Knowledge that Transforms

This study presents a framework to include environmental externalities into a system of national accounts. The paper estimates the air pollution damages for each industry in the United States. An integrated-assessment model quantifies the marginal damages of air pollution emissions for the US which are multiplied times the quantity of emissions by industry to compute gross damages. Solid waste combustion, sewage treatment, stone quarrying, marinas, and oil and coal-fired power plants have air pollution damages larger than their value added. The largest industrial contributor to external costs is coal-fired electric generation, whose damages range from 0.8 to 5.6 times value added.

We study an infinite horizon game in which pairs of players connected in a network are randomly matched to bargain. Players who reach agreement are replaced by new players at the same positions in the network. We show that all equilibria are payoff equivalent. The payoffs and the set of agreement links converge as players become patient. Several new concepts—mutually estranged sets, partners, and shortage ratios—provide insights into the relative strengths of the positions in the network. We develop a procedure to determine the limit equilibrium payoffs for all players. Characterizations of equitable and nondiscriminatory networks are also obtained.

We examine US local telephone markets shortly after the Telecommunications Act of 1996. The data suggest that more experienced, better-educated managers tend to enter markets with fewer competitors. This motivates a structural econometric model based on behavioral game theory that allows heterogeneity in managers' ability to conjecture competitor behavior. We find that manager characteristics are key determinants in managerial ability. This estimate of ability predicts out-of-sample success. Also, the measured level of ability rises following a shakeout, suggesting that our behavioral assumptions may be most relevant early in the industry's life cycle.

We are the first to examine the effect of Superfund cleanups on infant health rather than focusing on proximity to a site. We study singleton births to mothers residing within 5km of a Superfund site between 1989-2003 in five large states. Our "difference in differences" approach compares birth outcomes before and after a site clean-up for mothers who live within 2,000 meters of the site and those who live between 2,000- 5,000 meters of a site. We find that proximity to a Superfund site before cleanup is associated with a 20 to 25% increase in the risk of congenital anomalies.

The cultural gravity model proposed in this paper uses micro-level survey data of 21,000 households to estimate the contribution to cultural heterogeneity of a long history of division between the Ottoman, Habsburg, Russian or Prussian Empires since the year 1300 in 21 European countries. By exploiting the variation in the duration of integration of localities in different empires, this paper sheds light on the influence of political integration on cultural integration and on the rate of cultural change. History matters and cultural values change very slowly: long lasting effects on social trust comes after 400 years of common imperial rule.

While widely accepted labor market search models imply a constant reservation wage policy, empirical evidence strongly suggests that reservation wages decline in search duration. This paper reports the results of the first real-time-search laboratory experiment. The controlled environment subjects face is stationary, and the payoff-maximizing reservation wage is constant. Nevertheless, subjects' reservation wages decline sharply over time. We investigate two hypotheses to explain this decline: 1. Searchers respond to the stock of accruing search costs. 2. Searchers experience non-stationary subjective costs of time spent searching. Our data support the latter hypothesis, and we substantiate this conclusion both experimentally and econometrically.

The CPI component indices are obtained from comparing price quotes at a given store in different periods. If we omit comparisons from goods in the store in the initial, but not in the comparison, period we generate a selection bias: goods that exit are disproportionately obsolete goods that have falling prices. Building on Pakes (2003), we explain why standard hedonic predictions for second-period prices of exiting goods do not account for this bias. New hedonic methods are derived, shown to have desirable properties, and are applied to three CPI samples where they generate significant selection corrections.

The distribution of city populations has attracted much attention, in part because it constrains models of local growth. However, there is no consensus on the distribution below the very upper tail, because available data need to rely on “legal” rather than “economic” definitions for medium and small cities. To remedy this difficulty, we construct cities “from the bottom up” by clustering populated areas obtained from high-resolution data. We find that Zipf 's law for population holds for cities as small as 5,000 inhabitants in Great Britain and 12,000 inhabitants in the US. We also find a Zipf 's law for areas. JEL: R11, R12, R23

This paper investigates how trading frictions vary with the thickness of the asset market by examining patterns of asset allocations and prices in commercial aircraft markets. The empirical analysis indicates that assets with a thinner market are less liquid—i.e., more difficult to sell. Thus, firms hold on longer to them amid profitability shocks. Hence, when markets for assets are thin, firms' average productivity and capacity utilization are lower, and the dispersions of productivity and of capacity utilization are higher. In turn, prices of assets with a thin market are lower and have a higher dispersion.

We analyze risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: utility curvature, loss aversion, preferences toward the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behavior. The structural parameters are significantly associated with socioeconomic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.