reductions in world carbon emissions by inducing unregulated regions to adopt emission controls. We use a numerical model to generate payoffs of a game in which a coalition regulates emis...

Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments

By Liran Einav, Amy Finkelstein, and Heidi Williams

American Economic Journal: Economic Policy, February 2016

We present a simple graphical framework to illustrate the potential welfare gains from a "top-up" health insurance policy requiring patients to pay the incremental price for more expensive treatment options. We apply this framework to breast cancer treatm...

Up in Smoke: The Influence of Household Behavior on the Long-Run Impact of Improved Cooking Stoves

By Rema Hanna, Esther Duflo, and Michael Greenstone

American Economic Journal: Economic Policy, February 2016

Laboratory studies suggest that improved cooking stoves can reduce indoor air pollution, improve health, and decrease greenhouse gas emissions in developing countries. We provide evidence, from a large-scale randomized trial in India, on the benefits of a...

Physicians Treating Physicians: Information and Incentives in Childbirth

By Erin M. Johnson and M. Marit Rehavi

American Economic Journal: Economic Policy, February 2016

This paper provides new evidence on the interaction between patient information and physician financial incentives. Using rich microdata on childbirth, we compare the treatment of physicians when they are patients with that of comparable nonphysicians. We...

A Contribution to the Empirics of Reservation Wages

By Alan B. Krueger and Andreas I. Mueller

American Economic Journal: Economic Policy, February 2016

This paper provides evidence on the behavior of reservation wages over the spell of unemployment, using high-frequency longitudinal data on unemployed workers in New Jersey. In comparison to a calibrated job search model, the reservation wage starts out t...

Leaving Poverty Behind? The Effects of Generous Income Support Paired with Activation

By Simen Markussen and Knut Røed

American Economic Journal: Economic Policy, February 2016

We evaluate a comprehensive activation program in Norway targeted at hard-to-employ social assistance claimants with reduced work capacity. The program offers a combination of tailored rehabilitation, training, and job practice, and a generous, stable, an...

Of Mice and Academics: Examining the Effect of Openness on Innovation

By Fiona Murray, Philippe Aghion, Mathias Dewatripont, Julian Kolev, and Scott Stern

American Economic Journal: Economic Policy, February 2016

This paper argues that openness, by lowering costs to access existing research, can enhance both early and late stage innovation through greater exploration of novel research directions. We examine a natural experiment in openness: late-1990s NIH agreemen...

Extended Unemployment Benefits and Early Retirement: Program Complementarity and Program Substitution

By Lukas Inderbitzin, Stefan Staubli, and Josef Zweimüller

American Economic Journal: Economic Policy, February 2016

We explore how extended unemployment insurance (UI) benefits for older workers affect early retirement and welfare. We argue that extending UI benefits generates program complementarity (more labor market exits and disability benefit take-up in the future...