The American Economic Review Volume 106, Issue 5, May 2016 Title: Restoring Rational Choice: The Challenge of Consumer Financial Regulation Authors: Campbell, John Y. Abstract



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The American Economic Review


Volume 106, Issue 5, May 2016

1. Title: Restoring Rational Choice: The Challenge of Consumer Financial Regulation

Authors: Campbell, John Y.

Abstract: This lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively. The lecture argues that financial ignorance is pervasive and unsurprising given the complexity of modern financial products, and that it contributes meaningfully to the evolution of wealth inequality. The lecture uses a stylized model to discuss the welfare economics of paternalistic intervention in financial markets, and discusses several specific examples including asset allocation in retirement savings, fees for unsecured short-term borrowing, and reverse mortgages.
2. Title: The Phillips Curve: Back to the '60s?

Authors: Blanchard, Olivier.

Abstract: This paper reexamines the behavior of inflation and unemployment and reaches four conclusions: 1) The U.S. Phillips curve is alive and well (at least as well as in the past). 2) Inflation expectations however have become steadily more anchored. 3) The slope of the curve has substantially declined. But the decline dates back to the 1980s rather than to the crisis. 4) The standard error of the residual in the relation is large, especially in comparison to the low level of inflation. Each of the four conclusions presents challenges for the conduct of monetary policy.
3. Title: Dealing with Long-Term Deficits

Authors: Feldstein, Martin.

Abstract: The United States faces a rising future ratio of debt to GDP that, if allowed to continue, would have serious adverse consequences for the American economy. Fortunately, policy changes can increase the size of the future GDP and shrink the future budget deficits. Relatively small reductions in future annual deficits could reverse the increasing ratio of national debt to GDP. Those annual deficit reductions could be best achieved by slowing the growth of Social Security and Medicare and by raising revenue by limiting tax expenditures or increasing the tax on gasoline.

4. Title: Monetary Policy, Financial Stability, and the Zero Lower Bound.

Authors: Fischer, Stanley.

Abstract: Much has happened in the world of central banking in the past decade. In this paper, I focus on three issues associated with the zero lower bound (ZLB) on short-term nominal interest rates and the nexus between monetary policy and financial stability: 1) whether we are moving toward a permanently lower long-run equilibrium real interest rate; 2) what steps can be taken to mitigate the constraints imposed by the ZLB; and 3) whether and how financial stability considerations should be incorporated in the conduct of monetary policy. These important topics deserve the attention of both academic and government professionals.
5. Title: How to Restore Equitable and Sustainable Economic Growth in the United States

Authors: Stiglitz, Joseph E.

Abstract: Today's weakness in the US economy results from lack of aggregate demand, due to high and growing inequality, underinvestment in public infrastructure and technology that is complementary to private capital, continuing mild austerity, difficulties encountered in making the structural transformation from manufacturing to a service-based economy, and a financial sector failing to provide adequate funds to SMEs. An agenda to restore growth includes a carbon price, inducing climate investments; increased public investments in infrastructure and technology; fighting inequality through redistribution and rewriting the rules structuring the economy; and reforming the financial sector and the global reserve system.
6. Title: Can We Restart the Recovery All Over Again?

Authors: Taylor, John B.

Abstract: Many have argued that a deviation from good economic policy has been a cause of the poor U.S. economic performance of the past decade and that policy reforms are needed to restore strong growth. Yet others argue that the recent stagnation is secular or that the possibility of a rapid recovery is long gone without more fiscal stimulus. Here I show that unusual economic conditions leave plenty of room for a reform-induced rebound. Taking demographics and the growth of capital services into account, labor force participation and productivity growth are unusually low. Hence, policy reforms could generate a post-recession-like acceleration as well as sustained growth and stability.

7. Title: A Century of Growth and Improvement

Authors: Friedman, Benjamin M.

Abstract: The fact that actual economic advance over time normally means producing and consuming different things is usually left implicit in modern models of economic growth. By contrast, qualitative change--new goods and services, and better versions of what already existed--is central to Robert Gordon's history of the improvement of American living standards since 1870. A major contribution of his fine-grained account of this experience is to make clear what this improvement has meant, and why it has mattered to ordinary citizens.
8. Title: The Rise and Fall of American Growth: Exploring the Numbers

Authors: Crafts, Nicholas.

Abstract: This paper reviews some of the major claims in Robert Gordon's Rise and Fall of American Growth. His argument that growth of conventional real GDP per person is well below that of real living standards is accepted. It is shown that adding an imputation to GDP for reductions in mortality raises growth substantially, especially between 1929 and 1950. Gordon is also right that total factor productivity growth peaked in the second and third quarters of the twentieth century but his claim that there was a 'great leap forward' in the 1940s, stimulated by World War 2, is not persuasive.
9. Title: State Capacity and American Technology: Evidence from the Nineteenth Century

Authors: Acemoglu, Daron; Moscona, Jacob; Robinson, James A.

Abstract: Robert Gordon's The Rise and Fall of American Economic Growth compellingly shows how technical innovation, stimulated by the country's institutions, has radically improved the living standards of the citizens of the US. We conduct an empirical investigation of the impact of the capacity of the US state, as proxied by the presence of post offices, on innovation. We show that there is a strong association between the number of post offices in a county and patenting activity. Our evidence suggests that part of story of US innovation is the capacity and reach of the US state.

10. Title: Winter Is Coming: Robert Gordon and the Future of Economic Growth

Authors: Clark, Gregory.

Abstract: This comment assesses the claim of The Rise and Fall of American Growth that for coming decades, growth in US TFP will continue the disappointing pace of the last decade. While predicting future technological advance is difficult, there are indications that Gordon may actually be too optimistic on future TFP growth. The share of output from manufacturing, which still generates the majority of R&D expenditures, and has historically more rapid TFP growth, will continue to fall. There are substantial obstacles to rapid TFP advance in much of the rest of the economy: construction, transport, health care and other services.
11. Title: Perspectives on the Rise and Fall of American Growth

Authors: Gordon, Robert J.

Abstract: This paper summarizes the book and assesses the reviews contained in the four contributed papers. Gregory Clark provides convincing arguments that extend the book's forecast that future technological change will be slower. Nicholas Crafts shows declining mortality and shorter work hours greatly increase welfare-augmented TFP growth during 1929-50. Benjamin Friedman points out that optimism about future technological change casts doubt on future employment growth, while technological pessimism implies employment optimism. Daron Acemoglu and co-authors emphasize the institutional environment that influences the timing and magnitude of innovation.
12. Title: Infrastructure, Incentives, and Institutions

Authors: Ashraf, Nava; Glaeser, Edward L.; Ponzetto, Giacomo A. M.

Abstract: Expensive infrastructure is ineffective if it doesn't travel the last mile. In nineteenth-century New York and modern Africa, disease has spread when urbanites chose not to use newly built sanitation infrastructure to save money. Either subsidies or Pigouvian fines can internalize the externalities that occur when people don't use sanitation infrastructure, but with weak institutions subsidies generate waste and fines lead to extortion. Our model illustrates the complementarity between infrastructure and institutions and shows how institutional weaknesses determine whether fines, subsidies, both or neither are optimal. Contrary to Becker (1968), the optimal fine is often mild to reduce extortion.

13. Title: Guns, Latrines, and Land Reform: Dynamic Pigouvian Taxation

Authors: Kremer, Michael; Willis, Jack.

Abstract: Dynamically and statically optimal Pigouvian subsidies and taxes on durables will differ in a growing economy. In a dynamic game, consumers may delay purchasing durables with positive externalities, such as latrines, anticipating greater future subsidies. Governments can most cheaply induce optimal purchasing by commiting to make subsidies temporary. Foreign donors may make commitment impossible, generating delays in private investment that more than fully offset the social benefits of transfers. Anticipated future taxes or regulation of durables with negative externalities, such as guns, may encourage current purchase, potentially causing policymakers who would otherwise prefer taxes or regulation to abandon such policies.
14. Title: Appliance Ownership and Aspirations among Electric Grid and Home Solar Households in Rural Kenya

Authors: Lee, Kenneth; Miguel, Edward; Wolfram, Catherine.

Abstract: In Sub-Saharan Africa, there are active debates about whether increases in energy access should be driven by investments in electric grid infrastructure or small-scale 'home solar' systems (e.g., solar lanterns and solar home systems). We summarize the results of a household electrical appliance survey and describe how households in rural Kenya differ in terms of appliance ownership and aspirations. Our data suggest that home solar is not a substitute for grid power. Furthermore, the environmental advantages of home solar are likely to be relatively small in countries like Kenya, where grid power is primarily derived from non-fossil fuel sources.
15. Title: Firm-Level Dispersion in Productivity: Is the Devil in the Details?

Authors: Foster, Lucia; Grim, Cheryl; Haltiwanger, John; Wolf, Zoltan.

Abstract: We explore current interpretations of firm-level dispersion in revenue-based productivity measures. Since revenue function estimates using proxy methods differ from factor elasticities, the residual emerging from this method remains a combination of demand and technical effciency shocks, and is not equal to the concept of revenue productivity that plays an important role in recent literature on misallocation. This has implications for applications where measured revenue productivity dispersion is used as an indicator of misallocation. Our empirical evidence suggests, under iso-elastic demand, measured dispersion may indicate either distortions or variation in demand shocks and technical effciency or all of the above.
16. Title: Productivity Dispersion in Medicine and Manufacturing

Authors: Chandra, Amitabh; Finkelstein, Amy; Sacarny, Adam; Syverson, Chad.

Abstract: The conventional wisdom in health economics is that large differences in average productivity across US hospitals are the result of idiosyncratic features of the healthcare sector which dull the role of market forces. Strikingly, however, we find that productivity dispersion in heart attack treatment across hospitals is, if anything, smaller than in narrowly defined manufacturing industries such as ready-mixed concrete. While this fact admits multiple interpretations, it suggests that healthcare may have more in common with 'traditional' sectors than is often assumed, and relatedly, that insights from research on productivity and allocation in other sectors may enrich analysis of healthcare.
17. Title: Market Regulations, Prices, and Productivity

Authors: Cette, Gilbert; Lopez, Jimmy; Mairesse, Jacques.

Abstract: This study is, to our knowledge, the first attempt to infer the consequences on productivity entailed by anticompetitive regulations in product and labor markets through their impacts on production prices and wages. Results show that changes in production prices and wages at country*industry levels are informative about the creation of rents impeding productivity in different ways and to different extents. A simulation based on OECD regulation indicators suggests that nearly all countries could expect sizeable gains in multifactor productivity from the implementation of large structural reform programs changing anticompetitive regulation practices on product and labor markets.

18. Title: Regulation, Institutions, and Productivity: New Macroeconomic Evidence from OECD Countries

Authors: Égert, Balázs.

Abstract: This paper seeks to understand the drivers of country-level multi-factor productivity (MFP) with a special emphasis on product and labour market policies and the quality of institutions. For a panel of OECD countries, we find that anticompetitive product market regulations reduce MFP levels and that higher innovation intensity and greater openness result in higher MFP. We also find that the impact of product market regulations on MFP may depend on the level of labour market regulations. Better institutions, a more business friendly environment and lower barriers to trade and investment amplify the positive impact of R&D spending on MFP. Finally, we also show that cross-country MFP variations can be explained to a considerable extent by cross-country variation in labour market regulations, barriers to trade and investment and institutions.
19. Title: Crowdsourcing City Government: Using Tournaments to Improve Inspection Accuracy

Authors: Glaeser, Edward L.; Hillis, Andrew; Kominers, Scott Duke; Luca, Michael.

Abstract: The proliferation of big data makes it possible to better target city services like hygiene inspections, but city governments rarely have the in-house talent needed for developing prediction algorithms. Cities could hire consultants, but a cheaper alternative is to crowdsource competence by making data public and offering a reward for the best algorithm. A simple model suggests that open tournaments dominate consulting contracts when cities can tolerate risk and when there is enough labor with low opportunity costs. We also report on an inexpensive Boston-based restaurant tournament, which yielded algorithms that proved reasonably accurate when tested 'out-of-sample' on hygiene inspections.

20. Title: Personalized Risk Assessments in the Criminal Justice System

Authors: Goel, Sharad; Rao, Justin M.; Shroff, Ravi.

Abstract: In an effort to bring greater efficiency, equity, and transparency to the criminal justice system, statistical risk assessment tools are increasingly used to inform bail, sentencing, and parole decisions. We examine New York City's stop-and-frisk program, and propose two new use cases for personalized risk assessments. First, we show that risk assessment tools can help police officers make considerably better real-time stop decisions. Second, we show that such tools can help audit past actions; in particular, we argue that a sizable fraction of police stops were conducted on the basis of little evidence, in possible violation of constitutional protections.
21. Title: Productivity and Selection of Human Capital with Machine Learning

Authors: Chalfin, Aaron; Danieli, Oren; Hillis, Andrew; Jelveh, Zubin; Luca, Michael; Ludwig, Jens; Mullainathan, Sendhil.

Abstract: Economists have become increasingly interested in studying the nature of production functions in social policy applications, with the goal of improving productivity. Traditionally models have assumed workers are homogenous inputs. However, in practice, substantial variability in productivity means the marginal productivity of labor depends substantially on which new workers are hired--which requires not an estimate of a causal effect, but rather a prediction. We demonstrate that there can be large social welfare gains from using machine learning tools to predict worker productivity, using data from two important applications - police hiring and teacher tenure decisions.

22. Title: Cities Are Physical Too: Using Computer Vision to Measure the Quality and Impact of Urban Appearance


Authors: Naik, Nikhil; Raskar, Ramesh; Hidalgo, César A.

Abstract: For social scientists, developing an empirical connection between the physical appearance of a city and the behavior and health of its inhabitants has proved challenging due to a lack of data on urban appearance. Can we use computers to quantify urban appearance from street-level imagery? We describe Streetscore: a computer vision algorithm that measures the perceived safety of streetscapes. Using Streetscore to evaluate 19 American cities, we find that the average perceived safety has a strong positive correlation with population density and household income; and the variation in perceived safety has a strong positive correlation with income inequality.
23. Title: The Rapid Adoption of Data-Driven Decision-Making

Authors: Brynjolfsson, Erik; McElheran, Kristina.

Abstract: We provide a systematic empirical study of the diffusion and adoption patterns of data-driven decision making (DDD) in the U.S. Using data collected by the Census Bureau for a large representative sample of manufacturing plants, we find that DDD rates nearly tripled (11%-30%) between 2005 and 2010. This rapid diffusion, along with results from a companion paper, are consistent with case-based evidence that DDD tends to be productivity-enhancing. Yet certain plants are significantly more likely to adopt than others. Key correlates of adoption are size, presence of potential complements such as information technology and educated workers, and firm learning.
24. Title: Copyright Infringement in the Market for Digital Images

Authors: Luo, Hong; Mortimer, Julie Holland.

Abstract: Digital technologies for sharing creative goods create new opportunities for copyright infringement and challenge established enforcement methods. We establish several important facts about the nature of copyright infringement and efforts to settle past infringing use in the market for digital images. Infringement in this, and many other markets, is often uninformed: users may be unaware that their use infringes, and may lack information about the price of a license. The uninformed nature of infringement implies that price may not be the primary factor in the decision to settle past use; in contrast, non-price factors may significantly affect settlement outcomes.

25. Title: Agglomeration of Invention in the Bay Area: Not Just ICT

Authors: Forman, Chris; Goldfarb, Avi; Greenstein, Shane.

Abstract: We document that the Bay Area rose from 4% of all successful US patent applications in 1976 to 16% in 2008. This is partly driven by the increase in the prevalence of information and communication technology; however, even for patents unrelated to information and communication technology, we see a disproportionate increase in the share of US patents from the Bay Area. We interpret this growth as a trend to coagglomeration in invention across technologies, and explore different dimensions of this trend.
26. Title: International Data on Measuring Management Practices

Authors: Bloom, Nicholas; Lemos, Renata; Sadun, Raffaella; Scur, Daniela; Van Reenen, John.

Abstract: We examine methods used to survey firms on their management and organizational practices. We contrast the strengths and weaknesses of 'open ended questions' (like the World Management Survey) with 'closed questions' (like the MOPS). For this type of data, open ended questions give higher quality responses, but are more costly than closed question-based surveys.
27. Title: Making Private Data Accessible in an Opaque Industry: The Experience of the Private Capital Research Institute

Authors: Jeng, Leslie; Lerner, Josh.

Abstract: Private markets are becoming an increasingly important way of financing rapidly growing and mature firms, and private investors are reputed to have far-reaching economic impacts. These important markets, however, are uniquely difficult to study. This paper explores these challenges, as well as the ways they can be overcome, using the experiences of the Private Capital Research Institute as a case.

28. Title: Modernizing Federal Economic Statistics

Authors: Bostic, William G.; Jarmin, Ron S.; Moyer, Brian.

Abstract: Official statistical data on the structure, evolution and performance of the U.S. economy are produced by a variety federal, state and local agencies. Much of the methodology, policy frameworks and infrastructure for U.S. economic measurement have been in place for decades. There are growing concerns that the economy is evolving more rapidly than are the economic statistics we use to monitor it. We discuss both the challenges and opportunities to modernizing federal economic statistics. We describe an incremental approach that federal statistics agencies can follow to build a 21st century economic measurement system.
29. Title: Battling over Jobs: Occupational Licensing in Health Care

Authors: Kleiner, Morris M.

Abstract: The goal of this paper is to outline the major tensions between the monopoly face of licensing versus potential consumer protection goals of occupational regulation in the health care industry. Historically, health care occupations limited supply as a method of raising earnings, but with the growth in the number of newly regulated occupations, many professions have come in conflict over who gets to do the work. Rather than having consumers decide, state legislatures and licensing boards determine the allocation of tasks. The paper outlines policies that may allow consumers rather than service providers determine the direct allocation of these jobs.
30. Title: Should the US Eliminate Entry Barriers to the Practice of Law? Perspectives Shaped by Industry Deregulation

Authors: Winston, Clifford; Karpilow, Quentin.

Abstract: States' requirements that lawyers obtain a license to practice law, as well as American Bar Association (ABA) regulations of legal practice, constitute barriers to entry to the legal profession. In this paper, we argue that eliminating entry barriers in legal services would generate benefits that are similar to those resulting from deregulating U.S. network industries (i.e., transportation, communications, and energy.) Specifically, prices would fall as competition from incumbent firms and new entrants intensifies; in the long run, competitive forces and operating freedom would incentivize firms to produce innovations that significantly benefit consumers and the broader economy.
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