Knowledge that Transforms

What are the mechanisms by which societal discrimination affects individual achievement, and why do the effects of past discrimination endure once legal barriers are removed? We report the findings of two experiments in village India that suggest that the mechanisms of discrimination operate, in part, within the individuals who are members of the groups who have been discriminated against. We demonstrate that publicly revealing an individual’s membership in such a group alters his behavior in ways that make the effects of past discrimination persist over time. A growing literature in social psychology on stereotype threat finds that stereotyped-based expectations affect individual performance in the domain of the stereotype. A study by Jeff Stone et al. (1999) is illustrative. When college students were asked to perform a task described as diagnostic of “natural athletic ability,” blacks—stereotyped as better athletes, but worse students than whites—performed better than whites. When the same test was presented as diagnostic of “sports intelligence,” the performance of blacks declined, that of whites improved, and the racial gap was reversed. Evidence suggests that a mediating factor in stereotype threat is a change in self confidence (Mara Cadinu et al., 2005) In our studies, we investigated whether the public revelation of social identity (caste) affects cognitive task performance and responses to economic opportunities by young boys in village India. Subjects were sixth and seventh graders drawn from the two ends of the caste hierarchy. We asked subjects to learn and then perform a task under incentives, and we manipulated whether their peers in the experimental session knew their caste. Caste is well-suited to this manipulation because, unlike race, gender, and ethnicity, there are no unambiguous outward markers of caste among young boys. Six subjects, generally from six different villages, participated in each experimental session. In the control condition, the subjects were anonymous within the six-person group. In the experimental conditions, the experimenter publicly revealed subjects’ names and caste. In the task—solving mazes—in which performance was studied here, the low-caste subjects in the anonymous condition did not perform significantly differently from high-caste subjects; but when caste identity was publicly revealed in a mixed caste group, a significant caste gap emerged. The caste gap was due to a 20 percent decline in the average number of mazes solved by the low caste. The study shows that publicly revealing the social identity of an individual can change his behavior even when that information is irrelevant to payoffs. Our results are a generalization of the literature on stereotype threat. Like that literature, we find that individuals’ performance is more in accordance with the stereotype of the group when group membership is made salient in some way. Unlike that literature, salience in our experiments depends on the public revelation of social identity and more importantly, we do not argue that the domain of the tasks undertaken by † Discussants: Rachel Croson, University of Pennsylvania; Iris Bohnet, Harvard University; Stefano DellaVigna, University of California-Berkeley.

Just describing how the Federal Reserve made possible the expansion of commercial banks’ powers to permit them to engage in investment banking could occupy this entire essay. That change occurred in several stages, beginning with the Fed’s decision in 1987 to allow small inroads by banks into investment banking. Those changes created a favorable track record, which laid the groundwork for the Administration’s and Congress’s willingness to eliminate restrictions entirely in 1999. Can one identify a “philosophy of regulation” that underlies the regulatory advocacy of the Fed under Chairman Greenspan? Although the Fed’s advocacy on various matters may appear somewhat contradictory or, at least, philosophically heterodox, the Fed has behaved in a manner that is remarkably predictable, once one takes account of the political arena in which both regulatory and monetary policy as made.

This paper argues that while a long-term solution to climate change may require the global market-based solution envisioned in the Kyoto Protocol, a more flexible near-term approach is necessary. First, a broad range of domestic policies need to be embraced and encouraged by an international agreement, not constrained or discouraged by it. Second, developing countries need to be an increased focus of engagement, with expansion and reform of project-based crediting. Finally, a global agreement needs to recognize both technology and mitigation policies and to develop ways to evaluate efforts along each of these dimensions. Over the longer term, such an agreement should evolve toward greater reliance on global market-based solutions, and therefore near-term steps should be viewed both in terms of their immediate practicality and their potential to be refined over time.(This abstract was borrowed from another version of this item.)

We study how financial incentives can be used to overcome a history of coordination failure using controlled laboratory experiments. Subjects' payoffs depend on coordinating at high effort levels. In an initial phase, the benefits of coordination are low, and play typically converges to an inefficient outcome. We then explore varying financial incentives to coordinate at a higher effort level. An increase in the benefits of coordination leads to improved coordination, but large increases have no more impact than small increases. Once subjects have coordinated on a higher effort level, reductions in the incentives to coordinate have little effect on behavior.

This article provides an empirical investigation of the determinants of terrorism at the country level. In contrast with the previous literature on this subject, which focuses on transnational terrorism only, I use a new measure of terrorism that encompasses both domestic and transnational terrorism. In line with the results of some recent studies, this article shows that terrorist risk is not significantly higher for poorer countries, once the effects of other country-specific characteristics such as the level of political freedom are taken into account. Political freedom is shown to explain terrorism, but it does so in a non-monotonic way: countries in some intermediate range of political freedom are shown to be more prone to terrorism than countries with high levels of political freedom or countries with highly authoritarian regimes. This result suggests that, as experienced recently in Iraq and previously in Spain and Russia, transitions from an authoritarian regime to a democracy may be accompanied by temporary increases in terrorism. Finally, the results suggest that geographic factors are important to sustain terrorist activities.

The modern economic role of women emerged in four phases. The first three were evolutionary; the last was revolutionary. Phase I occurred from the late nineteenth century to the 1920s; Phase II was from 1930 to 1950; Phase III extended from 1950 to the late 1970s; and Phase IV, the "quiet revolution," began in the late 1970s and is still ongoing. Three aspects of women's choices distinguish the evolutionary from the revolutionary phases: horizon, identity, and decision-making.

It has been increasingly recognized that entrepreneurship plays a crucial role in successful economies. The Schumpeterian approach to growth (Aghion and Howitt, 1997) advances the view that entrepreneurial dynamism is the key to innovation and growth. A growing body of policy work emphasizes the important role of entrepreneurs in economic development (World Bank, 2003). Yet, research on entrepreneurship in economics is rather limited. There are three distinct perspectives on entrepreneurship in social sciences. The first perspective focuses on the role of economic, political, and legal institutions in fostering or restricting entrepreneurship. Institutional problems are seen in credit constraints that make it impossible to borrow and set up businesses; insecurity of property rights that provides insufficient incentives for entrepreneurs; and regulatory burdens that make setting up new enterprises difficult. The second perspective focuses on the sociological variables shaping entrepreneurship. For example, sociologists study the role of values and social networks in promoting or discouraging entrepreneurial activities. Social networks may work through a variety of channels, such as family, friends, or ethnic groups. The third perspective emphasizes individual characteristics of entrepreneurs. Psychologists have studied the traits associated with entrepreneurship such as a personal need for achievement, belief in the effect of personal effort on outcomes, attitudes towards risk, and individual self-confidence. Although there are studies on each perspective, little work looks at each of these factors taking the other into account. This is precisely what we do in this paper, using a new data set of Chinese entrepreneurs and a matching sample of non-entrepreneurs with similar age, gender, and educational characteristics. The survey covers both entrepreneurs and non-entrepreneurs in order to understand how they differ in individual characteristics, family background, social networks, values and beliefs, and perceptions of the institutional environment. The data further allow us to separate Chinese entrepreneurs into two groups, by necessity and by opportunity, and to differentiate non-entrepreneurs in three groups, those who never thought to be entrepreneurs, those who thought but never became entrepreneurs, and those who became entrepreneurs but eventually failed. This is a richer data set than a previous survey in Russia.

The article focuses on spending caps, and compares those used in politics with many examples in sports economics. In 1999, the party of Israeli Prime Minister Ehud Barak was fined $3.2 million for exceeding Israel's campaign finance caps. Financing caps by the National Collegiate Athletics Association did not prevent The University of Oregon from spending $3 million on their football locker room. Mathematical models are provided in order to prove that spending caps will not necessarily have their intended effect, as they increase the total expended amount by increasing the risk of being fined.

Much of the empirical work and the conceptual discussion of the impact of institutions on economic development either implicitly or explicitly assumes that institutions persist. Although Acemoglu et al. (2001) provide evidence that constraints on the executive persist, many aspects of institutions change frequently. Less-developed countries cycle between democracy and dictatorship and often change their constitutions. Relatedly, while the current economic problems in Latin America are often traced back to colonial times (Stanley L. Engerman and Kenneth L. Sokoloff, 1997; Acemoglu et al., 2002), the specific institutions that once underpinned the colonial economy, such as the encomienda, the mita, or slavery, vanished long ago. These observations suggest that we need to develop a framework in which changes in certain dimensions of institutions are consistent with overall institutional persistence. In this paper, we make an attempt to highlight some important mechanisms for understanding simultaneous change and persistence in institutions. Institutional persistence, in this context, refers to the persistence of a cluster of economic institutions, such as the extent of enforcement of property rights for a broad cross section of society (Acemoglu et al., 2001). Such lack of property rights enforcement may be driven by quite different specific institutions, e.g., risk of expropriation, entry barriers, or economic systems such as serfdom or slavery. In turn, these different specific economic institutions may exist under different political institutions, including dictatorships, absolutist monarchies, oligarchies, and corrupt or even populist democracies. Given this rich array of possibilities, a useful framework must specify which aspects of institutions can change, which others have a tendency to persist in equilibrium, and how the persistence of certain types of institutions could have lasting effects on economic outcomes. In this paper, we provide a simple model of the coexistence of change and persistence in institutions. First we describe some existing approaches to the persistence of social arrangements, as well as the essence of the mechanism we propose. Next, we illustrate the key issues using the experience of the southern United States, and last we provide a simple model that formalizes the main mechanism in the paper. We conclude by discussing a complementary mechanism to the one presented in this paper.

This paper uses a dynamic general equilibrium model to analyze and quantify the aggregate effects of the timing of tax rate changes enacted in 2001 (which called for successive rate reductions through 2006) and 2003 (which made immediate tax rate cuts scheduled for 2004 and 2006). The phased-in nature contributed to the slow recovery from the 2001 recession, while the elimination of the phase-in helped explain the increase in economic activity in 2003. The simulations suggest while the tax policy was a drag on the economy in 2001 and 2002, it increased economic growth in 2003, once phase-ins were eliminated.