Knowledge that Transforms

Testing Efficient Risk Sharing with Heterogeneous Risk Preferences: Reply by Maurizio Mazzocco and Shiv Saini. Published in volume 108, issue 10, pages 3114-15 of American Economic Review, October 2018

This paper builds a new internationally comparable database of hours worked to measure how hours vary with income across and within countries. We document that average hours worked per adult are substantially higher in low-income countries than in high-income countries. The pattern of decreasing hours with aggregate income holds for both men and women, for adults of all ages and education levels, and along both the extensive and intensive margin. Within countries, hours worked per worker are also decreasing in the individual wage for most countries, though in the richest countries, hours worked are flat or increasing in the wage. One implication of our findings is that aggregate productivity and welfare differences across countries are larger than currently thought. (JEL E23, E24, J22, J31, O11, O15)

Alphabetical name order is the norm for joint publications in economics. However, alphabetical order confers greater benefits on the first author. In a two-author model, we introduce and study certified random order: the uniform randomization of names made universally known by a commonly understood symbol. Certified random order (i) distributes the gain from first authorship evenly over the alphabet; (ii) allows either author to signal when contributions are extremely unequal; (iii) will invade an environment where alphabetical order is dominant; (iv) is robust to deviations; (v) may be ex ante more efficient than alphabetical order; and (vi) is no more complex than the existing alphabetical system modified by occasional reversal of name order. (JEL A14, Z13)

In a comment, Okamoto (2018 ) identifies and corrects a misspecification of the rationing rule in Ausubel (2004 ). This reply elaborates on the observation that the optimality of truthful bidding in dynamic auctions may be sensitive to the fine details of the rationing rule. It then discusses the wider role of sequential bid processing in restoring truthful bidding. (JEL D44)

The literature on belief-driven business cycles treats news and noise as distinct representations of agents' beliefs. We prove they are empirically the same. Our result lets us isolate the importance of purely belief-driven fluctuations. Using three prominent estimated models, we show that existing research understates the importance of pure beliefs. We also explain how differences in both economic environment and information structure affect the estimated importance of pure beliefs. (JEL D83, D84, E12, E23, E32)

This paper uses a natural experiment to estimate the causal effect of temporary trade protection on long-term economic development. I find that regions in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803–1815) increased capacity in mechanized cotton spinning to a larger extent than regions which remained more exposed to trade. In the long run, regions with exogenously higher spinning capacity had higher activity in mechanized cotton spinning. They also had higher value added per capita in industry up to the second half of the nineteenth century, but not later. (JEL F13, L67, N43, N63, N73)

Recent decades have witnessed a surge of trade in intermediate goods and a proliferation of free trade agreements (FTAs). FTAs use rules of origin (RoO) to distinguish goods originating from member countries from those originating from third countries. We focus on the North American Free Trade Agreement (NAFTA), the world’s largest FTA, and construct a unique dataset that allows us to map the input-output linkages in its RoO. Exploiting cross-product and cross-country variation in treatment over time, we show that NAFTA RoO led to a sizable reduction in imports of intermediate goods from third countries relative to NAFTA partners. (JEL F13, F15, F23, L14, O19)

This paper investigates the effects of polling station administrator diversity on elections in India, using a natural experiment: the random assignment of government officials to teams managing stations on election day, together with surveys conducted with voters and election officers. I demonstrate that changes in the religious and caste composition of officer teams impact voting at the polling station level, causing shifts in coalition vote shares large enough to influence election outcomes. Effects are strongest when officers have greater discretion over the voting process. I also provide evidence suggesting own-group favoritism by election personnel as one relevant mechanism. (JEL C93, D72, D73, J15, O17, Z12)

Richard H. Thaler delivered his Prize Lecture on 8 December 20167 at the Aula Magna, Stockholm University.

In this comment on Callen et al. (2014), I revisit recent evidence uncovering a “preference for certainty” in violation of dominant normative and descriptive theories of decision-making under risk. I show that the empirical findings are potentially confounded by systematic noise. I then develop choice lists that allow me to disentangle these different explanations. Experimental results obtained with these lists reject explanations based on a preference for certainty in favor of explanations based on random choice. From a theoretical point of view, the levels of risk aversion detected in the choice list involving certainty can be accounted for by prospect theory through reference dependence activated by salient outcomes. (JEL C91, D12, D74, D81, O12, O17)