Knowledge that Transforms

We study information transmission via polling. A policymaker polls constituents, who differ in their information and ideology, to determine policy. Full revelation is an equilibrium in a poll with a small sample, but not with a large one. In large polls, full information aggregation can arise in an equilibrium where constituents endogenously sort themselves into centrists, who respond truthfully, and extremists, who do not. We find polling statistics that ignore strategic behavior yield biased estimators and mischaracterize the poll's margin of error. We construct estimators that account for strategic behavior. Finally, we compare polls and elections.

The term “illegal price manipulation ” is diffi-cult to define. Current U.S. law does not explic-itly define it. The finance and economics litera-ture uses the term “manipulation ” in an impre-cise manner. This paper proposes that a trading strategy not be classified as “illegal price manip-ulation ” unless the violator’s intent is to pursue a scheme that undermines economic efficiency both by making prices less accurate as signals for efficient resource allocation and by making mar-kets less liquid for risk transfer. Since price ef-fects are market-wide, we treat the terms “price manipulation ” and “market manipulation ” as synonyms. Our definition applies equally to fi-nancial and commodities markets.

Susan Athey is an applied theorist who has made important contributions to economic theory, empirical economics, and econometrics. She has built a research program focused on using theory to understand substantive economic issues, especially in industrial organization. She has developed tools and techniques that provide the basis for empirical work grounded in sound economic theory. She has made particularly important advances in developing and applying tools that replace strong functional form assumptions in models with more plausible conditions such as monotonicity, thereby facilitating the development of more robust empirical results.

Decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward. This work argues that diminishing impatience originates from the distinction between the certain present and the risky future. A simple functional representation of preferences, exhibiting time inconsistency when the future is uncertain, is derived. Experimental evidence, which is inconsistent with other formulations that account for diminishing impatience, supports the proposed approach. The new theory uncovers a tight relation between diminishing impatience and well-known behavioral regularities in choice under risk and uncertainty.

Existing studies establish a strong cross-country correlation between income and democracy but do not control for factors that simultaneously affect both variables. We show that controlling for such factors by including country fixed effects removes the statistical association between income per capita and various measures of democracy. We present instrumental-variables estimates that also show no causal effect of income on democracy. The cross-country correlation between income and democracy reflects a positive correlation between changes in income and democracy over the past 500 years. This pattern is consistent with the idea that societies embarked on divergent political-economic development paths at certain critical junctures.

Language is a powerful coordination device. We generalize the cheap-talk approach to pre-play communication by way of introducing a meaning correspondence between messages and actions, and by postulating two axioms met by natural languages. Players have a lexicographic preference, second to material payoffs, against deviating from the meaning correspondence. Under two-sided communication in generic and symmetric n × n-coordination games, a Nash equilibrium component in such a lexicographic communication game is evolutionarily stable if and only if it results in the unique Pareto efficient outcome of the underlying game. We extend the analysis to one-sided communication in arbitrary finite two-player games.

“I want to tell my foreman to f*** off, but I can’t.” So says “Mike,” a steel handler we meet in Stud Terkel’s book Working (1974, xxxv). Many workers’ stories we read in Working and in ethnographies suggest workers greatly resent supervision. As a result, they exert lower effort and may sabotage production. Mike puts dents in the steel. Ethnographies also reveal workers who are not strictly monitored develop work group output norms. This paper uses the con cept of identity to study trade-offs in supervi sory policy. 1 We follow the social psychology literature and examine intrinsic incentives that depend on how workers see themselves in rela tion to the firm. When a supervisor monitors workers, workers adopt an identity in opposition to the firm. The firm gains information and can fine-tune its incentive pay. But resentful workers require high compensation to work in the firm’s interest. With no monitoring, workers are less hostile to the firm. But they may forge a work group identity, with norms that restrict output. We show that a firm may find it profitable to have lax supervision. When workers take on a work group identity, the cost per unit of effort can be lower than when workers view them selves in opposition to the firm. We shall present the model, and then discuss some classic studies of workplaces that portray these trade-offs. Our identity framework synthesizes an emerg ing body of economic theory and empirics on incentives and monitoring (e.g., Bruno Frey 1993; Gary Charness 2000; Daniel S. Nagin et al. 2002; Michael T. Rauh and Giulio Seccia 1 This paper provides a simple formal model of tradeoffs described loosely in Akerlof and Kranton (2005). We also discuss further implications of supervision versus work group cohesion.

We investigate well-being changes for single mother headed families targeted by recent tax and welfare reforms. Measured income changes sharply differ from consumption changes. We examine disaggregated consumption, time use, and health insurance coverage. Increases in housing and transportation spending mostly account for the rise in consumption in the bottom quintiles. We find modest improvement in housing quality, but the evidence is less strong at the very bottom. The consumption of nonmarket time for those in the bottom half of the consumption distribution falls sharply, indicating a loss in utility for those families if nonmarket time is valued above $3 per hour.

A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such “vacillation” does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource.

Trade and export, it is argued, spur economic growth. This paper studies the microeconomics of exporting. We build a heuristic model of transactions between exporters and producers and relate it to East India Company (EIC) operations in colonial Bengal. Our model and the historical record stress two difficulties: the exporter and its agents might not uphold payment agreements, and producers might not honor sales contracts. The model shows when procurement succeeds or fails, highlighting the tension between these two hold-up problems. We analyze several cases, including the EIC's cotton textile venture, the famous Opium Monopoly, and present-day contract farming.