An Estimate Dynamic Model of Entry, Exit, and Growth in Oligopoly Retail Markets by Victor Aguirregabiria, Pedro Mira and Hernan Roman. Published in volume 97, issue 2, pages 449-454 of American Economic Review, May 2007
Putnam defines social capital as “features of social organization, such as networks, norms and social trust that facilitate coordination and cooperation ” (Putnam 1995: 67). Social networks are typically associated with social trust and with norms that promote coordination and cooperation for mutual benefit. Strong ties between individuals, infused with norms of reciprocity and trust, are often thought to help cooperation among them. They would enable these groups and society as a whole to deal smoothly and effectively with multiple social and economic issue. Other authors have noted that, in different contexts, strongly bonded groups may have adverse consequences for others (such as Portes and Landolt (1996)) or for themselves (see for instance Akerlof (1976) or Basu (1986)). Based on our earlier work on risk sharing in groups and networks (Genicot and
The Spike at Benefit Exhaustion: Leaving the Unemployment System or Starting a New Job? by David Card, Raj Chetty and Andrea Weber. Published in volume 97, issue 2, pages 113-118 of American Economic Review, May 2007
If Exchange Rates are Random Walks, Then Almost Everything We Say About Monetary Policy is Wrong by Fernando Alvarez, Andrew Atkeson and Patrick J. Kehoe. Published in volume 97, issue 2, pages 339-345 of American Economic Review, May 2007
Testing for Indeterminacy: An Application to U.S. Monetary Policy: Reply by Thomas A. Lubik and Frank Schorfheide. Published in volume 97, issue 1, pages 530-533 of American Economic Review, March 2007
Many individuals' choices and valuations involve a degree of uncertainty/imprecision. This paper reports an experiment designed to obtain some measure of imprecision and to examine the extent to which it can explain preference reversals of two opposite forms, one of which appears not to have been reported previously. The model of imprecision we examine not only predicts both patterns but also provides an account of earlier results that are otherwise not well explained. The results suggest that any successful descriptive theory of choice and valuation will need to allow in some way for the imprecision surrounding people's decisions.
Paul Glimcher (2003) and Colin Camerer, George Loewenstein, and Drazen Prelec (2005) make powerful cases in favor of neuroeconomic research. Yet in their equally powerful defense of standard “Mindless Economics,” Faruk Gul and Wolfgang Pesendorfer (forthcoming) point to the profound language gap between the two contributing disciplines. For example, for an economist, risk aversion captures preferences among wealth lotteries. From the neuroscientific viewpoint, it is a broader concept related to fear responses and the amygdala. Furthermore, as economic models make no predictions concerning brain activity, neurological data can neither support nor refute these models. Rather than looking to connect such distinct abstractions, Gul and Pesendorfer (forthcoming) argue for explicit separation: “The requirement that economic theories simultaneously account for economic data and brain imaging data places an unreasonable burden on economic theories.” We share the conviction of Glimcher (2003) and Camerer, Loewenstein, and Prelec (2005) concerning the potential value of neuroeconomics, yet we believe that the field will live up to its potential only if a common conceptual language can be agreed upon. Hence, we face the Gul and Pesendorfer challenge head on by developing theories that simultaneously account for behavioral and brain imaging data. The principal innovation lies in our use of the decision theorists’ standard axiomatic methodology in this highly nonstandard setting. This removes any linguistic confusion by defining concepts directly in terms of their empirical counterparts. It also allows us to pinpoint how to design experiments directed to the central tenets of the theory, rather than to particular parametrizations. If these experimental tests reveal the theory to be wanting, then knowing which axiom is The Neuroeconomic Theory of Learning
The presence of a well designed bankruptcy code is an important part of the financial architecture in developed economies. By allowing the creditors to seize the assets of the borrowers who fail to make contractual payments, the code generates beneficial ex ante effects on debt capacity and firm value. By giving the borrowers options to renegotiate their debt obligations and seek bankruptcy protection, the code increases the likelihood that borrowers may avoid inefficient ex post liquidation. As Hart (1999) notes, the code should balance ex ante firm value maximization with ex post efficiency. The bankruptcy codes in different countries weight this tradeoff differently and hence vary in terms of the distribution of rights and powers between borrowers and lenders. In this paper, we provide an inter-temporal framework to examine how the creditors’ liquidation rights and the distribution of ex post bargaining powers influence the firm’s investment and financing decisions, and affect ex ante firm value. We show that stronger equityholders ’ bargaining power lowers debt capacity, reduces firm value, and discourages growth option exercising. Our calibration suggests that the quantitative effects of ex post strategic renegotiation on ex ante firm value may be large.
This paper proposes a novel international transmission mechanism based on the assumption of deep habits. The term deep habits stands for a preference specification according to which consumers form habits on a good-by-good basis. Under deep habits, firms face more elastic demand functions in markets where nonhabitual demand is high relative to habitual demand, creating an incentive to price discriminate. We refer to this type of price discrimination as pricing to habits. In the presence of pricing to habits, innovations to domestic aggregate demand induce a decline in markups in the domestic country but not abroad, leading to a departure from the law of one price. In this way, the proposed pricing-to-habit mechanism can explain the observation that prices of the same good across countries, expressed in the same currency, vary over the business cycle. Furthermore, it can account for the empirical fact that in response to a positive domestic demand shock, such as an increase in government spending, the real exchange rate depreciates, domestic consumption expands, and the trade balance deteriorates.
Many important economic questions hinge on the extent to which new goods either crowd out or complement consumption of existing products. Recent methods for studying new goods rule out complementarity by assumption, so their applicability to these questions has been limited. I develop a new model that relaxes this restriction, and use it to study competition between print and online newspapers. Using new micro data from Washington, DC, I estimate the relationship between the print and online papers in demand, the welfare impact of the online paper's introduction, and the expected impact of charging positive online prices.