Knowledge that Transforms

A large empirical literature finds that there is too little international trade and too much intranational trade to be rationalized by observed international trade costs, such as tariffs and transport costs. This paper investigates whether a model in which the nature of production can change in response to trade costs—a framework with multistage production—can better explain the home bias in trade. The calibrated model can explain about two-fifths of the Canada border effect, about two-and-one-half times that of a model with one production stage. The model also explains a significant fraction of Canada-US “back-and-forth,” or vertical specialization, trade. (JEL F11, F13, F14)

Open source collaborations are increasingly among commercial rms whose interest is pro t. Why would pro t-motivated rms voluntarily share code? One reason is that cost reductions can outweigh increases in rivalry. This is especially persuasive when the contributors make complementary products. However, cost reductions do not explain why open source is a more pro table way of sharing than other forms of licensing. Why would rms use an in exible contract like the GPL? I present a model that shows how open source licensing can lead to higher industrywide pro t than would result if a rst innovator could choose the most pro table license once it nds itself in the position of rst innovator. From behind a veil of ignorance, that is, not knowing which rm will be rst, open source licensing creates higher expected pro t for the industry as a whole, and thus for each rm, than if rst innovators were allowed to choose. In the 1990's, open-source collaborations emerged as a new way of organizing software development (Eric S. Raymond, 1999). In an open-source collaboration, members disclose

Inputs and Impacts in Charter Schools: KIPP Lynn by Joshua D. Angrist, Susan M. Dynarski, Thomas J. Kane, Parag A. Pathak and Christopher R. Walters. Published in volume 100, issue 2, pages 239-43 of American Economic Review, May 2010

Intrafirm Trade and Product Contractibility by Andrew B. Bernard, J. Bradford Jensen, Stephen J. Redding and Peter K. Schott. Published in volume 100, issue 2, pages 444-48 of American Economic Review, May 2010

This paper considers the relationship between adult child international migration and the health outcomes of elderly parents left behind in Mexico. Overall, the evidence suggests that having a migrant child is associated with a higher probability that the elderly parent in Mexico will be in poor physical and mental health. These results call into question the popular view that family members left behind in source countries undoubtedly benefit from the international migration of their relatives.

Investigating Income Effects in Scanner Data: Do Gasoline Prices Affect Grocery Purchases? by Dora Gicheva, Justine Hastings and Sofia Villas-Boas. Published in volume 100, issue 2, pages 480-84 of American Economic Review, May 2010

One lingering puzzle is why voluntary contributions to public goods decline over time in experimental and real-world settings. We show that the decline of cooperation is driven by individual preferences for imperfect conditional cooperation. Many people's desire to contribute less than others, rather than changing beliefs of what others will contribute over time or people's heterogeneity in preferences makes voluntary cooperation fragile. Universal free riding thus eventually emerges, despite the fact that most people are not selfish. (D12, D 83, H41, Z13)

Changes in Transportation Infrastructure and Commuting Patterns in US Metropolitan Areas, 1960-2000 by Nathaniel Baum-Snow. Published in volume 100, issue 2, pages 378-82 of American Economic Review, May 2010

A long tradition in macroeconomics dating back to Arthur Okun (1965) and Walter Oi (1962) regards cyclical productivity fluctuations as an artifact, a residual generated from the incomplete and lagged response of employment and labor hours to demand-driven fluctuations in real output. In Okun’s version a one percent decline in output relative to trend is divided up into a reduction of 1 ⁄3 point in productivity and 2 ⁄3 point in aggregate hours. The latter is further subdivided into a reduction of 1 ⁄3 point in the employment rate, with the remaining adjustment taking the form of lower hours per employee and in the labor force participation rate (hereafter LFPR). Yet this tradition of regarding cyclical productivity fluctuations as a byproduct of demand-driven output cycles has been almost forgotten over the past three decades as a result of widespread adoption of the real business cycle (RBC) model in which productivity shocks are treated as exogenous, as unexplained, as unrelated to aggregate demand, and as the sole driver of business cycles. Even in the more enlightened modern macro work on Dynamic Stochastic General Equilibrium Models, aggregate demand and sticky prices have reappeared, but most recent papers still include an autonomous “technology shock” as one of several causes of short-term business cycle fluctuations. Revisiting and Rethinking the Business CyCle †

The literature on school choice assumes that families can submit a preference list over all the schools they want to be assigned to. However, in many real-life instances families are only allowed to submit a list containing a limited number of schools. Subjects' incentives are drastically affected, as more individuals manipulate their preferences. Including a safety school in the constrained list explains most manipulations. Competitiveness across schools plays an important role. Constraining choices increases segregation and affects the stability and efficiency of the final allocation. Remarkably, the constraint reduces significantly the proportion of subjects playing a dominated strategy (JEL D82, I21)