Optimal Taxation with Risky Human Capital

By Marek Kapička and Julian Neira

American Economic Journal: Macroeconomics, October 2019

We study optimal tax policies in a life-cycle economy with permanent ability differences and risky human capital investments that have both an unobservable component, learning effort, and an observable component, schooling. The optimal policies balance re...

Optimal Forward Guidance

By Florin O. Bilbiie

American Economic Journal: Macroeconomics, October 2019

Optimal forward guidance is the simple policy of keeping interest rates low for some optimally determined number of periods after the liquidity trap ends and moving to normal-times optimal policy thereafter. I solve for the optimal duration in closed form...

The Invisible Hand of the Government: Moral Suasion during the European Sovereign Debt Crisis

By Steven Ongena, Alexander Popov, and Neeltje Van Horen

American Economic Journal: Macroeconomics, October 2019

Using proprietary data on banks' monthly securities holdings, we show that during the European sovereign debt crisis, domestic banks in fiscally stressed countries were considerably more likely than foreign banks to increase their holdings of domestic sov...

Front Matter

American Economic Journal: Microeconomics, November 2019

Teamwork as a Self-Disciplining Device

By Matthias Fahn and Hendrik Hakenes

American Economic Journal: Microeconomics, November 2019

We show that team formation can serve as an implicit commitment device to overcome problems of self-control. If individuals have present-biased preferences, effort that is costly today but rewarded at some later point in time is too low from the perspecti...

Relational Contracts with Private Information on the Future Value of the Relationship: The Upside of Implicit Downsizing Costs

By Matthias Fahn and Nicolas Klein

American Economic Journal: Microeconomics, November 2019

We analyze a relational-contracting problem, in which the principal has private information about the future value of the relationship. In order to reduce bonus payments, the principal is tempted to claim that the value of the future relationship is lower...

Trust the Police? Self-Selection of Motivated Agents into the German Police Force

By Guido Friebel, Michael Kosfeld, and Gerd Thielmann

American Economic Journal: Microeconomics, November 2019

We conduct experimental games with police applicants in Germany to investigate whether intrinsically motivated agents self-select into this type of public service. Our focus is on trustworthiness and the willingness to enforce norms of cooperation as key ...

Disguising Lies—Image Concerns and Partial Lying in Cheating Games

By Kiryl Khalmetski and Dirk Sliwka

American Economic Journal: Microeconomics, November 2019

We study equilibrium reporting behavior in cheating games when agents have a fixed cost of lying and image concerns not to be perceived as a liar. We show that equilibria naturally arise in which agents with low costs of lying randomize among a set of the...

Dynamic Non-monetary Incentives

By Daniel Bird and Alexander Frug

American Economic Journal: Microeconomics, November 2019

We study a principal-agent interaction where investments and rewards arrive stochastically over time and are privately observed by the agent. Investments (costly for the agent, beneficial for the principal) can be concealed by the agent. Rewards (benefici...

Information Design

By Ina Taneva

American Economic Journal: Microeconomics, November 2019

A designer commits to a signal distribution that is informative about a payoff-relevant state. Conditional upon the privately observed signals, agents take actions that affect their payoffs as well as those of the designer. We show how to derive the (desi...

Learning Theory and Heterogeneous Play in a Signaling-Game Experiment

By Drew Fudenberg and Emanuel Vespa

American Economic Journal: Microeconomics, November 2019

We study the effect of how types are assigned to participants in a signaling-game experiment. The sender has two actions, In and Out, and two types. In one treatment, types are i.i.d. in every period, and senders gather experience with both types. In the ...

When Demand Increases Cause Shakeouts

By Thomas N. Hubbard and Michael J. Mazzeo

American Economic Journal: Microeconomics, November 2019

Standard models that guide competition policy imply that demand increases should lead to more, not fewer firms. However, Sutton's (1991) model shows that demand increases instead can lead to shakeouts if non-price competition takes the form of fixed inves...

Front Matter

American Economic Review, November 2019

Incentivized Resume Rating: Eliciting Employer Preferences without Deception

By Judd B. Kessler, Corinne Low, and Colin D. Sullivan

American Economic Review, November 2019

We introduce a new experimental paradigm to evaluate employer preferences, called incentivized resume rating (IRR). Employers evaluate resumes they know to be hypothetical in order to be matched with real job seekers, preserving incentives while avoiding ...

The Paradox of Global Thrift

By Luca Fornaro and Federica Romei

American Economic Review, November 2019

This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy is constrained by the zero lower bound. Now imagine that governments implement prudential financial and fiscal policies to stabilize the ...

Training and Effort Dynamics in Apprenticeship

By Drew Fudenberg and Luis Rayo

American Economic Review, November 2019

A principal specifies time paths of effort provision, task allocation, and knowledge transfer for a cash-constrained apprentice, who is free to walk away at any time. In the optimal contract the apprentice pays for training by working for low or no wages ...

Liquidity Sentiments

By Vladimir Asriyan, William Fuchs, and Brett Green

American Economic Review, November 2019

We develop a rational theory of liquidity sentiments in which the market outcome in any given period depends on agents' expectations about market conditions in future periods. Our theory is based on the interaction between adverse selection and resale c...

Did Austerity Cause Brexit?

By Thiemo Fetzer

American Economic Review, November 2019

This paper documents a significant association between the exposure of an individual or area to the UK government's austerity-induced welfare reforms begun in 2010, and the following: the subsequent rise in support for the UK Independence Party, an import...

Monetary Policy, Bounded Rationality, and Incomplete Markets

By Emmanuel Farhi and Iván Werning

American Economic Review, November 2019

This paper extends the benchmark New-Keynesian model by introducing two frictions: (i) agent heterogeneity with incomplete markets, uninsurable idiosyncratic risk, and occasionally-binding borrowing constraints; and (ii) bounded rationality in the form of...

Strategy Choice in the Infinitely Repeated Prisoner's Dilemma

By Pedro Dal Bó and Guillaume R. Fréchette

American Economic Review, November 2019

We use a novel experimental design to reliably elicit subjects' strategies in an infinitely repeated prisoner's dilemma experiment with perfect monitoring. We find that three simple strategies represent the majority of the chosen strategies: Always Defect...