Most recent papers:

• The Mystery Of The Printing Press: Monetary Policy And Self‐Fulfilling Debt Crises.
  Giancarlo Corsetti, Luca Dedola.
  Journal of the European Economic Association. December 21, 2016
  We study the conditions under which unconventional (balance sheet) monetary policy can rule out self‐fulfilling sovereign default in a model with optimizing but discretionary fiscal and monetary policymakers. When purchasing sovereign debt, the central bank effectively swaps risky government paper for monetary liabilities only exposed to inflation risk, thus yielding a lower interest rate. As central bank purchases reduce the (ex ante) costs of debt, we characterize a critical threshold beyond which, absent fundamental fiscal stress, the government strictly prefers primary surplus adjustment to default. Because default may still occur for fundamental reasons, however, the central bank faces the risk of losses on sovereign debt holdings, which may generate inefficient inflation. We show that these losses do not necessarily undermine the credibility of a backstop, nor the monetary authorities' ability to pursue its inflation objectives. Backstops are credible if either the central bank enjoys fiscal backing or fiscal authorities are sufficiently averse to inflation. (JEL: E58, E63, H63)

  December 21, 2016   doi: 10.1111/jeea.12184   open full text
• Property Rights And The Efficiency Of Bargaining.
  Ilya Segal, Michael D. Whinston.
  Journal of the European Economic Association. December 21, 2016
  We show that efficient bargaining is impossible for a wide class of economic settings and property rights. These settings are characterized by (i) the existence of “adverse efficient opt‐out types”, whose participation does not change the efficient allocation and who, when they opt out, are the worst type other agents can face, and (ii) non‐existence of the “marginal core”, and its multivaluedness with a positive probability. We also examine the optimal allocation of property rights within a given class that satisfies (i), such as simple property rights, liability rules, and dual‐chooser rules. We characterize property rights that minimize the expected subsidy required to implement efficiency. With two agents, simple property rights that are optimal in this way maximize the expected surplus at the status quo allocation, but this no longer holds with more agents. We also study “second‐best” budget‐balanced bargaining under a liability rule. The optimal “second‐best” liability rule may differ from, but is often close to, the expectation of the victim's harm, which would be optimal if there were no bargaining. However, liability rules that are close to a simple property right result in a lower expected surplus than the simple property right they are near.

  December 21, 2016   doi: 10.1111/jeea.12185   open full text
• Gluttony And Sloth? Calories, Labor Market Activity And The Rise Of Obesity.
  Rachel Griffith, Rodrigo Lluberas, Melanie Lührmann.
  Journal of the European Economic Association. December 21, 2016
  The rise in obesity has largely been attributed to an increase in calorie consumption. We show that official government household survey data indicate that levels of calorie consumption have declined in England between 1980 and 2013; while there has been an increase in calories from food eaten out at restaurants, fast food, soft drinks and confectionery, overall there has been a decrease in total calories purchased. Households have shifted towards more expensive calories, both by substituting away from home production towards market production, and substituting towards higher quality foods. We show that the decline in calories can be partially, but not entirely, rationalized with weight gain by a decline in the strenuousness of work and daily life. (JEL: D12, I12, I18)

  December 21, 2016   doi: 10.1111/jeea.12183   open full text
• Optimal Monetary Policy And Financial Stability In A Non‐Ricardian Economy.
  Salvatore Nisticò.
  Journal of the European Economic Association. September 27, 2016
  I present a model with discontinuous asset‐market participation (DAMP), where all agents are non‐Ricardian, and where heterogeneity among market participants implies financial‐wealth effects on aggregate consumption. The implied welfare criterion shows that financial stability arises as an additional and independent target, besides inflation and output stability. Evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal, even absent inefficient supply shocks: some fluctuations in output and inflation may be optimal as long as they reduce financial instability. Ignoring the heterogeneity among market participants may lead monetary policy to induce substantially higher welfare losses.

  September 27, 2016   doi: 10.1111/jeea.12182   open full text
• Large Demographic Shocks And Small Changes In The Marriage Market.
  Loren Brandt, Aloysius Siow, Carl Vogel.
  Journal of the European Economic Association. August 02, 2016
  Between 1958 and 1961, China experienced a drastic famine. The famine substantially reduced birth rates and also adversely affected the health of these famine‐born cohorts. This paper provides nonparametric estimates of the total effects of the famine on the marital behavior of famine‐affected cohorts in rural Sichuan and Anhui. These reduced‐form estimates incorporate general equilibrium and heterogeneous treatment effects. The paper uses the Choo–Siow model to decompose observed marital outcomes into quantity and quality effects. A decline in marital attractiveness of famine‐affected cohorts, which is correlated with an increase in marital childlessness, provides support for the external validity of the Choo–Siow decomposition. The small observed changes in marriage rates of the famine‐born cohorts are due to a substantial decline in their marital attractiveness.

  August 02, 2016   doi: 10.1111/jeea.12176   open full text
• Long‐Term Persistence.
  Luigi Guiso, Paola Sapienza, Luigi Zingales.
  Journal of the European Economic Association. August 02, 2016
  We study whether a positive historical shock can generate long‐term persistence in development. We show that Italian cities that achieved self‐government in the Middle Ages have a higher level of civic capital today than similar cities in the same area that did not. The size of this effect increases with the length of the period of independence and its intensity. This effect persists even after accounting for the fact that cities did not become independent randomly. We conjecture that the Middle‐Age experience of self‐government fostered self‐efficacy beliefs—beliefs in one's own ability to complete tasks and reach goals—and this positive attitude, transmitted across generations, enhances civic capital today. Consistently, we find that fifth‐graders in former free city‐states exhibit stronger self‐efficacy beliefs and that these beliefs are correlated with a higher level of civic capital. (JEL: O43, P16, O10)

  August 02, 2016   doi: 10.1111/jeea.12177   open full text
• Risk Aversion Relates To Cognitive Ability: Preferences Or Noise?
  Ola Andersson, Håkan J. Holm, Jean‐Robert Tyran, Erik Wengström.
  Journal of the European Economic Association. August 02, 2016
  Recent experimental studies suggest that risk aversion is negatively related to cognitive ability. In this paper we report evidence that this relation may be spurious. We recruit a large subject pool drawn from the general Danish population for our experiment. By presenting subjects with choice tasks that vary the bias induced by random choices, we are able to generate both negative and positive correlations between risk aversion and cognitive ability. Our results suggest that cognitive ability is related to random decision making rather than to risk preferences. (JEL: C81, C91, D12, D81)

  August 02, 2016   doi: 10.1111/jeea.12179   open full text
• Gender Differences In Response To Big Stakes.
  Ghazala Azmat, Caterina Calsamiglia, Nagore Iriberri.
  Journal of the European Economic Association. August 02, 2016
  It is commonly perceived that increasing incentives improves performance. However, the reaction to increased incentives might differ between men and women, leading to gender differences in performance. In a natural experiment, we study the gender difference in performance resulting from changes in stakes. We use detailed information on the performance of high‐school students and exploit the variation in the stakes of tests, which range from 5% to 27% of the final grade. We find that female students outperform male students in all tests—but to a relatively larger degree when the stakes are low. The gender gap disappears in tests taken at the end of high school, which count for 50% of the university entry grade. (JEL: D03, J16, I21, C30)

  August 02, 2016   doi: 10.1111/jeea.12180   open full text
• Experimentation In Two‐Sided Markets.
  Martin Peitz, Sven Rady, Piers Trepper.
  Journal of the European Economic Association. August 01, 2016
  We study optimal experimentation by a monopolistic platform in a two‐sided market. The platform provider is uncertain about the strength of the externality each side is exerting on the other. Setting participation fees on both sides, it gradually learns about these externalities by observing actual participation levels. This provides an informational rationale for introductory pricing, with the platform provider charging a fee below the myopically optimal level on at least one side of the market. If the externality that the other side exerts is sufficiently well known and weaker than the externality it experiences, the platform provider extracts surplus from that side by charging it a fee above the myopically optimal level. This interplay between learning and surplus extraction is crucial to the market outcome and its dynamics.

  August 01, 2016   doi: 10.1111/jeea.12175   open full text
• Ethnic Diversity And The Spread Of Civil War.
  Natalija Novta.
  Journal of the European Economic Association. August 01, 2016
  This paper theoretically and empirically investigates the relationship between local‐level ethnic composition and the spread of conflict. Cross‐country literature on conflict finds that ethnic diversity, and ethnic polarization in particular, are associated with greater incidence of conflict. However, the question remains as to where within ethnically diverse countries conflict begins and where and how it spreads. To study this question, I present a model in which local ethnic groups' decision to attack depends on three key variables: ethnic population shares, ethnic groups' weapons ratio, and the share of co‐ethnic successes in the battles that took place in the previous period. The model generates three predictions: conflict starts in ethnically homogeneous areas and only later spreads to ethnically heterogeneous areas; neighbor co‐ethnics' success increases subsequent probability of winning and may lead to attack; and greater ethnic diversity is associated with costlier conflict. I find strong support for these predictions using detailed municipal‐level data on attacks and ethnic polarization during the initial spread of the Bosnian Civil War. Moreover, my conflict model is able to predict the sequence of actual conflict outcomes with reasonably high accuracy. (JEL: D39, D74, J15, R12)

  August 01, 2016   doi: 10.1111/jeea.12171   open full text
• Mass Media And Social Change: Can We Use Television To Fight Poverty?
  Eliana La Ferrara.
  Journal of the European Economic Association. July 21, 2016
  This paper explores the potential use of entertainment media programs for achieving development goals. I propose a simple framework for interpreting media effects that hinges on three channels: (i) information provision, (ii) role modeling and preference change, and (iii) time use. I then review the existing evidence on how exposure to commercial television and radio affects outcomes such as fertility preferences, gender norms, education, migration, and social capital. I complement these individual country studies with cross‐country evidence from Africa and with a more in‐depth analysis for Nigeria, using the Demographic Health Surveys. I then consider the potential educational role of entertainment media, starting with a discussion of the psychological underpinnings and then reviewing recent rigorous evaluations of edutainment programs. I conclude by highlighting open questions and avenues for future research. (JEL: O12)

  July 21, 2016   doi: 10.1111/jeea.12181   open full text
• Public Education And Pensions In Democracy: A Political Economy Theory.
  Francesco Lancia, Alessia Russo.
  Journal of the European Economic Association. July 11, 2016
  A dynamic political economy theory of fiscal policy is presented to explain the simultaneous existence of public education and pensions in modern democracies. The driving force of the model is the intergenerational conflict over the allocation of the public budget. Successive generations of voters choose fiscal policies through repeated elections. The political power of elderly voters creates the motive for adults to support public investment in the human capital of future generations since it expands future pension possibilities. We characterize the Markov perfect equilibrium of the voting game in a small open economy. The equilibrium reproduces salient features of intergenerational fiscal policies in modern economies.

  July 11, 2016   doi: 10.1111/jeea.12170   open full text
• The Right Amount Of Trust.
  Jeffrey V. Butler, Paola Giuliano, Luigi Guiso.
  Journal of the European Economic Association. July 08, 2016
  We investigate the relationship between individual trust and individual economic performance. We find that individual income is hump‐shaped in a measure of intensity of trust beliefs. Our interpretation is that highly trusting individuals tend to assume too much social risk and to be cheated more often, ultimately performing less well than those with a belief close to the mean trustworthiness of the population. However, individuals with overly pessimistic beliefs avoid being cheated, but give up profitable opportunities, therefore underperforming. The cost of either too much or too little trust is comparable to the income lost by forgoing college. Our findings hold in large‐scale international survey data, as well as inside a country with high‐quality institutions, and are also supported by experimental findings. (JEL: A1, A12, D1, O15, Z1)

  July 08, 2016   doi: 10.1111/jeea.12178   open full text
• From Maize To Haze: Agricultural Shocks And The Growth Of The Mexican Drug Sector.
  Oeindrila Dube, Omar García‐Ponce, Kevin Thom.
  Journal of the European Economic Association. July 08, 2016
  Understanding how economic incentives affect illegal drug production is essential for crafting policies in response to the international drug trade. Policymakers typically face a choice between two strategies: targeting criminal groups via law enforcement, and offering producers incentives to engage in alternate activities. Yet, little is known about how the returns to alternate legal activities affect drug supply. We contribute to this literature by examining how shocks to legal commodity prices affect the drug trade in Mexico. Our analysis exploits exogenous movements in the Mexican maize price stemming from weather conditions in US maize‐growing regions, as well as exports of other major maize producers. Using data on over 2200 municipios spanning 1990–2010, we show that lower prices differentially increased the cultivation of both marijuana and opium poppies in municipios more climatically suited to growing maize. We also find impacts on downstream drug‐trade outcomes, including drug cartel operations and killings perpetrated by these groups. Our findings demonstrate that maize price changes contributed to the burgeoning drug trade in Mexico, and point to the violent consequences of an expanding drug sector.

  July 08, 2016   doi: 10.1111/jeea.12172   open full text
• Irrigation And Autocracy.
  Jeanet Sinding Bentzen, Nicolai Kaarsen, Asger Moll Wingender.
  Journal of the European Economic Association. June 29, 2016
  Irrigated agriculture makes societies more likely to be ruled by authoritarian regimes. Ancient societies have long been thought to follow this pattern. We empirically show that irrigation affects political regimes even in the present. To avoid endogeneity, we use geographical and climatic variation to identify irrigation dependent societies. We find that countries whose agriculture depended on irrigation are about six points less democratic on the 21‐point polity2 scale than countries where agriculture has been rainfed. We find qualitatively similar results across regions within countries. We argue that the effect has historical origins: irrigation allowed landed elites in arid areas to monopolize water and arable land. This made elites more powerful and better able to oppose democratization. Consistent with this conjecture, we show that irrigation dependence predicts land inequality both at the country level, and in premodern societies surveyed by ethnographers. (JEL: O11, N50, Q15)

  June 29, 2016   doi: 10.1111/jeea.12173   open full text
• Poverty And The Political Economy Of Public Education Spending: Evidence From Brazil.
  Leonardo Bursztyn.
  Journal of the European Economic Association. June 29, 2016
  A large body of literature has emphasized the elite capture of democratic institutions as the explanation for the low levels of spending on public education in many low‐income democracies. This paper provides an alternative to that longstanding hypothesis. Motivated by new cross‐country facts and evidence from Brazilian municipalities, we hypothesize that many democratic developing countries might invest less in public education spending because poor decisive voters prefer the government to allocate resources elsewhere. One possible explanation is that low‐income voters could instead favor redistributive programs that increase their incomes in the short run, such as cash transfers. To test for this possibility, we design and implement an experimental survey and an incentivized choice experiment in Brazil. The findings from both interventions support our hypothesis.

  June 29, 2016   doi: 10.1111/jeea.12174   open full text
• Endogenous Presidentialism.
  James A. Robinson, Ragnar Torvik.
  Journal of the European Economic Association. June 27, 2016
  We develop a model to understand the incidence of presidential and parliamentary institutions. Our analysis is predicated on two ideas: first, that minorities are relatively powerful in a parliamentary system compared to a presidential system, and second, that presidents have more power with respect to their own coalition than prime ministers do. These assumptions imply that while presidentialism has separation of powers, it does not necessarily have more checks and balances than parliamentarism. We show that political leaders who prefer presidentialism may be supported by their own coalition if they fear losing agenda‐setting power to another group. We argue that the model is consistent with a great deal of qualitative information about presidentialism in Africa and Latin America. (JEL: D72, P5, O1)

  June 27, 2016   doi: 10.1111/jeea.12162   open full text
• The Equality Multiplier: How Wage Compression And Welfare Empowerment Interact.
  Erling Barth, Karl Ove Moene.
  Journal of the European Economic Association. June 27, 2016
  We explore how more wage equality fuels the generosity of the welfare state via political competition in elections, and how a more generous welfare state fuels wage equality via empowerment of weak groups in the labor market. Together the two mechanisms may generate a cumulative process that explains how equality multiplies, and why countries with more equal distributions of market outcomes also have stronger welfare states. The complementarity between wage setting and welfare spending can explain why almost equally rich countries differ so much in economic and social equality among their citizens. (JEL: H53, I31, J31)

  June 27, 2016   doi: 10.1111/jeea.12163   open full text
• Managing Credit Bubbles.
  Alberto Martin, Jaume Ventura.
  Journal of the European Economic Association. May 23, 2016
  We study a dynamic economy where credit is limited by insufficient collateral and, as a result, investment and output are too low. In this environment, changes in investor sentiment or market expectations can give rise to credit bubbles, that is, expansions in credit that are backed not by expectations of future profits (i.e., fundamental collateral), but instead by expectations of future credit (i.e., bubbly collateral). Credit bubbles raise the availability of credit for entrepreneurs: this is the crowding‐in effect. However, entrepreneurs must also use some of this credit to cancel past credit: this is the crowding‐out effect. There is an “optimal” bubble size that trades off these two effects and maximizes long‐run output and consumption. The equilibrium bubble size depends on investor sentiment, however, and it typically does not coincide with the “optimal” bubble size. This provides a new rationale for macroprudential policy. A credit management agency (CMA) can replicate the “optimal” bubble by taxing credit when the equilibrium bubble is too high and subsidizing credit when the equilibrium bubble is too low. This leaning‐against‐the‐wind policy maximizes output and consumption. Moreover, the same conditions that make this policy desirable guarantee that a CMA has the resources to implement it.

  May 23, 2016   doi: 10.1111/jeea.12161   open full text
• Price‐Level Changes And The Redistribution Of Nominal Wealth Across The Euro Area.
  Klaus Adam, Junyi Zhu.
  Journal of the European Economic Association. November 26, 2015
  We show that unexpected price‐level movements generate sizable wealth redistribution in the Euro Area (EA), using sectoral accounts and newly available data from the Household Finance and Consumption Survey. The EA as a whole is a net loser of unexpected price‐level decreases, with Italy, Greece, Portugal, and Spain losing most in per capita terms, and Belgium and Malta being net winners. Governments are net losers of deflation, while the household (HH) sector is a net winner in the EA as a whole. HHs in Belgium, Ireland, Malta, and Germany experience the biggest per capita gains, while HHs in Finland and Spain turn out to be net losers. Considerable heterogeneity exists also within the HH sector: relatively young middle class HHs are net losers of deflation, while older and richer HHs are winners. As a result, wealth inequality in the EA increases with unexpected deflation, although in some countries (Austria, Germany, and Malta) inequality decreases due to the presence of relatively few young borrowing HHs. We document that HHs' inflation exposure varies systematically across countries, with HHs in high‐inflation EA countries holding systematically lower nominal exposures.

  November 26, 2015   doi: 10.1111/jeea.12155   open full text
• Children Of A (Policy) Revolution: The Introduction Of Universal Child Care And Its Effect On Fertility.
  Stefan Bauernschuster, Timo Hener, Helmut Rainer.
  Journal of the European Economic Association. November 26, 2015
  What role does affordable and widely available public child care play for fertility? We exploit a major German reform generating large temporal and spatial variation in child care coverage for children under the age of three. Our precise and robust estimates on birth register data reveal that increases in public child care have significant positive effects on fertility. The fertility effects are more pronounced at the intensive than at the extensive margin, and are not driven by changes in the timing of births or selective migration. Our findings inform policy makers concerned about low fertility by suggesting that universal early child care holds the promise of being an effective means of increasing birth rates.

  November 26, 2015   doi: 10.1111/jeea.12158   open full text
• Let's Talk: How Communication Affects Contract Design.
  Jordi Brandts, Matthew Ellman, Gary Charness.
  Journal of the European Economic Association. November 24, 2015
  We study experimentally how communication changes the effectiveness of contract types when sellers choose unenforceable quality after a possible cost shock. Communication potentially removes conflicting perceptions that may otherwise plague flexible contracts. Indeed, we find that introducing free‐form communication sharply reverses an advantage of rigid contracts in favor of flexible contracts, which then deliver much higher earnings. Control treatments that avoid selection effects reveal a strong parallel shift from rigid to flexible. Chat content analysis identifies clarification of post‐shock transfers, promises, and personal rapport as key correlates of high earnings, with clarification working only in conjunction with flexible contracts. A communication channel restricted to clarifying transfer plans also favors use of flexible contracts, but mildly compared to chat. (JEL: C91, D03, D86)

  November 24, 2015   doi: 10.1111/jeea.12157   open full text
• The Role Of Information In Innovation And Competition.
  Ufuk Akcigit, Qingmin Liu.
  Journal of the European Economic Association. October 31, 2015
  Innovation is typically a trial‐and‐error process. While some research paths lead to the innovation sought, others result in dead ends. Because firms benefit from their competitors working in the wrong direction, they do not reveal their dead‐end findings. Time and resources are wasted on projects that other firms have already found to be fruitless. We offer a simple model with two firms and two research lines to study this prevalent problem. We characterize the equilibrium in a decentralized environment that necessarily entails significant efficiency losses due to wasteful dead‐end replication and an information externality that leads to an early abandonment of the risky project. We show that different types of firms follow different innovation strategies and create different kinds of welfare losses. In an extension of the core model, we also study a centralized mechanism whereby firms are incentivized to disclose their actions and share their private information in a timely manner. (JEL: O31, D92)

  October 31, 2015   doi: 10.1111/jeea.12153   open full text
• Norms Make Preferences Social.
  Erik O. Kimbrough, Alexander Vostroknutov.
  Journal of the European Economic Association. September 29, 2015
  We explore the idea that prosocial behavior in experimental games is driven by social norms imported into the laboratory. Under this view, differences in behavior across subjects is driven by heterogeneity in sensitivity to social norms. We introduce an incentivized method of eliciting individual norm‐sensitivity, and we show how it relates to play in public goods, trust, dictator, and ultimatum games. We show how our observations can be rationalized in a stylized model of norm‐dependent preferences under reasonable assumptions about the nature of social norms. Then we directly elicit norms in these games to test the robustness of our interpretation.

  September 29, 2015   doi: 10.1111/jeea.12152   open full text
• A Mechanism Design Approach To Climate‐Change Agreements.
  David Martimort, Wilfried Sand‐Zantman.
  Journal of the European Economic Association. September 15, 2015
  We take a mechanism design perspective to investigate how environmental agreements should account for multilateral externalities, incentive compatibility, and voluntary participation by sovereign countries. The optimal mechanism involves a tradeoff between a free rider problem in the effort provision of participating countries and the necessity of inducing countries to ratify the agreement. This mechanism can be approximated by a simple menu with attractive implementation and robustness properties. Limits on enforcement and commitment might nevertheless hinder the performance of this menu, making the “business as usual” scenario more likely.

  September 15, 2015   doi: 10.1111/jeea.12150   open full text
• Predicting Lotto Numbers: A Natural Experiment On The Gambler's Fallacy And The Hot‐Hand Fallacy.
  Sigrid Suetens, Claus B. Galbo‐Jørgensen, Jean‐Robert Tyran.
  Journal of the European Economic Association. August 27, 2015
  We investigate the “law of small numbers” using a data set on lotto gambling that allows us to measure players' reactions to draws. While most players pick the same set of numbers week after week, we find that those who do change, react on average as predicted by the law of small numbers as formalized in recent behavioral theory. In particular, players tend to bet less on numbers that have been drawn in the preceding week, as suggested by the “gambler's fallacy”, and bet more on a number if it was frequently drawn in the recent past, consistent with the “hot‐hand fallacy”.

  August 27, 2015   doi: 10.1111/jeea.12147   open full text
• Exponential‐Growth Bias And Lifecycle Consumption.
  Matthew Levy, Joshua Tasoff.
  Journal of the European Economic Association. August 22, 2015
  Exponential‐growth bias (EGB) is the tendency for individuals to partially neglect compounding of exponential growth. We develop a model wherein biased agents misperceive the intertemporal budget constraint, and derive conditions for overconsumption and dynamic inconsistency. We construct an incentivized measure of EGB in a US‐representative population and find substantial bias, with approximately one third of subjects estimated as the fully biased type. The magnitude of the bias is negatively associated with asset accumulation, and does not respond to a simple graphical intervention.

  August 22, 2015   doi: 10.1111/jeea.12149   open full text
• The Quantitative Role Of Child Care For Female Labor Force Participation And Fertility.
  Alexander Bick.
  Journal of the European Economic Association. July 20, 2015
  I document that the labor force participation rate of West German mothers with children aged zero to two exceeds the corresponding child‐care enrollment rate, while the opposite is true for mothers whose children are older than two but below the mandatory schooling age. These facts also hold for a cross‐section of E.U. countries. I develop a life‐cycle model that explicitly accounts for this age‐dependent relationship by including various types of nonpaid and paid child care. I calibrate this model to data for West Germany and use the calibrated model for policy analysis. Increasing the supply of subsidized child care for children aged zero to two generates an increase in the maternal labor force participation rate consistent with empirical evidence from other settings; however, this increase is too small to conclude that the lack of subsidized child care accounts for the low labor force participation rate of mothers with children aged zero to two. The response along the intensive margin suggests that a large fraction of part‐time working mothers would work full‐time if they had greater access to subsidized child care. Finally, making subsidized child care available to more women does not achieve one of the commonly stated goals of such reforms, namely to increase the fertility rate.

  July 20, 2015   doi: 10.1111/jeea.12143   open full text
• The Dynamics Of Climate Agreements.
  Bård Harstad.
  Journal of the European Economic Association. June 04, 2015
  This paper analyzes a framework in which countries over time pollute and invest in green technologies. Without a climate treaty, the countries pollute too much and invest too little, particularly if intellectual property rights are weak. Nevertheless, short‐term agreements on emission levels then reduce every country's payoff, since countries invest less when they anticipate future negotiations. If intellectual property rights are weak, the agreement should be tougher and more long‐term. Conversely, if the climate agreement happens to be short‐term or absent, intellectual property rights should be strengthened or technological licensing subsidized.

  June 04, 2015   doi: 10.1111/jeea.12138   open full text
• Competitive Markets With Endogenous Health Risks.
  Alberto Bennardo, Salvatore Piccolo.
  Journal of the European Economic Association. May 20, 2014
  We study an economy where agents' productivity and labor endowment depend on their health status, and indivisible occupational choices affect individual health distributions. We show that Pareto efficiency requires cross‐transfers across occupations. Moreover, workers with relatively less safe jobs must get positive transfers whenever labor supply is not very reactive to wages, a condition in line with the findings of a large empirical literature. In these instances, compensating wage differentials equalizing the utilities of ex‐ante identical workers in different jobs undermine ex‐ante efficiency. Moreover, competitive equilibria where only assets with deterministic payoffs are traded are not first‐best. Finally, we show that simple transfer schemes, implemented through linear subsidies to health insurance, enhance efficiency.

  May 20, 2014   doi: 10.1111/jeea.12078   open full text
• Is The Endowment Effect An Expectations Effect?
  Ori Heffetz, John A. List.
  Journal of the European Economic Association. May 20, 2014
  A hallmark result within behavioral economics is that individuals' choices are affected by current endowments. A recent theory due to Kőszegi and Rabin (, Quarterly Journal of Economics, 121, 1133–1165) explains such endowment effect with a model of expectations‐based reference‐dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations—verified probabilistic beliefs held by subjects—from other features of endowment—such as “assignment” to a good—hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi–Rabin expectations.

  May 20, 2014   doi: 10.1111/jeea.12084   open full text
• Expansionary Austerity? International Evidence.
  Jaime Guajardo, Daniel Leigh, Andrea Pescatori.
  Journal of the European Economic Association. May 15, 2014
  This paper investigates the short‐term effects of fiscal consolidation on economic activity in OECD economies. We examine contemporaneous policy documents to identify changes in fiscal policy motivated by a desire to reduce the budget deficit and not by responding to prospective economic conditions. Using this new dataset, our estimates suggest that fiscal consolidation has contractionary effects on private demand and GDP. By contrast, estimates based on conventional measures of the fiscal policy stance used in the literature support the expansionary fiscal contractions hypothesis but appear to be biased toward overstating expansionary effects.

  May 15, 2014   doi: 10.1111/jeea.12083   open full text
• Reducing Overreaction To Central Banks' Disclosures: Theory And Experiment.
  Romain Baeriswyl, Camille Cornand.
  Journal of the European Economic Association. March 31, 2014
  Financial markets are known for overreacting to public information. Central banks can reduce this overreaction either by disclosing information to only a fraction of market participants (partial publicity) or by disclosing information to all participants but with ambiguity (partial transparency). In theory, overreaction can be similarly reduced by either communication strategy. A laboratory experiment shows that both communication strategies succeed in reducing overreaction, though not as much as theory predicts. The opportunity in our information age for central banks to choose between partial publicity and partial transparency to control the market reaction is then discussed.

  March 31, 2014   doi: 10.1111/jeea.12077   open full text
• Evaluating Theories Of Bank Runs With Heterogeneity Restrictions.
  Ferre Graeve, Alexei Karas.
  Journal of the European Economic Association. March 31, 2014
  This paper empirically tests theories of bank runs. We use a structural panel VAR to extract runs from deposit market data. Identification exploits cross‐sectional heterogeneity in deposit insurance: we identify bank runs as adverse deposit market supply shocks hitting uninsured banks harder compared to insured. Conditional on a run, we study the behavior of uninsured banks with bad and good fundamentals. We find that both experience runs, but deposit outflows at the former are more severe. Panic effects, which affect all uninsured deposits alike, irrespective of fundamentals, dominate in the aggregate. Insured banks partially absorb the outflow of uninsured deposits.

  March 31, 2014   doi: 10.1111/jeea.12080   open full text
• Democratic Peace And Electoral Accountability.
  Paola Conconi, Nicolas Sahuguet, Maurizio Zanardi.
  Journal of the European Economic Association. March 27, 2014
  Democracies rarely engage in conflicts with one another, though they are not averse to fighting autocracies. We exploit the existence in many countries of executive term limits to show that electoral accountability is the key reason behind this “democratic peace” phenomenon. We construct a new dataset of term limits for a sample of 177 countries over the 1816–2001 period, and combine this information with a large dataset of interstate conflicts. Our empirical analysis shows that, although democracies are significantly less likely to fight each other, democracies with leaders who face binding term limits are as conflict prone as autocracies. The study of electoral calendars confirms the importance of re‐election incentives: in democracies with two‐term limits, conflicts are less likely to occur during the executive's first mandate than in the last one. Our findings support the Kantian idea that elections act as a discipline device, deterring leaders from engaging in costly conflicts.

  March 27, 2014   doi: 10.1111/jeea.12074   open full text
• Social Comparison And Effort Provision: Evidence From A Field Experiment.
  Alain Cohn, Ernst Fehr, Benedikt Herrmann, Frédéric Schneider.
  Journal of the European Economic Association. March 17, 2014
  Social comparison has potentially far reaching consequences in many economic domains. We conducted a field experiment to examine how social comparison affects workers' effort provision if their own wage or that of a co‐worker is cut. Workers were assigned to groups of two, performed identical individual tasks, and received the same performance‐independent hourly wage. Cutting both group members' wages caused a decrease in performance. But when only one group member's wage was cut, the affected workers decreased their performance more than twice as much as when both workers' wages were cut. This finding indicates that social comparison among workers affects effort provision because the only difference between the two wage‐cut treatments is the other group member's wage level. In contrast, workers whose wage was not cut but who witnessed their group member's pay being cut displayed no change in performance relative to the baseline treatment in which both workers' wages remained unchanged. This indicates that social comparison exerts asymmetric effects on effort.

  March 17, 2014   doi: 10.1111/jeea.12079   open full text
• Party Cues In Elections Under Multilevel Governance: Theory And Evidence From Us States.
  Benny Geys, Jan Vermeir.
  Journal of the European Economic Association. March 17, 2014
  In federal countries, voters’ ability to evaluate the performance of their leaders might be reduced when different levels of government shape policy outcomes. This can blur political accountability. In this article, we analyze how party cues (i.e., politicians’ party membership acting as a cue towards their characteristics) affect voters’ incomplete information in a federal setting. We theoretically show that party cues allow indirect inference regarding politicians using observed policy outcomes, and can alleviate the accountability problem. Empirical evidence from US presidential election results across all 50 US states over the period 1972–2008 supports this proposition. However, party cues also have a downside in that they may reduce politicians’ effort, particularly when politicians at different levels of government are from different parties.

  March 17, 2014   doi: 10.1111/jeea.12081   open full text
• Designing Order‐Book Transparency In Electronic Communication Networks.
  Romans Pancs.
  Journal of the European Economic Association. March 13, 2014
  A significant fraction of trade in stock exchanges (e.g., Euronext and NASDAQ) involves ‘iceberg orders’, which are orders to sell or buy a certain number of shares with the caveat that only a part of that number be made public. This paper provides a normative justification for the lack of transparency in this kind of order: imperfect disclosure is shown to be a necessary feature of any optimal mechanism when the asset's potential buyers must incur a cost in order to become active and learn their valuations for the asset. This finding raises a caveat for regulation that seeks to mandate the open order book or otherwise increase the pre‐trade transparency of stock exchanges.

  March 13, 2014   doi: 10.1111/jeea.12073   open full text
• Knowing The Right Person In The Right Place: Political Connections And Resistance To Change.
  Giorgio Bellettini, Carlotta Berti Ceroni, Giovanni Prarolo.
  Journal of the European Economic Association. February 20, 2014
  We use a political economy model of Schumpeterian growth with entry to investigate how an incumbent politician can strategically use the level of red tape to acquire incumbency advantage. By setting sufficiently high red tape, the politician induces the incumbent firm in the intermediate sector to invest in political connections, which are valued also by voters, who recognize that bureaucratic costs can be reduced by connected firms. Within this framework, we study the Markov perfect equilibria of an infinitely repeated game among politicians, firms, and voters, and show that all equilibria are characterized by investments in political connections and the re‐election of the incumbent politician. Political connections may prevent entry of advanced competitors and cause the economy to lag behind the technological frontier. Our model provides a possible explanation for the persistence of inefficient democracies and political barriers to technology development, where these reflect shared rather than conflicting interests.

  February 20, 2014   doi: 10.1111/jeea.12069   open full text
• Building Reputation For Contract Renewal: Implications For Performance Dynamics And Contract Duration.
  Elisabetta Iossa, Patrick Rey.
  Journal of the European Economic Association. February 20, 2014
  We study how career concerns affect the dynamics of incentives in a multi‐period contract, when the agent's productivity is a stochastic function of his past productivity and investment. We show that incentives are stronger and performance is higher when the contract approaches its expiry date. Contrary to common wisdom, long‐term contracts may strengthen reputational effects whereas short‐term contracting may be optimal when investment has persistent, long‐term effects.

  February 20, 2014   doi: 10.1111/jeea.12075   open full text
• Technology Adoption, Turbulence, And The Dynamics Of Unemployment.
  Georg Duernecker.
  Journal of the European Economic Association. February 04, 2014
  Starting in the late 1970s, European unemployment began to increase while US unemployment remained constant. At the same time, capital‐embodied technical change began to accelerate, and the United States adopted the new capital much faster than Europe. I argue that these two facts are related. The main idea is that if there is capital‐embodied technical change, then the unemployment rate depends critically on how obsolete the installed capital stock is compared to the frontier. In particular, European workers initially worked with relatively obsolete capital, and so they lacked the skills required to work with frontier capital. When they lost their jobs they therefore stayed unemployed for longer than their American counterparts. I find that this channel accounts for about 70% of the discrepancy between the behavior of unemployment rates in Europe and the United States.

  February 04, 2014   doi: 10.1111/jeea.12041   open full text
• Optimal Aging And Death: Understanding The Preston Curve.
  Carl‐Johan Dalgaard, Holger Strulik.
  Journal of the European Economic Association. February 04, 2014
  Does prosperity lead to greater longevity? If so, what is the strength of the income channel? To address these questions we develop a life cycle model in which households are subject to physiological aging. In modeling aging we draw on recent research in the fields of biology and medicine. The speed of the aging process, and thus the age of death, are endogenously determined by optimal health investments. A calibrated version of the model accounts well for the observed nonlinear cross‐country link between longevity and income, also known as the Preston curve.

  February 04, 2014   doi: 10.1111/jeea.12071   open full text
• Sales And Collusion In A Market With Storage.
  Francesco Nava, Pasquale Schiraldi.
  Journal of the European Economic Association. February 03, 2014
  Sales are a widespread and well‐known phenomenon documented in several product markets. This paper presents a novel rationale for sales that does not rely on consumer heterogeneity, or on any form of randomness to explain such periodic price fluctuations. The analysis is carried out in the context of a simple repeated price competition model, and establishes that firms must periodically reduce prices in order to sustain collusion when goods are storable and the market is large. The largest equilibrium profits are characterized at any market size. A trade‐off between the size of the industry and its profits arises. Sales foster collusion, by magnifying the inter‐temporal links in consumers' decisions.

  February 03, 2014   doi: 10.1111/jeea.12046   open full text
• Ecology, Trade, And States In Pre‐Colonial Africa.
  James Fenske.
  Journal of the European Economic Association. February 03, 2014
  State capacity matters for growth. I test Bates' explanation of pre‐colonial African states. He argues that trade across ecological boundaries promoted states. I find that African societies in ecologically diverse environments had more centralized states. This is robust to reverse causation, omitted heterogeneity, and alternative interpretations of the link between diversity and states. The result survives including non‐African societies. I test mechanisms connecting trade to states, and find that trade supported class stratification between rulers and ruled. I underscore the importance of ethnic institutions and inform our knowledge of the effects of trade on institutions.

  February 03, 2014   doi: 10.1111/jeea.12042   open full text
• Materials Prices And Productivity.
  Enghin Atalay.
  Journal of the European Economic Association. February 03, 2014
  There is substantial within‐industry variation in the prices that plants pay for their material inputs. Using plant‐level data from the US Census Bureau, I explore the consequences and sources of this variation in materials prices. For a sample of industries with relatively homogeneous products, the standard deviation of plant‐level productivity would be 7% smaller if all plants faced the same materials prices. Moreover, plant‐level materials prices are persistent, spatially correlated, and positively associated with the probability of exit. The contribution of entry and exit to aggregate productivity growth is smaller for productivity measures that are purged of materials price variation. After documenting these patterns, I discuss three potential sources of materials price variation: geography, differences in suppliers' marginal costs, and within‐supplier markup differences. Together, these variables explain 15% of the variation of materials prices.

  February 03, 2014   doi: 10.1111/jeea.12036   open full text
• Firm Default And Aggregate Fluctuations.
  Tor Jacobson, Jesper Lindé, Kasper Roszbach.
  Journal of the European Economic Association. July 24, 2013
  This paper studies the relationship between macroeconomic fluctuations and corporate defaults while conditioning on industry affiliation and an extensive set of firm‐specific factors. By using a panel data set for virtually all incorporated Swedish businesses over 1990–2009, a period which includes a full‐scale banking crisis, we find strong evidence for a substantial and stable impact from aggregate fluctuations on business defaults. A standard logit model with financial ratios augmented with macroeconomic factors can account surprisingly well for the outburst in business defaults during the banking crisis, as well as the subsequent fluctuations in default frequencies. Moreover, the effects of macroeconomic variables differ across industries in an economically intuitive way. Out‐of‐sample evaluations show that our approach is superior to models that exclude macro information and standard well‐fitting time‐series models. Our analysis shows that firm‐specific factors are useful in ranking firms’ relative riskiness, but that macroeconomic factors are necessary to understand fluctuations in the absolute risk level.

  July 24, 2013   doi: 10.1111/jeea.12020   open full text
• Do Public Ownership And Lack Of Competition Matter For Wages And Employment? Evidence From Personnel Records Of A Privatized Firm.
  Blaise Melly, Patrick A. Puhani.
  Journal of the European Economic Association. July 24, 2013
  Do public sector firm ownership and lack of competition matter for wages and employment? To address this question, we consider a large public‐sector company that is privatized. Using personnel records, we find employment contract liberalization to generate relative wage losses for older, high‐tenure, low‐skilled, part‐time workers, permanent residents, and women. Employment reductions mostly affect the same groups experiencing a wage decline. Overall, wage liberalization leads to an increase in wage inequality of between 6% and 9%, which—if applied to the whole public sector—would lead to a 52% to 76% closure of the “inequality gap” between the private and public sectors in Europe. Our results suggest that differences between public‐ and private‐sector wage structures found in descriptive studies are to a large extent causal rather than the result of selection into these sectors and that public sector employment and career path regulations limit a firm's ability to maintain a competitive workforce.

  July 24, 2013   doi: 10.1111/jeea.12024   open full text
• Separating Moral Hazard From Adverse Selection And Learning In Automobile Insurance: Longitudinal Evidence From France.
  Georges Dionne, Pierre‐Carl Michaud, Maki Dahchour.
  Journal of the European Economic Association. July 24, 2013
  The identification of information problems in different markets is a challenging issue in the economic literature. In this paper, we study the identification of moral hazard from adverse selection and learning about risk within the context of a multi‐period dynamic model. We extend the model of Abbring, Chiappori, and Pinquet (2003, Journal of the European Economic Association, 1, 767–820) to include learning about risk and insurance coverage choice over time. We derive testable empirical implications for panel data. We then perform tests using longitudinal data from France during the period 1995–1997. We find evidence of moral hazard among a sub‐group of policyholders with less driving experience (less than 15 years). Policyholders with fewer than five years of experience have a combination of learning about risk and moral hazard, whereas no residual information problem is found for policyholders with more than 15 years of experience.

  July 24, 2013   doi: 10.1111/jeea.12018   open full text
• Outsourcing When Investments Are Specific And Interrelated.
  Alla Lileeva, Johannes Van Biesebroeck.
  Journal of the European Economic Association. July 24, 2013
  Using the universe of large Canadian manufacturing firms in 1988 and 1996, we investigate to what extent outsourcing patterns concord with the predictions of a simple property rights model. The unique availability of disaggregate information on outputs as well as inputs permits the construction of a detailed measure of vertical integration. We rely on five measures of technological intensity to proxy for investments that are likely to be specific to a buyer–seller relationship. A theoretical model that allows for varying degrees of investment specificity and interrelatedness—externalities between buyer and supplier investments—guides the analysis. Property rights predictions on the link between investment intensities and optimal ownership are strongly supported, but only for transactions with low interrelatedness. High specificity and low risk of appropriation strengthen the predictions in the model and in the data.

  July 24, 2013   doi: 10.1111/jeea.12023   open full text
• Do Wage Cuts Damage Work Morale? Evidence From A Natural Field Experiment.
  Sebastian Kube, Michel André Maréchal, Clemens Puppe.
  Journal of the European Economic Association. July 24, 2013
  Employment contracts are often incomplete, leaving many responsibilities subject to workers' discretion. High work morale is therefore essential for sustaining voluntary cooperation and high productivity in firms. We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20%. An equivalent wage increase, however, did not result in any productivity gains. The results from an additional control experiment with high monetary performance incentives demonstrate that workers could still produce substantially more output, leaving enough room for positive reactions. Altogether, these results provide evidence consistent with a model of reciprocity, as opposed to inequality aversion.

  July 24, 2013   doi: 10.1111/jeea.12022   open full text
• Do Lab Experiments Misrepresent Social Preferences? The Case Of Self‐Selected Student Samples.
  Armin Falk, Stephan Meier, Christian Zehnder.
  Journal of the European Economic Association. July 24, 2013
  Social preference research has received considerable attention among economists in recent years. However, the empirical foundation of social preferences is largely based on laboratory experiments with self‐selected students as participants. This is potentially problematic as students participating in experiments may behave systematically different than nonparticipating students or nonstudents. In this paper we empirically investigate whether laboratory experiments with student samples misrepresent the importance of social preferences. Our first study shows that students who exhibit stronger prosocial inclinations in an unrelated field donation are not more likely to participate in experiments. This suggests that self‐selection of more prosocial students into experiments is not a major issue. Our second study compares the behavior of students and participants recruited from the general population in a trust experiment. In general, we find very similar behavioral patterns for the two groups, but nonstudents make significantly more generous repayments suggesting that results from student samples might be seen as a lower bound for the importance of prosocial behavior.

  July 24, 2013   doi: 10.1111/jeea.12019   open full text
• The Unequal Enforcement Of Liberalization: Evidence From Russia's Reform Of Business Regulation.
  Evgeny Yakovlev, Ekaterina Zhuravskaya.
  Journal of the European Economic Association. July 24, 2013
  We document the unequal enforcement of liberalization reform of business regulation across Russian regions with different governance institutions, which leads to unequal effects of liberalization. National liberalization laws were enforced more effectively in subnational regions with more transparent government, a more informed population, a higher concentration of industry, and stronger fiscal autonomy. As a result, liberalization had a substantial positive effect on the performance of small firms and the growth of the official small business sector in regions with stronger governance institutions. In contrast, in regions with weaker governance institutions, we observe no effect of reform and, in some cases, even a negative effect.

  July 24, 2013   doi: 10.1111/jeea.12026   open full text
• Social Networks In The Boardroom.
  Francis Kramarz, David Thesmar.
  Journal of the European Economic Association. July 24, 2013
  This paper provides evidence that social networks strongly affect board composition and are detrimental to corporate governance. Our empirical investigation relies on a large data set of executives and outside directors of French public firms. This data source is a matched employer–employee data set that provides detailed information on directors/CEOs as well as information about the firm employing them. We find a strong and robust correlation between the CEO's network and that of his directors. Networks of former high‐ranking civil servants are the most active in shaping board composition. Our identification strategy takes into account not only firm and directors’ fixed effects but also the matching of firms and director in terms of one observable and one unobservable characteristic. Turning to the direct effects of such network activity, we find that firms in which these networks are most active pay their CEOs more, are less likely to replace a CEO who underperforms, and engage in less value‐creating acquisitions. These findings suggest that social networks are active in the boardroom and have detrimental effects on firms’ governance.

  July 24, 2013   doi: 10.1111/jeea.12021   open full text
• Misbehavior, Education, And Labor Market Outcomes.
  Carmit Segal.
  Journal of the European Economic Association. July 24, 2013
  Using data on young men from the National Education Longitudinal Survey, this paper investigates the relationship between childhood misbehavior and later education and labor market outcomes. The main finding is that eighth‐grade misbehavior is important for earnings over and above eighth‐grade test scores. Moreover, controlling for educational attainment, childhood misbehavior is associated with earnings at all educational levels, whereas achievement test scores are related to earnings only for young men with postsecondary degrees. Possible explanations for the association between eighth‐grade misbehavior and economic success are explored.

  July 24, 2013   doi: 10.1111/jeea.12025   open full text
• JEEA‐FBBVA Lecture 2012: USE AND ABUSE OF AUTHORITY: A BEHAVIORAL FOUNDATION OF THE EMPLOYMENT RELATION.
  Björn Bartling, Ernst Fehr, Klaus M. Schmidt.
  Journal of the European Economic Association. July 24, 2013
  Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951, Econometrica, 19, 293–302), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one‐shot interactions, inducing the latter to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long‐run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration—the abuse of authority—and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz's (1972, American Economic Review, 62, 777–795) critique of the Coasian approach.

  July 24, 2013   doi: 10.1111/jeea.12017   open full text