Underestimating the Real Growth of GDP, Personal Income, and Productivity

[Symposium: Are Measures of Economic Growth Biased?]

By Martin Feldstein

Journal of Economic Perspectives, Spring 2017

Economists have long recognized that changes in the quality of existing goods and services, along with the introduction of new goods and services, can raise grave difficulties in measuring changes in the real output of the economy. But despite the attenti...

Temporary Investment Tax Incentives: Theory with Evidence from Bonus Depreciation

By Christopher L. House and Matthew D. Shapiro

American Economic Review, June 2008

The intertemporal elasticity of investment for long-lived capital goods is nearly infinite. Consequently, investment prices should fully reflect temporary tax subsidies, regardless of the investment supply elasticity. Since prices move one-for-one with...

Abducting Economics

By James J. Heckman and Burton Singer

American Economic Review, May 2017

Abduction is the process of generating and choosing models, hypotheses, and data analyzed in response to surprising findings. All good empirical economists abduct. Explanations usually evolve as studies evolve. The abductive approach challenges economists...

Economic Research Evolves: Fields and Styles

By Joshua Angrist, Pierre Azoulay, Glenn Ellison, Ryan Hill, and Susan Feng Lu

American Economic Review, May 2017

We examine the evolution of economics research using a machine-learning-based classification of publications into fields and styles. The changing field distribution of publications would not seem to favor empirical papers. But economics' empirical shift i...

On the Cyclicality of Research and Development

By Gadi Barlevy

American Economic Review, September 2007

Economists have recently argued recessions play a useful role in fostering growth. Yet a major source of growth, R&D, is procyclical. This paper argues one reason for procyclical R&D is a dynamic externality inherent in R&D that makes entrepreneurs sho...

The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States

By Edward L. Glaeser and Joshua D. Gottlieb

Journal of Economic Literature, December 2009

Empirical research on cities starts with a spatial equilibrium condition: workers and firms are assumed to be indifferent across space. This condition implies that research on cities is different from research on countries, and that work on places withi...

Genetic Diversity and the Origins of Cultural Fragmentation

By Quamrul Ashraf and Oded Galor

American Economic Review, May 2013

The origin of the uneven distribution of ethnic and cultural fragmentation across countries has been underexplored, despite the importance attributed to the effects of diversity on the stability and prosperity of nations. Building on the role of deeply-ro...

Americans Do IT Better: US Multinationals and the Productivity Miracle

By Nicholas Bloom, Raffaella Sadun, and John Van Reenen

American Economic Review, February 2012

US productivity growth accelerated after 1995 (unlike Europe's), particularly in sectors that intensively use information technologies (IT). Using two new micro panel datasets we show that US multinationals operating in Europe also experienced a "produc...

Does Money Illusion Matter?

By Ernst Fehr and Jean-Robert Tyran

American Economic Review, December 2001

This paper shows that a small amount of individual-level money illusion may cause considerable aggregate nominal inertia after a negative nominal shock. In addition, our results indicate that negative and positive nominal shocks have asymmetric effects be...

Trading Away Wide Brands for Cheap Brands

By Swati Dhingra

American Economic Review, October 2013

Firms face competing needs to expand product variety and reduce production costs. Access to larger markets enables innovation to reduce costs. Although firm scale increases, foreign competition reduces markups. Firms' ability to recapture lost markups dep...

How Do Electricity Shortages Affect Industry? Evidence from India

By Hunt Allcott, Allan Collard-Wexler, and Stephen D. O'Connell

American Economic Review, March 2016

We estimate the effects of electricity shortages on Indian manufacturers, instrumenting with supply shifts from hydroelectric power availability. We estimate that India's average reported level of shortages reduces the average plant's revenues and prod...

Tracing Value-Added and Double Counting in Gross Exports: Comment

By Bart Los, Marcel P. Timmer, and Gaaitzen J. de Vries

American Economic Review, July 2016

In a recent contribution to the AER, Koopman, Wang, and Wei (2014) proposed a decomposition of a country's gross exports into value-added components and double-counted terms. It is motivated by complex manipulation of basic accounting identities. In this ...

Health Capital and the Prenatal Environment: The Effect of Ramadan Observance during Pregnancy

By Douglas Almond and Bhashkar Mazumder

American Economic Journal: Applied Economics, October 2011

This paper uses the Islamic holy month of Ramadan as a natural experiment in diurnal fasting and fetal health. Among births to Arab parents in Michigan, we find prenatal exposure to Ramadan results in lower birth weight. Exposure in the first month of ges...

Naïve Herding in Rich-Information Settings

By Erik Eyster and Matthew Rabin

American Economic Journal: Microeconomics, November 2010

In social-learning environments, we investigate implications of the assumption that people naïvely believe that each previous person's action reflects solely that person's private information. Naïve herders inadvertently over-weight early movers...

How Will Energy Demand Develop in the Developing World?

[Symposium: Energy Challenges]

By Catherine Wolfram, Orie Shelef, and Paul Gertler

Journal of Economic Perspectives, Winter 2012

Over the next 25 to 30 years, nearly all of the growth in energy demand, fossil fuel use, associated local pollution, and greenhouse gas emissions is forecast to come from the developing world. This paper argues that the world's poor and near-poor will pl...

Marginal Jobs, Heterogeneous Firms, and Unemployment Flows

By Michael W. L. Elsby and Ryan Michaels

American Economic Journal: Macroeconomics, January 2013

This paper introduces a notion of firm size into a search and matching model with endogenous job destruction. The outcome is a rich, yet analytically tractable framework that can be used to analyze a broad set of features of both the cross-section and ...

Inheritance Law and Investment in Family Firms

By Andrew Ellul, Marco Pagano, and Fausto Panunzi

American Economic Review, December 2010

Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of ...

State Misallocation and Housing Prices: Theory and Evidence from China

By Shing-Yi Wang

American Economic Review, August 2011

This paper examines the equilibrium price effects of the privatization of housing assets that were previously owned and allocated by the state. I develop a theoretical framework that shows that privatization can have ambiguous effects on prices in the pri...

Do We Follow Others When We Should? A Simple Test of Rational Expectations: Comment

By Anthony Ziegelmeyer, Christoph March, and Sebastian Krügel

American Economic Review, October 2013

The payoff of actions is estimated and the resulting empirical payoff is controlled for in regression analyses to formulate a test of rational expectations in information cascade experiments. We show that the empirical payoff of actions is a function of e...

What Do You Think Would Make You Happier? What Do You Think You Would Choose?

By Daniel J. Benjamin, Ori Heffetz, Miles S. Kimball, and Alex Rees-Jones

American Economic Review, August 2012

Would people choose what they think would maximize their subjective well-being (SWB)? We present survey respondents with hypothetical scenarios and elicit both choice and predicted SWB rankings of two alternatives. While choice and predicted SWB rankings ...