The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job? by David Card, Raj Chetty and Andrea Weber. Published in volume 97, issue 2, pages 113-118 of American Economic Review, May 2007

Flavio Cunha; James Heckman.May, 2007.The technology of skill formation,Report,ChicagoAmerican Economic Association,17

A core question in the contemporary debate on distributive justice is how to understand fairness in situations involving production. Important theories of distributive justice, such as strict egalitarianism, liberal egalitarianism, and libertarianism, provide different answers to this question. This paper presents the results from a dictator game where the distribution phase is preceded by a production phase. Each player's contribution is a result of a freely chosen investment level and an exogenously given rate of return. We estimate simultaneously the prevalence of three principles of distributive justice among the players and the distribution of the weight they attach to fairness

Preferences for redistribution, as well as the generosity of welfare states, differ significantly across countries. This paper tests whether there exists a feedback process of the economic regime on individual preferences. We exploit the experiment of German separation and reunification to establish exogeneity of the economic system. We find that, after German reunification, East Germans are more in favor of state intervention than West Germans. This effect is especially strong for older cohorts. We further find that East Germans' preferences converge toward those of West Germans. It will take one to two generations for preferences to converge completely

“A clear conscience is a good pillow.” Why does this old proverb contain an insight? The emotion of guilt holds a key. Psychologists report that “the prototypical cause of guilt would be the infliction of harm, loss, or distress on a relationship partner” (Roy Baumeister, Arlene M. Stillwell, and Todd F. Heatherton 1994, 245; June Price Tangney 1995). Moreover, guilt is unpleasant and may affect behavior to render the associated pangs counterfactual. Baumeister, Stillwell, and Heatherton state, “If people feel guilt for hurting their partners ... and for failing to live up to their expectations, they will alter their behavior (to avoid guilt) in ways that seem likely to maintain and strengthen the relationship.” Avoided guilt is the down of the sound sleeper’s bolster. How can guilt be modeled? How are human interaction and economic outcomes influenced? We offer a formal approach for providing answers. Start with an extensive game form which associates a monetary outcome with each end node. Say that player i lets player j down if as a result of i’s choice of strategy, j gets a lower monetary payoff than j expected to get before play started. Player i’s guilt may depend on how much he lets j down. Player i’s guilt may also depend on how much j believes i believes he lets j down. We develop techniques to analyze equilibria when players are motivated, in part, by a desire to avoid guilt. The intellectual home for our exercise is what has been called psychological game theory. This framework—originally developed by John Geanakoplos, David Pearce, and Ennio Stacchetti (1989) and recently extended by Battigalli and Dufwenberg (2005) (henceforth B&D)—allows players’ utilities to depend on beliefs (about choices, states of nature,

Many view the period after the Second Industrial Revolution as a paradigm of a transition to a new economy following a technological revolution, including the Information Technology Revolution. We build a quantitative model of diffusion and growth during transitions to evaluate that view. With a learning process quantified by data on the life cycle of US manufacturing plants, the model accounts for the key features of the transition after the Second Industrial Revolution. But we find that features like those will occur in other transitions only if a large amount of knowledge about old technologies exists before the transition begins.

This paper analyzes the welfare costs of business cycles when workers face uninsurable job displacement risk. The paper uses a simple macroeconomic model with incomplete markets to show that cyclical variations in the long-term earnings losses of displaced workers can generate arbitrarily large cost of business cycles even if the variance of individual income changes is constant over the cycle. In addition to the theoretical analysis, this paper conducts a quantitative study of the cost of business cycles using empirical evidence on the long-term earnings losses of US workers. The quantitative analysis shows that realistic variations in job displacement risk generate sizable costs of business cycles, even though a second-moment analysis would suggest negligible costs

The inclusion of a durable goods sector in sticky-price models has strong and unexpected implications. Even if most prices are flexible, a small durable goods sector with sticky prices may be sufficient to make aggregate output react to monetary policy as though most prices were sticky. In contrast, flexibly priced durables with sufficiently long service lives can undo the implications of standard sticky price models. In a limiting case, flexibly priced durables cause monetary policy to have no effect on aggregate output. Our analysis suggests that durable goods prices are the most relevant data for calibrating price rigidity.

We study a multisector model of growth with differences in TFP growth rates across sectors and derive sufficient conditions for the coexistence of structural change, characterized by sectoral labor reallocation and balanced aggregate growth. The conditions are weak restrictions on the utility and production functions. Along the balanced growth path, labor employed in the production of consumption goods gradually moves to the sector with the lowest TFP growth rate, until in the limit it is the only sector with nontrivial employment of this kind. The employment shares of intermediate and capital goods remain constant during the reallocation process.