Optimal Expectations

By Markus K. Brunnermeier and Jonathan A. Parker

American Economic Review, September 2005

Forward-looking agents care about expected future utility flows, and hence have higher current felicity if they are optimistic. This paper studies utility-based biases in beliefs by supposing that beliefs maximize average felicity, optimally balancing thi...

Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan

By Joe Peek and Eric S. Rosengren

American Economic Review, September 2005

We examine the misallocation of credit in Japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms. Firms are more likely to receive additional bank credit if they are in poor financial condition, beca...

History, Institutions, and Economic Performance: The Legacy of Colonial Land Tenure Systems in India

By Abhijit Banerjee and Lakshmi Iyer

American Economic Review, September 2005

We analyze the colonial land revenue institutions set up by the British in India, and show that differences in historical property rights institutions lead to sustained differences in economic outcomes. Areas in which proprietary rights in land were histo...

The Central Role of Noise in Evaluating Interventions That Use Test Scores to Rank Schools

By Kenneth Y. Chay, Patrick J. McEwan, and Miguel Urquiola

American Economic Review, September 2005

Many programs reward or penalize schools based on students' average performance. Mean reversion is a potentially serious hindrance to the evaluation of such interventions. Chile's 900 Schools Program (P-900) allocated resources based on cutoffs in schools...

The Russell Sage Foundation will sponsor the second summer institute in Computational Social Science in June 2018 at Duke University

[News]

December 21, 2017

The Russell Sage Foundation will sponsor the second summer institute in Computational Social Science in June 2018 at Duke University.

Domestic Value Added in Exports: Theory and Firm Evidence from China

By Hiau Looi Kee and Heiwai Tang

American Economic Review, June 2016

China has defied the declining trend in domestic content in exports in many countries. This paper studies China's rising domestic content in exports using firm- and customs transaction-level data. The approach embraces firm heterogeneity and hence reduces...

Criminal Deterrence: A Review of the Literature

By Aaron Chalfin and Justin McCrary

Journal of Economic Literature, March 2017

We review economics research regarding the effect of police, punishments, and work on crime, with a particular focus on papers from the last twenty years. Evidence in favor of deterrence effects is mixed. While there is considerable evidence that crime is...

Naive Diversification Strategies in Defined Contribution Saving Plans

By Shlomo Benartzi and Richard H. Thaler

American Economic Review, March 2001

There is a worldwide trend toward defined contribution saving plans and growing interest in privatized Social Security plans. In both environments, individuals are given some responsibility to make their own asset-allocation decisions, raising concerns ab...

Environment, Health, and Human Capital

By Joshua Graff Zivin and Matthew Neidell

Journal of Economic Literature, September 2013

In this review, we discuss three major contributions economists have made to our understanding of the relationship between the environment and individual well-being. First, in explicitly recognizing how optimizing behavior, particularly in the form of ...

The Colonial Origins of Comparative Development: An Empirical Investigation: Comment

By David Y. Albouy

American Economic Review, October 2012

Acemoglu, Johnson, and Robinson's (2001) seminal article argues property-rights institutions powerfully affect national income, using estimated mortality rates of early European settlers to instrument capital expropriation risk. However, 36 of the 64 coun...

The Growth of Finance

[Symposium: The Growth of the Financial Sector]

By Robin Greenwood and David Scharfstein

Journal of Economic Perspectives, Spring 2013

The US financial services industry grew from 4.9 percent of GDP in 1980 to 7.9 percent of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable a...

Did the Americanization Movement Succeed? An Evaluation of the Effect of English-Only and Compulsory Schooling Laws on Immigrants

By Adriana Lleras-Muney and Allison Shertzer

American Economic Journal: Economic Policy, August 2015

We provide the first estimates of the effect of statutes requiring English as the language of instruction and compulsory schooling laws on the school enrollment, work, literacy, and English fluency of immigrant children during the Americanization period (...

Efficiency, Equality, and Labeling: An Experimental Investigation of Focal Points in Explicit Bargaining

By Andrea Isoni, Anders Poulsen, Robert Sugden, and Kei Tsutsui

American Economic Review, October 2014

We investigate Schelling's hypothesis that payoff-irrelevant labels ("cues") can influence the outcomes of bargaining games with communication. In our experimental games, players negotiate over the division of a surplus by claiming valuable objects tha...

Paging Inspector Sands: The Costs of Public Information

By Sacha Kapoor and Arvind Magesan

American Economic Journal: Economic Policy, February 2014

We exploit the introduction of pedestrian countdown signals—timers that indicate when traffic lights will change—to evaluate a policy that improves the information of all market participants. We find that although countdown signals reduce the numbe...

Do Fiscal Rules Matter?

By Veronica Grembi, Tommaso Nannicini, and Ugo Troiano

American Economic Journal: Applied Economics, July 2016

Fiscal rules are laws aimed at reducing the incentive to accumulate debt, and many countries adopt them to discipline local governments. Yet, their effectiveness is disputed because of commitment and enforcement problems. We study their impact applying a ...

Deciding When to Quit: Reference-Dependence over Slot Machine Outcomes

By Jaimie W. Lien and Jie Zheng

American Economic Review, May 2015

We conduct tests for reference dependent loss aversion using slot machine gamblers' decisions on when to quit playing for a visit to a casino. Evidence for a lagged status-quo reference point is found in the aggregate, while endogenously determined refere...

Ronald Coase and Methodology

By Richard A. Posner

Journal of Economic Perspectives, Fall 1993

Ronald Coase wrote two great theoretical articles that earned him the Nobel Prize: "The Nature of the Firm" in 1937 and "The Problem of Social Cost" in 1960. He also wrote many articles dealing with the methodology of economics, often in the setting of a ...

Great and Almost-Great Magnitudes in Economics

By Julian L. Simon

Journal of Economic Perspectives, Winter 1990

Which ratios and key magnitudes should an educated economist know? An inevitably personal selection is offered below. The list is presented in the form of a quiz to liven up the exercise of pondering them, and therefore a question mark follows each title....

Classroom Games: Understanding Bayes' Rule

By Charles A. Holt and Lisa R. Anderson

Journal of Economic Perspectives, Spring 1996

This paper uses the technique of experimental economics to set up a classroom situation where students learn to make Bayesian decisions. The exercises allow students to discover for themselves a natural counting heuristic that corresponds to Bayes's rule ...

Expected Revenue from Open and Sealed Bid Auctions

[Symposium: Auctions]

By John G. Riley

Journal of Economic Perspectives, Summer 1989

The first objective of this paper has been to explain why it is that expected seller revenue is the same under very different auction rules. The second objective has been to explain why revenue equivalence no longer holds once the central assumptions of r...