Knowledge that Transforms

In contrast to the standard interpretation of the origins of economics out of the secular European Enlightenment of the 18th century, the transition in thinking that we rightly identify with Adam Smith and his contemporaries and followers, which gave us economics as we now know it, was powerfully influenced by then-controversial changes in religious belief in the English-speaking Protestant world in which they lived: in particular, key aspects of the movement away from orthodox Calvinism. Further, those at-the-outset influences of religious thinking not only fostered the subsequent spread of Smithian thinking, especially in America, but shaped the course of its reception. The ultimate result was a variety of fundamental resonances between economic thinking and religious thinking that continue to influence our public discussion of economic issues, and our public debate over economic policy, today.

Motivated by recent cartel practices, a stable collusive agreement is characterized when firms' prices and quantities are private information. Conditions are derived whereby an equilibrium exists in which firms truthfully report their sales and then make transfers within the cartel based on these reports. The properties of this equilibrium fit well with the cartel agreements in a number of markets including citric acid, lysine, and vitamins. (JEL D43, D82, K21, L12, L61, L65)

We study David Gale's (1963) economy using laboratory markets. Tatonnement theory predicts prices will diverge from an equitable interior equilibrium toward infinity or zero depending only on initial prices. The inequitable equilibria determined by these dynamics give all gains from exchange to one side of the market. We show surprisingly strong support for these predictions. In most sessions one side of the market eventually outgains the other by more than 20 times, leaving the disadvantaged side to trade for mere pennies. We also find preliminary evidence that these dynamics are sticky, resisting exogenous interventions designed to reverse their trajectories. (JEL C92, D50)

We analyze the diffusion of buildings certified for energy efficiency across US property markets. Using a panel of 48 metropolitan areas (MSAs) observed over the last 15 years, we model the geographic patterns and dynamics of building certification, relating industry composition, changes in economic conditions, characteristics of the local commercial property market, and the presence of human capital, to the cross-sectional variation in energy-efficient building technologies and the diffusion of those technologies over time. Understanding the determinants and the rate at which energy-efficient building practices diffuse is important for designing policies to affect resource consumption in the built environment.

This study uses data from pre- and post-crash surveys from the Cognitive Economics study to examine the impact of recent stock and labor market wealth losses on the planned retirement ages of older Americans. Regression estimates imply that the average wealth loss between July 2008 and May/June 2009 is associated with an increase in planned retirement age of approximately 2.5 months. Furthermore, pessimism about future stock market returns is found to amplify the impact of wealth losses on retirement timing.

Eleven US states have “bottle laws,” deposit-refund programs that combine a consumption tax with a recycling rebate. When states set the bottle deposit low enough it becomes a tax on high wage earners, for whom the opportunity cost of their time prevents them from returning containers for their deposit. However, this bottle deposit will still be high enough that harvesting recyclables provides employment for low wage earners. Using individual data on observed cash recycling behavior, this paper shows that an unintended consequence of bottle laws is that they have the potential to increase the incomes of very low wage workers.

This paper analyzes 19th and 20th century data from a well-known château in Bordeaux. The dataset includes information on weather conditions, starting dates of three phenological stages of grapevine, prices, and yields. We discuss how these variables have evolved over the last two centuries. We also study to what extent the impact of climate on yields and prices has changed over time. Our regression analysis suggests that the effect of temperature on yields has become weaker since the 19th century. The influence on prices has, on the contrary, become stronger.

We show experimentally that whether and how communication achieves beneficial social outcomes in a hidden-information context depends crucially on whether low-talent agents can participate in a Pareto-improving outcome. Communication is effective (and pat terns of lies and truth quite systematic) when this is feasible, but otherwise completely ineffective. We examine the data in light of two potentially relevant behavioral models: cost-of-lying and guilt-from-blame. (JEL D82, D83, Z13)

In the theoretical literature on consumer search, one conclusion is nearly universal: as buyers become better able to observe and compare prices ex ante, sellers will set lower prices in equilibrium. In this paper, I examine a standard consumer search model with one small -- yet often relevant -- additional restriction: I assume that sellers are capacity constrained. In this environment, I illustrate that the conventional wisdom regarding information and prices does not necessarily hold: having more informed consumers can lead to a decrease in prices, have no effect at all, or even lead to an increase in prices.

Major League Baseball umpires express their racial/ethnic prefer ences when they evaluate pitchers. Strikes are called less often if the umpire and pitcher do not match race/ethnicity, but mainly where there is little scrutiny of umpires. Pitchers understand the incentives and throw pitches that allow umpires less subjective judgment (e.g., fastballs over home plate) when they anticipate bias. These direct and indirect effects bias performance measures of minorities downward. The results suggest how discrimination alters discriminated groups' behavior generally. They imply that biases in measured productivity must be accounted for in generating measures of wage discrimination. (JEL J15, J31, J44, J71, L83)