Institution Building without Commitment

By Marco Bassetto, Zhen Huo, and José-Víctor Ríos-Rull

American Economic Review, November 2024

We propose a theory of gradualism in the implementation of good policies, suitable for environments featuring time consistency. We downplay the role of the initial period by allowing agents both to wait for future agents to start equilibrium play and to r...

Financial Technology Adoption: Network Externalities of Cashless Payments in Mexico

By Sean Higgins

American Economic Review, November 2024

Do coordination failures constrain financial technology adoption? Exploiting the Mexican government's rollout of 1 million debit cards to poor households from 2009 to 2012, I examine responses on both sides of the market and find important spillovers and ...

Sticky Spending, Sequestration, and Government Debt

By Facundo Piguillem and Alessandro Riboni

American Economic Review, November 2024

Once established, government spending programs tend to continue. A commonly held view is that spending inertia leads to unsustainable debt, ultimately requiring fiscal adjustments such as "sequestration." We show that by insuring against political turnove...

Generalized Social Marginal Welfare Weights Imply Inconsistent Comparisons of Tax Policies

By Itai Sher

American Economic Review, November 2024

This paper concerns Saez and Stantcheva's (2016) generalized social marginal welfare weights, which aggregate losses and gains due to tax policies while incorporating nonutilitarian ethical considerations. The approach evaluates local tax changes without ...

Merchants of Death: The Effect of Credit Supply Shocks on Hospital Outcomes

By Cyrus Aghamolla, Pinar Karaca-Mandic, Xuelin Li, and Richard T. Thakor

American Economic Review, November 2024

This study examines the link between credit supply and hospital health outcomes. We use bank stress tests as exogenous shocks to credit access for hospitals that have lending relationships with tested banks. We find that affected hospitals shift their ope...

Polity Size and Local Government Performance: Evidence from India

By Veda Narasimhan and Jeffrey Weaver

American Economic Review, November 2024

Developing countries have increasingly decentralized power to local governments. This paper studies the implications of a central element of decentralization (polity size) using population-based discontinuities that determine local government boundaries f...

Micro Risks and (Robust) Pareto-Improving Policies

By Mark Aguiar, Manuel Amador, and Cristina Arellano

American Economic Review, November 2024

We provide conditions for the feasibility of robust Pareto-improving (RPI) policies when markets are incomplete and the interest rate is below the growth rate. We allow for arbitrary heterogeneity in preferences and income risk and a wedge between the ret...

A Technology-Gap Model of 'Premature' Deindustrialization

By Ippei Fujiwara and Kiminori Matsuyama

American Economic Review, November 2024

We propose a parsimonious mechanism for generating premature deindustrialization (PD). In the baseline model, the Baumol effect drives the hump-shaped path of the manufacturing share. Countries follow different paths due to the difference in the sector-sp...

Quality Is in the Eye of the Beholder: Taste Projection in Markets with Observational Learning

By Tristan Gagnon-Bartsch and Antonio Rosato

American Economic Review, November 2024

We study how misperceptions of others' tastes influence beliefs, demand, and prices in markets with observational learning. Consumers infer a good's quality from the quantity demanded and price paid by others. When consumers exaggerate the similarity betw...

(Empirical) Bayes Approaches to Parallel Trends

By Soonwoo Kwon and Jonathan Roth

AEA Papers and Proceedings, May 2024

We consider Bayes and Empirical Bayes (EB) approaches for dealing with violations of parallel trends. In the Bayes approach, the researcher specifies a prior over both the pretreatment violations of parallel trends δpre and the posttr...

Social safety nets and long-run outcomes for children

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The effects of welfare cuts in Denmark.

Front Matter

American Economic Journal: Economic Policy, November 2024

Real-Time Pricing and the Cost of Clean Power

By Imelda, Matthias Fripp, and Michael J. Roberts

American Economic Journal: Economic Policy, November 2024

Solar and wind power are now cheaper than fossil fuels but are intermittent. The extra supply-side variability implies growing benefits of using real-time retail pricing (RTP). We evaluate the potential gains of RTP using a model that jointly solves inves...

Downward Revision of Investment Decisions after Corporate Tax Hikes

By Sebastian Link, Manuel Menkhoff, Andreas Peichl, and Paul Schüle

American Economic Journal: Economic Policy, November 2024

This paper estimates the causal effect of corporate tax hikes on firm investment based on more than 1,400 local tax changes. By observing planned and realized investment volumes in a representative sample of German manufacturing firms, we can study how ta...

Information Frictions and Skill Signaling in the Youth Labor Market

By Sara B. Heller and Judd B. Kessler

American Economic Journal: Economic Policy, November 2024

This paper provides evidence that information frictions limit the labor market trajectories of US youth. We provide credible skill signals—recommendation letters based on supervisor feedback—to a random subset of 43,409 participants in New York's summ...

Pricing Carbon: Evidence from Expert Recommendations

By Moritz A. Drupp, Frikk Nesje, and Robert C. Schmidt

American Economic Journal: Economic Policy, November 2024

We study the variation of carbon price recommendations and their determinants using survey evidence from more than 400 experts across almost 40 countries. We quantify the extent of disagreement and reveal that a majority of experts can agree on short- and...

Algorithmic Risk Assessment in the Hands of Humans

By Megan T. Stevenson and Jennifer L. Doleac

American Economic Journal: Economic Policy, November 2024

We evaluate the impacts of adopting algorithmic risk assessments in sentencing. We find that judges changed sentencing practices in response to the risk assessment, but that discretion played a large role in mediating its impact. Judges deviated from the ...

Remote Instruction and Student Mental Health: Swedish Evidence from the Pandemic

By Evelina Björkegren, Helena Svaleryd, and Jonas Vlachos

American Economic Journal: Economic Policy, November 2024

When COVID-19 reached Sweden, upper-secondary students (ages 17–19) transitioned to remote instruction, while lower-secondary schools (ages 14–16) remained open. We use this setting as a natural experiment to analyze how modes of instruction affect st...

Administrative Burden and Procedural Denials: Experimental Evidence from SNAP

By Eric Giannella, Tatiana Homonoff, Gwen Rino, and Jason Somerville

American Economic Journal: Economic Policy, November 2024

Many government program applications result in procedural denials due to administrative burdens associated with applying. We identify the intake interview as a key barrier to take-up of the Supplemental Nutrition Assistance Program and study the effect of...

Managers' Productivity and Recruitment in the Public Sector

By Pablo Muñoz and Mounu Prem

American Economic Journal: Economic Policy, November 2024

Governments face many constraints in attracting talented managers to the public sector, which often lacks high-powered incentives. In this paper, we study how a civil service reform in Chile changed the effectiveness of a vital group of public sector mana...