Knowledge that Transforms

What explains the range of situations in which individuals cooperate? This paper studies a model where individuals respond to incentives but are also influenced by norms of good conduct inherited from earlier generations. Parents rationally choose what values to transmit to their offspring, and this choice is influenced by the spatial patterns of external enforcement and of likely future transactions. The equilibrium displays strategic complementarities between values and current behavior, which reinforce the effects of changes in the external environment. Values evolve gradually over time, and if the quality of legal enforcement is chosen under majority rule, there is path dependence: adverse initial conditions may lead to a unique equilibrium where legal enforcement remains weak and individual values discourage cooperation.

We present a model of uninformative persuasion in which individuals "think coarsely": they group situations into categories and apply the same model of inference to all situations within a category. Coarse thinking exhibits two features that persuaders take advantage of: (i) transference, whereby individuals transfer the informational content of a given message from situations in a category where it is useful to those where it is not, and (ii) framing, whereby objectively useless information influences individuals' choice of category. The model sheds light on uninformative advertising and product branding, as well as on some otherwise anomalous evidence on mutual fund advertising.

This comment makes three observations about Donohue and Levitt's paper on abortion and crime (Quarterly Journal of Economics 119(1) (2001), 249–275). First, there is a coding mistake in the concluding regressions, which identify abortion's effect on crime by comparing the experiences of different age cohorts within the same state and year. Second, correcting this error and using a more appropriate per capita specification for the crime variable generates much weaker results. Third, earlier tests in the paper, which exploit cross-state rather than within-state variation, are not robust to allowing for differential state trends based on statewide crime rates that predate the period when abortion could have had a causal effect on crime.

In theory, growing wage inequality within gender should cause women to invest more in their market productivity and should differentially pull able women into the workforce. Our paper uses Heckman's two-step estimator and identification at infinity on repeated Current Population Survey cross sections to calculate relative wage series for women since 1970 that hold constant the composition of skills. We find that selection into the female full-time full-year workforce shifted from negative in the 1970s to positive in the 1990s, and that the majority of the apparent narrowing of the gender wage gap reflects changes in female workforce composition. We find the same types of composition changes by measuring husbands' wages and National Longitudinal Survey IQ data as proxies for unobserved skills. Our findings help to explain why growing wage equality between genders coincided with growing inequality within gender.

Can part of Africa's current underdevelopment be explained by its slave trades? To explore this question, I use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during Africa's slave trades. I find a robust negative relationship between the number of slaves exported from a country and current economic performance. To better understand if the relationship is causal, I examine the historical evidence on selection into the slave trades and use instrumental variables. Together the evidence suggests that the slave trades had an adverse effect on economic development.

Because minorities typically fare poorly on standardized tests, job testing is thought to pose an equality-efficiency trade-off: testing improves selection but reduces minority hiring. We develop a conceptual framework to assess when this trade-off is likely to apply and evaluate the evidence for such a trade-off using hiring and productivity data from a national retail firm whose 1,363 stores switched from informal to test-based worker screening over the course of one year. We document that testing yielded more productive hires at this firm—raising mean and median tenure by 10% or more. Consistent with prior research, minorities performed worse on the test. Yet, testing had no measurable impact on minority hiring, and productivity gains were uniformly large among minority and nonminority hires. These results suggest that job testing raised the precision of screening without introducing additional negative information about minority applicants, most plausibly because both the job test and the informal screen that preceded it were unbiased.

Various historical accounts have suggested that the Ottomans' rise helped the Protestant Reformation as well as its offshoots, such as Zwinglianism, Anabaptism, and Calvinism, survive their infancy and mature. Utilizing a comprehensive data set on violent confrontations for the interval between 1401 and 1700 CE, I show that the incidence of military engagements between the Protestant Reformers and the Counter-Reformation forces between the 1520s and 1650s depended negatively on the Ottomans' military activities in Europe. Furthermore, I document that the impact of the Ottomans on Europe went beyond suppressing ecclesiastical conflicts only: at the turn of the sixteenth century, Ottoman conquests lowered the number of all newly initiated conflicts among the Europeans roughly by 25 percent, while they dampened all longer-running feuds by more than 15 percent. The Ottomans' military activities influenced the length of intra-European feuds too, with each Ottoman-European military engagement shortening the duration of intra-European conflicts by more than 50 percent. Thus, while the Protestant Reformation might have benefited from—and perhaps even capitalized on—the Ottoman advances in Europe, the latter seems to have played some role in reducing conflicts within Europe more generally.

We examine a natural experiment and a field experiment that provided direct information on school test scores to lower-income families in a public school choice plan. Receiving information significantly increases the fraction of parents choosing higher-performing schools. Parents with high-scoring alternatives nearby were more likely to choose nonguaranteed schools with higher test scores. Using random variation from each experiment, we find that attending a higher-scoring school increases student test scores. The results imply that school choice will most effectively increase academic achievement for disadvantaged students when parents have easy access to test score information and good options from which to choose.

Better-informed consumers may be treated preferentially by firms because their consumption serves as a quality signal for other customers. For normal goods this results in wealthy individuals being treated better than poor individuals. We investigate this phenomenon in an equilibrium model of social learning with heterogeneous consumers and firms that act strategically. Consumers search for highquality firms and condition their choices on observed actions of other consumers. When they observe consumers who are more likely to have identified a high-quality firm, uninformed individuals will optimally emulate those consumers. One group of consumers arise endogenously as “leaders” whose consumption behavior is emulated. Follow-on sales induce firms to give preferential treatment to these lead consumers, which reinforces their learning. “One very clear impression I had of all the Beautiful People was their prudence. It may be that they paid for their own airline tickets but they paid for little else.” James Brady, Press Secretary to Ronald Reagan From Superchic, Little, Brown 1974

We examine how incumbents respond to the threat of entry by competitors (as distinct from how they respond to actual entry).We look specifically at passenger airlines, using the evolution of Southwest Airlines' route network to identify particular routes where the probability of future entry rises abruptly.We find incumbents cut fares significantly when threatened by Southwest's entry.Over half of Southwest's total impact on incumbent fares occurs before Southwest starts flying.These cuts are only on threatened routes, not those out of non-Southwest competing airports.The evidence on whether incumbents are seeking to deter or accommodate entry is mixed.