International Economic Review

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• INTERTEMPORAL CONSUMPTION WITH ANTICIPATING, REMEMBERING, AND EXPERIENCING SELVES

  We study intertemporal choice through a novel and flexible framework that accounts for savoring of future consumption and memories of past consumption. The model uses standard intertemporal budget constraints but enriches preference structures with utility from anticipation, remembering, and experience. We also present an internal commitment mechanism that ensures dynamic consistency. We provide a revealed preference characterization of this model and apply it to quarterly consumption data from Spanish households. Utility from anticipation is important—and time inconsistency not strictly needed—to rationalize consumption patterns in the data.

• UNCERTAINTY, LONG‐RUN, AND MONETARY POLICY RISKS IN A TWO‐COUNTRY MACRO MODEL

  We study the currency risk premium and the forward premium bias in a two‐country New Keynesian model with production, no physical capital, and recursive utility. Monetary policy follows an interest rate feedback rule and exogenous total factor productivity (TFP) growth follows a long‐run risk process with stochastic volatility, which we estimate from data. With cross‐country heterogeneity in TFP and monetary policy, reasonable currency risk premia emerge under complete and incomplete markets but the forward premium bias is trivial. We diagnose the challenge faced by this fairly standard production model to explain the forward premium bias.

• INFRAMARGINAL TRAVELERS AND TRANSPORTATION POLICY

  Structural models of traffic congestion, such as the bottleneck model, are used to answer important, policy‐relevant questions. However, existing models typically assume that no travelers are inframarginal regarding when to travel; that is, given equilibrium travel times, no travelers strictly prefer their ex ante departure time to all others. In this article, I address this shortcoming by incorporating inframarginal travelers into these models. This change significantly improves these models' ability to fit the data and changes policy prescriptions. In the case of congestion pricing, it typically changes the optimal toll by at least 25% and significantly worsens the distributional impacts.

• ASSET DIVERSIFICATION VERSUS CLIMATE ACTION

  Asset pricing and climate policy are analyzed in a global economy where consumption goods are produced by both a green and a carbon‐intensive sector. Given that the economy is initially heavily dependent on carbon‐intensive capital, the desire to diversify assets complements the attempt to mitigate economic damages from climate change. In the longer run, however, a trade‐off between diversification and climate action emerges. We derive the optimal carbon price and the equilibrium risk‐free rate, and risk premia. Climate disasters significantly decrease the risk‐free rate but increase risk premia on financial assets, especially if no climate policy is implemented.

• THE COST OF TRADE DISRUPTIONS AT DIFFERENT STAGES OF DEVELOPMENT

  We study trade disruptions at different stages of development in a two‐country, three‐sector model of Spain and United Kingdom from 1850 to 2000. The impact of trade disruptions depends on trade openness and the productivity gap between countries. A trade collapse today (more openness, less gap) comparable to the Inter‐War Trade Collapse (IWTC) decreases the capital stock threefold (12% instead of 4%) and lifetime consumption fourfold (1.58% instead of 0.37%). Capital accumulation amplifies the cost of trade disruptions. The IWTC promoted Spanish industrialization, while the opposite would be true today.

• STATISTICAL DISCRIMINATION AND DURATION DEPENDENCE IN A SEMISTRUCTURAL MODEL

  This article develops a job‐search model with unobserved worker heterogeneity and learning about worker types from unemployment duration. The model features negative duration dependence that stems from unobserved heterogeneity, skill depreciation, and statistical discrimination. We estimate job‐finding rates implied by our model using microlevel data from the Current Population Survey. We find that removing interview costs counterfactually, thereby eliminating statistical discrimination, substantially increases the job‐finding rates of the long‐term unemployed. The performance of low‐skill workers at the interview stage with discriminating firms plays a key role in explaining our counterfactual result.

• HIGHER‐ORDER INCOME RISK OVER THE BUSINESS CYCLE

  We explore the consequences of higher‐order risk in a standard incomplete‐markets life‐cycle model. We calibrate the model using a canonical income process with persistent and transitory risk, extended to feature cyclical shock distributions with left‐skewness and excess kurtosis. We estimate this income process for U.S. household data, and find shocks to be highly leptokurtic, with countercyclical variance and procyclical skewness of persistent shocks. In the model, first, higher‐order risk has sizable welfare implications; second, it matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, it has nontrivial implications for self‐insurance against shocks.

• ENTRY BARRIERS AND GROWTH: THE ROLE OF ENDOGENOUS MARKET STRUCTURE

  We use China's growth experience as a laboratory to study how reductions in administrative and regulatory entry barriers contribute to growth. We develop a model of endogenous productivity and market structure with heterogeneous firms and frictional entry and calibrate it to Chinese manufacturing firms. We show that the reduction of entry barriers brings about 1.05 percentage points of productivity growth over the 1990–2004 period, accounting for 18.3% of the productivity growth in the 2004–7 period. A decomposition exercise shows that entry mainly affects growth through promoting a more competitive market structure, which more than offsets the negative Schumpeterian effect.

• ENDING WASTEFUL YEAR‐END SPENDING: ON OPTIMAL BUDGET RULES IN ORGANIZATIONS

  What can organizations do to minimize wasteful year‐end spending? I introduce a two‐period model to derive optimal budget roll‐over and audit rules. A principal tasks an agent with using a budget to fulfill the organization's spending needs, which are private information of the agent. The agent can misuse funds for private benefit. The optimal rules allow the agent to roll‐over a share of the unused funds, but not necessarily the full share, and in most cases to audit only sufficiently large spending. The optimal audit rule can change once fund roll‐over is allowed. Strategically underfunding the agent can be optimal.

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Featured documents

• THE SHAPING OF A GENDER NORM: MARRIAGE, LABOR, AND FOOT‐BINDING IN HISTORICAL CHINA

  This article presents a theory that explains the rise of foot‐binding in historical China, in response to a gender‐asymmetric social mobility shock that dispersed men's quality distribution in the marriage market. The theory characterizes the marriage market equilibrium and women's competition...

• NO CREDIT, NO GAIN: TRADE LIBERALIZATION DYNAMICS, PRODUCTION INPUTS, AND FINANCIAL DEVELOPMENT

  We study the role of financial development on the aggregate implications of reducing import tariffs on capital and intermediate inputs. We document empirically that financially underdeveloped economies feature a slower aggregate response following trade liberalization. To quantify these effects, we ...

• A THREE‐STATE RATIONAL GREATER‐FOOL BUBBLE MODEL WITH INTERTEMPORAL CONSUMPTION SMOOTHING

  We construct a simple rational greater‐fool bubble model, where the motive for trade is intertemporal consumption smoothing. This yields an easy‐to‐understand bubble model with three states of the world, instead of the five required previously. Bubbles are more likely when asset sellers have...

• POSITIVELY RESPONSIVE COLLECTIVE CHOICE RULES AND MAJORITY RULE: A GENERALIZATION OF MAY'S THEOREM TO MANY ALTERNATIVES

  May's theorem shows that if the set of alternatives contains two members, an anonymous and neutral collective choice rule is positively responsive if and only if it is majority rule. We show that if the set of alternatives contains three or more alternatives only the rule that assigns to every...

• ECONOMIC INTEGRATION AND AGGLOMERATION OF MULTINATIONAL PRODUCTION WITH TRANSFER PRICING

  Do low corporate taxes always favor multinational production over economic integration? We propose a two‐country model in which multinationals choose the locations of production plants and foreign distribution affiliates and shift profits between them through transfer prices. With high trade costs, ...

• A SEARCH MODEL OF EARLY EMPLOYMENT CAREERS AND YOUTH CRIME

  A large fraction of disadvantaged young individuals makes money from crime, and yet their labor market is usually studied ignoring the presence of the criminal sector. Consistent with the empirical evidence, I build a two‐sector model of frictional labor search to study crime and employment...

• SKILL, AGGLOMERATION, AND INEQUALITY IN THE SPATIAL ECONOMY

  This paper develops a spatial equilibrium model with skill heterogeneity and agglomeration forces that stem from local idea exchange. I structurally estimate the model using American census data to study policy effects on real wage inequality between and within college and noncollege workers. Using ...

• STRUCTURAL ANALYSIS OF TULLOCK CONTESTS WITH AN APPLICATION TO U.S. HOUSE OF REPRESENTATIVES ELECTIONS

  We study the econometrics of an asymmetric Tullock contest model with incomplete information. Identification results are established for parameters in the asymmetric contest success function and for the quantile functions of players' private costs. We propose the corresponding estimators, derive...

• FLEXIBILITY AND PRODUCTIVITY: TOWARD THE UNDERSTANDING OF FIRM HETEROGENEITY

  We document four new stylized facts using Chinese firm‐level data to show that the standard single‐attribute model of trade, in which firms only differ in productivity, must be augmented with an additional layer of heterogeneity to match the facts. To match the evidence, a model requires...

• CAN THE OPTIMAL TARIFF BE ZERO FOR A GROWING LARGE COUNTRY?

  Can the optimal tariff be zero for a growing large country? To pursue the possibility, we extend the Rivera‐Batiz–Romer lab‐equipment model of endogenous technological change to include asymmetric countries, import tariffs, and either homogeneous or heterogeneous firms. Each country's domestic...