Knowledge that Transforms

Self-regulation is the private provision of public goods and private redistribution. This paper examines the scope of self-regulation motivated by altruistic moral preferences that are reciprocal and stronger the closer are citizens in a socioeconomic distance. The focus is on the role of organizations in increasing self-regulation by mitigating free-rider problems. Social label and certification organizations can expand the scope of self-regulation but not beyond that with unconditional altruism. Enforcement organizations expand the scope of self-regulation farther, and for-profit enforcement is more aggressive than non-profit enforcement. Enforcement through social pressure imposed by NGOs also expands the scope of self-regulation.

Entrepreneurs may be legally bound to bequeath a minimal stake to noncontrolling heirs. The size of this stake can reduce investment in family firms, by reducing the future income they can pledge to external financiers. Using a purpose-built indicator of the permissiveness of inheritance law and data for 10,004 firms from 38 countries in 1990–2006, we find that stricter inheritance law is associated with lower investment in family firms but does not affect investment in nonfamily firms. Moreover, as the model predicts, inheritance law affects investment only in family firms that experience a succession.

Over the last 40 years, an increasing share of U.S. aggregate E&S investment expenditure has been allocated to capital-goods imports. While capital-goods imports were only 3.5 percent of E&S investment in 1967, by 2008 their share had risen tenfold to 36 percent. The goal of this paper is to measure the contribution of capital-goods imports to growth in U.S. output per hour using a simple growth accounting exercise. We find that capital-goods imports have contributed 20 to 30 percent to growth in U.S. output per hour between 1967 and 2008. More importantly, we find that capital-goods imports have been an increasing source of growth for the US economy: the average contribution of capital-goods imports to growth in U.S .output per hour has increased noticeably since 1967.(This abstract was borrowed from another version of this item.)

We modify the principal-agent model with moral hazard by assuming that the agent is expectation-based loss averse according to Kőoszegi and Rabin (2006, 2007). The optimal contract is a binary payment scheme even for a rich performance measure, where standard preferences predict a fully contingent contract. The logic is that, due to the stochastic reference point, increasing the number of different wages reduces the agent's expected utility without providing strong additional incentives. Moreover, for diminutive occurrence probabilities for all signals the agent is rewarded with the fixed bonus if his performance exceeds a certain threshold.

Are There Gender Differences in the Job Mobility Patterns of Academic Economists? by Christiana Hilmer and Michael Hilmer. Published in volume 100, issue 2, pages 353-57 of American Economic Review, May 2010

Tournaments can elicit more effort but sabotage may attenuate the effect of competition. Because it is hard to separate effort and ability, the evidence on tournaments is thin. There is even less evidence on sabotage because these acts often consist of subjective peer evaluation or “office politics.” We discuss real effort experiments in which quality adjusted output and office politics are compared under piece rates and tournaments and find that tournaments increase effort only in the absence of office politics. Competitors subvert each other more in tournaments, and as a result, workers produce less because they expect to be sabotaged. (D82, M54)

The Public and Private Sectors in the Process of Innovation: Theory and Evidence from the Mouse Genetics Revolution by Philippe Aghion, Mathias Dewatripont, Julian Kolev, Fiona Murray and Scott Stern. Published in volume 100, issue 2, pages 153-58 of American Economic Review, May 2010

Wage subsidies have long been used by Governments as part of their active labor market policies to generate employment for the disadvantaged or to sustain employment during downturns. The current global financial crisis has seen such policies return to prominence, with many developed nations using such policies to try and reduce lay-offs. Nicholas Kaldor (1936), P. Richard Layard and Stephen Nickell (1980), and Lawrence Katz (1998) lay out the economic arguments for such a policy, and discuss conditions under which a short-term subsidy might have longer-term effects on employment for the targeted individuals.

We specify a life-cycle model of consumption, labor supply and job mobility in an economy with search frictions. We distinguish different sources of risk, including shocks to productivity, job arrival, and job destruction. Allowing for job mobility has a large effect on the estimate of productivity risk. Increases in the latter impose a considerable welfare loss. Increases in employment risk have large effects on output and, primarily through this channel, affect welfare. The welfare value of programs such as Food Stamps, partially insuring productivity risk, is greater than the value of unemployment insurance which provides (partial) insurance against employment risk.

Like politics, the process of economic development is intrinsically local. Communities vie ferociously for jobs, offering tax credits, infrastructure improvements, and in some cases cash to attract investment to particular regions, cities, or even neighborhoods. In the U.S., federal and state governments target resources towards particular areas in the hopes of stimulating investment, alleviating poverty, and in some cases even recovering from natural disasters. These place based policies, though hardly new, have just begun to attract serious attention from economists. 1 As evidence on the effects of these programs begins to trickle in, it is useful to develop a theoretical framework within which to evaluate them. To many observers, spatially targeted policies are a sign of waste – an unfortunate cost of the political process. Why after all should governments pay firms to move to less productive areas and incentivize workers to live in neighborhoods they don’t like? Moreover, serious questions exist about the winners and losers of such policies in a general equilibrium environment. I study here the welfare implications of place based policies using some stylized models of spatial equilibrium incorporating taste heterogeneity and agglomeration economies. I. Baseline Model Consider a continuum of workers of measure one, faced with the decision of locating in one of two communities j ��1 � 2 � where they will work and inelastically demand a single unit of housing. 2 Agents have quasi-linear preferences over local amenities and consumption. The value to worker i oflocatingincom-