Knowledge that Transforms

Two parties choose redistricting plans to maximize their probability of winning a majority in the House of Representatives. In the unique equilibrium, parties maximally segregate their opponents' supporters but pool their own supporters into uniform districts. Ceteris paribus, the stronger party segregates more than the weaker one, and the election outcome is biased in the stronger party's favor and against the party whose supporters are easier to identify. We incorporate policy choice into our redistricting game and find that when one party controls redistricting, the equilibrium policy is biased towards the preferences of the redistricting party's supporters. (JEL C72, D72)

A significant part of the development experience is the change in the way work is structured. To use a historical example, the Industrial Revolution involved workers moving from agriculture to manufacturing; from working on their own to working with others in factories; and from flexible work-hours to rigid work-days. How are we to understand these changes? Why did they occur? What impacts did they have on labor productivity and possibly growth? In answering questions such as these, economic theories draw on different assumptions about aggregate production, market failures, and innovation. Yet almost all rely on one of two determinants of labor productivity: human capital and incentives. Human capital theories (broadly construed) emphasize how work arrangements utilize the distribution of human capital and, in learning models, facilitate its development. Incentive theories (again broadly construed) emphasize how workplace arrangements align worker payoffs to minimize moral hazard. In this paper, we bring together and advance a growing literature on a third feature: worker self-control. Individuals may not be able to work as hard as they would like. Some work-place arrangements may make self-control problems more severe, while others may ameliorate them. 1 Below, we describe evidence from a field experiment broadly supportive of the self-control perspective. We then argue that many work arrangements can be understood

This paper develops a theory of the firm in which a firm's centralized asset ownership and low-powered incentives give the manager, as an equilibrium outcome, interpersonal authority over employees (in a world with open disagreement). The paper thus provides micro-foundations for the idea that bringing a project inside the firm gives the manager control over that project, while explaining concentrated asset ownership, low-powered incentives, and centralized authority as typical characteristics of firms. The paper also leads to new perspectives on the firm as a legal entity and on the relationship between the Knightian and Coasian views of the firm. (JEL D23, L20)

What capital is missing in developing countries? We put forward “managerial capital,” which is distinct from human capital, as a key missing form of capital in developing countries. And it has also been curiously missing in the research on growth and development. We argue in this paper that lack of managerial capital has broad implications for firm growth as well as for the effectiveness of other input factors. A large literature in development economics aims to understand the impediments to firm growth, particularly in small and medium enterprises. Standard growth theories have explored the importance of input factors such as capital and labor in the production function of firms and countries. At the micro level, empirical studies such as Suresh de Mel, David McKenzie and Christopher Woodruff (2008), Abhijit Banerjee et al. (2009), and Dean Karlan and Jonathan Zinman (2009) have estimated the impact of access to finance for capital constrained microenterprises (see Karlan and Jonathan Morduch, 2009, for a review). At the macro level, papers by Robert King and Ross Levine (1993), Raghuram Rajan and Luigi Zingales (1998), and Marianne Bertrand, Antoinette Schoar, and David Thesmar (2007) suggest the importance of the financial system for economic growth.

To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into the standard growth model. The framework has two novel ingredients. First, firms differ in the risk/return combinations that they offer. Second, the efficacy of monitoring depends upon the amount of resources invested in the activity. A financial theory of firm size results. Undeserving firms are over-financed, deserving ones under-funded. Technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive firms toward productive ones. With continued progress, the economy approaches its first-best equilibrium. (JEL G21, G31, O16, O33, O41)

An incentives based theory of policing is developed which can explain the phenomenon of random “crackdowns,” i.e., intermittent periods of high interdiction/surveillance. For a variety of police objective functions, random crackdowns can be part of the optimal monitoring strategy. We demonstrate support for implications of the crackdown theory using traffic data gathered by the Belgian Police Department and use the model to estimate the deterrence effect of additional resources spent on speeding interdiction. (JEL K42, R41)

This paper analyzes prudential controls on capital flows to emerging markets from the perspective of a Pigouvian tax that addresses externalities associated with the deleveraging cycle. It presents a model in which restricting capital inflows during boom times reduces the potential outflows during busts. This mitigates the feedback effects of deleveraging episodes, when tightening financial constraints on borrowers and collapsing prices for collateral assets have mutually reinforcing effects. In our model, capital controls reduce macroeconomic volatility and increase standard measures of consumer welfare.

We document that delivery lags and transaction-level economics of scale matter for international trade, leading importers to import infrequently and hold additional inventory. In a model with these frictions calibrated to empirical measures of inventory and trade lumpiness, these frictions have a large (20 percent) tariff equivalent, mostly due to inventory carrying costs. These frictions also alter the dynamics of imports and prices. Consistent with evidence from large devaluation episodes in six developing economies, following terms-of-trade and interest rate shocks, the model generates a short-term implosion of imports and a gradual increase in the retail price of imports. (JEL D92, F14, G31, L81, M11)

Peter DeMarzo, Ilan Kremer, and Andrzej Skrzypacz (2005) analyzed auctions in which bidders compete in securities. They show that a steeper security leads to a higher expected revenue for the seller, and also use this to establish the revenue ranking between standard auctions. In this comment, we obtain the opposite results to DKS's by assuming that a higher return requires a higher investment cost. Given this latter assumption, steeper securities are more vulnerable to adverse selection, and may yield lower expected revenue, than flatter ones. (JEL D44)

The Effectiveness of Peer Tutoring on Student Achievement at the University Level by Vincent G. Munley, Eoghan Garvey and Michael J. McConnell. Published in volume 100, issue 2, pages 277-82 of American Economic Review, May 2010