WHAT GOOD IS WEALTH WITHOUT HEALTH? THE EFFECT OF HEALTH ON THE MARGINAL UTILITY OF CONSUMPTION

We estimate how the marginal utility of consumption varies with health. To do so, we develop a simple model in which the impact of health on the marginal utility of consumption can be estimated from data on permanent income, health, and utility proxies. We estimate the model using the Health and Retirement Study's panel data on the elderly and near‐elderly, and proxy for utility with measures of subjective well‐being. Across a wide range of alternative specifications and assumptions, we find that the marginal utility of consumption declines as health deteriorates, and we are able to clearly reject the null of no state dependence. Our point estimates indicate that a one‐standard‐deviation increase in the number of chronic diseases is associated with a 10%–25% decline in the marginal utility of consumption relative to this marginal utility when the individual has no chronic diseases. We present some simple, illustrative calibration results that suggest that state dependence of the magnitude we estimate can have a substantial effect on important economic problems such as the optimal level of health insurance benefits and the optimal level of life‐cycle savings.     

WHY ARE THE 2000s SO DIFFERENT FROM THE 1970s? A STRUCTURAL INTERPRETATION OF CHANGES IN THE MACROECONOMIC EFFECTS OF OIL PRICES

In the 1970s, large increases in the price of oil were associated with sharp decreases in output and large increases in inflation. In the 2000s, even larger increases in the price of oil were associated with much milder movements in output and inflation. Using a structural VAR approach, Blanchard and Gali (in J. Gali and M. Gertler (eds.) 2009, International Dimensions of Monetary Policy, University of Chicago Press, pp. 373–428) argued that this reflected a change in the causal relation from the price of oil to output and inflation. They then argued that this change could be due to a combination of three factors: a smaller share of oil in production and consumption, lower real wage rigidity, and better monetary policy. Their argument, based on simulations of a simple new‐Keynesian model, was informal. Our purpose in this paper is to take the next step, and to estimate the explanatory power and contribution of each of these factors. To do so, we use a minimum distance estimator that minimizes, over the set of structural parameters and for each of two samples (pre‐ and post‐1984), the distance between the empirical SVAR‐based impulse response functions and those implied by a new‐Keynesian model. Our empirical results point to an important role for all three factors.     

DO PRICES TRANSMIT RATIONALLY EXPECTED INFORMATION?

A simple model with asymmetric information, in which inventory holders or traders submit demand curves to an auctioneer, has a unique partially revealing equilibrium. We wonder whether the agents can plausibly coordinate on this equilibrium through “eductive” reasoning relying on common knowledge. The analysis stresses the role of two effects, sensitivity and amplification, whose product should be small enough. The property is obtained whenever the equilibrium excess demand is steep enough, i.e., when the search for information does not distort demand too much. Neither the influence of the number of informed agents nor that of noise trading are monotonic. Real‐time learning has strikingly different features. (JEL: D82, D84)     

IS THE ELASTICITY OF INTERTEMPORAL SUBSTITUTION CONSTANT?

In all common models of inter‐temporal allocation, the assumption of a constant elasticity of intertemporal substitution (EIS) imposes surprising limitations on within‐period budget allocations. Consequently, the constant EIS assumption can be tested with demand data. In fact, the EIS is pinned down completely by the shape of Engel curves: if the EIS is constant then the EIS can be estimated without variation in the interest rate. That a price elasticity can be estimated without variation in the relevant price illustrates just how strong the constant EIS assumption is. The constant EIS assumption is rejected by demand data.     

IS THE ENDOWMENT EFFECT AN EXPECTATIONS EFFECT?

A hallmark result within behavioral economics is that individuals' choices are affected by current endowments. A recent theory due to Kőszegi and Rabin ( 2006 , Quarterly Journal of Economics, 121, 1133–1165) explains such endowment effect with a model of expectations‐based reference‐dependent preferences. Departing from past work, we conduct complementary experiments to disentangle expectations—verified probabilistic beliefs held by subjects—from other features of endowment—such as “assignment” to a good—hence allowing us to compare the effect of expectations with that of other variations. While mere assignment can affect choices, we do not find a large role in the effect for Kőszegi–Rabin expectations.     

DO NEWSPAPERS SERVE THE STATE? INCUMBENT PARTY INFLUENCE ON THE US PRESS, 1869–1928

Using data from 1869 to 1928, we estimate the effect of party control of state governments on the entry, exit, circulation, prices, number of pages, and content of Republican and Democratic daily newspapers. We exploit changes over time in party control of the governorship and state legislatures in a differences‐in‐differences design. We exploit close gubernatorial elections and state legislatures with small majorities in a parallel regression‐discontinuity design. Neither method reveals evidence that the party in power affects the partisan composition of the press. Our confidence intervals rule out modest effects, and we find little evidence of incumbent party influence even in times and places with high political stakes or low commercial stakes. The one exception is the Reconstruction South, an episode that we discuss in detail.     

DOES THE ILO DEFINITION CAPTURE ALL UNEMPLOYMENT?

The labour market status of many nonworking persons is at the boundary between unemployment and inactivity. Like the unemployed, they seek and are available for work; unlike them, their last search action was not recent enough to meet the International Labour Office definition of unemployment. In this paper we examine by nonparametric tests how the transition probabilities of these out‐of‐the‐labour‐force job seekers differ from those of the unemployed as well as the other nonparticipants. First, using data from the European Community Household Panel, we show that in most EU countries these job seekers constitute a distinct labour market state. Second, we rely on information available only in the Italian Labour Force Survey to derive a measure of search intensity that we use to break down the out‐of‐the‐labour‐force job seekers. On the basis of their transition probabilities, the most active are indistinguishable from the unemployed. (JEL: J64, J22, R23)     

LETTING DOWN THE TEAM? SOCIAL EFFECTS OF TEAM INCENTIVES

This paper estimates social effects of incentivizing people in teams. In three field experiments featuring exogenous team formation and opportunities for repeated social interactions, we find large team effects that operate through social channels. In particular, assignment to a team treatment increases productivity by 9%–17% relative to an individual incentive treatment, even though the individual incentive yields a higher private return. Further, we find that in a choice treatment individuals overwhelmingly prefer the individual incentive to the team incentive, despite the latter being more effective. These results are most consistent with the team effects operating through guilt or social pressure as opposed to pure altruism.     

MANAGING THE DECISION SCIENCE TECHNOLOGY: A CASE FOR ETHICAL ANALYSIS?*

After ten years of rapid, if sometimes chaotic growth, it is time to reflect upon where Decision Sciences is headed. At stake are the essential questions of (1) should the growth of the discipline be managed, and if so (2) how should it be managed and who should do the managing? I argue that the growth of the discipline should be managed rather than be dictated by the technological imperative that states that any envisioned application of quantitative methods should be implemented. Moreover, I argue that, since to a large degree the implementation decision is an ethical question, the individual decision scientist must ultimately be held accountable. Finally, I suggest that Glenn Stassen's social ethic paradigm may be a useful vehicle for resolving intradiscipline conflicts. These abstract ideas are concretized by examining the growth of the area of artificial intelligence.     

GLUTTONY AND SLOTH? CALORIES,LABOR MARKET ACTIVITY AND THE RISE OF OBESITY

The rise in obesity has largely been attributed to an increase in calorie consumption. We show that official government household survey data indicate that levels of calorie consumption have declined in England between 1980 and 2013; while there has been an increase in calories from food eaten out at restaurants, fast food, soft drinks and confectionery, overall there has been a decrease in total calories purchased. Households have shifted towards more expensive calories, both by substituting away from home production towards market production, and substituting towards higher quality foods. We show that the decline in calories can be partially, but not entirely, rationalized with weight gain by a decline in the strenuousness of work and daily life. (JEL: D12, I12, I18)     

EXPLODING THE MYTH: DO ALL QUALITY MANAGEMENT PRACTICES CONTRIBUTE TO SUPERIOR QUALITY PERFORMANCE?

In his landmark article on total quality management, Powell (1995) lamented the lack of large scale studies investigating quality management practices and performance. This study begins to fill that void using a large, random sample of manufacturing sites. The results show that quality practices can be categorized into nine dimensions. However, not all of them contribute to superior quality outcomes. “Employee commitment,” “shared vision,” and “customer focus” combine to yield a positive correlation with quality outcomes. Conversely, other “hard” quality practices, such as “benchmarking,” “cellular work teams,” “advanced manufacturing technologies,” and “close supplier relations” do not contribute to superior quality outcomes.     

COORDINATION FAILURES AND THE LENDER OF LAST RESORT: WAS BAGEHOT RIGHT AFTER ALL?

The classical doctrine of the Lender of Last Resort (LOLR), elaborated by Bagehot (1873), asserts that the central bank should lend to “illiquid but solvent” banks under certain conditions. Several authors have argued that this view is now obsolete: in modern interbank markets, a solvent bank cannot be illiquid. This paper provides a possible theoretical foundation for rescuing Bagehot's view. Our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs. We built a model of banks' liquidity crises that possesses a unique Bayesian equilibrium. In this equilibrium, there is a positive probability that a solvent bank cannot find liquidity assistance in the market. We derive policy implications about banking regulation (solvency and liquidity ratios) and interventions of the Lender of Last Resort. Furthermore, we find that public (bailout) and private (bail‐in) involvement are complementary in implementing the incentive efficient solution and that Bagehot's Lender of Last Resort facility must work together with institutions providing prompt corrective action and orderly failure resolution. Finally, we derive similar implications for an International Lender of Last Resort (ILOLR). (JEL: G21, G28)     

DO LAB EXPERIMENTS MISREPRESENT SOCIAL PREFERENCES? THE CASE OF SELF‐SELECTED STUDENT SAMPLES

Social preference research has received considerable attention among economists in recent years. However, the empirical foundation of social preferences is largely based on laboratory experiments with self‐selected students as participants. This is potentially problematic as students participating in experiments may behave systematically different than nonparticipating students or nonstudents. In this paper we empirically investigate whether laboratory experiments with student samples misrepresent the importance of social preferences. Our first study shows that students who exhibit stronger prosocial inclinations in an unrelated field donation are not more likely to participate in experiments. This suggests that self‐selection of more prosocial students into experiments is not a major issue. Our second study compares the behavior of students and participants recruited from the general population in a trust experiment. In general, we find very similar behavioral patterns for the two groups, but nonstudents make significantly more generous repayments suggesting that results from student samples might be seen as a lower bound for the importance of prosocial behavior.     

LEAN AND GREEN? AN EMPIRICAL EXAMINATION OF THE RELATIONSHIP BETWEEN LEAN PRODUCTION AND ENVIRONMENTAL PERFORMANCE

Lean production may have a significant public good spillover—improved environmental performance. However, empirical evidence of the link between lean production practices and environmental performance has not resolved the nature of the relationship. To explore this issue, we conduct an empirical analysis of the environmental performance of 17,499 U.S. manufacturing establishments during the time period 1991–1996. We find that those establishments that adopt the quality management standard ISO 9000 are more likely to adopt the environmental management standard ISO 14000. We also find strong evidence that lean production, as measured by ISO 9000 adoption and low chemical inventories, is complementary to waste reduction and pollution reduction.     

DO SUBSIDIES INCREASE CHARITABLE GIVING IN THE LONG RUN? MATCHING DONATIONS IN A FIELD EXPERIMENT

Subsidizing charitable giving—for example, for victims of natural disasters—is very popular, not only with governments but also with private organizations. Many companies match their employees' charitable contributions, hoping that this will foster the willingness to contribute. However, systematic analyses of the effect of such a matching mechanism are still lacking. This article tests the effect of matching charitable giving in a randomized field experiment in the short and the long run. The donations of a randomly selected group were matched by contributions from an anonymous donor. The results support the hypothesis that a matching mechanism increases contributions to a public good. However, in the periods after the experiment, when matching donations have been stopped, the contribution rate declines for the treatment group. The matching mechanism leads to a negative net effect on the participation rate. The field experiment therefore provides evidence suggesting that the willingness to contribute may be undermined by a matching mechanism in the long run. (JEL: C93, D64, H00)     

WHERE ARE THE ECONOMISTS WHO PUBLISH? PUBLICATION CONCENTRATION AND RANKINGS IN EUROPE BASED ON CUMULATIVE PUBLICATIONS

We measure the past production of research articles by current members of European economics institutions. All EconLit journals are used, weighted to reflect differences in quality. Both a long (1971–2000) and a short (1996–2000) time period are considered. We also provide production indices that take into account the authors' career length. The total output of each research center is measured as well as its production per member. The focus is on 600 centers from eighteen European countries (EU 14, Israel, Norway, Switzerland, and Turkey). European centers are compared to the top sixty U.S. economics departments. Statistics regarding the concentration of article production across researchers, institutions, and countries are provided, as well as on publication habits. (JEL: A14, L11, R32)     

DOES RELATIONSHIP SPECIFIC INVESTMENT DEPEND ON ASSET OWNERSHIP? EVIDENCE FROM A NATURAL EXPERIMENT IN THE HOUSING MARKET

In this paper, I test the most basic prediction of Grossman and Hart (1986, The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration. Journal of Political Economy, 691–719): allocations of asset ownership that expose a party to ex‐post expropriation reduce this party’s ex‐ante relationship‐specific investments. In the empirical context of the German housing market, I find that relationship‐specific investments, such as bathroom renovations, are more frequent if the occupant is protected against expropriation because he owns his home. To avoid the endogeneity of the homeownership allocation, I rely on the natural experiment of the German reunification: under the communist regime, ownership existed but was economically meaningless; yet after reunification, ownership unexpectedly reacquired legal force.     

DOES THE BETTER‐THAN‐AVERAGE EFFECT SHOW THAT PEOPLE ARE OVERCONFIDENT?: TWO EXPERIMENTS

We conduct two experimental tests of the claim that people are overconfident, using new tests of overplacement that are based on a formal Bayesian model. Our two experiments, on easy quizzes, find that people overplace themselves. More precisely, we find apparently overconfident data that cannot be accounted for by a rational population of expected utility maximizers who care only about money. The finding represents new evidence of overconfidence that is robust to the Bayesian critique offered by Benoît and Dubra (Jean‐Pierre Benoît and Juan Dubra (2011). “Apparent Overconfidence.” Econometrica, 79, 1591–1625). We discuss possible limitations of our results.     

“MANAGING THE DECISION SCIENCE TECHNOLOGY: A CASE FOR ETHICAL ANALYSIS?”-COMMENT

In the current issue of Decision Sciences, Brightman [2] argues that the growth of the discipline should be managed, and individual decision scientists must ultimately be held accountable for the ethical implications of implementing their research findings. The purpose of this comment is to examine several principles behind Brightman's arguments and to initiate a discussion of some of the important issues that have been raised. The distinction between the inquiry and technological imperatives and questions about the universality of moral reasoning at the ethical-principles leverl further Brightman's analysis and pose important considerations for decision scientists.