Knowledge that Transforms

This article provides a comprehensive assessment of the theoretical and empirical literature on structural reforms in advanced economies. Structural reforms matter because they entail profound and systematic changes that affect economic welfare, productivity, growth, unemployment, macroeconomic stability, and income inequality. Here we focus on structural reforms in product, labor, and financial markets. After putting forward a set of stylized facts, we take stock of the literature on each of these three key structural reforms, and then assess their business cycle and political economy implications. We underscore various gaps in the literature and articulate a future research agenda that highlights four main areas: measurement, interactions among reforms, political economy considerations, and the timing of the implementation of reforms. (JEL D40, E23, E24, E25, E32, E44, P11)

This article provides empirical researchers with an introduction and guide to research designs based on variation in judge and examiner tendencies to administer treatments or other interventions. We review the basic theory behind this research design, outline the assumptions under which the design identifies causal effects, describe empirical tests of the conditions for identification, and discuss trade-offs associated with choices researchers must make for estimation. We demonstrate concepts and best practices in an empirical case study that uses an examiner tendency research design to study the effects of pretrial detention. (JEL C21, C26, K14, K41)

Attention is an important resource in the modern economy and plays an increasingly prominent role in economic analysis. We summarize research on attention from both psychology and economics with a particular emphasis on its capacity to explain documented violations of classical economic theory. We also identify promising new directions for research, including attention-based utility, the recent proliferation of attentional externalities introduced by digital technology, the potential impact of artificial intelligence on the economics of attention, and the significant role that boredom, curiosity, and other motivational states play in determining how people allocate attention. (JEL C45, D83, D91, I20)

We review the vast literature on social preferences by assessing what is known about their fundamental properties, their distribution in the broader population, and their consequences for important economic and political behaviors. We provide, in particular, an overview of the empirical characteristics of distributional preferences and how they are affected by merit, luck, and concerns for equality of opportunity. In addition, we discuss the evidence for reciprocity and guilt aversion and assess the empirical relevance of self-image and social image concerns in prosocial behaviors. The overall evidence indicates that a large majority of individuals have some sort of social preferences, while purely self-interested subjects are a minority. We also document converging insights from the lab and the field on the impact of wage inequality on work morale, employees’ resistance to wage cuts, and the role of social preferences for cooperation and collective action, distributive politics, and individuals’ selection into different occupations. (JEL D63, D71, D72, D86, H23, J53)

This paper proposes a new framework for studying the interplay between culture and institutions. We interpret culture as a repertoire, consisting of (cultural) attributes and allowing rich cultural responses to political changes. Combinations of attributes produce cultural configurations, which provide social meaning, coordination and political justification. Our framework has several distinctive features. First, it proposes a “systems approach” to culture: the meaning and function of attributes are determined within the whole configuration and political equilibrium. Second, it emphasizes discontinuous or “saltational” changes in culture—rather than gradual, evolutionary changes—as attributes are reconnected and acquire new meanings in response to evolving circumstances and as outcomes in ongoing “cultural struggles”. Third, our framework puts the spotlight on how fluidly different cultures can respond to conditions, depending on the nature of their attributes and constraints on their connections. Finally, it enriches the study of the co-determination of political, institutional and cultural outcomes.

This essay reviews two recent books on economic growth: Mark Koyama and Jared Rubin’s How the World Became Rich and J. Bradford DeLong’s Slouching Towards Utopia. Both books offer rich and nuanced treatments of the long-run and proximate mechanisms underlying the global growth in the past centuries. I evaluate their arguments and conclude with some reflections on conceptual shortcomings in the growth literature and some suggestions for the future. (JEL F54, J11, N10, N30, N40, N60, O40)

Cognitive economics studies imperfect information and decision-making mistakes. A central scientific challenge is that these can’t be identified in standard choice data. Overcoming this challenge calls for data engineering, in which new data forms are introduced to separately identify preferences, beliefs, and other model constructs. I present applications to traditional areas of economic research, such as wealth accumulation, earnings, and consumer spending. I also present less traditional applications to assessment of decision-making skills, and to human–AI interactions. Methods apply both to individual and to collective decisions. I make the case for broader application of data engineering beyond cognitive economics. It allows symbiotic advances in modeling and measurement. It cuts across existing boundaries between disciplines and styles of research. (JEL C45, C80, D15, D80, D91, G50, J24)

A central question in applied research is to estimate the effect of an exogenous intervention or shock on an outcome. The intervention can affect the outcome and controls on impact and over time. Moreover, there can be subsequent feedback between outcomes, controls, and the intervention. Many of these interactions can be untangled using local projections. This method’s simplicity makes it a convenient and versatile tool in the empiricist’s kit, one that is generalizable to complex settings. This article reviews the state of the art for the practitioner and discusses best practices and possible extensions of local projections methods, along with their limitations. (JEL C32, C33, C36, E23, E24)

This essay provides a streamlined presentation of stratification economics (SE) in three pillars and comments on Patrick L. Mason’s (2023) book The Economics of Structural Racism: Stratification Economics and US Labor Markets. SE, a field that seeks to understand racism and other social inequalities between ascriptive groups, is characterized by rational, self-interested models of group conflict, where social groups, not individuals, are the fundamental unit of analysis, and where intergenerational transmission of advantage or disadvantage cannot be overlooked. Mason demonstrates how, compared to the dominant alternatives in economics, SE better explains changes in racial inequality over time. (JEL D31, D63, D74, D91, J15, J71, N30)

Policymakers, public commentators, and researchers often cite the Nordic countries as examples of a socioeconomic model that combines low income inequality with prosperity and growth. This article critically assesses that claim by integrating theoretical perspectives and empirical evidence to explain how the Nordic model functions and why these countries experience low inequality. Our analysis suggests that income equality in the Nordics is largely driven by a significant compression of hourly wages, reducing returns to labor market skills and education. This appears to result from a wage bargaining system characterized by strong coordination within and across industries. This finding challenges other commonly cited explanations for Nordic income equality, such as redistribution through the tax transfer system, public spending on goods that complement employment, and public policies promoting equal skills and human capital. We consider broader lessons for economies aiming to reduce inequality and conclude by highlighting several under-explored or unresolved questions. (JEL D31, E23, H23, J24, J31, J52)