New Trade Models, New Welfare Implications

By Marc J. Melitz and Stephen J. Redding

American Economic Review, March 2015

We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homogeneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfar...

Learning from Others? Decision Rights, Strategic Communication, and Reputational Concerns

By Otto H. Swank and Bauke Visser

American Economic Journal: Microeconomics, November 2015

We examine centralized versus decentralized decision making when experience of agents is private information and communication is necessary to learn from others. An agent has reputational concerns and his market may or may not observe what the other agent...

From State to Market: A Survey of Empirical Studies on Privatization

By William L. Megginson and Jeffry M. Netter

Journal of Economic Literature, June 2001

This study surveys the literature examining the privatization of state-owned enterprises (SOEs) We review the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types ...

Correlation Neglect, Voting Behavior, and Information Aggregation

By Gilat Levy and Ronny Razin

American Economic Review, April 2015

In this paper we analyze elections when voters underestimate the correlation between their information sources ("correlation neglect"). We find that this cognitive bias can improve political outcomes. We show that the extreme beliefs which result from cor...

The Billion Prices Project: Using Online Prices for Measurement and Research

By Alberto Cavallo and Roberto Rigobon

Journal of Economic Perspectives, Spring 2016

A large and growing share of retail prices all over the world are posted online on the websites of retailers. This is a massive and (until recently) untapped source of retail price information. Our objective with the Billion Prices Project, created at MIT...

Taxing across Borders: Tracking Personal Wealth and Corporate Profits

[Symposium: Tax Enforcement and Compliance]

By Gabriel Zucman

Journal of Economic Perspectives, Fall 2014

This article attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. US corporations book 20 percent of their profits in tax havens, a tenfold increase since the 1980; their effective tax rate ha...

Overconfidence and Excess Entry: An Experimental Approach

By Colin Camerer and Dan Lovallo

American Economic Review, March 1999

The RAND Health Insurance Experiment, Three Decades Later

By Aviva Aron-Dine, Liran Einav, and Amy Finkelstein

Journal of Economic Perspectives, Winter 2013

Between 1974 and 1981, the RAND health insurance experiment provided health insurance to more than 5,800 individuals from about 2,000 households in six different locations across the United States, a sample designed to be representative of families with ...

Observational Learning: Evidence from a Randomized Natural Field Experiment

By Hongbin Cai, Yuyu Chen, and Hanming Fang

American Economic Review, June 2009

We report results from a randomized natural field experiment conducted in a restaurant dining setting to distinguish the observational learning effect from the saliency effect. We find that, when customers are given ranking information of the five most...

Financial Liberalization, Debt Mismatch, Allocative Efficiency, and Growth

By Romain Rancière and Aaron Tornell

American Economic Journal: Macroeconomics, April 2016

Financial liberalization increases growth, but leads to more crises and costly bailouts. We present a two-sector model in which liberalization, by allowing debt-denomination mismatch, relaxes borrowing limits in the financially constrained sector, but en...

Observational Learning and Demand for Search Goods

By Kenneth Hendricks, Alan Sorensen, and Thomas Wiseman

American Economic Journal: Microeconomics, February 2012

We develop a model of herds in which consumers observe only the aggregate purchase history, not the complete ordered history of search actions. We show that the purchasing information changes the conditions under which herds can occur for both low- and hi...

Distinguished Fellow: Houthakker's Contributions to Economics

By Robert A. Pollak

Journal of Economic Perspectives, Spring 1990

Hendrik Houthakker's contributions to economics defy capsule description. A better strategy than providing abstracts of the books and articles on his long and impressive vita is discussing one or two topics in detail, placing at least some of his contribu...

Parental Education and Child Health: Evidence from a Natural Experiment in Taiwan

By Shin-Yi Chou, Jin-Tan Liu, Michael Grossman, and Ted Joyce

American Economic Journal: Applied Economics, January 2010

In 1968, the Taiwanese government extended compulsory education from 6 to 9 years and opened over 150 new junior high schools at a differential rate among regions. Within each region, we exploit variations across cohorts in new junior high school openi...

Credit Externalities: Macroeconomic Effects and Policy Implications

By Javier Bianchi

American Economic Review, May 2010

Endogenous Innovation in the Theory of Growth

[Symposium: New Growth Theory]

By Gene M. Grossman and Elhanan Helpman

Journal of Economic Perspectives, Winter 1994

This paper makes the case that purposive, profit-seeking investments in knowledge play a critical role in the long-run growth process. First, the authors review the implications of neoclassical growth theory and the more recent theories of 'endogenous gro...

The Economic Benefits of Pharmaceutical Innovations: The Case of Cox-2 Inhibitors

By Craig L. Garthwaite

American Economic Journal: Applied Economics, July 2012

Despite dramatic improvements in medical technology, little attention has been paid to the role of these innovations in improving economic outcomes. This study estimates the labor supply effects of Cox-2 inhibitors, a widely prescribed class of pharmaceu...

Reflections on the Natural Rate Hypothesis

[Symposium: The Natural Rate of Unemployment]

By Joseph Stiglitz

Journal of Economic Perspectives, Winter 1997

Does the deviation of unemployment from some natural rate provide a robust and useful way to predict changes in the inflation rate? Can economists explain why the NAIRU changes over time? Is the NAIRU a useful way to frame policy discussions despite the u...

The Classical Soviet-Type Economy: Nature of the System and Implications for Reform

[Symposium: Economic Transition in the Soviet Union and Eastern Europe]

By Richard E. Ericson

Journal of Economic Perspectives, Fall 1991

Below I will outline the traditional Soviet economic system, developing its logic of institutions and interactions, and pointing out their natural economic consequences. This will lead me to a list of defining characteristics of that system, characteristi...

Prospects for Nuclear Power

[Symposium: Energy Challenges]

By Lucas W. Davis

Journal of Economic Perspectives, Winter 2012

Nuclear power has long been controversial because of concerns about nuclear accidents, storage of spent fuel, and how the spread of nuclear power might raise risks of the proliferation of nuclear weapons. These concerns are real and important. However, em...

Was the Wealth of Nations Determined in 1000 BC?

By Diego Comin, William Easterly, and Erick Gong

American Economic Journal: Macroeconomics, July 2010

We assemble a dataset on technology adoption in 1000 bc, 0 ad, and 1500 AD for the predecessors to today's nation states. Technological differences are surprisingly persistent over long periods of time. Our most interesting, strong, and robust results are...