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Annual Review of Economics - Volume 3, 2011
Volume 3, 2011
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News and Aggregate Demand Shocks
Vol. 3 (2011), pp. 537–557More LessIn this review, I look at the recent literature on news as a source of economic fluctuations. The main question in this literature is: how does the aggregate economy respond to a shock that raises consumers' and firms' expectations about future productivity growth? I discuss how different papers have addressed this question, emphasizing the mechanisms at work under different specifications of preferences and technology, under different assumptions about nominal and real rigidities, and under different assumptions about the agents' information structure. I also briefly discuss some challenges faced by the empirical literature on the topic.
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Housing Bubbles: A Survey
Vol. 3 (2011), pp. 559–577More LessThe past 25 years have represented two periods of extreme movements in U.S. and global house prices that appear to be much larger than can be easily explained by changes in fundamentals. These episodes spurred research on housing bubbles that focused attention on the role of outsized expectations in excessive house price appreciation. By contrast, some economists pointed to alternative explanations for excess volatility, including liquidity constraints, lending cycles, search externalities, and zoning delays. Empirical work supports the role of these factors in explaining at least some of the cyclical variation of house prices and inventories of homes for sale. Existing research does not yet provide a crisp definition of a housing bubble nor does it allow researchers to predict where or when bubbles can occur.
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Rent Seeking and Corruption in Financial Markets
Vol. 3 (2011), pp. 579–600More LessWe describe recent advances in the study of rent seeking and corruption in financial markets. We outline three areas of inquiry: (a) conceptualizing rent seeking, (b) identifying rent-provision channels and their general equilibrium impact, and (c) designing feasible remedial mechanisms. We provide suggestions for making further progress in these areas and review a variety of approaches taken in the recent literature.
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Gender and Competition
Vol. 3 (2011), pp. 601–630More LessLaboratory studies have documented that women often respond less favorably to competition than men. Conditional on performance, men are often more eager to compete, and the performance of men tends to respond more positively to an increase in competition. This means that few women enter and win competitions. We review studies that examine the robustness of these differences as well the factors that may give rise to them. Both laboratory and field studies largely confirm these initial findings, showing that gender differences in competitiveness tend to result from differences in overconfidence and in attitudes toward competition. Gender differences in risk aversion, however, seem to play a smaller and less robust role. We conclude by asking what could and should be done to encourage qualified males and females to compete.
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New Developments in Aggregation Economics
Vol. 3 (2011), pp. 631–668More LessThe goal of this article is to provide a general characterization of the aggregate behavior of a group in a market environment. We allow for public and private consumption, intragroup production, and consumption externalities within a group; we only assume that the group always reaches Pareto-efficient decisions. We show that aggregation problems involve a simple mathematical structure: The aggregate demand of the group, considered as a vector field, can be decomposed into a sum of gradients. We briefly introduce exterior differential calculus as a tool to study this structure. We analyze two main issues. One is testability: What restrictions (if any) on the aggregate demand function characterize the efficient behavior of the group? The second issue relates to identifiability; we investigate the conditions under which it is possible to recover the underlying structure—namely, individual preferences, the decision process, and the resulting intragroup transfers—from the group's aggregate behavior.
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