The Economic Journal Current Issue

22 Nov 2019

The Effect of Rural Credit on Deforestation: Evidence from the Brazilian Amazon

Assunção J, Gandour C, Rocha R, et al.

Abstract
In 2008, the Brazilian government made the concession of rural credit in the Amazon conditional upon stricter requirements as an attempt to curb forest clearings. This article studies the impact of this innovative policy on deforestation. Difference-in-differences estimations based on a panel of municipalities show that the policy change led to a substantial reduction in deforestation, mostly in municipalities where cattle ranching is the leading economic activity. The results suggest that the mechanism underlying these effects was a restriction in access to rural credit, one of the main support mechanisms for agricultural production in Brazil.
22 Nov 2019

Taxation of Temporary Jobs: Good Intentions with Bad Outcomes?

Cahuc P, Charlot O, Malherbet F, et al.

Abstract
This article analyses the consequences of the taxation of temporary jobs of short duration recently introduced in several European countries to induce firms to create more open-ended contracts and to increase the duration of jobs. The estimation of a job search and matching model on French data shows that the taxation of temporary jobs does not reach its objectives: it reduces the mean duration of jobs and decreases job creation, employment and welfare of unemployed workers.
07 Nov 2019

Merger Policy in a Quantitative Model of International Trade

Breinlich H, Nocke V, Schutz N.

Abstract
In a two-country international trade model with oligopolistic competition, we study the conditions on market structure and trade costs under which a merger policy designed to benefit domestic consumers is either too tough or too lenient, from the viewpoint of the foreign country. We calibrate the model to match industry-level data in the USA and Canada. Our results suggest that, at present levels of trade costs, merger policy is too tough in the vast majority of sectors. We also quantify the resulting externalities and study the impact of different regimes of co-ordinating merger policies at varying levels of trade costs.
22 Oct 2019

Coal Smoke, City Growth, and the Costs of the Industrial Revolution

Hanlon W.

Abstract
This article provides the first rigorous estimates of how industrial air pollution from coal burning affects long-run city growth. I introduce a new theoretically grounded strategy for estimating this relationship and apply it to data from highly polluted British cities from 1851 to 1911. I show that local industrial coal use substantially reduced long-run city employment and population growth. Moreover, a counterfactual analysis suggests that plausible improvements in coal-use efficiency would have led to a higher urbanisation rate in Britain by 1911. These findings contribute to our understanding of the effects of air pollution and the environmental costs of industrialisation.
22 Oct 2019

On the Pacific Salmon Treaty

Jiang S, Zhang Y.

Abstract
This article studies the optimal design of the Pacific Salmon Treaty, which was signed by the USA and Canada in 1999 to share salmon on the Pacific coast. Moral hazard exists because countries may steal from each other. If a country’s observed output is suspiciously too high, the treaty either reduces the country’s future share, or asks the country to make a monetary transfer to its opponent. A calibrated version of our model shows that it is optimal for the USA to pay Canada $328.93 million every 30.78 years. Switching to the optimal contract improves the total welfare by 1.55%.
12 Sep 2019

Understanding Gender Differences in Leadership

Alan S, Ertac S, Kubilay E, et al.

Abstract
Using data from a large-scale field experiment, we show that while there is no gender difference in willingness to make risky decisions on behalf of a group in a sample of children, a large gap emerges in a sample of adolescents. The proportion of girls who exhibit leadership willingness drops by 39%, going from childhood to adolescence. We explore the possible factors behind this drop and find that it is largely associated with a dramatic decline in ‘social confidence’, measured by willingness to perform a real effort task in public.
11 Sep 2019

Are Policymakers Ambiguity Averse?

Berger L, Bosetti V.

Abstract
We investigate the ambiguity preferences of a unique sample of real-life policymakers at the Paris UN climate conference (COP21). We find that policymakers are generally ambiguity averse. Using a simple design, we are moreover able to show that these preferences are not necessarily due to an irrational behaviour, but rather to intrinsic preferences over unknown probabilities. Exploring the heterogeneity within our sample, we also show that the country of origin and the degree of quantitative sophistication affect policymakers’ attitudes towards compound risk, but not towards ambiguity. Robustness results are obtained in a lab experiment with a sample of university students.
10 Sep 2019

Financial Development, Default Rates and Credit Spreads

Peri A, Rachedi O.

Abstract
US corporate default rates increased dramatically from an annual average of 0.32% between 1950 and 1984 up to 1.65% since 1985. Meanwhile, credit spreads rose by just 6 basis points. We argue that financial development—intended as an exogenous reduction in the fixed cost of borrowing—accounts for this evidence. In a heterogeneous firm model financial development boosts both default rates and firms’ expected recovery rates. These two effects offset each other, muting the change in the credit spreads. The model explains 63% of the rise in default rates and predicts a 6 basis point drop in the credit spreads.
10 Sep 2019

Efficiency in Decentralised Markets with Aggregate Uncertainty

Camargo B, Gerardi D, Maestri L.

Abstract
We study efficiency in non-stationary decentralised markets with common-value uncertainty and correlated asset values. There is an equal mass of buyers and sellers and payoffs from trade depend on an aggregate state, which only the sellers know. Buyers and sellers are randomly and anonymously matched in pairs over time, and buyers make the offers. We show that all equilibria become efficient as trading frictions vanish.
25 Jul 2019

Iterative Versus Standard Deferred Acceptance: Experimental Evidence

Bó I, Hakimov R.

Abstract
We test experimentally the Gale–Shapley Deferred Acceptance mechanism versus two versions of the Iterative Deferred Acceptance Mechanism, in which students make applications one at a time. A significantly higher proportion of stable outcomes is reached under Iterative Deferred Acceptance Mechanism than under Deferred Acceptance. The difference can be explained by a higher proportion of subjects following an equilibrium truthful strategy under iterative mechanisms than the dominant strategy of truthful reporting under Deferred Acceptance. We associate the benefits of iterative mechanisms with the feedback on the outcome of the previous application that they provide to students between steps.
22 Jul 2019

Lame Ducks and Local Fiscal Policy: Quasi-Experimental Evidence from Portugal

Lopes da Fonseca M.

Abstract
I use the introduction of mayoral term limits in Portugal to identify how an exogenous variation in eligibility for office affects policy decisions. Relying on a quasi-experimental difference-in-differences approach, I find that term-limited incumbents pursue more conservative fiscal policies than those who are eligible for re-election. Heterogeneous effects show that the treatment effects primarily reflect the behaviour of right-leaning, term-limited incumbents. Results are in line with a model in which right-leaning officeholders try to maintain a good reputation by pleasing an electorate prone to redistribution while they are eligible, but adopt policies closer to their true preferences when term limited.