Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing “too much” liquidity.

If democracy is to have any of the good effects said to justify it, it must be self-enforcing. Those who control the government must choose to hold regular, competitive elections for the highest offices, and all parties must be willing to comply with the results. I consider simple models of electoral accountability along the lines of Barro (1973) and Ferejohn (1986), but allowing rulers to chose whether to hold elections and citizens whether to rebel or protest. When individuals privately observe a signal of government’s performance (e.g., their own welfare), they face a difficult problem of how to coordinate to pose a credible threat of rebellion necessary to induce the ruler to provide public goods. The convention of holding elections according to a known schedule and rules can provide a public signal for coordinating rebellion in the event that elections are suspended or blatantly rigged, while the elections themselves aggregate private observations of performance. Two threats to this solution to political moral hazard are also considered. First, when the ruling faction controls the army, it may prefer to fight rather step down after losing an election, and ex post transfers may be incredible. A party system where parties can return to office in the future is shown to be able to restore self-enforcing democracy, though at the expense of weaker electoral control. Second, subtle or piecemeal electoral fraud may undermine the ability of the citizens to credibly threaten the opposition that maintains elections. I show that when there are organizations in society that can privately (though noisily) observe and announce fraud or the state of popular discontent (such as an opposition party), under some conditions the incumbent prefers to commit to fair elections over an “accountable autocratic ” equilibrium in which public goods are provided but costly rebellions periodically occur. 1

This article analyzes the effect of competition on a supermarket firm's incentive to provide product quality. In the supermarket industry, product availability is an important measure of quality. Using U.S. Consumer Price Index microdata to track inventory shortfalls, I find that stores facing more intense competition have fewer shortfalls. Competition from Walmart—the most significant shock to industry market structure in half a century—decreased shortfalls among large chains by about a third. The risk that customers will switch stores appears to provide competitors with a strong incentive to invest in product quality.

Simultaneity between prisoner populations and crime rates makes it difficult to isolate the causal effect of changes in prison populations on crime. To break that simultaneity, this paper uses prison overcrowding litigation in a state as an instrument for changes in the prison population. The resulting elasticities are two to three times greater than those of previous studies. A one-prisoner reduction is associated with an increase of fifteen Index I crimes per year. While calculations of the costs of crime are inherently uncertain, it appears that the social benefits associated with crime reduction equal or exceed the social costs of incarceration for the marginal prisoner.

I. The problem, 1. — II. The bonus as a function of profit and sales, 4. — III. The iterative process, 9. — IV. A practical look, 12. — Mathematical note, 15.

Bayesian consumers infer that hidden add-on prices (e.g., the cost of ink for a printer) are likely to be high prices. If consumers are Bayesian, firms will not shroud information in equilibrium. However, shrouding may occur in an economy with some myopic (or unaware) consumers. Such shrouding creates an inefficiency, which firms may have an incentive to eliminate by educating their competitors' customers. However, if add-ons have close substitutes, a “curse of debiasing” arises, and firms will not be able to profitably debias consumers by unshrouding add-ons. In equilibrium, two kinds of exploitation coexist. Optimizing firms exploit myopic consumers through marketing schemes that shroud high-priced add-ons. In turn, sophisticated consumers exploit these marketing schemes. It is not possible to profitably drive away the business of sophisticates. It is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms. We show that informational shrouding flourishes even in highly competitive markets, even in markets with costless advertising, and even when the shrouding generates allocational inefficiencies.

A striking feature of many financial crises is the collapse of exports relative to output. In the 2008 financial crisis, real world exports plunged 17 percent while GDP fell 5 percent. This paper examines whether the drying up of trade finance can help explain the large drops in exports relative to output. This paper is the first to establish a causal link between the health of banks providing trade finance and growth in a firm's exports relative to its domestic sales. We overcome measurement and endogeneity issues by using a unique data set, covering the Japanese financial crises of the 1990s, which enables us to match exporters with the main bank that provides them with trade finance. Our point estimates are economically and statistically significant, suggesting that trade finance accounts for about one-third of the decline in Japanese exports in the financial crises of the 1990s.

In an audit study of sex discrimination in hiring, comparably matched pairs of men and women applied for jobs as waiters and waitresses at restaurants in Philadelphia. In high-price restaurants (where earnings are higher), job applications from women had an estimated probability of receiving a job offer that was lower by about 0.4, and an estimated probability of receiving an interview that was lower by about 0.35. Both estimated differentials are statistically significant. Additional evidence suggests that customer discrimination partly underlies the hiring discrimination.

Christopher J. Waller, David D. VanHoose; Discretionary Monetary Policy and Socially Efficient Wage Indexation*, The Quarterly Journal of Economics, Volume 107,

Street gangs have a long history in American cities (Thrasher 1927). Until recently, gangs were organized primarily as social peer groups. Any economic activities were of secondary importance (Suttles 1968, Klein 1995). The last two decades, however, have given rise to a dramatic transformation in street gangs, or what Taylor (1990) terms their "corporatization."