Knowledge that Transforms

Although theory on corruption is well developed, it has proven difficult to isolate corrupt behavior empirically. In this paper, we provide overwhelming statistical evidence documenting match rigging in Japanese sumo wrestling. A non-linearity in the incentive structure of promotion leads to gains from trade between wrestlers on the margin for achieving a winning record and their opponents. We show that wrestlers win a disproportionate share of the matches when they are on the margin. Collusion, rather than increased effort, appears to explain the results. Wrestlers who are victorious when needing a victory lose more often than would be expected the next time they meet that same opponent, suggesting that part of the payment for throwing a match is future payment in kind. Cheating disappears in times of high media scrutiny. In addition to collusion by individual wrestlers, there is also evidence of reciprocity agreements across stables of wrestlers, suggesting a centralized element to the match rigging.

Within a simple New Keynesian model emphasizing forward-looking behavior of private agents, I evaluate optimal nominal income growth targeting versus optimal inflation targeting. When the economy is mainly subject to shocks that do not involve monetary policy trade-offs for society, inflation targeting is preferable. Otherwise, nominal income growth targeting may be superior because it induces inertial policy making, which improves the inflation–output-gap trade-off. Somewhat paradoxically, inflation targeting may be relatively less favorable the more society dislikes inflation, and the more persistent are the effects of inflation-generating shocks.

Trade has been considered a condition for growth and development, a view that might have merits in explaining the rise of the Western world. I use a new data set from archival sources of eighteenth-century China to revisit this question. This analysis suggests previous studies of market integration, which attribute much growth to a reduction in transport costs, have overestimated these effects. I find the overall level of market integration in China was higher than previously thought, and, intertemporal effects are important substitutes for trade. Both factors reduce the importance of trade as a unique explanation for subsequent growth.

We provide simple mechanisms to implement the efficient allocation of pollution, first assuming complete information across firms and then allowing for incomplete information. Both mechanisms operate by inducing firms to monitor one another, using firms’ reports to determine pollution allotments and transfers. The complete information mechanism determines a firm’s transfer according to a linear pollution price, set by other firms. Both mechanisms can be modified to be budget-balanced, in and out of equilibrium. The complete information mechanism implements the efficient allocation even when firms are allowed to use mixed strategies. Under a “single-crossing” condition, the same holds for the incomplete

Between 1800 and 1940 the U.S. went through a dramatic demographic transition. In 1800 the average woman had 7 children, and 94 percent of the population lived in rural areas. By 1940 the average woman birthed just 2 kids, and only 43 percent of populace lived in the country. The question is: What accounted for this shift in the demographic landscape? The answer given here is that technological progress in agriculture and manufacturing explains these facts.

In this paper, we investigate the impact of economic incentives on the international supply of big-screen movies. More particularly, we also study the impact of a 1998 increase in the term of copyright on U.S. movie production.

Strategic complementarity games have found applications in many fields, including macroeconomics, development, and labor economics.' They provide a useful framework within which to address questions like: What generates the disparity across regions and countries? Why are there booms and recessions? and What causes gender and race discrimination in the labor market? In short, they help us think about the diversity and variations across space, time, and groups. The literature on complementarity games has emphasized coordination failures as the key notion to understand these questions. This paper argues that such emphasis is misplaced; the key to understand the diversity is symmetrybreaking. The notion of coordination failures is not only irrelevant, but also misleading when thinking about the diversity.

This paper evaluates the effects of fiscal policy on investment using a panel of OECD countries. We find a sizeable negative effect of public spending—and in particular of its wage component— on profits and on business investment. This result is consistent with different theoretical models in which government employment creates wage pressure for the private sector. Various types of taxes also have negative effects on profits, but, interestingly, the effects of government spending on investment are larger than those of taxes. Our results can explain the so-called “non-Keynesian” (i.e., expansionary) effects of fiscal adjustments.

Specially collected data on adults in the Panel Study of Income Dynamics are used to provide evidence on the longer-term effects of Head Start, an early intervention program for poor preschool-age children. Whites who attended Head Start are, relative to their siblings who did not, significantly more likely to complete high school, attend college, and possibly have higher earnings in their early twenties. African-Americans who participated in Head Start are less likely to have been booked or charged with a crime. There is some evidence of positive spillovers from older Head Start children to their younger siblings.