Economic Network

American Economic Review
Vol. 105, Issue 3
March 2015

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Articles


The Impact of the Great Migration on Mortality of African Americans: Evidence from the Deep South (#2)
Dan A. Black, Seth G. Sanders, Evan J. Taylor and Lowell J. Taylor
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Overconfidence in Political Behavior (#3)
Pietro Ortoleva and Erik Snowberg
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Robustness and Linear Contracts (#4)
Gabriel Carroll
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Systemic Risk and Stability in Financial Networks (#5)
Daron Acemoglu, Asuman Ozdaglar and Alireza Tahbaz-Salehi
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Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial (#6)
Jessica Cohen, Pascaline Dupas and Simone Schaner
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Self-Confirming Equilibrium and Model Uncertainty (#7)
Pierpaolo Battigalli, Simone Cerreia-Vioglio, Fabio Maccheroni and Massimo Marinacci
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Environmental Health Risks and Housing Values: Evidence from 1,600 Toxic Plant Openings and Closings (#8)
Janet Currie, Lucas Davis, Michael Greenstone and Reed Walker
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Bankruptcy as Implicit Health Insurance (#9)
Neale Mahoney
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Leader Punishment and Cooperation in Groups: Experimental Field Evidence from Commons Management in Ethiopia (#10)
Michael Kosfeld and Devesh Rustagi
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The Price of Experience (#11)
Hyeok Jeong, Yong Kim and Iourii Manovskii
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Optimal Life Cycle Unemployment Insurance (#12)
Claudio Michelacci and Hernán Ruffo
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Evidence for Countercyclical Risk Aversion: An Experiment with Financial Professionals (#13)
Alain Cohn, Jan Engelmann, Ernst Fehr and Michel André Maréchal
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Information Disclosure as a Matching Mechanism: Theory and Evidence from a Field Experiment (#14)
Steven Tadelis and Florian Zettelmeyer
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Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets (#15)
Catherine C. Eckel and Sascha C. Füllbrunn
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(1) Front Matter
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(2) The Impact of the Great Migration on Mortality of African Americans: Evidence from the Deep South
Dan A. Black, Seth G. Sanders, Evan J. Taylor and Lowell J. Taylor
The Great Migration�the massive migration of African Americans out of the rural South to largely urban locations in the North, Midwest, and West�was a landmark event in US history. Our paper shows that this migration increased mortality of African Americans born in the early twentieth century South. This inference comes from an analysis that uses proximity of birthplace to railroad lines as an instrument for migration. (JEL I12, J15, N31, N32, N91, N92, R23)
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(3) Overconfidence in Political Behavior
Pietro Ortoleva and Erik Snowberg
This paper studies, theoretically and empirically, the role of overconfidence in political behavior. Our model of overconfidence in beliefs predicts that overconfidence leads to ideological extremeness, increased voter turnout, and stronger partisan identification. The model also makes nuanced predictions about the patterns of ideology in society. These predictions are tested using unique data that measure the overconfidence and standard political characteristics of a nationwide sample of over 3,000 adults. Our numerous predictions find strong support in these data. In particular, we document that overconfidence is a substantively and statistically important predictor of ideological extremeness, voter turnout, and partisan identification. (JEL C83, D03, D72, D83)
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(4) Robustness and Linear Contracts
Gabriel Carroll
We consider a moral hazard problem where the principal is uncertain as to what the agent can and cannot do: she knows some actions available to the agent, but other, unknown actions may also exist. The principal demands robustness, evaluating possible contracts by their worst-case performance, over unknown actions the agent might potentially take. The model assumes risk-neutrality and limited liability, and no other functional form assumptions. Very generally, the optimal contract is linear. The model thus offers a new explanation for linear contracts in practice. It also introduces a flexible modeling approach for moral hazard under nonquantifiable uncertainty. (JEL D81, D82, D86)
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(5) Systemic Risk and Stability in Financial Networks
Daron Acemoglu, Asuman Ozdaglar and Alireza Tahbaz-Salehi
This paper argues that the extent of financial contagion exhibits a form of phase transition: as long as the magnitude of negative shocks affecting financial institutions are sufficiently small, a more densely connected financial network (corresponding to a more diversified pattern of interbank liabilities) enhances financial stability. However, beyond a certain point, dense interconnections serve as a mechanism for the propagation of shocks, leading to a more fragile financial system. Our results thus highlight that the same factors that contribute to resilience under certain conditions may function as significant sources of systemic risk under others. (JEL D85, E44, G21, G28, L14)
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(6) Price Subsidies, Diagnostic Tests, and Targeting of Malaria Treatment: Evidence from a Randomized Controlled Trial
Jessica Cohen, Pascaline Dupas and Simone Schaner
Both under- and over-treatment of communicable diseases are public bads. But efforts to decrease one run the risk of increasing the other. Using rich experimental data on household treatment- seeking behavior in Kenya, we study the implications of this trade-off for subsidizing life-saving antimalarials sold over-the-counter at retail drug outlets. We show that a very high subsidy (such as the one under consideration by the international community) dramatically increases access, but nearly one-half of subsidized pills go to patients without malaria. We study two ways to better target subsidized drugs: reducing the subsidy level, and introducing rapid malaria tests over-the-counter. (JEL D12, D82, I12, O12, O15)
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(7) Self-Confirming Equilibrium and Model Uncertainty
Pierpaolo Battigalli, Simone Cerreia-Vioglio, Fabio Maccheroni and Massimo Marinacci
We analyze a notion of self-confirming equilibrium with non-neutral ambiguity attitudes that generalizes the traditional concept. We show that the set of equilibria expands as ambiguity aversion increases. The intuition is quite simple: by playing the same strategy in a stationary environment, an agent learns the implied distribution of payoffs, but alternative strategies yield payoffs with unknown distributions; increased aversion to ambiguity makes such strategies less appealing. In sum, a kind of „status quo bias“ emerges; in the long run, the uncertainty related to tested strategies disappears, but the uncertainty implied by the untested ones does not. (JEL C72, C73, D81, D83)
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(8) Environmental Health Risks and Housing Values: Evidence from 1,600 Toxic Plant Openings and Closings
Janet Currie, Lucas Davis, Michael Greenstone and Reed Walker
Regulatory oversight of toxic emissions from industrial plants and understanding about these emissions‘ impacts are in their infancy. Applying a research design based on the openings and closings of 1,600 industrial plants to rich data on housing markets and infant health, we find that: toxic air emissions affect air quality only within 1 mile of the plant; plant openings lead to 11 percent declines in housing values within 0.5 mile or a loss of about $4.25 million for these households; and a plant’s operation is associated with a roughly 3 percent increase in the probability of low birthweight within 1 mile. (JEL I12, L60, Q52, Q53, Q58, R23, R31)
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(9) Bankruptcy as Implicit Health Insurance
Neale Mahoney
This paper examines the implicit health insurance that households receive from the ability to declare bankruptcy. Exploiting multiple sources of variation in asset exemption law, I show that uninsured households with a greater financial cost of bankruptcy make higher out-of-pocket medical payments, conditional on the amount of care received. In turn, I find that households with greater wealth at risk are more likely to hold health insurance. The implicit insurance from bankruptcy distorts the insurance coverage decision. Using a microsimulation model, I calculate that the optimal Pigovian penalties are three-quarters as large as the average penalties under the Affordable Care Act. (JEL D14, H51, I13, K35)
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(10) Leader Punishment and Cooperation in Groups: Experimental Field Evidence from Commons Management in Ethiopia
Michael Kosfeld and Devesh Rustagi
We conduct a social dilemma experiment in which real-world leaders can punish group members as a third party. Despite facing an identical environment, leaders are found to take remarkably different punishment approaches. The different leader types revealed experimentally explain the relative success of groups in managing their forest commons. Leaders who emphasize equality and efficiency see positive forest outcomes. Antisocial leaders, who punish indiscriminately, see relatively negative forest outcomes. Our results highlight the importance of leaders in collective action, and more generally the idiosyncratic but powerful roles that leaders may play, leading to substantial variation in group cooperation outcomes. (JEL C93, D03, O13, Q23)
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(11) The Price of Experience
Hyeok Jeong, Yong Kim and Iourii Manovskii
We identify a key role of factor supply, driven by demographic changes, in shaping several empirical regularities that are a focus of active research in macro and labor economics. In particular, demographic changes alone can account for the large movements of the return to experience over the last four decades, for the differential dynamics of the age premium across education groups emphasized by Katz and Murphy (1992), for the differential dynamics of the college premium across age groups emphasized by Card and Lemieux (2001), and for the changes in cross-sectional and cohort-based life-cycle profiles emphasized by Kambourov and Manovskii (2005). (JEL D91, E24, I23, J11, J24, J31)
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(12) Optimal Life Cycle Unemployment Insurance
Claudio Michelacci and Hernán Ruffo
We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers. (JEL D91, E24, J13, J64, J65)
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(13) Evidence for Countercyclical Risk Aversion: An Experiment with Financial Professionals
Alain Cohn, Jan Engelmann, Ernst Fehr and Michel André Maréchal
Countercyclical risk aversion can explain major puzzles such as the high volatility of asset prices. Evidence for its existence is, however, scarce because of the host of factors that simultaneously change during financial cycles. We circumvent these problems by priming financial professionals with either a boom or a bust scenario. Subjects primed with a financial bust were substantially more fearful and risk averse than those primed with a boom, suggesting that fear may play an important role in countercyclical risk aversion. The mechanism described here is relevant for theory and may explain self-reinforcing processes that amplify market dynamics. (JEL E32, E44, G01, G11, G12)
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(14) Information Disclosure as a Matching Mechanism: Theory and Evidence from a Field Experiment
Steven Tadelis and Florian Zettelmeyer
Market outcomes depend on the quality of information available to its participants. We measure the effect of information disclosure on market outcomes using a large-scale field experiment that randomly discloses quality information in wholesale automobile auctions. We argue that buyers in this market are horizontally differentiated across cars that are vertically ranked by quality. This implies that information disclosure helps match heterogeneous buyers to cars of varying quality, causing both good and bad news to increase competition and revenues. The data confirm these hypotheses. These findings have implications for the design of other markets, including e-commerce, procurement auctions, and labor markets. (JEL C93, D44, D82, L15)
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(15) Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets
Catherine C. Eckel and Sascha C. Füllbrunn
Do women and men behave differently in financial asset markets? Our results from an asset market experiment show a marked gender difference in producing speculative price bubbles. Mixed markets show intermediate values, and a meta-analysis of 35 markets from different studies confirms the inverse relationship between the magnitude of price bubbles and the frequency of female traders in the market. Women’s price forecasts also are significantly lower, even in the first period. Implications for financial markets and experimental methodology are discussed. (JEL D14, D81, G01, G11, J16)
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