Research in sociology and ethics suggests that individuals adhere to social norms of behavior established by their peers. Within an agency framework, we model endogenous social norms by assuming that each agent's cost of implementing an action depends on the social norm for that action, defined to be the average level of that action chosen by the agent's peer group. We show how endogenous social norms alter the effectiveness of monetary incentives, determine whether it is optimal to group agents in a single or two separate organizations, and may give rise to a costly adverse selection problem when agents' sensitivities to social norms are unobservable. (JEL D23, D82, D86, Z13)
A pre-recorded version of Leonid Hurwicz' Prize Lecture was presented on 8 December 2007 at Aula Magna, Stockholm University. The lecture was introduced by Professor Jorgen Weibull, Chairman of the Economics Prize Committee.
A principal can observe both the output and input of an agent who works at a job involving multiple tasks. We provide a simple theory that explains why it may be optimal for the principal to use only an output-based incentive contract, even though the principal can monitor the agent's actions perfectly in all but one task and knows exactly which action is optimal for each task. (JEL D82, D86, M54)
Using Selection on Observed Variables to Assess Bias from Unobservables When Evaluating Swan-Ganz Catheterization by Joseph G. Altonji, Todd E. Elder and Christopher R. Taber. Published in volume 98, issue 2, pages 345-50 of American Economic Review, May 2008
Although poverty research has a very long history in the social sciences, serious debate on the sufficiency of economic growth to eliminate poverty was rekindled by the inception of the “War on Poverty” by the Kennedy and Johnson Administrations during the early 1960s. Forty years later, the measurement of growth’s effect on poverty remains an important input to the policy question of whether, how much, and how govern ment efforts should address poverty reduction. Early work by Henry J. Aaron (1967) found that poverty among certain groups seemed highly sensitive to economic growth, while other groups were barely affected. Subsequent researchers have realized that poverty has a spa tial as well as a demographic dimension, and more recent work has examined poverty by “race and region” using disaggregated time series. The present study further refines the examination of poverty by racial/ethnic group and region by investigating the impact of economic progress on poverty across black, Hispanic, and white populations measured over 35 years at the level of the census region. To our knowledge, this is the first research to study all three of these groups using regional data. A regional analysis is important because the North, Midwest, South, and West have had different industrial structures and different economic histories over the last three decades. As shown in Figure 1, regional poverty rates of blacks and Hispanics relative to whites are quite different. Moreover, regional differences exist in the levels and growth rates of real per capital GDP, in the secular decline in manufac turing, and in the pattern of the unemployment rate. In addition to economic events, we control Non-White Poverty and Macroeconomy: The Impact of Growth
Measuring the Labor Market Impacts of Hurricane Katrina Migration: Evidence from Houston, Texas by Molly Fifer McIntosh. Published in volume 98, issue 2, pages 54-57 of American Economic Review, May 2008
While terrorist attacks are relatively infrequent, Gary Becker and Yona Rubinstein (2008) provide evidence that they generate a disproportionate amount of stress and fear, suggesting that the indirect effects may be far more reaching than the direct effects. The international organization Medecins Sans Frontieres (2006) claims that the physiological effect of civil conflict is Colombian’s worst public health problem. This paper is the first attempt to measure the effect of prenatal psychological stress due to terrorism on child birth outcomes. The medical literature indicates that prenatal stress increases levels of CorticotrophinReleasing Hormone (CRH), which regulates the duration of pregnancy and fetal maturation and thus increases the risk of adverse birth outcomes (Pathik D. Wadhwa et al. 1993, among others). There is also evidence that birth outcomes are most sensitive to maternal stress in early stages of pregnancy (Laura M. Glynn et al. 2001). This study finds that the intensity of random landmine explosions during a woman’s first trimester of pregnancy has a significant negative impact on child birth weight. This finding persists when mother fixed effects are included, suggesting that neither observable nor unobservable characteristics of the mothers are driving the results. I use a large dataset, comprising approximately 4 million births in Colombia from 1998 to 2003, which enables me to observe multiple births by the same mother and gives strong statistical power to discern patterns. The data also allow me to link the date of a landmine explosion with the trimester of the pregnancy, and thereby to identify the stage of pregnancy Stress and Birth Weight: Evidence from Terrorist Attacks
Allowing the Data to Speak Freely: The Macroeconometrics of the Cointegrated Vector Autoregression by Kevin D. Hoover, Soren Johansen and Katarina Juselius. Published in volume 98, issue 2, pages 251-55 of American Economic Review, May 2008
Optimal Life-Cycle Investing with Flexible Labor Supply: A Welfare Analysis of Life-Cycle Funds by Francisco J. Gomes, Laurence J. Kotlikoff and Luis M. Viceira. Published in volume 98, issue 2, pages 297-303 of American Economic Review, May 2008
International relative prices across industrialized countries show large and systematic deviations from relative purchasing power parity. We embed a model of imperfect competition and variable markups in a quantitative model of international trade. We find that when our model is parameterized to match salient features of the data on international trade and market structure in the United States, it can reproduce deviations from relative purchasing power parity similar to those observed in the data because firms choose to price-to-market. We then examine how pricing-to-market depends on the presence of international trade costs and various features of market structure. (JEL F12, F14, F31)