Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-025616
Gabriel D. Carroll
This review summarizes a nascent body of theoretical research on design of incentives when the environment is not fully known to the designer and offers some general lessons from the work so far. These recent models based on uncertainty and robustness offer an additional set of tools in the toolkit, complementary to more traditional, fully Bayesian modeling approaches, and broaden the range of problems that can be studied. The kinds of insights that such models can offer, and the methodological and technical challenges that they confront, broadly parallel those of traditional approaches.
{"title":"Robustness in Mechanism Design and Contracting","authors":"Gabriel D. Carroll","doi":"10.1146/ANNUREV-ECONOMICS-080218-025616","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-025616","url":null,"abstract":"This review summarizes a nascent body of theoretical research on design of incentives when the environment is not fully known to the designer and offers some general lessons from the work so far. These recent models based on uncertainty and robustness offer an additional set of tools in the toolkit, complementary to more traditional, fully Bayesian modeling approaches, and broaden the range of problems that can be studied. The kinds of insights that such models can offer, and the methodological and technical challenges that they confront, broadly parallel those of traditional approaches.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-025616","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43743490","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-030333
Adrien Bouguen, Yue-sheng Huang, M. Kremer, E. Miguel
We assess evidence from randomized controlled trials (RCTs) on long-run economic productivity and living standards in poor countries. We first document that several studies estimate large positive long-run impacts, but that relatively few existing RCTs have been evaluated over the long run. We next present evidence from a systematic survey of existing RCTs, with a focus on cash transfer and child health programs, and show that a meaningful subset can realistically be evaluated for long-run effects. We discuss ways to bridge the gap between the burgeoning number of development RCTs and the limited number that have been followed up to date, including through new panel (longitudinal) data; improved participant tracking methods; alternative research designs; and access to administrative, remote sensing, and cell phone data. We conclude that the rise of development economics RCTs since roughly 2000 provides a novel opportunity to generate high-quality evidence on the long-run drivers of living standards.
{"title":"Using Randomized Controlled Trials to Estimate Long-Run Impacts in Development Economics","authors":"Adrien Bouguen, Yue-sheng Huang, M. Kremer, E. Miguel","doi":"10.1146/ANNUREV-ECONOMICS-080218-030333","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-030333","url":null,"abstract":"We assess evidence from randomized controlled trials (RCTs) on long-run economic productivity and living standards in poor countries. We first document that several studies estimate large positive long-run impacts, but that relatively few existing RCTs have been evaluated over the long run. We next present evidence from a systematic survey of existing RCTs, with a focus on cash transfer and child health programs, and show that a meaningful subset can realistically be evaluated for long-run effects. We discuss ways to bridge the gap between the burgeoning number of development RCTs and the limited number that have been followed up to date, including through new panel (longitudinal) data; improved participant tracking methods; alternative research designs; and access to administrative, remote sensing, and cell phone data. We conclude that the rise of development economics RCTs since roughly 2000 provides a novel opportunity to generate high-quality evidence on the long-run drivers of living standards.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-030333","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42154015","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-025818
Paul R. Milgrom
Market design applies economic principles to the often messy problems of real-world exchange in which goods may not be homogeneous, the identities of trading partners may matter, contracts may not be executed, and even the formulation of trade as balancing supply and demand may be unhelpful. This article recounts the mostly academic research advancing the analysis and design of such markets. Among the highlighted applications are ones involving financial markets, Internet advertising, electricity auctions, spectrum auctions, cryptocurrencies, and combinatorial procurements.
{"title":"Auction Market Design: Recent Innovations","authors":"Paul R. Milgrom","doi":"10.1146/ANNUREV-ECONOMICS-080218-025818","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-025818","url":null,"abstract":"Market design applies economic principles to the often messy problems of real-world exchange in which goods may not be homogeneous, the identities of trading partners may matter, contracts may not be executed, and even the formulation of trade as balancing supply and demand may be unhelpful. This article recounts the mostly academic research advancing the analysis and design of such markets. Among the highlighted applications are ones involving financial markets, Internet advertising, electricity auctions, spectrum auctions, cryptocurrencies, and combinatorial procurements.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-025818","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41491137","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-025730
V. Crawford
This review discusses selected work in experimental game theory. My goals are to further the dialogue between theorists and empiricists that has driven progress in economics and game theory and to guide future experimental work. I focus on experiments whose lessons are relevant to establishing and maintaining coordination and cooperation in human relationships, the role of communication in doing so, and the underlying cognition. These are questions of central importance, where both the gap between theory and experience and the role of experiments in closing it seem large. Humans appear to be unique in their ability to use language to manipulate and communicate mental models of the world and of other people, vital skills in relationships. Continuing the dialogue between theorists and empiricists should help to explain why it matters for cooperation that we can communicate, and why and how it matters whether we communicate via natural language or abstract signals.
{"title":"Experiments on Cognition, Communication, Coordination, and Cooperation in Relationships","authors":"V. Crawford","doi":"10.1146/ANNUREV-ECONOMICS-080218-025730","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-025730","url":null,"abstract":"This review discusses selected work in experimental game theory. My goals are to further the dialogue between theorists and empiricists that has driven progress in economics and game theory and to guide future experimental work. I focus on experiments whose lessons are relevant to establishing and maintaining coordination and cooperation in human relationships, the role of communication in doing so, and the underlying cognition. These are questions of central importance, where both the gap between theory and experience and the role of experiments in closing it seem large. Humans appear to be unique in their ability to use language to manipulate and communicate mental models of the world and of other people, vital skills in relationships. Continuing the dialogue between theorists and empiricists should help to explain why it matters for cooperation that we can communicate, and why and how it matters whether we communicate via natural language or abstract signals.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-025730","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42509079","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/annurev-economics-080218-030402
W. Macleod, M. Urquiola
Milton Friedman argued that giving parents freedom to choose schools would improve education. His argument was simple and compelling because it extended results from markets for consumer goods to education. We review the evidence, which yields surprisingly mixed results on Friedman's prediction. A key reason is that households often seem to choose schools based on their absolute achievement rather than their value added. We show that this can be rational in a model based on three ingredients that economists have highlighted since Friedman worked on the issue. First, education is an investment into human capital. Second, labor markets can feature wage premia: Individuals of a given skill level may receive higher wages if they match to more productive firms. Third, distance influences school choice and the placements that schools produce. These factors imply that choice alone is too crude a mechanism to ensure the effective provision of schooling.
{"title":"Is Education Consumption or Investment? Implications for School Competition","authors":"W. Macleod, M. Urquiola","doi":"10.1146/annurev-economics-080218-030402","DOIUrl":"https://doi.org/10.1146/annurev-economics-080218-030402","url":null,"abstract":"Milton Friedman argued that giving parents freedom to choose schools would improve education. His argument was simple and compelling because it extended results from markets for consumer goods to education. We review the evidence, which yields surprisingly mixed results on Friedman's prediction. A key reason is that households often seem to choose schools based on their absolute achievement rather than their value added. We show that this can be rational in a model based on three ingredients that economists have highlighted since Friedman worked on the issue. First, education is an investment into human capital. Second, labor markets can feature wage premia: Individuals of a given skill level may receive higher wages if they match to more productive firms. Third, distance influences school choice and the placements that schools produce. These factors imply that choice alone is too crude a mechanism to ensure the effective provision of schooling.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/annurev-economics-080218-030402","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45287571","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-030323
E. Maskin
This article reviews Kenneth Arrow's seminal work in economics, giving special emphasis to his contributions to social choice theory and general equilibrium theory.
本文回顾了肯尼斯·阿罗在经济学方面的开创性工作，特别强调了他对社会选择理论和一般均衡理论的贡献。
{"title":"The Economics of Kenneth J. Arrow: A Selective Review","authors":"E. Maskin","doi":"10.1146/ANNUREV-ECONOMICS-080218-030323","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-030323","url":null,"abstract":"This article reviews Kenneth Arrow's seminal work in economics, giving special emphasis to his contributions to social choice theory and general equilibrium theory.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-030323","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44497425","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-063016-104338
Hande Karabıyık, F. Palm, J. Urbain
Economic panel data often exhibit cross-sectional dependence, even after conditioning on appropriate explanatory variables. Two approaches to modeling cross-sectional dependence in economic panel data are often used: the spatial dependence approach, which explains cross-sectional dependence in terms of distance among units, and the residual multifactor approach, which explains cross-sectional dependence by common factors that affect individuals to a different extent. This article reviews the theory on estimation and statistical inference for stationary and nonstationary panel data with cross-sectional dependence, particularly for models with a multifactor error structure. Tests and diagnostics for testing for unit roots, slope homogeneity, cointegration, and the number of factors are provided. We discuss issues such as estimating common factors, dealing with parameter plethora in practice, testing for structural stability and nonlinearity, and dealing with model and parameter uncertainty. Finally, we address issues related to the use of these economic panel models.
{"title":"Econometric Analysis of Panel Data Models with Multifactor Error Structures","authors":"Hande Karabıyık, F. Palm, J. Urbain","doi":"10.1146/ANNUREV-ECONOMICS-063016-104338","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-063016-104338","url":null,"abstract":"Economic panel data often exhibit cross-sectional dependence, even after conditioning on appropriate explanatory variables. Two approaches to modeling cross-sectional dependence in economic panel data are often used: the spatial dependence approach, which explains cross-sectional dependence in terms of distance among units, and the residual multifactor approach, which explains cross-sectional dependence by common factors that affect individuals to a different extent. This article reviews the theory on estimation and statistical inference for stationary and nonstationary panel data with cross-sectional dependence, particularly for models with a multifactor error structure. Tests and diagnostics for testing for unit roots, slope homogeneity, cointegration, and the number of factors are provided. We discuss issues such as estimating common factors, dealing with parameter plethora in practice, testing for structural stability and nonlinearity, and dealing with model and parameter uncertainty. Finally, we address issues related to the use of these economic panel models.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-063016-104338","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48173878","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-030246
S. Quinn, C. Woodruff
We discuss the value of experiments in illuminating constraints on the growth of firms in developing countries. Experiments have provided insight into both the value and the difficulty of alleviating capital constraints in small firms. They suggest that urban, low-skilled labor markets appear to work reasonably well for firms, although there is a suggestion that frictions in markets for skilled workers may have more effect on firms. While observational data suggest that managerial training is important, experiments have shown that the traditional methods of delivering this training to small enterprises, at least, are not effective. Finally, while most work has focused on alleviating supply constraints, recent experiments have shown that positive demand shocks can be sufficient to generate firm growth. Experiments have been particularly illuminating in uncovering patterns in individual decision making, showing how agents respond to the specific changes in circumstances or incentives generated by the experiment. They are most valuable when they complement insight driven by theory.
{"title":"Experiments and Entrepreneurship in Developing Countries","authors":"S. Quinn, C. Woodruff","doi":"10.1146/ANNUREV-ECONOMICS-080218-030246","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-030246","url":null,"abstract":"We discuss the value of experiments in illuminating constraints on the growth of firms in developing countries. Experiments have provided insight into both the value and the difficulty of alleviating capital constraints in small firms. They suggest that urban, low-skilled labor markets appear to work reasonably well for firms, although there is a suggestion that frictions in markets for skilled workers may have more effect on firms. While observational data suggest that managerial training is important, experiments have shown that the traditional methods of delivering this training to small enterprises, at least, are not effective. Finally, while most work has focused on alleviating supply constraints, recent experiments have shown that positive demand shocks can be sufficient to generate firm growth. Experiments have been particularly illuminating in uncovering patterns in individual decision making, showing how agents respond to the specific changes in circumstances or incentives generated by the experiment. They are most valuable when they complement insight driven by theory.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-030246","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41527843","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-030419
M. Battaglini, Eleonora Patacchini
Recent advances in data collection, computing power, and theoretical modeling have stimulated a growing literature in economics and political science studying how social networks affect policy making. We survey this literature focusing on two main aspects. First, we discuss the literature studying how (and if) social connections in Congress affect legislative behavior. We then discuss how social connections affect the relationship between policy makers and the outside world, focusing on lobbying; the importance of family, caste, and ethnic networks; and social media and public activism. In our discussion, we highlight the key methodological challenges in this literature, how they have been addressed, and the prospects for future research.
{"title":"Social Networks in Policy Making","authors":"M. Battaglini, Eleonora Patacchini","doi":"10.1146/ANNUREV-ECONOMICS-080218-030419","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-030419","url":null,"abstract":"Recent advances in data collection, computing power, and theoretical modeling have stimulated a growing literature in economics and political science studying how social networks affect policy making. We survey this literature focusing on two main aspects. First, we discuss the literature studying how (and if) social connections in Congress affect legislative behavior. We then discuss how social connections affect the relationship between policy makers and the outside world, focusing on lobbying; the importance of family, caste, and ethnic networks; and social media and public activism. In our discussion, we highlight the key methodological challenges in this literature, how they have been addressed, and the prospects for future research.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-030419","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44785777","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2019-08-23DOI: 10.1146/ANNUREV-ECONOMICS-080218-030255
Ingela Alger, J. Weibull
The literature on the evolution of preferences of individuals in strategic interactions is vast and diverse. We organize the discussion around the following question: Supposing that material outcomes drive evolutionary success, under what circumstances does evolution promote Homo economicus, defined as material self-interest, and when does it instead lead to other preferences? The literature suggests that Homo economicus is favored by evolution only when individuals’ preferences are their private information and the population is large and well-mixed, so that individuals with rare mutant preferences almost never get to interact with each other. If rare mutants instead interact more often (say, due to local dispersion), then evolution instead favors a certain generalization of Homo economicus including a Kantian concern. If individuals interact under complete information about preferences, then evolution destabilizes Homo economicus in virtually all games.
{"title":"Evolutionary Models of Preference Formation","authors":"Ingela Alger, J. Weibull","doi":"10.1146/ANNUREV-ECONOMICS-080218-030255","DOIUrl":"https://doi.org/10.1146/ANNUREV-ECONOMICS-080218-030255","url":null,"abstract":"The literature on the evolution of preferences of individuals in strategic interactions is vast and diverse. We organize the discussion around the following question: Supposing that material outcomes drive evolutionary success, under what circumstances does evolution promote Homo economicus, defined as material self-interest, and when does it instead lead to other preferences? The literature suggests that Homo economicus is favored by evolution only when individuals’ preferences are their private information and the population is large and well-mixed, so that individuals with rare mutant preferences almost never get to interact with each other. If rare mutants instead interact more often (say, due to local dispersion), then evolution instead favors a certain generalization of Homo economicus including a Kantian concern. If individuals interact under complete information about preferences, then evolution destabilizes Homo economicus in virtually all games.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":" ","pages":""},"PeriodicalIF":5.6,"publicationDate":"2019-08-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1146/ANNUREV-ECONOMICS-080218-030255","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43752370","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"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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