Knowledge that Transforms

This paper reports a three-phase experiment on a stylized labor market. In the first two phases, agents face simple games, which we use to estimate subjects' social and reciprocity concerns. In the last phase, four principals compete by offering agents a contract from a fixed menu. Then, agents “choose to work” for a principal by selecting one of the available contracts. We find that (i) (heterogeneous) social preferences are significant determinants of choices, (ii) for both principals and agents, strategic uncertainty aversion is a stronger determinant of choices than fairness, and (iii) agents display a marked propensity to work for principals with similar distributional concerns.

Repo Market Effects of the Term Securities Lending Facility by Michael J. Fleming, Warren B. Hrung and Frank M. Keane. Published in volume 100, issue 2, pages 591-96 of American Economic Review, May 2010

Blonigen and Haynes (2002) calculated that pass-through of antidumping duty estimates to U.S. pricing of 200% would be required to eliminate potential antidumping duties. However, this calculation was based on an error in interpretation of U.S. antidumping practice, that antidumping duties themselves are subtracted in an antidumping calculation. In fact there is no such subtraction, and a pass-through of 100% theoretically suffices to eliminate potential antidumping duties

Farmer, Waggoner, and Zha (2009) (FWZ) show that a new Keynesian model with regime-switching monetary policy can support multiple solutions, appearing to contradict findings in Davig and Leeper (2007) (DL). The explanation is straightforward: FWZ derive solutions using a model that differs from the one to which the DL conditions apply. The FWZ solutions also require that the exogenous driving process is a function of private and policy parameters. This undermines the sharp distinctions among “deep parameters” typical of optimizing models and makes it difficult to ascribe economic interpretations to FWZ's additional solutions. (E12, E31, E43, E52)

This paper examines bidding in over 1,700 knockout auctions used by a bidding cartel (or ring) of stamp dealers in the 1990s. The knockout was conducted using a variant of the model studied by Daniel Graham, Robert Marshall, and Jean-Francois Richard (1990). Following a reduced form examination of these data, damages, induced inefficiency, and the ring's benefit from colluding are estimated using a structural model in the spirit of Emmanuel Guerre, Isabelle Perrigne, and Quang Vuong (2000). A notable finding is that nonring bidders suffered damages that were of the same order of magnitude as those of the sellers.

We propose a theoretically motivated procedure for measuring heterogeneity in firms’ growth opportunities and document its empirical properties. The term “growth opportunities” refers to the component of a firm’s market value that cannot be attributed to its assets in place. This decomposition of firm value underpins many of the theoretical models describing cross-sectional differences in firms’ investment and stock return behavior. However, successful applications of such models depend on the quality of empirical measures of growth opportunities. Our procedure identifies economically significant differences in firms’ growth opportunities which are not captured by the commonly used empirical measures.

Heterogeneity is an important determinant of the shape of optimal tax schemes. This is shown here in a model à la Mirrlees. The agents differ in their productivities and opportunity costs of work, but their labor supplies depend only on a given unidimensional combination of these two characteristics. Conditions are provided under which marginal tax rates are everywhere nonnegative. This is the case when work opportunity costs are distributed independently of income. But one can also get negative marginal tax rates, in particular at the bottom of the income distribution. A numerical illustration is given, based on UK data.

The Effect of Migration on Wages: Evidence from a Natural Experiment by Dakshina G. De Silva, Robert P. McComb, Young-Kyu Moh, Anita R. Schiller and Andres J. Vargas. Published in volume 100, issue 2, pages 321-26 of American Economic Review, May 2010

Every now and then a set of technologies becomes available that sets off a period of “combinatorial innovation. ” Think of standardized mechanical parts in the 1800s, the gasoline engine in the early 1900s, electronics in the 1920s, integrated circuits in the 1970s, and the internet in the last decade or so. The component parts of these technologies can be combined and recombined by innovators to create new devices and applications. Since these innovators are working in parallel with similar components, it is common to see simultaneous invention. There are many well-known examples, such as the electric light, the airplane, the automobile, and the telephone. Many scholars have described such periods of innovation, using terms such as “recombinant growth, ” “general purpose technologies, ” “cumulative synthesis” and “clusters of innovation. ” 1 The internet and the web are wonderful examples of combinatorial innovation. In the last 15 years we have seen a huge proliferation of web applications, all built from a basic set of component technologies. The internet itself was a rather unlikely innovation; I like to describe it as a “lab experiment that got loose. ” Since the internet arose from the research community rather than the private sector, it had no obvious business model. Other public computer networks, such as AOL, CompuServe, and Minitel, generally used a subscription models, but were centrally controlled and offered little scope for innovation at the user level. The internet won out over these alternatives, precisely because it offered a flexible set of component technologies which encouraged combinatorial innovation.

The food commodity price boom of 2003–2008 was the most notable in the past several decades, having a substantial impact on global economic activity. It affected developing nations by impacting real output, the balance of payments, government budgetary positions and, most important, the well being of the very poor. High commodity prices also affected developed countries, by transmitting business cycle disturbances and creating inflationary pressures. Several recent studies tried to identify and quantify the factors that caused the food commodity price boom of 2003–2008 (see, for instance, Isabel Vansteenkiste 2009). These studies suggest that one key factor is growth in demand, which, since the 1980s, has outpaced growth in supply. Other studies argued that biofuel is the culprit, since it increases demand for staple crops (see, for instance, Donald Mitchell 2008). All these studies, however, assumed competitive markets and did not consider the impact of biofuel on energy costs to farmers. Moreover, they ignored the Organization of Petroleum Exporting Countries (OPEC). These studies leave us perplexed regarding the true impact of biofuel on food commodity prices— was it or was it not an important contributor to the recent food commodity boom? We believe that to answer this question, the interactions between energy and food must be modeled and OPEC introduced, and the impact of biofuels compared with other factors that are argued by the literature to be important. This paper aims to analyze the multiple contributions of energy and biofuels to the increase Are Biofuels the Culprit? OPEC, Food, and Fuel