Knowledge that Transforms

The use of microeconomic data has become extremely widespread in applied economics. Household and firm level data are now routinely used not only in labour and industrial organization, but also in macroeconomics. The use that is made of the data is extremely varied, ranging from simple comparison of means in the evaluation literature based on Randomized Control Trials, to the matching of some data moments to calibrate the structural parameters of complex models of individual behaviour to the structural estimation of dynamic optimization models. At the same time, partly as consequences of technology advances, many more data sets are available. And much more detailed and high quality data are being collected. From a methodological point of view, important advances have been made in the techniques aimed at the elicitation in surveys of information about a variety of factors that constitute important inputs in the empirical analysis of economic behaviour. A good example, for instance, is the collection of information on household financial and non financial wealth, which was thought to be a very difficult if not impossible variable to measure accurately in a household survey and, instead, is now collected routinely and satisfactorily in many surveys, thanks to the development and standardization of new

We examine the effect of early-life rainfall on the health, education, and socioeconomic outcomes of Indonesian adults. We link historical rainfall for each individual's birth year and birth location with adult outcomes from the 2000 Indonesia Family Life Survey (IFLS). Higher early-life rainfall has large positive effects on the adult outcomes of women, but not of men. Women with 20 percent higher rainfall (relative to the local norm) are 0.57 centimeters taller, complete 0.22 more schooling grades, and live in households scoring 0.12 standard deviations higher on an asset index. Schooling attainment appears to mediate the impact on adult women's socioeconomic status.

Rich people, women, and healthy people live much longer than their poor, male, and sick counterparts. Two extremes, taken from our analysis of single people in the Assets and Health Dynamics of the Oldest Old (AHEAD) dataset, illustrate this point: an unhealthy 70-year-old male at the twentieth percentile of the permanent income distribution expects to live only 6 more years, that is, to age 76. In contrast, a healthy 70-year-old woman at the eightieth percentile of the permanent income distribution expects to live 16 more years, thus making it to age 86.] Such significant differences in life expectancy could, all else equal, lead to significant differ ences in saving behavior. A related observation is that people with high permanent incomes keep large amounts of assets until very late in life. Table 1, also based on the

This paper shows that the price of a painting sold at an art auction and the experts' pre-sale valuations are anchored on the price at which the painting previously sold at auction. We are able to separate anchoring from rational learning by using the identifying strategy that the unobservable component of quality for a particular painting remains constant between the last auction sale and the current auction sale. We interpret these results as anchoring on the part of the buyers, with the sellers and auctioneers either anticipating anchoring on the part of the buyers or exhibiting anchoring effects themselves.

This paper studies the second-moment properties of offshoring, the arrangement whereby firms carry out particular stages of production abroad. It documents a new empirical regularity: maquiladora industries in Mexico that are associated with US offshoring experience fluctuations in employment that are twice as volatile as the corresponding industries in the United States. This finding is not attributable simply to higher volatility in the overall Mexican economy, nor to the smaller size of Mexico's industries compared to US counterparts.

Yet research that examines the poverty reduction and labor supply effects of disability programs has taken place exclu-sively in developed countries with relatively low unemployment and high labor force participa-tion rates. In developing countries with high unemployment rates, the disincentive effect of cash transfers on labor supply has often been assumed to be economically insignificant (Anne Case and Angus Deaton 1998). In this paper, I provide initial evidence on, and draw attention to, the effect of the South Africa Disability Grant (DG) program on labor supply, in the context of a policy change in disability screening. I use a difference-in-differences estimator to assess the effect of a change toward a less intensive dis-ability screening on labor force nonparticipation for older individuals.If screening for disability benefit programs were perfect, the supply of disability benefits would be independent of labor supply decisions, and only those unable to work due to health con-ditions would receive benefits. However, the dis-ability screening process is imperfect because it is, in practice, difficult to determine whether a person is able to work, which is the typical test of eligibility for disability benefit programs. Recent evidence suggests that the work disincen -tive effects of disability benefits are expected to

We experimentally study decentralized organizational learning. Our objective is to understand how learning members of an organization cope with the confounding effects of the simultaneous learning of others. We test the predictions of a stylized, rational agent model of organizational learning that provides sharp predictions as to how learning members of an organization might cope with the simultaneous learning of others as a function of fundamental variables, e.g., firm size and the discount factor. While the problem of learning while others are learning is quite difficult, we find support for the comparative static predictions of the model's unique symmetric equilibrium.

We present new evidence on consumer liquidity constraints and the credit market conditions that might give rise to them. We analyze unique data from a large auto sales company serving the subprime market. Short-term liquidity appears to be a key driver of consumer behavior. Demand increases sharply during tax rebate season and purchases are highly sensitive to down-payment requirements. Lenders also face substantial informational problems. Default rates rise significantly with loan size, providing a rationale for loan caps, and higher-risk borrowers demand larger loans. This adverse selection is mitigated, however, by risk-based pricing.

A number of labor markets and student placement systems can be modeled as many-to-one matching markets. We analyze the scope for manipulation in many-to-one matching markets under the student-optimal stable mechanism when the number of participants is large. Under some regularity conditions, we show that the fraction of participants with incentives to misrepresent their preferences when others are truthful approaches zero as the market becomes large. With an additional condition, truthful reporting by every participant is an approximate equilibrium under the student-optimal stable mechanism in large markets.