Simple Market Equilibria with Rationally Inattentive Consumers

By Filip Matějka and Alisdair McKay

American Economic Review, May 2012

We study a market with rationally inattentive consumers who are unsure of the terms of the offers made by firms, but can acquire information about the terms at a cost. In a symmetric equilibrium, the price set by firms is continuously increasing in the c...

Distinguished Fellow: Mincering Labor Economics

By Sherwin Rosen

Journal of Economic Perspectives, Spring 1992

Jacob Mincer has helped set the research agenda and professional style in labor economics for over 30 years. His research helped uncover the empirical content of human capital theory, where he used those ideas to study the determinants of earnings and the...

Hazards of Expropriation: Tenure Insecurity and Investment in Rural China

By Hanan G. Jacoby, Guo Li, and Scott Rozelle

American Economic Review, December 2002

We use household data from northeast China to examine the link between investment and land tenure insecurity induced by China's system of village-level land reallocation. We quantify expropriation risk using a hazard analysis of individual plot tenures an...

Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments

By Charles R. Plott and Kirill Pogorelskiy

American Economic Journal: Microeconomics, November 2017

We study multiple-unit, laboratory experimental call markets in which orders are cleared by a single price at a scheduled "call." The markets are independent trading "days" with two calls each day preceded by a continuous and public order flow. Markets ap...

Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?

By Thomas F. Hellmann, Kevin C. Murdock, and Joseph E. Stiglitz

American Economic Review, March 2000

In a dynamic model of moral hazard, competition can undermine prudent bank behavior. While capital-requirement regulation can induce prudent behavior, the policy yields Pareto-inefficient outcomes. Capital requirements reduce gambling incentives by puttin...

The Masking of the Decline in Manufacturing Employment by the Housing Bubble

By Kerwin Kofi Charles, Erik Hurst, and Matthew J. Notowidigdo

Journal of Economic Perspectives, Spring 2016

The employment-to-population ratio among prime-aged adults aged 25–54 has fallen substantially since 2000. The explanations proposed for the decline in the employment-to-population ratio have been of two broad types. One set of explanations emphasizes c...

Rational Inattention to News: The Perils of Forward Guidance

By Gaetano Gaballo

American Economic Journal: Macroeconomics, January 2016

This paper studies the social value of information about the future. In a stylized OLG model, agents need to forecast the future price level, they observe the current price and perceive with idiosyncratic noise the expectation announced by a more informed...

The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry

By Sandra E. Black and Philip E. Strahan

American Economic Review, September 2001

Until the middle of the 1970s, regulations constrained banks' ability to enter new markets. Over the subsequent 25 years, states gradually lifted these restrictions. This paper tests whether rents fostered by regulation were shared with labor, and whether...

Retrospectives: Léon Walras and the Nobel Peace Prize

By Agnar Sandmo

Journal of Economic Perspectives, Fall 2007

This paper is an account of the history of Léon Walras's attempt to be awarded the Nobel Peace Prize for 1906. It describes Walras's moves to get three of his Lausanne colleagues to nominate him for the prize, the arguments advanced in the proposal...

If Many Seek, Ye Shall Find: Search Externalities and New Goods

By Maciej H. Kotowski and Richard J. Zeckhauser

American Economic Journal: Microeconomics, November 2017

Consumer search serves productive roles in an economy with multiple goods. In equilibrium, search promotes the sorting of consumers among producers, thereby enabling the market for new goods, and potentially increasing welfare and profits above the benchm...

Transfer Pricing by Multinational Firms: New Evidence from Foreign Firm Ownerships

By Anca D. Cristea and Daniel X. Nguyen

American Economic Journal: Economic Policy, August 2016

Using a firm-level dataset of Danish exports between 1999-2006, we find robust evidence for profit shifting by multinational corporations. Our triple difference estimations exploit the response of export unit values to acquisitions of foreign affiliates a...

Financial Regulatory Reform: Challenges Ahead

By Randall S. Kroszner and Philip E. Strahan

American Economic Review, May 2011

Today's financial system is dominated by markets with institutions connected by short-term financing, securitization, derivatives, and other means. Yet regulations have focused on depositories, leaving regulators unprepared for the 2008 crisis. We suggest...

Herd Behavior in a Laboratory Financial Market

By Marco Cipriani and Antonio Guarino

American Economic Review, December 2005

We study herd behavior in a laboratory financial market. Subjects receive private information on the fundamental value of an asset and trade it in sequence with a market maker. The market maker updates the asset price according to the history of trades. T...

Health, Human Capital, and Life Cycle Labor Supply

By Charles Hokayem and James P. Ziliak

American Economic Review, May 2014

We use new PSID data on consumption and health, along with information on annual sick time, to estimate a structural labor supply model that incorporates a health capital stock with the traditional human capital learning-by-doing model. The estimates show...

The Modigliani-Miller Propositions after Thirty Years

By Merton H. Miller

Journal of Economic Perspectives, Fall 1988

This issue of the Journal of Economic Perspectives appears on the 30th anniversary of the Modigliani-Miller propositions in "The Cost of Capital, Corporation Finance and the Theory of Investment," published in the American Economic Review, June 1958. The ...

Why Don't We See Poverty Convergence?

By Martin Ravallion

American Economic Review, February 2012

Average living standards are converging among developing countries and faster growing economies see more progress against poverty. Yet we do not find poverty convergence; countries starting with higher poverty rates do not see higher proportionate rates o...

The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability

[Symposium: EMU]

By Martin Feldstein

Journal of Economic Perspectives, Fall 1997

EMU would be an economic liability. A single currency would cause, at most, small trade and investment gains but would raise average cyclical unemployment and possibly raise inflation, perpetuate structural unemployment, and increase the risk of protectio...

R&D Investments, Exporting, and the Evolution of Firm Productivity

By Bee Yan Aw, Mark J. Roberts, and Daniel Yi Xu

American Economic Review, May 2008

Full Implementation and Belief Restrictions

By Mariann Ollár and Antonio Penta

American Economic Review, August 2017

Multiplicity of equilibria and the dependence on strong common knowledge assumptions are well-known problems in mechanism design. We address them by studying full implementation via transfer schemes, under general restrictions on agents' beliefs. We show ...

Credible Commitment to Optimal Escape from a Liquidity Trap: The Role of the Balance Sheet of an Independent Central Bank

By Olivier Jeanne and Lars E. O. Svensson

American Economic Review, March 2007

Central banks target CPI inflation; independent central banks are concerned about their balance sheet and the level of their capital. The first fact makes it difficult for a central bank to implement the optimal escape from a liquidity trap, because it un...