We argue that some, but not all, superstitions can persist when learning is rational and players are patient, and illustrate our argument with an example inspired by the Code of Hammurabi. The code specified an “appeal by surviving in the river” as a way of deciding whether an accusation was true. According to our theory, a mechanism that uses superstitions two or more steps off the equilibrium path, such as “appeal by surviving in the river,” is more likely to persist than a superstition where the false beliefs are only one step off the equilibrium path.
An effective climate change treaty must promote the joint supply of two global public goods: climate change mitigation and knowledge of new technologies that can lower mitigation costs. R&D is especially needed to bring about substantial, long-term reductions in atmospheric concentrations of greenhouse gases, for this will require the development and diffusion of revolutionary, “breakthrough ” technologies (Martin I. Hoffert et al. 2002). In principle, such an outcome could be realized by the Kyoto Protocol approach, if that agreement were strengthened over time. However, that response may be inadequate (Kyoto makes no provision for R&D)—and, as I shall demonstrate, unlikely to succeed in any event. Can a treaty system relying directly on targeted R&D and the adoption of breakthrough technologies perform better in this same setting of anarchic international relations? I shall show that, as a general rule, the answer is no. Essentially, the same forces that undermine Kyoto also challenge the R&D and technology approach. There is one exception to this rule: R&D leading to breakthrough technologies exhibiting increasing returns can improve dramatically on the Kyoto approach, even when these technologies are otherwise inferior to the alternatives available. This suggests that our approach to treaty design should be strategic. 2I. The Kyoto Approach Begin by considering the abatement decisions of countries in the absence of a multilateral agreement. Let qi denote country i’s abatement and let Q denote aggregate abatement; with N countries, Q = qi i=1 N Â. Finally, let country i’s payoff be given by p i = bQ- c qi
Yes. We construct a measure of aggregate technology change, controlling for aggregation effects, varying utilization of capital and labor, nonconstant returns, and imperfect competition. On impact, when technology improves, input use and nonresidential investment fall sharply. Output changes little. With a lag of several years, inputs and investment return to normal and output rises strongly. The standard one-sector real-business-cycle model is not consistent with this evidence. The evidence is consistent, however, with simple sticky-price models, which predict the results we find: when technology improves, inputs and investment generally fall in the short run, and output itself may also fall.
Dramatic changes in the volatility of output occurred in the U.S. auto industry in the early 1980s. Namely, output volatility declined, the covariance of inventory investment and sales grew more negative, and adjustments to production schedules, which in earlier decades stemmed primarily from plants hiring and laying off workers, were more often accomplished with changes in average hours per worker after the mid-1980s. Using a linear quadratic inventory model with intensive and extensive labor adjustments, we show how all of these changes could have stemmed from one underlying factor—a decline in the persistence of motor vehicle sales.
This paper challenges the notion that on-the-job training investments are quantitatively important for workers' welfare and argues that on-the-job training may not increase lifetime income by more than 1 percent. I argue that it is very difficult to reconcile the slowdown in wage growth late in a worker's career with optimizing behavior unless the technology for learning on the job is such that it generates very low gains from training. The analysis is based on a nonparametric methodology for estimating the learning technology from wage profiles; the results are arrived at by comparing the lifetime income when the worker optimally invests in his human capital to the one where he does not make any investments.
A decade has passed since the salvos from Mexico’s Tequila Crisis of 1994–1995 echoed around the financial world. Since then, many more crises have taken place in emerging market economies (EMs). Furthermore, crises have tended to bunch together, bringing to the forefront the systemic nature of these events. True, every new crisis has its own idiosyncratic features, but useful policy lessons must be derived from robust, empirical regularities. This is the research strategy we have pursued in the last few years. We will report on two types of regularities that strike us as highly robust across EM crises: (a) Sudden Stops (of capital inflows) and (b) Phoenix Miracles. A Sudden Stop is a sharp fall in capital inflows relative to their past trajectory. Sudden Stops are not a common feature in developed economies and display a large degree of temporal bunching, suggesting that global capital market turmoil acts as a coordinating factor external to EMs. As shown in Section I, however, balance-sheet effects—namely, the interaction of large changes in the real exchange rate during Sudden Stops and Liability Dollarization (i.e., foreign-exchange-denominated debts)—are key in influencing the likelihood of a Sudden Stop. Thus, even though the initial shock is, in principle, exogenous to the economy, whether or not it materializes into a Sudden Stop depends on domestic financial vulnerabilities. On the other hand, a Phoenix Miracle is defined as a case in which output recovers relatively quickly from a sharp collapse with virtually no recovery in credit or capital inflows, and a very weak recovery in investment— hence the reference to the mythical bird “rising from the ashes.” The existence of phoenix-like recoveries suggests that financial frictions play a key role in pushing economies to the abyss from which, in some way or another, they can crawl back to safe ground by means less than apparent to the conventional observer looking for standard “fundamentals” and, thus, may appear miraculous. Interestingly, the Great Depression of the 1930s shares some of the key features of Phoenix Miracles in EMs, but shows salient differences as well that suggest nominal labor market rigidities are not crucial in explaining output collapse in EMs. Understanding these regularities could, and we believe does, shed light on policies aimed at preventing crises and attenuating their effects.
Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Comment by Gary E. Bolton and Axel Ockenfels. Published in volume 96, issue 5, pages 1906-1911 of American Economic Review, December 2006
I use data from chief executive officer (CEO) successions to examine the impact of inherited control on firms' performance. I find that firms where incoming CEOs are related to the departing CEO, to a founder, or to a large shareholder by either blood or marriage underperform in terms of operating profitability and market-to-book ratios, relative to firms that promote unrelated CEOs. Consistent with wasteful nepotism, lower performance is prominent in firms that appoint family CEOs who did not attend “selective” undergraduate institutions. Overall, the evidence indicates that nepotism hurts performance by limiting the scope of labor market competition.
When to Exit a Product: Evidence from the U. S. Motion-Picture Exhibition Market by Darlene C. Chisholm and George Norman. Published in volume 96, issue 2, pages 57-61 of American Economic Review, May 2006