Knowledge that Transforms

We propose an evolutionary explanation for the pattern of intertemporal preference reversals often ascribed to hyperbolic discounting. We take the view that preferences—manifested, for example, in urges, cravings, and inclinations— are the outcome of evolutionary forces, and so will induce animals or humans to make survival-maximizing choices in decision problems. We show that if the typical problem involves payoffs whose realization times are uncertain, then optimal preferences give rise to relatively patient behavior when the time horizon is long but induce a switch to impatience when the horizon grows short. Such reversals do not entail dynamic inconsistency in typical decision problems; behavior there is optimal. However, if a decision-maker is confronted with a choice for which the realization-time uncertainty falls outside the evolutionary norm, her preferences may well prompt her to behave inconsistently. We argue that, if such a choice problem recurs, her evolutionarily endowed aability to learn will lead her to make self-commitments against these urges.(This abstract was borrowed from another version of this item.)

Rising levels of foreign direct investment (FDI) concern growing numbers of policymakers and members of the American public. These concerns stem from the perception that foreign activities of American multinational corporations reduce employment and other economic activities within the United States. While investment flows within the United States go largely unnoticed, in an international setting the lexicon of “winners” and “losers” can be inescapable. Curiously, both capital-exporting countries and capital-importing countries have at times expressed concern over the consequences of international capital flows. Capital-exporting countries worry that too much of their capital goes abroad, while capital-importing countries fear foreign control of domestic assets and the possible macroeconomic instability associated with rapid changes in foreign investment levels. The concerns of capital-exporting countries, while diffuse, often are based on conceptions of outbound FDI as diverting economic activity. Unsurprisingly, growing overseas activities of multinational firms have become a source of economic insecurity for workers, managers, and tax collectors (see e.g., Kenneth F. Scheve and Matthew J. Slaughter, 2001).

This paper shows that a country’s wealth can be an important determinant of comparative advantage when access to credit differs across sectors of the economy. Wealthier nations exhibit a comparative advantage toward goods produced in sectors facing more severe financial imperfections. These sectors are typically populated by small firms. Empirically this paper documents that these sectors are also labor intensive. Consequently, this theory partially offsets traditional sources of comparative advantage and offers an explanation for Trefler’s missing trade mystery and the Leontief paradox. Furthermore, the theory makes the relation between trade and income distribution endogenous.

We reassess the empirical robustness of the empirical findings in Jere R. Berhman and Mark R. Rosenzweig (2002) using new information on schooling which was collected and coded independently of codings carried out by both Kate Antonovics and Arthur Goldberger, and Berhmamn and Rosenzweig. We conclude that the independently coded data and the codings by Antonovics and Goldberger provide additional support for Behrman and Rosenzweig's original results showing that the positive cross-sectional relationship between a mother's schooling and her child's schooling is not robust to controls for unmeasured, intergenerationally correlated endowments, while the positive effect of paternal schooling is robust.

ABSTRACT There is a large body of literature that concludes that—when confronted with increased competition—banks rationally choose more risky portfolios. We argue that this literature has had a significant influence on regulators and central bankers. We review the empirical literature and conclude that the evidence is best described as “mixed.” We then show that existing theoretical analyses of this topic are fragile, since there exist fundamental risk‐incentive mechanisms that operate in exactly the opposite direction, causing banks to become more risky as their markets become more concentrated. These mechanisms should be essential ingredients of models of bank competition.