Knowledge that Transforms

The categories listed below are used to classify books, book reviews, journal articles, and dissertations indexed in JEL, JEL on CD, EconLit, and www.e-JEL.org . New changes to the classification system appear as soon as possible on www.econlit.org . The JEL classification system may be used freely for scholarly purposes. We suggest the following format: “JEL: A10, B10, etc.”

The empirical literature on economic growth and development has moved from the study of proximate determinants to the analysis of ever deeper, more fundamental factors, rooted in long-term history. A growing body of new empirical work focuses on the measurement and estimation of the effects of historical variables on contemporary income by explicitly taking into account the ancestral composition of current populations. The evidence suggests that economic development is affected by traits that have been transmitted across generations over the very long run. This article surveys this new literature and provides a framework to discuss different channels through which intergenerationally transmitted characteristics may impact economic development, biologically (via genetic or epigenetic transmission) and culturally (via behavioral or symbolic transmission). An important issue is whether historically transmitted traits have affected development through their direct impact on productivity, or have operated indirectly as barriers to the diffusion of productivity-enhancing innovations across populations. (JEL J11, O33, O47, Z13)

Home bias is a perennial feature of international capital markets. We review various explanations of this puzzling phenomenon highlighting recent developments in macroeconomic modeling that incorporate international portfolio choices in standard two-country general equilibrium models. We refer to this new literature as Open Economy Financial Macroeconomics. We focus on three broad classes of explanations: (i) hedging motives in frictionless financial markets (real exchange rate and nontradable income risk), (ii) asset trade costs in international financial markets (such as transaction costs or differences in tax treatments between national and foreign assets), and (iii) informational frictions and behavioral biases. Recent theories call for new portfolio facts beyond equity home bias. We present new evidence on cross-border asset holdings across different types of assets: equities, bonds and bank lending and new micro data on institutional holdings of equity at the fund level. These data should inform macroeconomic modeling of the open economy and a growing literature of models of delegated investment. (JEL E13, F41, G11, G12, G15)

The purpose of this essay is to review the books Why Nations Fail by Daron Acemoglu and James Robinson, and Pillars of Prosperity by Timothy Besley and Torsten Persson. The essay briefly discusses the main contributions of the books and the role of politics for economic performance. The review then discusses these contributions in the light of recent research on organizational economics, particularly the modern theory of the firm. (JEL D23, D72, O10, O47, O57)

Why is prosperity distributed so unevenly across America's metropolitan areas? While population growth has gone disproportionately towards the Sunbelt, high-skill areas have experienced the strongest income growth since 1970. Gaps between more and less educated areas were modest forty years ago, but they have become quite large, and far larger than would be predicted solely by the general rise in the returns to skill. Unemployment rates during the recent recession were also strongly correlated with area level education. This essay reviews Enrico Moretti's The New Geography of Jobs, which both describes and explains these significant regional trends. (JEL I32, J24, R12, R23, R32)

This essay will discuss the criticisms of the economic approach to markets offered by Michael Sandel's What Money Can't Buy. After reviewing the main arguments, the essay looks at these from three main angles. First, it relates them to different traditions of thinking about markets and their achievements that have been developed by economists. Second, it discusses the idea that markets can change values as argued by Sandel in light of recent related literature in economics. Third, it discusses some of the literature on alternatives to using the market to allocate resources and the pros and cons of these. (JEL A11, A13, D40, D63, P10)

Neuroeconomics aims to discover mechanisms of economic decision, and express them mathematically, to predict observed choice. While the contents of neuroeconomic models and evidence are obviously different than in traditional economics, (some of the) goals are identical: to explain and predict choice, the effects of comparative statics, and perhaps make interesting new welfare judgments that are defensible. To this end, Paul Glimcher's important book carefully describes how economics, psychological, and neural levels of explanation can be linked (a structure which has been successful in visual neuroscience). As Glimcher shows, the neural evidence is quite strong for a process of learning valuations through prediction error, and a simple model of neural valuation and comparison that corresponds to random utility (though subject to normalization, which produces menu effects). There is also rapidly growing evidence for more complicated constructs in behavioral economics, including prospect theory's account of risky choice, hyperbolic time discounting, level-k models of games, and social preferences corresponding to internal reward based on what happens to other agents. (JEL D01, D03, Y30)

Harstad and Selten's article in this forum performs a valuable service by highlighting the dominance of optimization-based models over boundedly rational models in modern microeconomics, and questioning whether optimization-based models are a better way forward than boundedly rational models. This article complements Rabin's response to Harstad and Selten, focusing on modeling strategic behavior. I consider Harstad and Selten's examples and proposed boundedly rational models in the light of modern behavioral economics and behavioral game theory, commenting on the challenges that remain and the most promising ways forward. (JEL B40, C72, D01, D03, D80)

Academic economists appear to be intensely interested in rankings of journals, institutions, and individuals. Yet there is little discussion of the uncertainty associated with these rankings. To illustrate the uncertainty associated with citations-based rankings, I compute the standard error of the impact factor for all economics journals with a five-year impact factor in the 2011 Journal Citations Report. I use these to derive confidence intervals for the impact factors as well as ranges of possible rank for a subset of thirty journals. I find that the impact factors of the top two journals are well defined and set these journals apart in a clearly defined group. An elite group of 9–11 mainstream journals can also be fairly reliably distinguished. The four bottom ranked journals are also fairly clearly set apart. For the remainder of the distribution, confidence intervals overlap and rankings are quite uncertain. (JEL A14)

Transportation is a vital sector of the U.S. economy based on consumers', firms', and government's enormous expenditures in money and time and on its effect on virtually all other sectors in the economy. I assess the performance of the transportation system and consider how it could be improved by analyzing whether the United States has the optimal mix of public and private provision. The empirical evidence indicates that our hugely important transportation system has been compromised by various government policies and the significant welfare costs motivate either vastly improving public provision or expanding the role of the private sector. (JEL H44, H54, H76, L91, L98, R41, R48)