Knowledge that Transforms

The last three decades have witnessed an explosion of theoretical work on the organization of firms (Robert Gibbons and John Roberts forthcoming). In parallel, there has been a massive increase in access to microdata which has revealed huge dispersions in productivity. For example, within narrow industries like cement, oak flooring, and block-ice the total factor productivity of plants at the ninetieth percentile is about twice that of those at the tenth percentile (Lucia Foster, John Haltiwanger, and Chad Syversson 2008). Unfortunately, analyzing to what extent this heterogeneity in productivity is due to management and organizational practices, unmeasured inputs, or other technologies has been held back by a lack of data. National statistical agencies do not usually collect data on the internal organization of companies, nor do firms report this in their accounts. Recently, however, social scientists have been starting to fill this gap by working closely with small numbers of individual firms (e.g., the “Insider Econometrics” approach described in Kathryn Shaw 2009) or covering wide cross-sections of firms (e.g., Nicholas Bloom, Raffaella Sadun, and John Van Reenen 2009). In this paper we describe some of the tools of this research, particularly Bloom and Van Reenen (2007)—henceforth BVR— for measuring management and organizational practices. 1

We analyze how family ties affect incentives, with focus on the strategic interaction between two mutually altruistic siblings. The siblings exert effort to produce output under uncertainty, and they may transfer output to each other. With equally altruistic siblings, their equilibrium effort is nonmonotonic in the common degree of altruism, and it depends on the harshness of the environment. We define a notion of local evolutionary stability of degrees of sibling altruism and show that this degree is lower than the kinship-relatedness factor. Numerical simulations show how family ties vary with the environment, and how this affects economic outcomes.

We study a labor market where workers search for jobs both on the job and off the job. In the model, there are aggregate productivity shocks and match-specific shocks. We outline the proof of existence of an equilibrium which we call a block recursive equilibrium (BRE), in which individuals' decisions and market tightness are independent of the distribution of workers over wages or contracts. A critical assumption that is responsible for a BRE to exist is that search is directed by firms' posting of contracts. We explain why a BRE does exist under the assumption of directed search and why it does not under the assumption of random search. Finally, we generalize the proof of existence of a BRE to allow workers to be ex-ante heterogeneous with respect to some observable characteristics such as education and skill. (This abstract was borrowed from another version of this item.)

We study dynamic bargaining with asymmetric information and arrival of exogenous events, which represent arrival of traders or information. We characterize the unique limit of stationary equilibria with frequent offers. The possibility of arrivals changes equilibrium dynamics. There is delay in equilibrium, and the seller slowly screens out buyers with higher valuations. The seller payoff equals what he can achieve by simply awaiting an arrival. In applications, when buyer valuations fall, average prices drop and delay increases. Surplus division depends on relative arrival rates of buyers/sellers and expected time to trade is a nonmonotonic function of the arrival rate.

Insecure property rights over land have multiple ramifications for agriculture and the organization of rural economic activity (Besley and Ghatak 2009). The risk that land will be expropriated deters investment. Insecure property rights reduce the ability of borrowers to pledge land as collateral and thus tighten credit constraints. Ill-defined property right over land can inhibit land transactions – rentals or sales – and potential gains from trade are lost. Scarce resources, like labor, may be devoted to protecting one’s insecure rights over plots (Field 2007). In Ghana, land rights are typically gained by virtue of membership in a corporate group (e.g., extended family), but a robust market is emerging for land purchases and rentals, particularly in urban and periurban areas. Informal land markets in Ghana are beset with a number of problems including land conflicts, protracted litigation and adjudication failures, documentation bottlenecks and uncertainty. Land legislation in Ghana is perceived as incoherent, conflicting and often outdated. An unwieldy public land sector dominates the documentation of land rights, revenue collection and distribution. Land conflicts are becoming more frequent, judicial processes are overburdened, authority is overcentralized and corrupt. Conflict over multiple claims to particular plots occasionally becomes violent. Goldstein and Udry (2008) document the large investment disincentive effects of insecure tenure in agriculture in Ghana. Almost 80% of Ghana’s land is held by customary landowners, mainly families, clans and traditional authorities (Kasanga and Kotey, 2001). These owners often do not record transactions; indeed, many are clothed in secrecy. As land transactions gradually move away from their familial/corporate base to short term rental for commercial purposes, multiple simultaneous transactions on the same plot have be-

The paper presents a new meta data set covering 13 experiments on the social learning games by Bikhchandani, Hirshleifer, and Welch (1992). The large amount of data makes it possible to estimate the empirically optimal action for a large variety of decision situations and ask about the economic significance of suboptimal play. For example, one can ask how much of the possible payoffs the players earn in situations where it is empirically optimal that they follow others and contradict their own information. The answer is 53% on average across all experiments - only slightly more than what they would earn by choosing at random. The players' own information carries much more weight in the choices than the information conveyed by other players' choices: the average player contradicts her own signal only if the empirical odds ratio of the own signal being wrong, conditional on all available information, is larger than 2:1, rather than 1:1 as would be implied by rational expectations. A regression analysis formulates a straightforward test of rational expectations, which rejects, and confirms that the reluctance to follow others generates a large part of the observed variance in payoffs, adding to the variance that is due to situational differences.

This paper provides the first credible evidence on the economic value of “green buildings” derived from impersonal market transactions rather than engineering estimates. We analyze clusters of certified green and nearby buildings, establishing that “rated” buildings command substantially higher rents and selling prices than otherwise identical buildings. Variations in premiums are systematically related to energy-saving characteristics. Increased energy efficiency is associated with increased selling prices -- beyond the premiums paid for a labeled building. Evidence suggests that the intangible effects of the label itself may also play a role in determining the values of green buildings in the marketplace.

This paper takes as given that (i) the burning of fossil fuel increases the carbon dioxide content in the atmosphere, which (ii) in turn leads to global heating and global climate change of a

The likelihood that a bank loan will default is of interest to both regulators and investors. Under the Basel II regulatory guidelines, a bank must hold capital in proportion to the riskiness of its assets. The probability of default is a pri mary determinant of the riskiness of a loan. Investors, in turn, price a loan in the secondary market based on its expected cash flow, which again depends on the default probability. How should market participants assess the default probability on a pool of bank loans? It is natural to consider historical data on loan condi tions and default rates, and to estimate a statisti cal model that can be used to predict defaults going forward. Such statistical models have been widely used across the financial markets, to enhance market liquidity and impose capital requirements on financial institutions. The accuracy of predictions from statistical models was especially poor in the subprime mortgage market in the period from August 2007 onwards.1 We argue that one cause for this failure was that these models relied entirely on hard information variables and ignored changes in the incentives of lenders to collect soft infor

Recently, economic theorists have investigated the construction of ideologies (see, e.g., Edward L. Glaeser 2005 and Roland Bénabou and Jean Tirole 2006). They have modeled individuals as trading off the benefits of subscribing to a particular ideology or of suppressing certain kinds of information, against the costs that that entails. Recent discussions of macroeconomics have assigned a role to Keynesian "animal spirits"--emotions that influence confidence--giving almost unfettered scope to changes in beliefs.