We examine some basic data on the evolution of aggregate short interest, both during the dot-com era, and at other times in history. Total short interest moves in a countercyclical fashion. For example, short interest in NASDAQ stocks actually declines as the NASDAQ index approaches its peak. Moreover, this decline does not seem to reflect a substitution away from outright short-selling and towards put options, as the ratio of put-to-call volume displays the same countercyclical tendency. The evidence suggests that: i) arbitrageurs are reluctant to bet against aggregate mispricings; and ii) short-selling does not play a particularly helpful role in stabilizing the overall stock market.

Managed Care, Information, and Diffusion: The Case of Treatment for Heart-Attack Patients by Laurence C. Baker, Christopher C. Afendulis and Paul A. Heidenreich. Published in volume 94, issue 2, pages 347-351 of American Economic Review, May 2004

We study the incentives that governments have to protect intellectual property in a trading world economy. We consider a world economy with ongoing innovation in two countries that differ in market size and in their capacity for innovation. After describing the determination of national patent policies in a noncooperative regime of patent protection, we ask, “Why is intellectual property better protected in the North than in the South?” We also study international patent agreements by deriving the properties of an efficient global regime of patent protection and asking whether harmonization of patent policies is necessary or sufficient for global efficiency.

Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption by Martin Lettau and Sydney C. Ludvigson. Published in volume 94, issue 1, pages 276-299 of American Economic Review, March 2004