Most recent papers:

• Business Cycles In Small Open Economies: Evidence From Panel Data Between 1900 And 2013.
  Wataru Miyamoto, Thuy Lan Nguyen.
  International Economic Review. August 25, 2017
  Using a novel data set for 17 countries between 1900 and 2013, we characterize business cycles in both small developed and developing countries in a model with financial frictions and a common shock structure. We estimate the model jointly for these 17 countries using Bayesian methods. We find that financial frictions are an important feature for not only developing but also small developed countries. Furthermore, business cycles in both groups of countries are marked with trend productivity shocks. Common disturbances explain one third of the fluctuations in small open economies, especially during important worldwide phenomena.

  August 25, 2017   doi: 10.1111/iere.12243   open full text
• Global Population Growth, Technology, And Malthusian Constraints: A Quantitative Growth Theoretic Perspective.
  Bruno Lanz, Simon Dietz, Timothy Swanson.
  International Economic Review. August 25, 2017
  We structurally estimate a two‐sector Schumpeterian growth model with endogenous population and finite land reserves to study the long‐run evolution of global population, technological progress, and the demand for food. The estimated model closely replicates trajectories for world population, GDP, sectoral productivity growth, and crop land area from 1960 to 2010. Projections from 2010 onward show a slowdown of technological progress, and, because it is a key determinant of fertility costs, significant population growth. By 2100, global population reaches 12.4 billion and agricultural production doubles, but the land constraint does not bind because of capital investment and technological progress.

  August 25, 2017   doi: 10.1111/iere.12242   open full text
• Government Spending, Entry, And The Consumption Crowding‐In Puzzle.
  Vivien Lewis, Roland Winkler.
  International Economic Review. August 25, 2017
  This article documents empirically that net firm entry robustly rises after a U.S. government spending expansion. We use this new finding to test the empirical validity of various model features that have been proposed to generate consumption crowding‐in after positive expenditure shocks. Endogenous‐entry models typically fail to generate the observed joint increase in consumption and entry. Model features that dampen the wealth effect, such as rule‐of‐thumb households or complementarity between labor and consumption in preferences, tend to reduce entry. We show that utility‐ or productivity‐enhancing public spending can reconcile the model with our documented fact and performs well empirically.

  August 25, 2017   doi: 10.1111/iere.12241   open full text
• Gains From Trade.
  Christopher P. Chambers, Takashi Hayashi.
  International Economic Review. August 25, 2017
  In a social choice context, we ask whether there exists a rule in which nobody loses under trade liberalization. We consider a resource allocation problem in which the traded commodities vary. We propose an axiom stating that enlarging the set of tradable commodities hurts nobody. We show that if a rule satisfies this axiom, together with an allocative efficiency axiom and an institutional constraint axiom stating that only preferences over tradable commodities matter, gains from trade can be given to only one individual in the first step of liberalization.

  August 25, 2017   doi: 10.1111/iere.12240   open full text
• Employment Adjustment And Labor Utilization.
  Ija Trapeznikova.
  International Economic Review. August 25, 2017
  Standard models of labor adjustment assume that firms can change only the size of their workforce (the extensive margin) and not the number of hours of their existing employees (the intensive margin) in response to shocks. I propose a general equilibrium search model that allows for adjustment on both of these margins. The model includes on‐the‐job search that generates different vacancy filling and attrition rates across firms. I calibrate the model to a unique matched employer–employee panel of Danish firms and simulate two labor market policies aimed at promoting job creation: hiring subsidies and a reduction in the official workweek.

  August 25, 2017   doi: 10.1111/iere.12239   open full text
• A Nonparametric Test For Comparing Valuation Distributions In First‐Price Auctions.
  Nianqing Liu, Yao Luo.
  International Economic Review. August 25, 2017
  This article proposes a nonparametric test for comparing valuation distributions in first‐price auctions. Our test is motivated by the fact that two valuation distributions are the same if and only if their integrated quantile functions are the same. Our method avoids estimating unobserved valuations and does not require smooth estimation of bid density. We show that our test is consistent against all fixed alternatives and has nontrivial power against root‐N local alternatives. Monte Carlo experiments show that our test performs well in finite samples. We implement our method on data from U.S. Forest Service timber auctions.

  August 25, 2017   doi: 10.1111/iere.12238   open full text
• Bayesian Persuasion With Private Experimentation.
  Mike Felgenhauer, Petra Loerke.
  International Economic Review. August 25, 2017
  This article studies a situation in which a sender tries to persuade a receiver by providing hard evidence that is generated by sequential private experimentation where the sender can design the properties of each experiment contingent on the experimentation history. The sender can selectively reveal as many outcomes as desired. We determine the set of equilibria that are not Pareto‐dominated. In each of these equilibria under private experimentation, the persuasion probability is lower and the receiver obtains access to higher quality information than under public experimentation. The decision quality improves in the sender's stakes.

  August 25, 2017   doi: 10.1111/iere.12237   open full text
• Markups And The Real Effects Of Volatility Shocks.
  Hernán D. Seoane.
  International Economic Review. August 25, 2017
  This article studies the role of endogenous markups in the transmission of volatility shocks in real models. I design a variant of a small open economy model with volatility shocks and firm dynamics that gives rise to endogenous markups. I calibrate this model to match the business cycle facts in emerging economies and show that the impact of volatility shocks is substantially amplified if markups are endogenously time varying. Volatility shocks increase savings, due to precautionary motives, and markups, which act as a wedge that endogenously decreases real wages and labor supply with further negative aggregate dynamics that are absent in the models with constant markups.

  August 25, 2017   doi: 10.1111/iere.12236   open full text
• Strategic Advertising And Directed Search.
  Pedro Gomis‐Porqueras, Benoit Julien, Chengsi Wang.
  International Economic Review. August 25, 2017
  Imperfect observability and costly informative advertising are introduced into a standard directed search framework. Capacity‐constrained sellers send costly advertisements to direct buyers' uncoordinated search by specifying their location and terms of trade. We show that the equilibrium advertising intensity is nonmonotonic in the buyer–seller ratio. In addition, we also find that price posting dominates auctions since both mechanisms yield the same expected revenue, but the latter results in higher advertising expense. Finally, we find a positive comovement between market transparency and price for low market tightness when the measure of informed buyers is endogenous.

  August 25, 2017   doi: 10.1111/iere.12235   open full text
• Dynamic Mechanism Design For A Global Commons.
  Rodrigo Harrison, Roger Lagunoff.
  International Economic Review. August 25, 2017
  We model dynamic mechanisms for a global commons. Countries value both consumption and conservation of an open access resource. A country's relative value of consumption to conservation is privately observed and evolves stochastically. An optimal quota maximizes world welfare subject to being implementable by Perfect Bayesian equilibria. With complete information, the optimal quota is first best; it allocates more of the resource each period to countries with high consumption value. Under incomplete information, the optimal quota is fully compressed: Identical countries receive the same quota even as environmental costs and resource needs differ. This is true even when private information is negligible.

  August 25, 2017   doi: 10.1111/iere.12234   open full text
• Efficient Learning And Job Turnover In The Labor Market.
  Fei Li, Xi Weng.
  International Economic Review. August 25, 2017
  This article nests a continuous‐time learning model à la Jovanovic (Journal of Political Economy 92 (1984), 108–22) into a directed on‐the‐job search framework. We prove that the socially efficient allocation is separable, that is, the workers' value functions and optimal controls are independent of both the distribution of workers across their current match qualities and the unemployment rate. We characterize the dynamics of job transitions in the efficient allocation. Furthermore, when the matching technology is linear, our numerical results show that increasing the vacancy creation cost and the speed of learning have ambiguous effects on the unemployment rate and aggregate job transition.

  August 25, 2017   doi: 10.1111/iere.12233   open full text
• New Exporter Dynamics.
  Kim J. Ruhl, Jonathan L. Willis.
  International Economic Review. August 25, 2017
  We document that new exporters initially export small amounts, grow gradually, and are most likely to exit the export market in their first few years. We find that the standard sunk‐cost model cannot replicate these new exporter dynamics: New exporters grow too large too quickly and live too long. In a modified sunk‐cost model that can account for these facts, the entry costs needed to match the data are three times smaller than in the sunk‐cost model. Dynamic models with richer plant‐level heterogeneity are needed.

  August 25, 2017   doi: 10.1111/iere.12232   open full text
• An Anatomy Of U.S. Personal Bankruptcy Under Chapter 13.
  Hülya Eraslan, Gizem Koşar, Wenli Li, Pierre‐Daniel Sarte.
  International Economic Review. August 25, 2017
  We build a structural model that captures salient features of personal bankruptcy under Chapter 13. We estimate our model using a novel data set that we construct from bankruptcies filed in Delaware between 2001 and 2002. Our estimation results highlight the importance of a debtor's choice of repayment plan length on other Chapter 13 outcomes. We use the estimated model to conduct policy experiments to evaluate the impact of more stringent laws that impose restrictions on the length of repayment plans. We find that these provisions would not materially affect creditor recovery rates and would not necessarily make discharge more likely.

  August 25, 2017   doi: 10.1111/iere.12231   open full text
• Efficient Large‐Size Coordination Via Voluntary Group Formation: An Experiment.
  Chun‐Lei Yang, Mao‐Long Xu, Juanjuan Meng, Fang‐Fang Tang.
  International Economic Review. May 29, 2017
  Efficient coordination in large groups is a fundamental issue in economic organizations. We consider the weak‐link game with the feature of economies of scale that is necessary for voluntary group growth, in a minimal setup with exit and merger options. We show that large groups with efficient outcomes prevail in most communities. Seed groups form that seem to set a norm of both maximal effort level and mutual trust that there will be no panic when seeing noisy dips. Initial doubters are eventually converted into norm abiders. A restart further speeds up the process of coordination success.

  May 29, 2017   doi: 10.1111/iere.12230   open full text
• Welfare Analysis Of The Vehicle Quota System In China.
  Junji Xiao, Xiaolan Zhou, Wei‐Min Hu.
  International Economic Review. May 29, 2017
  This article presents a welfare analysis of the vehicle quota system of Shanghai, China. The empirical findings suggest that the quota system leads to both welfare loss as a result of reduction in vehicle transactions and welfare gain because of less externality of auto consumption. The net effect depends on the shadow price of the marginal externality, the assumption of vehicle lifetime, and market conditions such as consumers' intrinsic preference for vehicles. Compared to a progressive tax system, the quota system is less effective in vehicle control but more efficient in improving social welfare.

  May 29, 2017   doi: 10.1111/iere.12229   open full text
• Endogenous Scheduling Preferences And Congestion.
  Mogens Fosgerau, Kenneth Small.
  International Economic Review. May 29, 2017
  We consider the timing of activities through a dynamic model of commuting with congestion, in which workers care solely about leisure and consumption. Implicit preferences for the timing of the commute form endogenously due to temporal agglomeration economies. Equilibrium exists uniquely and is indistinguishable from that of a generalized version of the classical Vickrey bottleneck model, based on exogenous trip‐timing preferences, but optimal policies differ: the Vickrey model will misstate the benefits of a capacity increase, it will underpredict the benefits of congestion pricing, and pricing may make people better off even without considering the use of revenues.

  May 29, 2017   doi: 10.1111/iere.12228   open full text
• Contraception And Development: A Unified Growth Theory.
  Holger Strulik.
  International Economic Review. May 29, 2017
  This study investigates the interaction of the use of modern contraceptives, fertility, education, and long‐run growth. It develops an economic model that takes into account that sexual intercourse is utility enhancing and that birth control by modern contraceptives is more efficient but more costly than traditional methods. The study shows how a traditional economy, in which modern contraceptives are not used, gradually converges toward a high growth regime, in which modern contraceptives are used. Lower prices or higher efficacy of contraceptives are conducive to an earlier onset of the fertility transition and a quicker takeoff to modern growth.

  May 29, 2017   doi: 10.1111/iere.12227   open full text
• Entrants' Reputation And Industry Dynamics.
  Bernardita Vial, Felipe Zurita.
  International Economic Review. May 29, 2017
  This article analyzes entry–exit decisions in a market where reputation determines the price that firms may charge, within a rational‐expectation model of competition in a nonatomic market under heterogeneous reputations. The analysis focuses on the class of name‐switching reputational equilibria, in which a firm discards its name if and only if its reputation falls below the entrants' reputation. The main technical result is the existence of a unique steady‐state equilibrium within this class, in which the entrants' reputation is endogenous. The resulting industry dynamics is largely on agreement with the findings in the empirical literature.

  May 29, 2017   doi: 10.1111/iere.12226   open full text
• Screening As A Unified Theory Of Delinquency, Renegotiation, And Bankruptcy.
  Natalia Kovrijnykh, Igor Livshits.
  International Economic Review. May 29, 2017
  We propose a parsimonious model with adverse selection where delinquency, renegotiation, and bankruptcy all occur in equilibrium as a result of a simple screening mechanism. A borrower has private information about her endowment, and a lender uses random contracts to screen different types of borrowers. In equilibrium, some borrowers choose not to repay and thus become delinquent. The lender renegotiates with some delinquent borrowers. In the absence of renegotiation, delinquency leads to bankruptcy. Applied to mortgage restructuring, our mechanism generates amplification of house‐price shocks through foreclosure spillovers. We also show that government intervention aimed at limiting foreclosures may have unintended consequences.

  May 29, 2017   doi: 10.1111/iere.12225   open full text
• Estimating A Dynamic Spatial Equilibrium Model To Evaluate The Welfare Implications Of Regional Adjustment Processes: The Decline Of The Rust Belt.
  Chamna Yoon.
  International Economic Review. May 29, 2017
  This article develops and estimates a new dynamic spatial equilibrium model to study the regional transition dynamics and its impact on individual and aggregate welfare. The model consists of a multiregion, multisector economy comprised of overlapping generations of individuals with heterogeneous skills and mobility costs. The empirical findings suggest that a large fraction of the decline of the Rust Belt can be attributed to the reduction in its region‐specific comparative advantage in the goods‐producing sector. This decline generated significant differences in welfare across regions. Policy experiments show that such inequality can be significantly reduced through place‐based policies.

  May 29, 2017   doi: 10.1111/iere.12224   open full text
• Imperfectly Informed Voters And Strategic Extremism.
  Enriqueta Aragonès, Dimitrios Xefteris.
  International Economic Review. May 29, 2017
  We analyze a two‐candidate Downsian model considering that voters use shortcuts (e.g., interest‐group/media endorsements) to infer candidates' policy platforms. That is, voters do not observe candidates' exact platforms but only which candidate offers the more leftist/rightist platform (relative positions). In equilibrium, candidates' behavior tends to maximum extremism, but it may converge or diverge depending on how voters behave when indifferent policywise between the candidates. When the tie‐breaking rule used by the voters is sufficiently fair, candidates converge to the extreme preferred by the median voter, but when it strongly favors a certain candidate, each candidate specializes in a different extreme.

  May 29, 2017   doi: 10.1111/iere.12223   open full text
• The Optimal Listing Strategies In Online Auctions.
  Kong‐Pin Chen, Szu‐Hsien Ho, Chi‐Hsiang Liu, Chien‐Ming Wang.
  International Economic Review. May 29, 2017
  This article proposes a unified framework to completely characterize the seller's optimal listing strategy in the online auction as a function of her rate of time impatience. Specifically, the fixed‐price listing, the regular auction, and the buy‐it‐now (BIN) auction are each a solution of the seller's single optimization problem under different values of the rate of intertemporal discount: The perfectly patient seller adopts the regular auction, the sellers with a medium range of time impatience adopt the BIN auction, and the most impatient of sellers adopt the fixed‐price listing. Moreover, under mild conditions, the reverse price is inversely related to the value of the seller's discount factor, either within or across formats. This in turn implies that the posted price in the fixed‐price sale is greater than the reserve price of the BIN auction, followed by that of the regular auction. These predictions offer clear empirical implications.

  May 29, 2017   doi: 10.1111/iere.12222   open full text
• Entrepreneurial Optimism And The Market For New Issues.
  Luís Santos‐Pinto, Michele Dell'Era.
  International Economic Review. May 29, 2017
  This article analyzes the impact of entrepreneurial optimism on the market for new issues. We find that the existence of optimists generates a new reason for entrepreneurs to own equity in their firms. We show that optimism is a natural explanation for why some new issues are underpriced and others overpriced. We also show that the impact of optimism on entrepreneurs' equity holdings depends on the number of optimists, absolute risk aversion, and cash flow variance. Optimism makes entrepreneurs worse off. In contrast, optimism can make outside investors better off when entrepreneurs signal firm value by retaining shares and underpricing.

  May 29, 2017   doi: 10.1111/iere.12221   open full text
• Market‐Based Incentives.
  Borys Grochulski, Yuzhe Zhang.
  International Economic Review. May 29, 2017
  In this article, we study market‐induced, external incentives similar to career concerns jointly with standard, contractual incentives linking compensation to performance. We consider a dynamic principal–agent problem in which the agent's outside option is determined endogenously in a competitive labor market. In equilibrium, strong performance increases the agent's market value. When this value becomes sufficiently high, the threat of the agent quitting forces the principal to increase the agent's compensation. The prospect of obtaining this raise gives the agent an incentive to exert effort, which reduces the need for standard incentives. In fact, whenever the agent's option to quit is sufficiently close to being “in the money,” the market‐induced incentive eliminates the need for standard incentives altogether: Compensation becomes completely insensitive to current performance.

  May 29, 2017   doi: 10.1111/iere.12220   open full text
• When And How The Punishment Must Fit The Crime.
  George J. Mailath, Volker Nocke, Lucy White.
  International Economic Review. May 29, 2017
  In repeated normal‐form (simultaneous‐move) games, simple penal codes (Abreu, Journal of Economic Theory 39(1) (1986), 191–225; and Econometrica 56(2) (1988), 383–96) permit an elegant characterization of the set of subgame‐perfect outcomes. We show that in repeated extensive‐form games such a characterization no longer obtains. By means of examples, we identify two types of settings in which a subgame‐perfect outcome may be supported only by a profile with the property that the continuation play after a deviation is tailored not only to the identity of the deviator but also to the nature of the deviation.

  May 29, 2017   doi: 10.1111/iere.12219   open full text
• Size, Openness, And Macroeconomic Interdependence.
  Alexander Chudik, Roland Straub.
  International Economic Review. February 03, 2017
  One common, simplifying assumption in open economy macroliterature is that the rest of the world can be thought of as a representative economy. This article formally investigates conditions under which this assumption can be justified using a multicountry general equilibrium model as a laboratory. We derive the conditions that ensure the existence of the equilibrium and study the properties of the equilibrium using large N asymptotics. Thereby, we show that the two‐country framework is a valid approximation only for economies that have diversified trade linkages and only when there is no globally dominant economy among the foreign economies.

  February 03, 2017   doi: 10.1111/iere.12208   open full text
• Evaluating The Social Optimality Of Durable Public Good Provision Using The Housing Price Response To Public Investment.
  Stephen Coate, Yanlei Ma.
  International Economic Review. February 03, 2017
  Recent empirical work in public finance uses the housing price response to public investment to assess the efficiency of local durable public good provision. This article explores the theoretical justification for this technique. It points out that the logic justifying the technique for evaluating nondurable public good provision does not translate to the durable case. A model in which investment is determined by the interaction between a budget‐maximizing bureaucrat and a community's residents is used to demonstrate that the technique can falsely predict underprovision, falsely predict overprovision, or perform without error.

  February 03, 2017   doi: 10.1111/iere.12207   open full text
• A Theory Of The Cross‐Sectional Fertility Differential: Job Heterogeneity Approach.
  Daishin Yasui.
  International Economic Review. February 03, 2017
  This article presents a theory of the cross‐sectional fertility differential, which produces the negative wage–fertility relationship based on job heterogeneity. Although evidence suggests the importance of job heterogeneity in the labor market, it has largely been ignored in theories of fertility choice. I show that a theory incorporating job heterogeneity requires only standard conditions on preferences to generate the negative wage–fertility relationship, and the negative relationship derived from the model is robust to changes in economic environments (e.g., public policy and technology). Furthermore, the theory reconciles the negative cross‐sectional wage–fertility relationship with various time‐series variations in aggregate fertility.

  February 03, 2017   doi: 10.1111/iere.12217   open full text
• Capital‐ And Labor‐Saving Technical Change In An Aging Economy.
  Andreas Irmen.
  International Economic Review. February 03, 2017
  Does population aging and the associated increase in the old‐age dependency ratio affect economic growth? The answer is given in a novel analytical framework that allows for population aging to affect endogenous capital‐ and labor‐saving technical change. In a steady state capital‐saving technical progress vanishes, and the economy's growth rate of per‐capita variables reflects only labor‐saving technical change. The mere possibility of capital‐saving technical change is shown to imply that the economy's steady‐state growth rate becomes independent of its age structure: Neither a higher life expectancy nor a decline in fertility affects economic growth in the long run.

  February 03, 2017   doi: 10.1111/iere.12216   open full text
• Fertility Risk In The Life Cycle.
  Sekyu Choi.
  International Economic Review. February 03, 2017
  In this article, I study fertility decisions with special emphasis on the timing of births and abortions over the life cycle. Given the policy debate regarding abortion availability and recent evidence of its positive impact on women's outcomes, understanding the fertility process should help guide the discussion. Here, I present a life‐cycle model of consumption–savings and fertility decisions in an environment with uninsurable income shocks and imperfect fertility control. My model presents a framework in which both opportunity costs of child rearing and technological restrictions (in the form of contraception effectiveness) have roles shaping lifetime fertility choices.

  February 03, 2017   doi: 10.1111/iere.12215   open full text
• Random Authority.
  Siguang Li, Xi Weng.
  International Economic Review. February 03, 2017
  This article rationalizes matrix management in a multiproject organization in which decisions must be adapted to local conditions but also coordinated with each other. Project managers are privately informed about local conditions and communicate strategically via cheap talk. Matrix management is modeled as a randomization over deterministic authority allocations. We show that random authority is strictly optimal when the conflict between adaptation and coordination is very severe or the coordination need is very small. Moreover, the optimal degree of delegation changes nonmonotonically in the coordination need when the incentives of the project managers are sufficiently aligned.

  February 03, 2017   doi: 10.1111/iere.12214   open full text
• Product Functionality, Competition, And Multipurchasing.
  Simon P. Anderson, Øystein Foros, Hans Jarle Kind.
  International Economic Review. February 03, 2017
  The more functionalities a good offers, the greater is its perceived quality. Equilibrium prices in standard spatial competition models depend solely on quality differences. We assume that new functionalities are more appreciated the closer a product is to a consumer's ideal variety. Prices are then increasing in functionality levels. Furthermore, we endogenize whether consumers buy only one of two varieties (single‐purchase) or both (multipurchase). Under multipurchase, there might be a hump‐shaped relationship between equilibrium prices and functionality levels. Therefore, it could be optimal for each supplier to sacrifice sales and set prices so high that multipurchase is eliminated.

  February 03, 2017   doi: 10.1111/iere.12213   open full text
• Information, Risk Sharing, And Incentives In Agency Problems.
  Jia Xie.
  International Economic Review. February 03, 2017
  This article studies the use of information for incentives and risk sharing in agency problems. When the principal is risk neutral or the outcome is contractible, risk sharing is unnecessary or dealt with by a contract on the outcome, so information systems are used for incentives only. When the outcome is noncontractible, a risk‐averse principal relies on imperfect information for both incentives and risk sharing. Under the first‐order approach, this article relaxes Gjesdal's criterion for ranking information systems and finds conditions justifying the first‐order approach when the principal is risk averse and the outcome is noncontractible.

  February 03, 2017   doi: 10.1111/iere.12212   open full text
• A Tractable City Model For Aggregative Analysis.
  Satyajit Chatterjee, Burcu Eyigungor.
  International Economic Review. February 03, 2017
  An analytically tractable city model with external increasing returns is presented. The equilibrium city structure is either monocentric or decentralized. Regardless of which structure prevails, intracity variation in endogenous variables displays exponential decay from the city center, where the decay rates depend only on parameters. Given population, the equilibrium of the model is generically unique. Tractability permits explicit expressions for when a central business district (CBD) will emerge in equilibrium, how external increasing returns affect the steepness of downtown rent gradients, and how wages and welfare vary with population. An application to urban growth boundary is presented.

  February 03, 2017   doi: 10.1111/iere.12211   open full text
• Innovation And Growth With Financial, And Other, Frictions.
  Jonathan Chiu, Cesaire Meh, Randall Wright.
  International Economic Review. February 03, 2017
  The generation of ideas and their implementation are crucial for economic performance. We study this in a model of endogenous growth, where productivity increases with innovation and where the exchange of ideas (technology transfer) allows those with comparative advantage to implement them. Search, bargaining, and commitment frictions impede the idea market, however, reducing efficiency and growth. We characterize optimal policies involving subsidies to innovative and entrepreneurial activity, given both knowledge and search externalities. The role of liquidity is discussed. We show intermediation helps by financing more transactions with fewer assets and, more subtly, by ameliorating holdup problems. We also discuss some evidence.

  February 03, 2017   doi: 10.1111/iere.12210   open full text
• Understanding The Long‐Run Decline In Interstate Migration.
  Greg Kaplan, Sam Schulhofer‐Wohl.
  International Economic Review. February 03, 2017
  We analyze the secular decline in gross interstate migration in the United States from 1991 to 2011. We argue that migration fell because of a decline in the geographic specificity of returns to occupations, together with an increase in workers' ability to learn about other locations before moving. Micro data on earnings and occupations across space provide evidence for lower geographic specificity. Other explanations do not fit the data. A calibrated model formalizes the geographic specificity and information mechanisms and is consistent with cross‐sectional and time‐series evidence. Our mechanisms can explain at least half of the decline in migration.

  February 03, 2017   doi: 10.1111/iere.12209   open full text
• Commitment And Costly Signaling In Decentralized Markets.
  Derek Stacey.
  International Economic Review. November 10, 2016
  I propose a search model of a decentralized market with asymmetric information in which sellers are unable to commit to asking prices announced ex ante. Relaxing the commitment assumption prevents sellers from using price posting as a signaling device to direct buyers' search. Private information about the gains from trade and inefficient entry on the demand side then contribute to market illiquidity. Endogenous sorting among costly marketing platforms can facilitate the search process by segmenting the market to alleviate information frictions. Seemingly irrelevant but incentive compatible listing fees are implementable provided that the market is not already sufficiently active.

  November 10, 2016   doi: 10.1111/iere.12206   open full text
• Corporate Cash Holdings And Credit Line Usage.
  Martin Boileau, Nathalie Moyen.
  International Economic Review. November 10, 2016
  We investigate the factors driving the unprecedented rise in corporate liquidities since the 1970s. We find that an economy‐wide reduction in the cost of holding liquidities and an increase in risk best explain the rise in cash holdings and the widespread use of credit lines. The structural estimation results shed light on two widely acknowledged motives for holding cash. The precautionary motive and the liquidity motive translate risk exposure into cash holdings. Our results, however, do not suggest that firms have become more prudent over time. It is higher liquidity needs that has forced firms to hold more cash and use more credit lines.

  November 10, 2016   doi: 10.1111/iere.12205   open full text
• Information Frictions And Housing Market Dynamics.
  Elliot Anenberg.
  International Economic Review. November 10, 2016
  I examine the effects of seller uncertainty over their home value on the housing market. Using evidence from home listings and transactions data, I first show that sellers do not have full information about current period demand conditions for their homes. I incorporate this type of uncertainty into a dynamic microsearch model of the home selling problem with Bayesian learning. The estimated model highlights how information frictions help to explain the microdecisions of sellers and how these microdecisions affect aggregate market dynamics. The model generates a significant microfounded momentum effect in short‐run aggregate price appreciation rates.

  November 10, 2016   doi: 10.1111/iere.12204   open full text
• Exchange Rate Pass‐Through Into Retail Prices.
  Alexis Antoniades, Nicola Zaniboni.
  International Economic Review. November 10, 2016
  We study exchange rate pass‐through and its determinants using scanner data on fast moving consumer goods sold by 1,041 outlets in the United Arab Emirates between 2006 and 2010. The data are augmented with country of origin information. Our main finding is that exchange rate pass‐through varies more across retailers within regions than across regions, and in particular that pass‐through increases with retailer market share. We also find that exchange rate pass‐through is negatively correlated with both product quality and the elasticity of substitution of the product category and positively correlated with the frequency of price adjustment.

  November 10, 2016   doi: 10.1111/iere.12203   open full text
• Dynamic Contracts With Worker Mobility Via Directed On‐The‐Job Search.
  Kunio Tsuyuhara.
  International Economic Review. November 10, 2016
  This article proposes a model with dynamic incentive contracts and on‐the‐job search in a frictional labor market. The optimal long‐term contract exhibits an increasing wage–tenure profile. With increasing wages, worker effort also increases with tenure. These two features imply that the probabilities of both voluntary and involuntary job separation decrease with both job tenure and the duration of employment. Given these results, workers experience differing labor market transitions—between employment, unemployment, and across different employers—and the equilibrium generates endogenous heterogeneity among ex ante homogeneous workers.

  November 10, 2016   doi: 10.1111/iere.12202   open full text
• Efficiency And Labor Market Dynamics In A Model Of Labor Selection.
  Sanjay K. Chugh, Christian Merkl.
  International Economic Review. November 10, 2016
  This article characterizes efficient labor market allocations in a labor selection model. The model's crucial aspect is cross‐sectional heterogeneity for new job contacts, which leads to an endogenous selection threshold for new hires. With cross‐sectional dispersion calibrated to microeconomic data, 40% of empirically relevant fluctuations in the job‐finding rate arise, which contrasts with results in an efficient search and matching economy. The efficient selection model's results hold in partial and general equilibrium, as well as with sequential search.

  November 10, 2016   doi: 10.1111/iere.12201   open full text
• Natural Disasters, Damage To Banks, And Firm Investment.
  Kaoru Hosono, Daisuke Miyakawa, Taisuke Uchino, Makoto Hazama, Arito Ono, Hirofumi Uchida, Iichiro Uesugi.
  International Economic Review. November 10, 2016
  This article investigates the effect of banks’ lending capacity on firms’ investment. To identify exogenous shocks to loan supply, we utilize the natural experiment provided by Japan's Great Hanshin‐Awaji earthquake in 1995. Using a unique data set that allows us to identify firms and banks in the earthquake‐affected areas, we find that the investment ratio of firms located outside the earthquake‐affected areas but having a main bank inside the areas was significantly smaller than that of firms located outside the areas and having a main bank outside the areas. Our findings suggest that loan supply shocks affect firm investment.

  November 10, 2016   doi: 10.1111/iere.12200   open full text
• A Tale Of Tax Policies In Open Economies.
  Stéphane Auray, Aurélien Eyquem, Paul Gomme.
  International Economic Review. November 10, 2016
  To evaluate fiscal policy reforms for Euro‐area countries, this article develops and calibrates a small open economy model. Debt reduction reforms require higher tax rates in the short term in exchange for lower rates in the long term as the debt‐servicing burden falls. Using the capital income tax to implement such a policy leads to welfare gains; the consumption tax, a very small welfare gain; and the labor income tax, a welfare loss. Holding fixed the long‐run debt–output ratio, offsetting a lower capital income tax with either a higher labor income or consumption tax generally yields welfare gains.

  November 10, 2016   doi: 10.1111/iere.12199   open full text
• Money Cycles.
  Andrew Clausen, Carlo Strub.
  International Economic Review. November 10, 2016
  Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money—under efficient monetary policy—is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient “money cycle” patterns of saving, activity, and inactivity. Agents spend their money too quickly—a hot‐potato effect of inflation. We show that inflation can stimulate inefficiently high aggregate output.

  November 10, 2016   doi: 10.1111/iere.12198   open full text
• Helping Behavior In Large Societies.
  Francesc Dilmé.
  International Economic Review. November 10, 2016
  This article investigates how helping behavior can be sustained in large societies in the presence of agents who never help. I consider a game with many players who are anonymously and randomly matched every period in pairs. Within each match, one player may provide socially optimal but individually costly help to the other player. I introduce and characterize the class of “linear equilibria” in which, unlike equilibria used in the previous literature, there is help even in the presence of behavioral players. Such equilibria are close to a tit‐for‐tat strategy and feature smooth help dynamics when the society is large.

  November 10, 2016   doi: 10.1111/iere.12197   open full text
• Housing Over Time And Over The Life Cycle: A Structural Estimation.
  Wenli Li, Haiyong Liu, Fang Yang, Rui Yao.
  International Economic Review. November 10, 2016
  We construct a model of optimal life‐cycle housing and nonhousing consumption and estimate the elasticity between the two goods to be 0.487. The estimate is robust to different assumptions of housing adjustment cost, but sensitive to the choice of sample period and the degree of aggregation of data moments. We then conduct experiments in which house prices and household income fluctuate. Compared with the benchmark, the impact of the shocks on homeownership rates is reduced, but the impact on nonhousing consumption is magnified when housing service and nonhousing consumption are highly substitutable or when the house selling cost is sizable.

  November 10, 2016   doi: 10.1111/iere.12196   open full text
• Establishment Dynamics, Vacancies, And Unemployment: A Neoclassical Approach.
  Marcelo Veracierto.
  International Economic Review. November 10, 2016
  This article introduces and analyzes a Walrasian model of worker flows, job flows, vacancies, and unemployment. Calibrating the model to U.S. data, the article finds that all variables comove with output quite well but that they fluctuate too little. However, the failure is not as bad as in “Shimer's puzzle.” Interestingly, the article also finds that introducing establishment dynamics into the model, while realistic, is irrelevant for understanding unemployment and vacancy fluctuations: The business cycles of the model with establishment dynamics are virtually the same as those of a version with a representative firm.

  November 10, 2016   doi: 10.1111/iere.12195   open full text
• Buying Locally.
  George J. Mailath, Andrew Postlewaite, Larry Samuelson.
  International Economic Review. November 10, 2016
  ‘‘Buy local” arrangements encourage members of a community or group to patronize one another instead of the external economy. They range from formal mechanisms such as local currencies to informal “I'll buy from you if you buy from me” arrangements and are often championed on social or environmental grounds. We show that in a monopolistically competitive economy, buy local arrangements can have salutary effects even for selfish agents immune to social or environmental considerations. Buy local arrangements effectively allow firms to exploit the equilibrium price–cost gap to profitably expand their sales at the going price.

  November 10, 2016   doi: 10.1111/iere.12194   open full text
• Housing Dynamics Over The Business Cycle.
  Finn E. Kydland, Peter Rupert, Roman Šustek.
  International Economic Review. November 10, 2016
  Housing construction, measured by housing starts, leads GDP in a number of countries. Measured as residential investment, the lead is observed only in the United States and Canada; elsewhere, residential investment is coincident. Variants of existing theory, however, predict housing construction lagging GDP. In all countries in the sample, nominal interest rates are low ahead of GDP peaks. Introducing long‐term nominal mortgages, and an estimated process for nominal interest rates, into a standard model aligns the theory with observations on starts, as mortgages transmit nominal rates into real housing costs. Longer time to build makes residential investment cyclically coincident.

  November 10, 2016   doi: 10.1111/iere.12193   open full text
• Illiquidity Component Of Credit Risk – The 2015 Lawrence R. Klein Lecture.
  Stephen Morris, Hyun Song Shin.
  International Economic Review. November 10, 2016
  We provide a theoretical decomposition of bank credit risk into insolvency risk and illiquidity risk, defining illiquidity risk to be the counterfactual probability of failure due to a run when the bank would have survived in the absence of a run. We show that illiquidity risk is (i) decreasing in the “liquidity ratio”—the ratio of realizable cash on the balance sheet to short‐term liabilities; (ii) decreasing in the excess return of debt; and (iii) increasing in the solvency uncertainty—a measure of the variance of the asset portfolio.

  November 10, 2016   doi: 10.1111/iere.12192   open full text
• Integration Of North And South American Players In Japan's Professional Baseball Leagues.
  Akihiko Kawaura, Sumner Croix.
  International Economic Review. August 09, 2016
  Teams in Japan's two professional baseball leagues began to add foreign players in the early 1950s, with the average number per team reaching 5.79 in 2004. This was primarily because foreign hitters outperformed Japanese hitters. Hazard analysis shows that a poorly performing team was more likely to hire its first Caucasian and African American players earlier than a successful team. Econometric analysis of team use of foreign players over 45 seasons (1960–2004) shows that losing Central League teams used foreign players more often in following season(s), whereas past success of Pacific League teams did not affect their use of foreign players.

  August 09, 2016   doi: 10.1111/iere.12187   open full text
• Does Religiosity Affect Support For Political Compromise?
  Danny Cohen‐Zada, Yotam Margalit, Oren Rigbi.
  International Economic Review. August 09, 2016
  Does religiosity affect adherents' attitude toward political compromise? To address this question and overcome the potential simultaneity of religious activity and political attitudes, we exploit exogenous variation in the start date of the Selichot (“Forgiveness”), a period in which many Jews, including nonadherents, take part in an intense prayer schedule. Using a two‐wave survey, we find that an increase in the salience of religiosity leads to the adoption of more hard‐line positions against a land‐for‐peace compromise. Examining several potential mechanisms for this attitudinal shift, our evidence points to the impact of the intensified prayer period on adherents' tolerance for risk.

  August 09, 2016   doi: 10.1111/iere.12186   open full text
• Technology Transfers For Climate Change.
  May Elsayyad, Florian Morath.
  International Economic Review. August 09, 2016
  This article considers the transfer of cost‐reducing technology in the context of contributions to climate protection. We analyze a two‐period public goods model where later contributions can be based on better information, but delaying the mitigation effort is costly because of irreversible damages. Investments in technology affect the countries' timing of contributing. We show that countries have an incentive to provide cost‐reducing technology as this can lead to an earlier contribution of other countries and can therefore reduce a country's burden of contributing to the public good. Our results provide a rationale for the support of technology sharing initiatives.

  August 09, 2016   doi: 10.1111/iere.12185   open full text
• Incentive Efficient Price Systems In Large Insurance Economies With Adverse Selection.
  Alessandro Citanna, Paolo Siconolfi.
  International Economic Review. August 09, 2016
  We decentralize incentive efficient allocations in large adverse selection economies by introducing a competitive market for mechanisms, that is, for menus of contracts. Facing a budget constraint, informed individuals purchase (lottery) tickets to enter mechanisms, whereas firms sell tickets and supply slots at mechanisms at given prices. Beyond optimization, market clearing, and rational expectations, an equilibrium requires that firms cannot favorably change, or cut, prices. An equilibrium exists and is incentive efficient. An equilibrium can be computed as the solution to a programming problem that selects the incentive efficient outcome preferred by the highest type within an appropriately defined set. For two‐types economies, this is the only equilibrium outcome.

  August 09, 2016   doi: 10.1111/iere.12184   open full text
• Rule Rationality.
  Yuval Heller, Eyal Winter.
  International Economic Review. August 09, 2016
  We study the strategic advantages of following rules of thumb that bundle different games together (called rule rationality) when this may be observed by one's opponent. We present a model in which the strategic environment determines which kind of rule rationality is adopted by the players. We apply the model to characterize the induced rules and outcomes in various interesting environments. Finally, we show the close relations between act rationality and “Stackelberg stability” (no player can earn from playing first).

  August 09, 2016   doi: 10.1111/iere.12183   open full text
• Appropriate Technology And Income Differences.
  Dozie Okoye.
  International Economic Review. August 09, 2016
  This article studies the relative productivity of skilled to unskilled workers across countries. Relative productivities are broken down into the human capital embodied in skilled workers and relative physical productivities (reflecting production techniques). I find that skilled workers from poorer countries embody less human capital and are also relatively less physically productive. Furthermore, results show that production techniques are inappropriate for most low‐income countries, and these countries experience large increases in GDP per capita by increasing the relative physical productivity of skilled to unskilled workers. This suggests that there are significant barriers to the adoption of skill‐complementary technologies.

  August 09, 2016   doi: 10.1111/iere.12182   open full text
• On The Welfare Properties Of Fractional Reserve Banking.
  Daniel Sanches.
  International Economic Review. August 09, 2016
  Monetary economists have long recognized a tension between the benefits of fractional reserve banking, such as the ability to undertake more profitable (long‐term) investment opportunities, and the difficulties associated with it, such as the risk of insolvency for each bank and the associated losses to bank liability holders. I show that a specific banking arrangement (a joint‐liability scheme) provides an effective mechanism for ensuring the ex post transfer of reserves from liquid banks to illiquid banks, so it is possible to select a socially efficient reserve ratio in the banking system that preserves the safety of bank liabilities as a store of value and maximizes the rate of return paid to bank liability holders.

  August 09, 2016   doi: 10.1111/iere.12181   open full text
• Screening For A Chronic Disease: A Multiple Stage Duration Model With Partial Observability.
  Thomas A. Mroz, Gabriel Picone, Frank Sloan, Arseniy P. Yashkin.
  International Economic Review. August 09, 2016
  We estimate a dynamic multistage duration model to investigate how early detection of diabetes can delay the onset of lower extremity complications and death. We allow for partial observability of the disease stage, unmeasured heterogeneity, and endogenous timing of diabetes screening. Timely diagnosis appears important. We evaluate the effectiveness of two potential policies to reduce the monetary costs of frequent screening in terms of lost longevity. Compared to the status quo, the more restrictive policy yields an implicit value for an additional year of life of about $50,000, whereas the less restrictive policy implies a value of about $120,000.

  August 09, 2016   doi: 10.1111/iere.12180   open full text
• Discrimination In A Model Of Contests With Incomplete Information About Ability.
  David Pérez‐Castrillo, David Wettstein.
  International Economic Review. August 09, 2016
  We study contests with private information and identical contestants, where contestants' efforts and innate abilities generate output of varying qualities. The designer's revenue depends on the quality of the output, and she offers a reward to the contestant achieving the highest quality. We characterize the equilibrium behavior, outcomes, and payoffs for both nondiscriminatory and discriminatory (where the reward is contestant‐dependent) contests. We derive conditions under which the designer obtains a larger payoff when using a discriminatory contest and describe settings, where these conditions are satisfied.

  August 09, 2016   doi: 10.1111/iere.12179   open full text
• Equilibrium Indeterminacy In A Model Of Constrained Financial Markets.
  Luciana C. Fiorini.
  International Economic Review. August 09, 2016
  I present a general equilibrium model with incomplete markets in which assets pay in units of a numéraire good. In this economy, agents are constrained to negotiate the same amount of assets in different states of the world. Different from the standard result of economies with real assets, equilibrium indeterminacy can arise, depending on the structure of the financial markets. Equilibrium fails to be unique when it is not possible to transfer wealth between states in which consumers trade a pair of assets that face the same restriction.

  August 09, 2016   doi: 10.1111/iere.12178   open full text
• Playing The Fertility Game At Work: An Equilibrium Model Of Peer Effects.
  Federico Ciliberto, Amalia R. Miller, Helena Skyt Nielsen, Marianne Simonsen.
  International Economic Review. August 09, 2016
  We study workplace peer effects in fertility decisions using a game theory model of strategic interactions among coworkers that allows for multiple equilibria. Using register‐based data on fertile‐aged women working in medium‐sized establishments in Denmark, we uncover negative average peer effects. Allowing for heterogeneous effects by worker type, we find that positive effects dominate across worker types defined by age or education. Negative effects dominate within age groups and among low‐education types. Policy simulations show that these estimated effects make the distribution of where women work an important consideration, beyond simply if they work, in predicting population fertility.

  August 09, 2016   doi: 10.1111/iere.12177   open full text
• Employment Protection, Technology Choice, And Worker Allocation.
  Eric J. Bartelsman, Pieter A. Gautier, Joris Wind.
  International Economic Review. August 09, 2016
  We show empirically that high‐risk sectors, which contribute strongly to aggregate productivity growth, are relatively small and have relatively low productivity growth in countries with strict employment protection legislation (EPL). To understand these findings, we develop a two‐sector matching model where firms endogenously choose between a safe technology and a risky technology. For firms that have chosen the risky technology, EPL raises the costs of shedding workers in case they receive a low productivity draw. According to our calibrated model, high‐EPL countries benefit less from the arrival of new risky technologies than low‐EPL countries. Parameters estimated through reduced‐form regressions of employment and productivity on exit costs, riskiness, and in particular their interaction are qualitatively similar for actual cross‐country data and simulated model data. Our model is consistent with the slowdown in productivity in the European Union relative to the United States since the mid‐1990s.

  August 09, 2016   doi: 10.1111/iere.12176   open full text
• Credibility And Strategic Learning In Networks.
  Kalyan Chatterjee, Bhaskar Dutta.
  International Economic Review. August 09, 2016
  We analyze a model of diffusion in a fixed, finite connected network. There is an interested party that knows the quality of the product being propagated and chooses an implant in the network to influence other agents to buy. Agents are either “innovators,” who adopt immediately, or rational. Rational consumers buy if buying instead of waiting maximizes expected utility. We consider the conditions on the network under which optimal diffusion of the good product with probability 1 is a perfect Bayes equilibrium.

  August 09, 2016   doi: 10.1111/iere.12175   open full text
• Modeling The Evolution Of Expectations And Uncertainty In General Equilibrium.
  Francesco Bianchi, Leonardo Melosi.
  International Economic Review. April 28, 2016
  We develop methods to solve general equilibrium models in which forward‐looking agents are subject to waves of pessimism, optimism, and uncertainty that turn out to critically affect macroeconomic outcomes. Agents in the model are fully rational and conduct Bayesian learning, and they know that they do not know. Therefore, agents take into account that their beliefs will evolve according to what they will observe. This framework accommodates both gradual and abrupt changes in beliefs and allows for an analytical characterization of uncertainty. We use a prototypical Real Business Cycle model to illustrate the methods.

  April 28, 2016   doi: 10.1111/iere.12174   open full text
• Efficiency And Bargaining Power In The Interbank Loan Market.
  Jason Allen, James Chapman, Federico Echenique, Matthew Shum.
  International Economic Review. April 28, 2016
  Using detailed transactions‐level data on interbank loans, we examine the efficiency of an overnight interbank lending market and the bargaining power of its participants. Our analysis relies on the equilibrium concept of the core, which imposes a set of no‐arbitrage conditions on trades in the market. For Canada's Large Value Transfer System, we show that although the market is fairly efficient, systemic inefficiency persists throughout our sample. The level of inefficiency matches distinct phases of both the Bank of Canada's operations as well as phases of the 2007–8 financial crisis. We find that bargaining power tilted sharply toward borrowers as the financial crisis progressed and (surprisingly) toward riskier borrowers.

  April 28, 2016   doi: 10.1111/iere.12173   open full text
• Production Function Estimation With Unobserved Input Price Dispersion.
  Paul L. E. Grieco, Shengyu Li, Hongsong Zhang.
  International Economic Review. April 28, 2016
  We propose a method to consistently estimate production functions in the presence of input price dispersion when intermediate input quantities are not observed. We find that the traditional approach to dealing with unobserved input quantities—using deflated expenditure as a proxy—substantially biases the production estimates. In contrast, our method controls for heterogeneous input prices by exploiting the first‐order conditions of the firm's profit maximization problem and consistently recovers the production function parameters. Using our preferred method, we provide empirical evidence of significant input price dispersion and even wider productivity dispersion than is estimated using proxy methods.

  April 28, 2016   doi: 10.1111/iere.12172   open full text
• Testing For A Unit Root Against Transitional Autoregressive Models.
  Joon Y. Park, Mototsugu Shintani.
  International Economic Review. April 28, 2016
  This article develops a novel test for a unit root in general transitional autoregressive models, which is based on the infimum of t‐ratios for the coefficient of a parametrized transition function. Our test allows for very flexible specifications of the transition function and short‐run dynamics and is significantly more powerful than all the other existing tests. Moreover, we develop a large sample theory general enough to deal with randomly drifting parameter spaces, which is essential to properly test for a unit root against stationary transitional models. An empirical application of our test to the exchange rate data is also provided.

  April 28, 2016   doi: 10.1111/iere.12171   open full text
• Ordinary Least Squares Estimation Of A Dynamic Game Model.
  Fabio A. Miessi Sanches, Daniel Junior Silva, Sorawoot Srisuma.
  International Economic Review. April 28, 2016
  Estimation of dynamic games is known to be a numerically challenging task. A common form of the payoff functions employed in practice takes the linear‐in‐parameter specification. We show a least squares estimator taking a familiar OLS/GLS expression is available in such a case. Our proposed estimator has a closed form. It can be computed without any numerical optimization and always minimizes the least squares objective function. We specify the optimally weighted GLS estimator that is efficient in the class of estimators under consideration. Our estimator appears to perform well in a simple Monte Carlo experiment.

  April 28, 2016   doi: 10.1111/iere.12170   open full text
• Consistent Variance Of The Laplace‐Type Estimators: Application To Dsge Models.
  Anna Kormilitsina, Denis Nekipelov.
  International Economic Review. April 28, 2016
  The Laplace‐type estimator has become popular in applied macroeconomics, in particular for estimation of dynamic stochastic general equilibrium (DSGE) models. It is often obtained as the mean and variance of a parameter's quasi‐posterior distribution, which is defined using a classical estimation objective. We demonstrate that the objective must be properly scaled; otherwise, arbitrarily small confidence intervals can be obtained if calculated directly from the quasi‐posterior distribution. We estimate a standard DSGE model and find that scaling up the objective may be useful in estimation with problematic parameter identification. It this case, however, it is important to adjust the quasi‐posterior variance to obtain valid confidence intervals.

  April 28, 2016   doi: 10.1111/iere.12169   open full text
• Group Decision Making With Uncertain Outcomes: Unpacking Child–Parent Choice Of The High School Track.
  Pamela Giustinelli.
  International Economic Review. April 28, 2016
  Predicting group decisions under uncertainty requires disentangling individual members' utilities over the consequences of choice, their expectations for uncertain outcomes, and their choice process as a group. I estimate simple Bayesian models of child–parent choice of high school track with subjective risk and unilateral or bilateral, nonstrategic decisions, by combining families' actual choices with novel survey information about children's and parents' subjective probabilities over choice consequences, their individually preferred choices, and their decision roles. A set of policy counterfactuals confirms the importance of introducing the beliefs and decision roles of individual members in models and policy analysis of group decisions.

  April 28, 2016   doi: 10.1111/iere.12168   open full text
• Explaining The Spread Of Temporary Jobs And Its Impact On Labor Turnover.
  Pierre Cahuc, Olivier Charlot, Franck Malherbet.
  International Economic Review. April 28, 2016
  This article provides a simple model that explains the choice between permanent and temporary jobs. This model, which incorporates important features of actual employment protection legislations neglected by the economic literature so far, reproduces the main stylized facts about entries into permanent and temporary jobs observed in Continental European countries. We find that job protection has very small effects on total employment but induces large substitution of temporary jobs for permanent jobs, which significantly reduces aggregate production.

  April 28, 2016   doi: 10.1111/iere.12167   open full text
• Strategic Shirking: A Theoretical Analysis Of Multitasking And Specialization.
  Jed DeVaro, Oliver Gürtler.
  International Economic Review. April 28, 2016
  We provide a new theory to explain why firms multitask workers instead of specializing them. Workers overperform in tasks they like and underperform in tasks they dislike to favorably influence future job assignments. Anticipating this, firms may find it optimal to commit to future multitasking to induce workers to appropriately allocate effort early in the employment relationship. We show that when the product market is volatile, so that future product prices are uncertain, the firm's ability to credibly commit to a multitasking strategy diminishes. This generates a negative relationship between multitasking and product market volatility, consistent with recent empirical evidence.

  April 28, 2016   doi: 10.1111/iere.12166   open full text
• Oligopoly And Cost Sharing In Economies With Public Goods.
  Achille Basile, Maria Gabriella Graziano, Marialaura Pesce.
  International Economic Review. April 28, 2016
  We study economies that involve both small and large traders as well as the choice of a public project. Within this framework, we establish two sufficient conditions under which the set of competitive allocations coincides with the core. Our first core equivalence result holds under the assumption that there is a countably infinite set of large traders similar to each other. The second result, independent of the number of large traders, requires the existence of a coalition of small traders with the same characteristics of the large traders. Finally, we show how the generalized Aubin approach to cooperation may dispense with both conditions.

  April 28, 2016   doi: 10.1111/iere.12165   open full text
• Financial Frictions And New Exporter Dynamics.
  David Kohn, Fernando Leibovici, Michal Szkup.
  International Economic Review. April 28, 2016
  This article studies the role of financial frictions as a barrier to international trade. We study new exporter dynamics to identify how these frictions affect export decisions. We introduce a borrowing constraint and working capital requirements into a standard model of international trade, with exports more working capital intensive than domestic sales. Our model can quantitatively account for new exporter dynamics in contrast to a model with sunk export entry costs. We provide additional evidence in support of our mechanism. We find that financial frictions reduce the impact of trade liberalization, suggesting that they constitute an important trade barrier.

  April 28, 2016   doi: 10.1111/iere.12164   open full text
• “Why Not Settle Down Already?” A Quantitative Analysis Of The Delay In Marriage.
  Cezar Santos, David Weiss.
  International Economic Review. April 28, 2016
  A striking change in American society in the last 40 years has been the decline and delay in marriage. The fraction of young adults who have never been married increased significantly between 1970 and 2000. Idiosyncratic labor income volatility also rose. We establish a quantitatively important link between these facts. If marriage involves consumption commitments, then a rise in income volatility delays marriage. We quantitatively assess this hypothesis vis‐à‐vis others in the literature. Increased volatility accounts for about 20% of the observed delay in marriage and is strong relative to other mechanisms.

  April 28, 2016   doi: 10.1111/iere.12163   open full text
• Bilateral Market Structures And Regulatory Policies In International Telephone Markets.
  Heng Ju, Guofu Tan.
  International Economic Review. April 28, 2016
  We develop models of bilateral oligopoly with traffic exchanges to study the competition and regulatory policies in the international telephone markets. Under the requirement of uniform settlement rates, the proportional return rule (PRR) inflates the rates and hence neutralizes PRR's effect on calling prices. Retail competition and PRR increase net settlement payments. Market efficiency is improved when there are multiple channels for traffic exchanges. Using a panel of 47 countries that exchanged traffic with the United States between 1992 and 2004, we test the effects of bilateral market structures and the U.S. policies. The empirical results support our theoretical findings.

  April 28, 2016   doi: 10.1111/iere.12162   open full text
• Model Comparisons In Unstable Environments.
  Raffaella Giacomini, Barbara Rossi.
  International Economic Review. April 28, 2016
  The goal of this article is to develop formal tests to evaluate the relative in‐sample performance of two competing, misspecified, nonnested models in the presence of possible data instability. Compared to previous approaches to model selection, which are based on measures of global performance, we focus on the local relative performance of the models. We propose tests that are based on different measures of local performance and that correspond to different null and alternative hypotheses. The empirical application provides insights into the time variation in the performance of a representative Euro‐area Dynamic Stochastic General Equilibrium model relative to that of VARs.

  April 28, 2016   doi: 10.1111/iere.12161   open full text
• Marriage, Markets, And Money: A Coasian Theory Of Household Formation.
  Kenneth Burdett, Mei Dong, Ling Sun, Randall Wright.
  International Economic Review. April 28, 2016
  This article integrates search‐based models of marriage and money. We think about households as organizations, the way Coase thinks about firms, as alternatives to markets that become more attractive when transactions costs increase. In the model, individuals consume market‐ and home‐produced goods, and home production is facilitated by marriage. Market frictions, including taxes, search, and bargaining problems, increase the marriage propensity. The inflation tax encourages marriage because being single is cash intensive. Microdata confirm singles use cash more than married people. We use macrodata over many countries to investigate how marriage responds to inflation, taxation, and other variables.

  April 28, 2016   doi: 10.1111/iere.12160   open full text
• Life‐Cycle Labor Search With Stochastic Match Quality.
  Julen Esteban‐Pretel, Junichi Fujimoto.
  International Economic Review. April 22, 2014
  In the United States, unemployment, job finding, and separation rates decline as worker age increases. To explain these facts, we build a search and matching model of the labor market that incorporates a life‐cycle structure and features random match quality as well as human capital accumulation. The calibrated model successfully reproduces the empirical patterns of unemployment and job transition rates over the life cycle and generates plausible wage implications. We then explore the efficiency implications of the model and find that the differences between the market and planner allocations are more important for older workers.

  April 22, 2014   doi: 10.1111/iere.12062   open full text
• Temporary Emigration And Welfare: The Case Of Low‐Skilled Labor.
  Slobodan Djajić.
  International Economic Review. April 22, 2014
  This article studies the implications of temporary emigration for the welfare of a source country. The framework is one of general equilibrium, where the economy's stocks of both capital and labor are endogenously determined by the saving and migration decisions of optimizing agents. Simulations of the model suggest that for realistic values of the parameters, welfare of nonmigrants of the source country is maximized when the migrants are employed abroad for a period in the range of roughly 8–12 years. The ideal duration is found to be an increasing function of the international wage differential, migration costs, and the degree to which the rights of migrants are protected in the host country.

  April 22, 2014   doi: 10.1111/iere.12061   open full text
• Wage Floors, Imperfect Performance Measures, And Optimal Job Design.
  Jenny Kragl, Anja Schöttner.
  International Economic Review. April 22, 2014
  We analyze the effects of wage floors on optimal job design in a moral‐hazard model with asymmetric tasks and imperfect aggregate performance measurement. Due to cost advantages of specialization, assigning the tasks to different agents is efficient. A sufficiently high wage floor, however, induces the principal to dismiss one agent or to even exclude tasks from the production process. Imperfect performance measurement always lowers profit under multitasking, but may increase profit under specialization. We further show that variations in the wage floor and the agents' reservation utility have significantly different effects on welfare and optimal job design.

  April 22, 2014   doi: 10.1111/iere.12060   open full text
• R&D And Economic Growth In A Cash‐In‐Advance Economy.
  Angus C. Chu, Guido Cozzi.
  International Economic Review. April 22, 2014
  R&D investment has well‐known liquidity problems, with potentially important consequences. In this study, we analyze the effects of monetary policy on economic growth and social welfare in a Schumpeterian growth model with cash‐in‐advance (CIA) constraints on R&D investment, consumption, and manufacturing. Our main results can be summarized as follows. Under the CIA constraints on R&D and consumption (the CIA constraint on manufacturing), an increase in the nominal interest rate decreases (increases) R&D and economic growth. We also analyze the optimality of Friedman rule and find that Friedman rule can be suboptimal due to a unique feature of the Schumpeterian model.

  April 22, 2014   doi: 10.1111/iere.12059   open full text
• Optimism And Pessimism In Games.
  Jürgen Eichberger, David Kelsey.
  International Economic Review. April 22, 2014
  This article considers the impact of ambiguity in strategic situations. It extends the existing literature on games with ambiguity‐averse players by allowing for optimistic responses to ambiguity. We use the CEU model of ambiguity with a class of capacities introduced by Jaffrray and Philippe (Mathematics of Operations Research 22 (1997), 165–85), which allows us to distinguish ambiguity from ambiguity‐attitude, and propose a new solution concept, equilibrium under ambiguity (EUA), for players who may be characterized by ambiguity‐preference. Applying EUA, we study comparative statics of changes in ambiguity‐attitude in games with strategic complements. This extends work in Eichberger and Kelsey (Journal of Economic Theory 106 (2002), 436–66) on the effects of increasing ambiguity if players are ambiguity averse.

  April 22, 2014   doi: 10.1111/iere.12058   open full text
• Knowledge And Growth In The Very Long Run.
  Holger Strulik.
  International Economic Review. April 22, 2014
  This article proposes a theory for the gradual evolution of knowledge diffusion and growth over the very long run. A feedback mechanism between capital accumulation and the ease of knowledge diffusion explains a long epoch of stasis and an epoch of high growth linked by a gradual economic takeoff. The feedback mechanism can explain the Great Divergence, the failure of less developed countries to attract capital from abroad, and the productivity slowdown. An extension toward a two‐region world economy shows robustness of results and other interesting interaction between forerunners and followers of the Industrial Revolution.

  April 22, 2014   doi: 10.1111/iere.12057   open full text
• Irrationality‐Proofness: Markets Versus Games.
  Michael Mandler.
  International Economic Review. April 22, 2014
  How robust are economic models to the introduction of irrational agents? The Pareto efficiency of competitive equilibria is not robust since one irrational agent leads to inefficiency. But the property that rational agents cannot use their own resources to Pareto improve on their competitive allocation holds regardless of the number of irrational agents. Full production efficiency can be robust as well, but irrational firms introduce a trade‐off between efficiency and the attainment of Pareto improvements. Regarding games, I show that while existing implementation mechanisms are sensitive to the presence of irrational agents, there are robust alternatives with attractive welfare properties.

  April 22, 2014   doi: 10.1111/iere.12056   open full text
• Rigid Prices: Evidence From U.S. Scanner Data.
  Jeffrey R. Campbell, Benjamin Eden.
  International Economic Review. April 22, 2014
  This article uses weekly scanner data from two small U.S. cities to characterize time and state dependence of grocers' pricing decisions. In these data, the probability of a nominal adjustment declines with the time since the last price change. A store's price for a particular product typically goes through several price changes in rapid succession before settling down. We also detect state dependence: The probability of a nominal adjustment is highest when a store's price substantially differs from the average of other stores' prices. However, extreme relative prices typically reflect the store's recent changes instead of changes in average prices.

  April 22, 2014   doi: 10.1111/iere.12055   open full text
• A Game Theoretic Foundation Of Competitive Equilibria With Adverse Selection.
  Nick Netzer, Florian Scheuer.
  International Economic Review. April 22, 2014
  We construct an extensive form game that captures competitive markets with adverse selection. It allows firms to offer any finite set of contracts, so that cross‐subsidization is not ruled out. Moreover, firms can withdraw from the market after initial contract offers have been observed. We show that a subgame perfect equilibrium always exists. In fact, when withdrawal is costless, the set of equilibrium outcomes may correspond to the entire set of feasible contracts. We then focus on robust equilibria that continue to exist for small withdrawal costs. We show that the Miyazaki–Wilson contracts are the unique robust equilibrium outcome.

  April 22, 2014   doi: 10.1111/iere.12054   open full text
• Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes.
  Randall Wright, Yuet‐Yee Wong.
  International Economic Review. April 22, 2014
  We study exchange that is bilateral but indirect—it involves chains of intermediaries, or middlemen—in markets with frictions. These frictions include search and bargaining problems. We show how, and how many, intermediaries might get involved in a chain, and how bargaining with one depends on upcoming negotiations with those downstream. The roles of buyers, sellers, money, and prices are discussed, allowing us to clarify some neglected connections between different branches of search theory. Pursuing one such connection, with monetary economics, we show how bubbles can emerge in intermediation, even with fully rational agents and perfect foresight.

  April 22, 2014   doi: 10.1111/iere.12053   open full text
• Currency Versus Banking In The Financial Crisis Of 1931.
  Albrecht Ritschl, Samad Sarferaz.
  International Economic Review. April 22, 2014
  During the 1920s, Germany was the world's largest capital importer, financing reparations through U.S. credits. We examine financial channels in crisis transmission between these two countries around the German financial crisis of 1931. We specify a structural dynamic factor model to identify financial and monetary factors separately for each of the two economies. We find substantial crisis transmission from Germany to the United States via the financial channel, while monetary or financial crisis transmission from the United States to Germany was weak. We also find major real effects of the 1931 crisis on both economies, again transmitted via the financial channel.

  April 22, 2014   doi: 10.1111/iere.12052   open full text
• Effective Persuasion.
  Ying Chen, Wojciech Olszewski.
  International Economic Review. April 22, 2014
  Do elementary statistics or equilibrium theory deliver any insight regarding how we should argue in debates? We provide an answer in a model in which each discussant wants to convince the audience that a specific state holds. If the discussants' payoffs in the audience's posterior are concave above and convex below the prior and exhibit loss aversion, then the leading discussant should give precedence to the weaker argument, and the follower should respond to a weak argument weakly and to a strong argument strongly. Such characterizations are also obtained for the case of choosing between independent and correlated arguments.

  April 22, 2014   doi: 10.1111/iere.12051   open full text
• Environmental Management Policy Under International Carbon Leakage.
  Kazuharu Kiyono, Jota Ishikawa.
  International Economic Review. July 17, 2013
  This article studies environmental management policy when two fossil‐fuel‐consuming countries noncooperatively regulate greenhouse‐gas emissions through emission taxes or quotas. The presence of carbon leakage caused by fuel‐price changes affects the tax‐quota equivalence. We explore each country's incentive to choose a policy instrument in a two‐stage policy choice game and find subgame‐perfect Nash equilibria. This sheds new light on the questions of which policy instrument is more stringent and of why adopted instruments could be different among countries. In particular, our result suggests a reason why developing countries tend to employ emission taxes whereas developed countries tend to adopt quotas.

  July 17, 2013   doi: 10.1111/iere.12028   open full text
• Central Bank Independence And The Monetary Instrument Problem.
  Stefan Niemann, Paul Pichler, Gerhard Sorger.
  International Economic Review. July 17, 2013
  We study the monetary instrument problem in a dynamic noncooperative game between separate, discretionary, fiscal and monetary policy makers. We show that monetary instruments are equivalent only if the policy makers' objectives are perfectly aligned; otherwise an instrument problem exists. When the central bank is benevolent while the fiscal authority is short‐sighted relative to the private sector, excessive public spending and debt emerge under a money growth policy but not under an interest rate policy. Despite this property, the interest rate is not necessarily the optimal instrument.

  July 17, 2013   doi: 10.1111/iere.12027   open full text
• Measuring Economic Insecurity.
  Walter Bossert, Conchita D'ambrosio.
  International Economic Review. July 17, 2013
  We provide an axiomatic treatment of the measurement of economic insecurity, assuming that individual insecurity depends on the current wealth level and its variations experienced in the past. The first component plays the role of a buffer stock to rely on in case of an adverse future event. The second component determines the confidence an individual has on her ability to overcome a loss in the future. Two classes of linear measures are characterized with sets of plausible and intuitive axioms and, for each of these classes, an important subclass is identified.

  July 17, 2013   doi: 10.1111/iere.12026   open full text
• Strategic Effects Of Three‐Part Tariffs Under Oligopoly.
  Yong Chao.
  International Economic Review. July 17, 2013
  The distinct element of a three‐part tariff (3PT), compared with linear pricing (LP) or a two‐part tariff, is its quantity target within which the marginal price is zero. This quantity target instrument enriches the firm's strategy set in dictating the competition to a specific level, even in the absence of a usual price discrimination motive. With general differentiated linear demands, the competitive effect of a 3PT in contrast to LP depends on the degree of substitutability between products: Competition is intensified when two products are more differentiated, yet softened when two products are more substitutable.

  July 17, 2013   doi: 10.1111/iere.12025   open full text
• Income Redistribution And Public Good Provision: An Experiment.
  Jonathan Maurice, Agathe Rouaix, Marc Willinger.
  International Economic Review. July 17, 2013
  We experimentally investigate the impact of income redistribution on voluntary contributions by groups of four subjects. We compare equalizing and unequalizing redistribution. Our data are consistent with the neutrality theorem: Redistribution does not affect the amount of voluntarily provided public good at the group level. However, at the individual level, subjects tend to underadjust with respect to the Nash prediction. We also observe an insignificant adjustment asymmetry between the poor and the rich: Subjects who become poorer adjust their contribution by a larger absolute amount than subjects who become richer. Finally, poor subjects tend to overcontribute significantly more than rich subjects.

  July 17, 2013   doi: 10.1111/iere.12024   open full text
• Legal Institutions, Innovation, And Growth.
  Luca Anderlini, Leonardo Felli, Giovanni Immordino, Alessandro Riboni.
  International Economic Review. July 17, 2013
  We analyze the relationship between legal institutions, innovation, and growth. We compare a rigid legal system (the law is set before the technological innovation) and a flexible one (the law is set after observing the new technology). The flexible system dominates in terms of welfare, amount of innovation, and output growth at intermediate stages of technological development—periods when legal change is needed. The rigid system is preferable at early stages of technological development, when commitment problems are severe. For mature technologies, the two legal systems are equivalent. We find that rigid legal systems may induce excessive R&D investment.

  July 17, 2013   doi: 10.1111/iere.12023   open full text
• The Evolution Of Education: A Macroeconomic Analysis.
  Diego Restuccia, Guillaume Vandenbroucke.
  International Economic Review. July 17, 2013
  Between 1940 and 2000 there was a substantial increase in educational attainment in the United States. What caused this trend? We develop a model of human capital accumulation that features a nondegenerate distribution of educational attainment in the population. We use this framework to assess the quantitative contribution of technological progress and changes in life expectancy in explaining the evolution of educational attainment. The model implies an increase in average years of schooling of 24%, which is the increase observed in the data. We find that technological variables and in particular skill‐biased technical change represent the most important factors in accounting for the increase in educational attainment. The strong response of schooling to changes in income is informative about the potential role of educational policy and the impact of other trends affecting lifetime income.

  July 17, 2013   doi: 10.1111/iere.12022   open full text
• Labor Market Equilibrium With Rehiring.
  Javier Fernández‐Blanco.
  International Economic Review. July 17, 2013
  Consistent with the empirical evidence, this article analyzes a labor market in which separations are not permanent and reactivated firms prefer to rehire former employees instead of seek new ones. Workers engage in job search due to the uncertain prospects of rehiring. If firms can commit to wages contingent on rehiring, they backload wages to provide incentives for workers to reduce their unobservable search effort. Under risk aversion and incomplete markets, if productivity at reactivation is sufficiently high, the tension between wage backloading and consumption smoothing leads to excessive search in equilibrium.

  July 17, 2013   doi: 10.1111/iere.12021   open full text
• Directed Search, Coordination Failure, And Seller Profits: An Experimental Comparison Of Posted Pricing With Single And Multiple Prices.
  Nejat Anbarci, Nick Feltovich.
  International Economic Review. July 17, 2013
  We experimentally examine posted pricing and directed search. In one treatment, capacity‐constrained sellers post fixed prices, which buyers observe before choosing whom to visit. In the other, firms post both “single‐buyer” (applied when one buyer visits) and “multibuyer” (when multiple buyers visit) prices. We find, based on a 2 × 2 (two buyers and two sellers) market and a follow‐up experiment with 3 ×2 and 2 × 3 markets, that multibuyer prices can be lower than single‐buyer prices or prices in the one‐price treatment. Also, allowing the multibuyer price does not affect seller profits and increases market frictions.

  July 17, 2013   doi: 10.1111/iere.12020   open full text
• House Prices, Sales, And Time On The Market: A Search‐Theoretic Framework.
  Antonia Díaz, Belén Jerez.
  International Economic Review. July 17, 2013
  We assess the ability of a standard search and matching framework to account for the cyclical properties of key macroeconomic time series of the housing market. We calibrate a model with aggregate demand and supply shocks to match selected business cycle properties of vacancies and sales in the United States. Our model reproduces the cyclical time series properties of house prices and the positive and negative comovement of prices with sales and time on the market, respectively. Search and matching frictions produce trading delays that augment the volatility of prices and propagate the effect of aggregate shocks to future periods.

  July 17, 2013   doi: 10.1111/iere.12019   open full text
• Recursive Equilibria In An Aiyagari‐Style Economy With Permanent Income Shocks.
  Moritz Kuhn.
  International Economic Review. July 17, 2013
  We prove existence of a recursive competitive equilibrium (RCE) for an Aiyagari‐style economy with permanent income shocks and derive important economic implications. We show that there exist equilibria where borrowing constraints are never binding and establish a nontrivial lower bound on the equilibrium interest rate. These results imply distinct consumption dynamics compared to existing studies. We present a new approach to solve the agent's problem that uses lattices of consumption functions to deal with permanent income shocks and an unbounded utility function. The approach provides a theoretical foundation for convergence of the time iteration algorithm widely used in applied work.

  July 17, 2013   doi: 10.1111/iere.12018   open full text
• On The Problem Of Prevention.
  Jean‐Pierre Benoît, Juan Dubra.
  International Economic Review. July 17, 2013
  Disasters are often precipitated by insufficient preventive care. We argue that there is a problem of prevention in that this lack of care often stems from agents’ rational calculations. Positive experiences lead agents to underestimate the risks of disasters; technological improvements and redundancies designed for safety induce agents to reduce their care. Although lower care increases the chances of an accident, the number of redundancies can be adjusted to offset this. However, the accident probability remains constant even as ostensible improvements in safety are made. Checklists can be used to decrease the number of accidents.

  July 17, 2013   doi: 10.1111/iere.12017   open full text
• Optimal Arbitration.
  Tymofiy Mylovanov, Andriy Zapechelnyuk.
  International Economic Review. July 17, 2013
  We study common arbitration rules for disputes of two privately informed parties, final offer and conventional arbitration. Conventional arbitration is shown to be an optimal arbitration rule in environments with transferable utility, while final offer arbitration is optimal if utility is nontransferable and the parties’ interests are not too aligned. These results explain the prevalence of both arbitration rules in practice.

  July 17, 2013   doi: 10.1111/iere.12016   open full text