Economic Network

American Economic Review

Vol. 107, Issue 4 — April 2017

 

Robert J. Shiller (pp. 967-1004)

(2) Banks as Secret Keepers

 

Tri Vi Dang, Gary Gorton, Bengt Holmström and Guillermo Ordoñez (pp. 1005-29)

(4) Escaping the Great Recession
Francesco Bianchi and Leonardo Melosi
We show that policy uncertainty about how the rising public debt will be stabilized accounts for the lack of deflation in the US economy at the zero lower bound. We first estimate a Markov-switching VAR to highlight that a zero-lower-bound regime captures most of the comovements during the Great Recession: a deep recession, no deflation, and large fiscal imbalances. We then show that a microfounded model that features policy uncertainty accounts for these stylized facts. Finally, we highlight that policy uncertainty arises at the zero lower bound because of a trade-off between mitigating the recession and preserving long-run macroeconomic stability.
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(5) The Social Cost of Near-Rational Investment
Tarek A. Hassan and Thomas M. Mertens
We show that the stock market may fail to aggregate information even if it appears to be efficient, and that the resulting decrease in the information content of prices may drastically reduce welfare. We solve a macroeconomic model in which information about fundamentals is dispersed and households make small, correlated errors when forming expectations about future productivity. As information aggregates in the market, these errors amplify and crowd out the information content of stock prices. When prices reflect less information, the conditional variance of stock returns rises, causing an increase in uncertainty and costly distortions in consumption, capital accumulation, and labor supply.
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(6) The Macrodynamics of Sorting between Workers and Firms
Jeremy Lise and Jean-Marc Robin
We develop an equilibrium model of on-the-job search with ex ante heterogeneous workers and firms, aggregate uncertainty, and vacancy creation. The model produces rich dynamics in which the distributions of unemployed workers, vacancies, and worker-firm matches evolve stochastically over time. We prove that the surplus function, which fully characterizes the match value and the mobility decision of workers, does not depend on these distributions. This result means the model is tractable and can be estimated. We illustrate the quantitative implications of the model by fitting to US aggregate labor market data from 1951-2012. The model has rich implications for the cyclical dynamics of the distribution of skills of the unemployed, the distribution of types of vacancies posted, and sorting between heterogeneous workers and firms.
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(7) Financing Innovation: Evidence from R&D Grants
Sabrina T. Howell
Governments regularly subsidize new ventures to spur innovation. This paper conducts the first large-sample, quasi-experimental evaluation of R&D subsidies. I use data on ranked applicants to the US Department of Energy’s SBIR grant program. An early-stage award approximately doubles the probability that a firm receives subsequent venture capital and has large, positive impacts on patenting and revenue. These effects are stronger for more financially constrained firms. Certification, where the award contains information about firm quality, likely does not explain the grant effect. Instead, the grants are useful because they fund technology prototyping.
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(8) Reducing Crime and Violence: Experimental Evidence from Cognitive Behavioral Therapy in Liberia
Christopher Blattman, Julian C. Jamison and Margaret Sheridan
We show that a number of noncognitive skills and preferences, including patience and identity, are malleable in adults, and that investments in them reduce crime and violence. We recruited criminally engaged men and randomized one-half to eight weeks of cognitive behavioral therapy designed to foster self-regulation, patience, and a noncriminal identity and lifestyle. We also randomized $200 grants. Cash alone and therapy alone initially reduced crime and violence, but effects dissipated over time. When cash followed therapy, crime and violence decreased dramatically for at least a year. We hypothesize that cash reinforced therapy’s impacts by prolonging learning-by doing, lifestyle changes, and self-investment.
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(9) Does the Gender Composition of Scientific Committees Matter?
Manuel Bagues, Mauro Sylos-Labini and Natalia Zinovyeva
We analyze how a larger presence of female evaluators affects committee decision-making using information on 100,000 applications to associate and full professorships in Italy and Spain. These applications were assessed by 8,000 randomly selected evaluators. A larger number of women in evaluation committees does not increase either the quantity or the quality of female candidates who qualify. Information from individual voting reports suggests that female evaluators are not significantly more favorable toward female candidates. At the same time, male evaluators become less favorable toward female candidates as soon as a female evaluator joins the committee.
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(10) A Comprehensive Approach to Revealed Preference Theory
Hiroki Nishimura, Efe A. Ok and John K.-H. Quah
We develop a version of Afriat’s theorem that is applicable in a variety of choice environments beyond the setting of classical consumer theory. This allows us to devise tests for rationalizability in environments where the set of alternatives is not the positive orthant of a Euclidean space and where the rationalizing utility function is required to satisfy properties appropriate to that environment. We show that our results are applicable, amongst others, to choice data on lotteries, contingent consumption, and intertemporal consumption.
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(11) Correlation Misperception in Choice
Andrew Ellis and Michele Piccione
We present a decision-theoretic analysis of an agent’s understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her (possibly misspecified) beliefs.
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(12) Balanced Growth Despite Uzawa
Gene M. Grossman, Elhanan Helpman, Ezra Oberfield and Thomas Sampson
The evidence for the United States points to balanced growth despite falling investment good prices and a less-than-unitary elasticity of substitution between capital and labor. This is inconsistent with the Uzawa Growth Theorem. We extend Uzawa’s theorem to show that the introduction of human capital accumulation in the standard way does not resolve the puzzle. However, balanced growth is possible if education is endogenous and capital is more complementary with schooling than with raw labor. We present a class of aggregate production functions for which a neoclassical growth model with capital-augmenting technological progress and endogenous schooling converges to a balanced growth path.
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(13) Geographic Dispersion of Economic Shocks: Evidence from the Fracking Revolution
James Feyrer, Erin T. Mansur and Bruce Sacerdote
We track the geographic and temporal propagation of local economic shocks from new oil and gas production generated by hydrofracturing. Each million dollars of new production produces $80,000 in wage income and $132,000 in royalty and business income within a county. Within 100 miles, one million dollars of new production generates $257,000 in wages and $286,000 in royalty and business income. Roughly two-thirds of the wage income increase persists for two years. Assuming no general equilibrium effects, new extraction increased aggregate US employment by as many as 640,000, and decreased the unemployment rate by 0.43 during the Great Recession.
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(14) Borrowing on the Wrong Credit Card? Evidence from Mexico
Alejandro Ponce, Enrique Seira and Guillermo Zamarripa
We establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in Mexico. We find that relative prices are weak predictors of the allocation of debt, purchases, and payments. Consumers allocate a large fraction of their debt to high-interest cards, incurring a cost of 31 percent above the minimum. Using an experiment, we find that consumers do not substitute in the price margin, although they respond to salient temporary low-interest offers. We conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market.
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(15) How to Control Controlled School Choice: Comment
Battal Doğan
Echenique and Yenmez (2015), in Theorem 2, characterize choice rules that are „generated by reserves for the priority.“ We show that the „only if“ part is not correct. We exhibit a choice rule that is generated by reserves for the priority but violates one of their axioms. We reformulate the axiom and repair the result.
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SOURCE: https://www.aeaweb.org/issues/449