Knowledge that Transforms

This paper explores the relationship between adult heights and the distribution of income across populations of individuals. There is a long literature that examines the relationship between mean adult heights and living standards. If adult height is set by the balance between food intake and charges to disease in early childhood, it is informative about economic and epidemiological conditions in childhood. Because taller populations are better-off, more productive, and live longer, the relationship between childhood conditions and adult height has become an important focus in the study of the relationship between health and wealth. Here I follow one of the tributaries of this main stream. A relationship between income and height at the individual level has implications for the effects of income inequality on the distribution of heights. These relationships parallel, but are somewhat more concrete than, the various relationships between income inequality and health that have been debated in the economic and epidemiological literatures, Richard G. Wilkinson (1996), Angus Deaton (2003).

The sustained rise in US current account deficits, the stubborn decline in long-run real rates, and the rise in US assets in global portfolios appear as anomalies from the perspective of conventional models. This paper rationalizes these facts as an equilibrium outcome when different regions of the world differ in their capacity to generate financial assets from real investments. Extensions of the basic model generate exchange rate and foreign direct investment excess returns broadly consistent with the recent trends in these variables. The framework is flexible enough to shed light on a range of scenarios in a global equilibrium environment. (JEL: E44, F21, F31, F32)

Rethinking Global Environmental Governance to Deal with Climate Change: The Multiple Logics of Global Collective Action by Daniel C. Esty. Published in volume 98, issue 2, pages 116-21 of American Economic Review, May 2008

Is the 2007-2008 U.S. sub-prime mortgage financial crisis truly a new and different phenomena? Our examination of the longer historical record finds stunning qualitative and quantitative parallels to 18 earlier post-war banking crises in industrialized countries. Specifically, the run-up in U.S. equity and housing prices (which, for countries experiencing large capital inflows, stands out as the best leading indicator in the financial crisis literature) closely tracks the average of the earlier crises. Another important parallel is the inverted v-shape curve for output growth the U.S. experienced as its economy slowed in the eve of the crisis. Among other indicators, the run-up in U.S. public debt and is actually somewhat below the average of other episodes, and its pre-crisis inflation level is also lower. On the other hand, the United States current account deficit trajectory is worse than average. A critical question is whether the U.S. crisis will prove similar to the most severe industrialized-country crises, in which case growth may fall significantly below trend for an extended period. Or will it prove like one of the milder episodes, where the recovery is relatively fast? Much will depend on how large the shock to the financial system proves to be and, to a lesser extent, on the efficacy of the subsequent policy response.

Widening and Deepening: Reforming the European Union by Erik Berglof, Mike Burkart, Guido Friebel and Elena Paltseva. Published in volume 98, issue 2, pages 133-37 of American Economic Review, May 2008

Testing for a Reference Consumer in International Comparisons of Living Standards by Ian Crawford and J. Peter Neary. Published in volume 98, issue 4, pages 1731-32 of American Economic Review, September 2008

A large research program in economics has established a persuasive link between institutions and economic development. But what does this imply for development policymaking? Can a political leader or aid agency seeking to promote development readily change institutions? This article starts off wildly general, and then moves to specifics.

In many environments expertise is costly.Costs can manifest themselves in numerous ways, ranging from the time that is required for a nancial consultant to study companies' performances, to the resources necessary for academic referees to produce knowledgeable reports, to the attention and thought needed for jurors to construct informed convictions.The current paper asks a natural question germane to such contexts: how should a committee of potential experts be designed, in terms of the number of participants, their a-priori preferences, as well as the rules by which their recommendations are aggregated into a collective policy?We consider a model in which a principal makes a binary decision (e.g., continue or abort a project), the value of which depends on the realization of some underlying state that is unknown (say, whether the project is great or inferior).The principal can hire a committee of experts from a pool varying in their preferences.All experts have access to an information technology providing (public) information regarding the underlying state.Information comes at a private cost to the experts, who care both about the nal decision the principal takes, as well as about the amount they had personally spent on information acquisition.Concentrating on small committees comprised of up to two potential experts, we provide several layers of responses to our fundamental design question, varying in the exibility of the available contracts.First, we study institutions in which agents make their decisions regarding information acquisition simultaneously and characterize the optimal way to organize committees consisting of either one or two agents.

A classical theme in social analysis views economic class divisions as the main cause of social conflict. Yet many, if not most of the conflicts we observe today appear to be ethnic in nature. It appears that the "vertical" nature of class divisions is often dominated by the "horizontal" antagonisms across groups delineated by noneconomic markers. This paper highlights the perverse synergy of economic inequality within ethnic groups, and its role in the salience of ethnic conflict. In a model of group formation which allows both class and ethnic groupings to emerge, we show that ethnic, as opposed to class, conflict may be focal, and precisely in the presence of economic inequality. (JEL D72, D74)