Alesina and Tabellini (2007) investigate the normative criteria for allocating policy tasks to bureaucrats versus politicians. While they establish criteria with respect to a number of parameters, they do not give a criterion with respect to the degree of imperfect monitoring. We establish an unambiguous criterion about imperfect monitoring. (JEL D72, D73)
We examine why developed societies are monogamous while rich men throughout history have typically practiced polygyny. Wealth inequality naturally produces multiple wives for rich men in a standard model of the marriage market. However, we demonstrate that higher female inequality in the marriage market reduces polygyny. Moreover, we show that female inequality increases in the process of development as women are valued more for the quality of their children than for the quantity. Consequently, male inequality generates inequality in the number of wives per man in traditional societies, but manifests itself as inequality in the quality of wives in developed societies. (JEL J12, J16, J24, Z13)
The Changing Incidence and Severity of Poverty Spells among Female-Headed Families by David Card and Rebecca M. Blank. Published in volume 98, issue 2, pages 387-91 of American Economic Review, May 2008
We examine the impact of liquidity shocks by exploiting cross-bank liquidity variation induced by unanticipated nuclear tests in Pakistan. We show that for the same firm borrowing from two different banks, its loan from the bank experiencing a 1 percent larger decline in liquidity drops by an additional 0.6 percent. While banks pass their liquidity shocks on to firms, large firms—particularly those with strong business or political ties—completely compensate this loss by additional borrowing through the credit market. Small firms are unable to do so and face large drops in overall borrowing and increased financial distress. (JEL E44, G21, G32, L25)
The paper provides a model of household consumption and portfolio allocation which incorporates housing as both a consumption good and a component of wealth. Household utility depends, possibly nonseparably, on two goods: nondurable consumption, which is costlessly adjustable, and housing, which is subject to a nonconvex adjustment cost. Households face housing price risk in the sense that the relative price of housing varies over time, and can invest in a wide variety of financial assets in addition to housing. This single, reasonably tractable, model generates testable implications for portfolio allocation, risk aversion, asset pricing, and the dynamics of nondurable consumption. (JEL D14, G11, R21)
Motherhood and Female Labor Force Participation: Evidence from Infertility Shocks by Jorge M. Aguero and Mindy S. Marks. Published in volume 98, issue 2, pages 500-504 of American Economic Review, May 2008
Exploring the Impact of Financial Incentives on Stereotype Threat: Evidence from a Pilot Study by Roland G. Fryer Jr., Steven D. Levitt and John A. List. Published in volume 98, issue 2, pages 370-75 of American Economic Review, May 2008
This paper explores the application of contingent claims analysis (CCA) to two important issues in life-cycle finance: investing for retirement, and deciding when, if ever, to switch careers. Contingent claims analysis is a methodology that grew out of the option pricing theory of Fischer Black, Robert C. Merton, and Myron Scholes. They derived the option pricing model by showing that there is a self-financing dynamic trading strategy that replicates the payoffs from a call option. In the absence of transaction costs, the law of one price and the force of arbitrage imply that the cost of the initial replicating portfolio is the price of the option. That same approach applies to any derivative security or contingent contract based on traded assets. For every dynamic trading strategy, there exists an equivalent contingent contract. In reality, most investors face substantial transactions costs and cannot trade even approximately continuously, as is done in the theoretical models. But in a modern, well-developed financial system, the lowest-cost transactors may have marginal trading costs close to zero, and can trade almost continuously. Thus, the lowest-cost producers of contingent contracts can approximate reasonably well the dynamic trading strategy, and in a competitive environment
The National Assessment of Educational Progress in Economics: Findings for General Economics by William B. Walstad and Stephen Buckles. Published in volume 98, issue 2, pages 541-46 of American Economic Review, May 2008
In a seminal paper, Lena Edlund and Evelyn Korn (2002) introduce a puzzling stylized fact? that prostitution is low-skilled, labor intensive, female, and well paid?and offer a provocative explanation: sex workers draw a compensating differential due to the foregone opportunity to sell their fertility in the marriage market. In so doing, they not only provide the first formal model of occupational choice involving prostitu? tion, they also draw an intriguing link between the labor market and the marriage market that holds for only one occupation. When a woman chooses to become a sex worker, she relinquishes the compensation she would otherwise receive in marriage, since taboos prevent prostitutes from marrying. Thus, even in settings where prostitu? tion is legal, it must draw an earnings premium. Beyond drawing considerable media attention, the richness of the Edlund-Korn model has made