We propose a stock market-based measure to capture initial beliefs about an event’s effect on firm profits, which may be used to measure whether initial expectations are subsequently realized. Our “Event Long-Short Index” is the difference in market-capitalization-weighted returns of firms that outperform versus underperform the market on the event date. We use post-event index returns to measure whether initial beliefs are reinforced or attenuated. We apply our approach to the 2016 US presidential election and Brexit referendum to illustrate the index and its interpretation and to validate it, showing that it moves as expected following subsequent political and business news. (JEL D22, D72, D83, G14, L25)
{"title":"An Event Long-Short Index: Theory and Applications","authors":"R. Fisman, Eric Zitzewitz","doi":"10.1257/aeri.20180399","DOIUrl":"https://doi.org/10.1257/aeri.20180399","url":null,"abstract":"We propose a stock market-based measure to capture initial beliefs about an event’s effect on firm profits, which may be used to measure whether initial expectations are subsequently realized. Our “Event Long-Short Index” is the difference in market-capitalization-weighted returns of firms that outperform versus underperform the market on the event date. We use post-event index returns to measure whether initial beliefs are reinforced or attenuated. We apply our approach to the 2016 US presidential election and Brexit referendum to illustrate the index and its interpretation and to validate it, showing that it moves as expected following subsequent political and business news. (JEL D22, D72, D83, G14, L25)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/aeri.20180399","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42909884","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper re-examines the relationship between population aging and economic growth. We confirm previous research such as Cutler et al. (1990) and Acemoglu and Restrepo (2017) that show positive correlation between population aging and per capita output growth. Our contribution is demonstrating that this relationship breaks down when the adjustment of interest rates is inhibited by a lower bound on nominal rates, as during the Great Financial Crisis decade. Indeed, during the “secular stagnation regime” of 2008–2015 that prevailed in a number of countries, aging had a negative impact on living standards, consistent with the secular stagnation hypothesis. (JEL E23, E32, E43, G01, I31, J14)
本文重新审视了人口老龄化与经济增长的关系。我们确认了Cutler et al.(1990)和Acemoglu and Restrepo(2017)等先前的研究表明人口老龄化与人均产出增长呈正相关。我们的贡献是证明，当利率调整受到名义利率下限的抑制时，这种关系就会破裂，就像在大金融危机期间那样。事实上，在2008年至2015年在许多国家盛行的“长期停滞制度”期间，老龄化对生活水平产生了负面影响，这与长期停滞假说相一致。(jel e23, e32, e43, g01, i31, j14)
{"title":"Aging, Output Per Capita, and Secular Stagnation","authors":"Gauti B. Eggertsson, M. Lancastre, L. Summers","doi":"10.1257/AERI.20180383","DOIUrl":"https://doi.org/10.1257/AERI.20180383","url":null,"abstract":"This paper re-examines the relationship between population aging and economic growth. We confirm previous research such as Cutler et al. (1990) and Acemoglu and Restrepo (2017) that show positive correlation between population aging and per capita output growth. Our contribution is demonstrating that this relationship breaks down when the adjustment of interest rates is inhibited by a lower bound on nominal rates, as during the Great Financial Crisis decade. Indeed, during the “secular stagnation regime” of 2008–2015 that prevailed in a number of countries, aging had a negative impact on living standards, consistent with the secular stagnation hypothesis. (JEL E23, E32, E43, G01, I31, J14)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20180383","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46473993","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper deals with the issue of screening. It focuses on a decision maker who, based on noisy unbiased assessments, screens elements from a general set. Our analysis shows that stricter screening not only reduces the number of accepted elements, but possibly reduces their average expected value. We provide a characterization for optimal threshold strategies for screening and also derive implications to cases where such screening strategies are suboptimal. We further provide various applications of our results to credit ratings, auctions, general trade, the Peter Principle, and affirmative action. (JEL C38, D44, F10, G24, J15)
{"title":"A Bias of Screening","authors":"David Lagziel, E. Lehrer","doi":"10.1257/aeri.20180578","DOIUrl":"https://doi.org/10.1257/aeri.20180578","url":null,"abstract":"This paper deals with the issue of screening. It focuses on a decision maker who, based on noisy unbiased assessments, screens elements from a general set. Our analysis shows that stricter screening not only reduces the number of accepted elements, but possibly reduces their average expected value. We provide a characterization for optimal threshold strategies for screening and also derive implications to cases where such screening strategies are suboptimal. We further provide various applications of our results to credit ratings, auctions, general trade, the Peter Principle, and affirmative action. (JEL C38, D44, F10, G24, J15)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/aeri.20180578","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49610789","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? I offer the first model characterizing this type of investment decision. I introduce a strategy called “mission hedging,” where—in contrast to traditional socially responsible investing—foundations may benefit from skewing investment toward the objectionable firm in order to align funding availability with need. I characterize the trade-offs driving foundation investment decisions. By leveraging the idiosyncratic firm risk typically diversified away in profit-maximizing portfolios, foundations may find that bad actors provide good opportunities to hedge mission-specific risks. (JEL G11, G14, L31, M14)
{"title":"Divest, Disregard, or Double Down? Philanthropic Endowment Investments in Objectionable Firms","authors":"B. Tran","doi":"10.1257/aeri.20180347","DOIUrl":"https://doi.org/10.1257/aeri.20180347","url":null,"abstract":"How much, if at all, should an endowment invest in a firm whose activities run counter to the charitable missions the endowment funds? I offer the first model characterizing this type of investment decision. I introduce a strategy called “mission hedging,” where—in contrast to traditional socially responsible investing—foundations may benefit from skewing investment toward the objectionable firm in order to align funding availability with need. I characterize the trade-offs driving foundation investment decisions. By leveraging the idiosyncratic firm risk typically diversified away in profit-maximizing portfolios, foundations may find that bad actors provide good opportunities to hedge mission-specific risks. (JEL G11, G14, L31, M14)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/aeri.20180347","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41263585","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
J. Angrist, Victor Lavy, Jetson Leder-Luis, Adi Shany
We use Maimonides’ rule as an instrument for class size in large Israeli samples from 2002–2011. In contrast with Angrist and Lavy (1999), newer estimates show no evidence of class size effects. The new data also reveal enrollment manipulation near Maimonides cutoffs. A modified rule that uses birthdays to impute enrollment circumvents manipulation while still generating precisely estimated zeros. In both old and new data, Maimonides’ rule is unrelated to socioeconomic characteristics conditional on a few controls. Enrollment manipulation therefore appears to be innocuous. We briefly discuss possible explanations for the disappearance of Israeli class size effects since the early 1990s. (JEL C38, H52, I21, I28)
{"title":"Maimonides Rule Redux","authors":"J. Angrist, Victor Lavy, Jetson Leder-Luis, Adi Shany","doi":"10.1257/AERI.20180120","DOIUrl":"https://doi.org/10.1257/AERI.20180120","url":null,"abstract":"We use Maimonides’ rule as an instrument for class size in large Israeli samples from 2002–2011. In contrast with Angrist and Lavy (1999), newer estimates show no evidence of class size effects. The new data also reveal enrollment manipulation near Maimonides cutoffs. A modified rule that uses birthdays to impute enrollment circumvents manipulation while still generating precisely estimated zeros. In both old and new data, Maimonides’ rule is unrelated to socioeconomic characteristics conditional on a few controls. Enrollment manipulation therefore appears to be innocuous. We briefly discuss possible explanations for the disappearance of Israeli class size effects since the early 1990s. (JEL C38, H52, I21, I28)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20180120","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45013801","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Mexican manufacturing job loss induced by competition with China increases cocaine trafficking and violence, particularly in municipalities with transnational criminal organizations. When it becomes more lucrative to traffic drugs because changes in local labor markets lower the opportunity cost of criminal employment, criminal organizations plausibly fight to gain control. The evidence supports a Becker-style model in which the elasticity between legitimate and criminal employment is particularly high where criminal organizations lower illicit job search costs, where the drug trade implies higher pecuniary returns to violent crime, and where unemployment disproportionately affects low-skilled men. (JEL F16, J24, J64, K42, L60, O15, R23)
{"title":"The Violent Consequences of Trade-Induced Worker Displacement in Mexico","authors":"Melissa Dell, B. Feigenberg, Kensuke Teshima","doi":"10.1257/AERI.20180063","DOIUrl":"https://doi.org/10.1257/AERI.20180063","url":null,"abstract":"Mexican manufacturing job loss induced by competition with China increases cocaine trafficking and violence, particularly in municipalities with transnational criminal organizations. When it becomes more lucrative to traffic drugs because changes in local labor markets lower the opportunity cost of criminal employment, criminal organizations plausibly fight to gain control. The evidence supports a Becker-style model in which the elasticity between legitimate and criminal employment is particularly high where criminal organizations lower illicit job search costs, where the drug trade implies higher pecuniary returns to violent crime, and where unemployment disproportionately affects low-skilled men. (JEL F16, J24, J64, K42, L60, O15, R23)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20180063","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42594685","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Prospective merger review is the most frequent application of antitrust law. It exempts transactions on the basis of size, though small deals can have large anticompetitive effects in segmented industries. I examine its impact on antitrust enforcement and merger activity in the context of an abrupt increase in the US exemption threshold. I find that among newly-exempt deals, antitrust investigations fall to almost zero while mergers between competitors rise sharply. Effectively all of the rise reflects an endogenous response of firms to reduced premerger scrutiny, consistent with large deterrent effects of antitrust enforcement. (JEL G34, G38, K21, L41)
{"title":"Stealth Consolidation: Evidence from an Amendment to the Hart-Scott-Rodino Act","authors":"Thomas G. Wollmann","doi":"10.1257/AERI.20180137","DOIUrl":"https://doi.org/10.1257/AERI.20180137","url":null,"abstract":"Prospective merger review is the most frequent application of antitrust law. It exempts transactions on the basis of size, though small deals can have large anticompetitive effects in segmented industries. I examine its impact on antitrust enforcement and merger activity in the context of an abrupt increase in the US exemption threshold. I find that among newly-exempt deals, antitrust investigations fall to almost zero while mergers between competitors rise sharply. Effectively all of the rise reflects an endogenous response of firms to reduced premerger scrutiny, consistent with large deterrent effects of antitrust enforcement. (JEL G34, G38, K21, L41)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20180137","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42287569","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Which policies are protectionist and which ones are not? The Lerner Symmetry Theorem establishes that import tariffs and export taxes are equally protectionist. In this paper we provide a modern treatment of this classical result, highlighting the importance of multinational firms, global imbalances, and imperfect competition. Under perfect competition, the result follows from the separability of consumption and production across countries, ruling out tourism and some forms of multinational firms, but not others. Though we do not require trade balance, the role of initial assets is subtle: our result rules out foreign ownership of domestic assets, but does not constrain domestic ownership of foreign assets. Under imperfect competition, our result effectively rules out all multinational firms. We conclude by discussing the implications for border adjustment taxes. (JEL D41, D43, F13, F14, F23)
{"title":"Lerner Symmetry: A Modern Treatment","authors":"Arnaud Costinot, I. Werning","doi":"10.1257/AERI.20170006","DOIUrl":"https://doi.org/10.1257/AERI.20170006","url":null,"abstract":"Which policies are protectionist and which ones are not? The Lerner Symmetry Theorem establishes that import tariffs and export taxes are equally protectionist. In this paper we provide a modern treatment of this classical result, highlighting the importance of multinational firms, global imbalances, and imperfect competition. Under perfect competition, the result follows from the separability of consumption and production across countries, ruling out tourism and some forms of multinational firms, but not others. Though we do not require trade balance, the role of initial assets is subtle: our result rules out foreign ownership of domestic assets, but does not constrain domestic ownership of foreign assets. Under imperfect competition, our result effectively rules out all multinational firms. We conclude by discussing the implications for border adjustment taxes. (JEL D41, D43, F13, F14, F23)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20170006","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45192786","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper builds a model of the two-way interaction between democratic values and institutions to bridge sociological research, focusing on values, with economics research, which studies strategic decisions. Some citizens hold values that make them protest to preserve democracy with the share of such citizens evolving endogenously over time. There is then a natural complementarity between values and institutions creating persistence without assuming any form of commitment. The approach unifies ideas in the literature, explains observed patterns in the data on democratic values and political institutions, and suggests new insights into sources of heterogeneity in values. (JEL D02, D72)
{"title":"Democratic Values and Institutions","authors":"T. Besley, T. Persson","doi":"10.1257/AERI.20180248","DOIUrl":"https://doi.org/10.1257/AERI.20180248","url":null,"abstract":"This paper builds a model of the two-way interaction between democratic values and institutions to bridge sociological research, focusing on values, with economics research, which studies strategic decisions. Some citizens hold values that make them protest to preserve democracy with the share of such citizens evolving endogenously over time. There is then a natural complementarity between values and institutions creating persistence without assuming any form of commitment. The approach unifies ideas in the literature, explains observed patterns in the data on democratic values and political institutions, and suggests new insights into sources of heterogeneity in values. (JEL D02, D72)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20180248","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42761159","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Existing economic models show how new technology can cause large changes in relative wages and inequality. But there are also claims, based largely on verbal expositions, that new technology can harm workers on average or even all workers. This paper shows— under plausible assumptions—that new technology is unlikely to cause wages for all workers to fall and will cause average wages to rise if the prices of investment goods fall relative to consumer goods (a condition supported by the data). We outline how results may change with different assumptions. (JEL D31, G31, J22, J24, J31, O31, O33)
{"title":"Robot Arithmetic: New Technology and Wages","authors":"F. Caselli, A. Manning","doi":"10.1257/AERI.20170036","DOIUrl":"https://doi.org/10.1257/AERI.20170036","url":null,"abstract":"Existing economic models show how new technology can cause large changes in relative wages and inequality. But there are also claims, based largely on verbal expositions, that new technology can harm workers on average or even all workers. This paper shows— under plausible assumptions—that new technology is unlikely to cause wages for all workers to fall and will cause average wages to rise if the prices of investment goods fall relative to consumer goods (a condition supported by the data). We outline how results may change with different assumptions. (JEL D31, G31, J22, J24, J31, O31, O33)","PeriodicalId":29954,"journal":{"name":"American Economic Review-Insights","volume":null,"pages":null},"PeriodicalIF":8.5,"publicationDate":"2019-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1257/AERI.20170036","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45251415","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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