Knowledge that Transforms

Welfare-Enhancing Technological Change and the Growth of Obesity by Darius Lakdawalla, Tomas Philipson and Jay Bhattacharya. Published in volume 95, issue 2, pages 253-257 of American Economic Review, May 2005

The controversy over dynamic scoring in the United States is not new.1 But the possibility that dynamic scoring might be adopted has moved closer to reality recently, with initial attempts by

We investigate the market for news under two assumptions: that readers hold beliefs which they like to see confirmed, and that newspapers can slant stories toward these beliefs. We show that, on the topics where readers share common beliefs, one should not expect accuracy even from competitive media: competition results in lower prices, but common slanting toward reader biases. On topics where reader beliefs diverge (such as politically divisive issues), however, newspapers segment the market and slant toward extreme positions. Yet in the aggregate, a reader with access to all news sources could get an unbiased perspective. Generally speaking, reader heterogeneity is more important for accuracy in media than competition per se.

In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance by Sharun W. Mukand and Dani Rodrik. Published in volume 95, issue 1, pages 374-383 of American Economic Review, March 2005

Following a recession, the aggregate labor market is slack–employment remains below normal and recruiting efforts of employers, as measured by help-wanted advertising and vacancies, are low. A model of matching friction explains the qualitative responses of the labor market to adverse shocks, but requires implausibly large shocks to account for the magnitude of observed fluctuations. The incorporation of wage stickiness vastly increases the sensitivity of the model to driving forces. I develop a new model of the way that wage stickiness affects unemployment. The stickiness arises in an economic equilibrium and satisfies the condition that no worker-employer pair has an unexploited opportunity for mutual improvement. Sticky wages neither interfere with the efficient formation of employment matches nor cause inefficient job loss. Thus the model provides an answer to the fundamental criticism previously directed at sticky-wage models of fluctuations.

This note corrects an error in an example in Meetings with Costly Participation (AER 90(4), 927-943). It characterizes the set of equilibria for the example under the assumptions in the paper, shows that in all the equilibria an interval of moderate po- sitions is devoid of participants, and provides assumptions under which the result as originally stated is correct.

Our main goal is to quantify the returns to a career in the United States Congress. We specify a dynamic model of career decisions of a member of Congress andestimate this model using a newly collected dataset. Given estimates of the structural model, we assess reelection probabilities, estimate the effect of congressional experience on private and public sector wages, and quantify the value of a congressional seat. Moreover, we assess how an increase in the congressional wage or the imposition of term limits would affect the career decisions of politicians and the returns from a career in Congress.

We provide a unified theory of the transition in income, life expectancy, education, and population size from a nondeveloped environment to sustained growth. Individuals optimally trade off the time cost of education with its lifetime returns. Initially, low longevity implies a prohibitive cost for human capital formation for most individuals. A positive feedback loop between human capital and increasing longevity, triggered by endogenous skill-biased technological progress, eventually provides sufficient returns for widespread education. The transition is not based on scale effects and induces population growth despite unchanged fertility. A simulation illustrates that the dynamics fit historical data patterns.

Researchers perpetually complain about long decision lags. Glenn Ellison (2002a,b) confirms that delays are being longer. He suggests an evolving social norm as a possible explanation, with more demands made on authors for their work to be published. Time delays have the additional effect, however, of limiting the flow of submissions. In the absence of time delays and other significant submission costs, the best strategy is to start at the most prestigious journal and work down until the article is accepted. Better journals are unlikely to welcome this. The major submission cost is the long and unpredictable length of time spent waiting for a decision. Ellison notes that time lags are longer for the top five economics journals, at around six to eleven months longer than the rest. Despite the increasing prestige of top journals, the number of submissions remains fairly static.

Heterogeneous time preference has a profound impact on the wealth distribution and therefore on equilibrium asset prices. I identify two distinct effects on interest rates: an averaging effect due to Jensen’s inequality and a general equilibrium consumption timing effect. The averaging effect decreases and the timing effect increases real interest rates, and both effects induce an inverse term structure. More fundamentally, the model shows that asset prices need to be interpreted with caution. Evidence apparently pointing to non-standard preferences may simply be the result of heterogeneity.