Knowledge that Transforms

In a recent contribution to the AER, Koopman, Wang, and Wei (2014) proposed a decomposition of a country's gross exports into value-added components and double-counted terms. It is motivated by complex manipulation of basic accounting identities. In this comment we provide an alternative framework based on “hypothetical extraction.” This parsimonious approach provides a clear definition of domestic value added in exports and has a natural extension into decompositions of bilateral export flows. (JEL E01, E16, F14, F23, L14)

We introduce a new method to measure the temporal discounting of money. Unlike preceding methods, our method requires neither knowledge nor measurement of utility. It is easier to implement, clearer to subjects, and requires fewer measurements than existing methods. (JEL C91, D11, D12, D91)

A large body of research has investigated whether physicians overuse care. There is less evidence on whether, for a fixed level of spending, doctors allocate resources to patients with the highest expected returns. We assess both sources of inefficiency, exploiting variation in rates of negative imaging tests for pulmonary embolism. We document enormous across-doctor heterogeneity in testing conditional on patient population, which explains the negative relationship between physicians' testing rates and test yields. Furthermore, doctors do not target testing to the highest risk patients, reducing test yields by one-third. Our calibration suggests misallocation is more costly than overuse.

We study the gains from increased wage flexibility using a small open economy model with staggered price and wage setting. Two results stand out: (i) the effectiveness of labor cost reductions as a means to stimulate employment is much smaller in a currency union, and (ii) an increase in wage flexibility often reduces welfare, more likely so in an economy that is part of a currency union or with an exchange-rate-focused monetary policy. Our findings call into question the common view that wage flexibility is particularly desirable in a currency union. (JEL E12, E24, E52, E63, F31, F33, F41)

We study the effects of the adoption of new agricultural technologies on structural transformation. To guide empirical work, we present a simple model where the effect of agricultural productivity on industrial development depends on the factor-bias of technical change. We test the predictions of the model by studying the introduction of genetically engineered soybean seeds in Brazil, which had heterogeneous effects on agricultural productivity across areas with different soil and weather characteristics. We find that technical change in soy production was strongly labor-saving and led to industrial growth, as predicted by the model. (JEL J43, O13, O14, O33, Q15, Q16)

This study is, to our knowledge, the first attempt to infer the consequences on productivity entailed by anticompetitive regulations in product and labor markets through their impacts on production prices and wages. Results show that changes in production prices and wages at country*industry levels are informative about the creation of rents impeding productivity in different ways and to different extents. A simulation based on OECD regulation indicators suggests that nearly all countries could expect sizeable gains in multifactor productivity from the implementation of large structural reform programs changing anticompetitive regulation practices on product and labor markets.

In 2005, as the result of a World Trade Organization mandate, India implemented a patent reform for pharmaceuticals that was intended to comply with the 1995 Trade-Related Aspects of Intellectual Property Rights (TRIPS). Exploiting variation in the timing of patent decisions, we estimate that a molecule receiving a patent experienced an average price increase of just 3–6 percent, with larger increases for more recently developed molecules and for those produced by just one firm when the patent system began. Our results also show little impact on quantities sold or on the number of pharmaceutical firms operating in the market. (JEL K33, L11, L13, L65, O14, O34, O38)

We endogenize asset liquidity and financing constraints in a dynamic general equilibrium model with search frictions on capital markets. Assets traded on frictional capital markets are only partially saleable. Liquid assets, such as fiat money, instead, are not subject to search frictions and can be used to insure idiosyncratic investment risks. Partially saleable assets thus carry a liquidity premium over fully liquid assets. We show that, in equilibrium, low asset saleability is typically associated with lower asset prices, tighter financing constraints, thus stronger demand for public liquidity. Lower asset liquidity feeds into real allocations, constraining real investment, consumption, and production.

We examine the impact of a positive and policy-driven change in economic resources available in utero and during childhood. We focus on the introduction of the Food Stamp Program, which was rolled out across counties between 1961 and 1975. We use the Panel Study of Income Dynamics to assemble unique data linking family background and county of residence in early childhood to adult health and economic outcomes. Our findings indicate access to food stamps in childhood leads to a significant reduction in the incidence of metabolic syndrome and, for women, an increase in economic self-sufficiency. (JEL I12, I38, J24)

Increasingly, economists are drawing on concepts from outside economics--such as “norms,” “esteem,” and “identity”--to model agents' social natures. A key reason for studying such social motivation is to shed light on the conditions that facilitate--or deter--collective action. It has been widely observed, for instance, that groups are more able to engage in collective action when they have a common, group identity. This paper gives one explanation for such a link. The paper develops a new concept, “we thinking”; and it also provides a deeper understanding of the concepts of norms, identity, and esteem.