Knowledge that Transforms

Farley W. Grubb's recent papers on the early U.S. monetary system would be important contributions to the common currency area literature were not most of their historical assertions questionable and their key assumption—that the medium of exchange can be inferred from the unit of account—dubious. We contend that after 1781 most Americans eschewed government paper money in favor of fullbodied coins and convertible bank liabilities and that, contrary to Grubb's claim, bankers did not foist the constitutional clause banning state emissions onto an unsuspecting public.

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We report results of an Internet experiment designed to test the theory of informational cascades in financial markets (Christopher Avery and Peter Zemsky, 1998). More than 6,400 subjects, including a subsample of 267 consultants from an international consulting firm, participated in the experiment. We find that the presence of a flexible market price prevents herding. The presence of contrarian behavior distorts prices, however, and even after 20 decisions, convergence to the fundamental value is rare. We also report some interesting differences with respect to subjects' fields of study. Reassuringly, the behavior of the consultants turns out to be not significantly different from that of the remaining subjects.

While there is an extensive literature on the theory of infinitely repeated games, empirical evidence on how “the shadow of the future” affects behavior is scarce and inconclusive. I simulate infinitely repeated prisoner's dilemma games in the lab with a random continuation rule. The experimental design represents an improvement over the existing literature by including sessions with finite repeated games as controls and a large number of players per session (which allows for learning without contagion effects). I find that the shadow of the future matters not only by significantly reducing opportunistic behavior, but also because its impact closely follows theoretical predictions.

Can you think of an instance in which your teaching enhanced your research? We have had several such experiences and wondered if it was a common phenomenon among economists. We asked several eminent economists if they could cite a specific study that emanated directly from their teaching. The original goal was to report some examples of how teaching could play a positive role in research. We expanded our goal, however, when we were swamped with examples. We found that (i) teaching plays a far more important role in enhancing research than the existing literature suggests, (ii) this influence is recognized by a large fraction of active researchers, and (iii) this positive effect of teaching on research occurs through a wide variety of channels.

Distributional and Efficiency Impacts of Gasoline Taxes: An Econometrically Based Multi-market Study by Antonio M. Bento, Lawrence H. Goulder, Emeric Henry, Mark R. Jacobsen and Roger H. von Haefen. Published in volume 95, issue 2, pages 282-287 of American Economic Review, May 2005

An Investigation of the Effects of Alcohol Consumption and Alcohol Policies on Youth Risky Sexual Behaviors by Sara Markowitz, Robert Kaestner and Michael Grossman. Published in volume 95, issue 2, pages 263-266 of American Economic Review, May 2005

economic outcomes. This literature typically focuses on investigating whether there are racespecific effects present for a particular outcome (years of school, hiring, loan applications) within a particular domain (education, labor markets, housing markets) at a particular point in time. In this paper, I discuss the need to model and measure the cumulative effects of discrimination. For simplicity, I talk about black/white racial differences, but the discussion can be applied to other group comparisons. The paper builds on the discussion of cumulative discrimination found in Blank et al. (2004). Cumulative discrimination is the measure-

Recent bank failures are followed by significant and permanent negative declines in real county income. These declines are larger for small failures than for large failures per dollar of assets, are larger for bank failures than thrift failures, and are larger for bank closures than assisted mergers. More interestingly, the failure of even healthy banks has significant and permanent negative effects on economic activity.

President in April 1994. This paper argues that the federal form of governance, which allowed for locally elected provincial governments with significant fiscal policy responsibilities, was essential for this successful transition. An appropriately structured federal constitution can allow for democratic rule by the (often poor) majority, while protecting to a significant degree the economic interests of the previous ruling (usually rich) minority. A federal constitution must resolve three