Tony Atkinson on Poverty, Inequality, and Public Policy: The Work and Life of a Great EconomistAtkinson, Anthony Barnes; Stern, Nicholas
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-110216-100949
We are very sad to report that Professor Sir Tony Atkinson died on the first of January, 2017, at the age of 72. Tony Atkinson was an extraordinarily distinguished academic whose works changed our understanding of poverty, inequality, mobility, public policy, and economic growth. His publications, from his first book in 1969 to his last in 2015, showed how he approached his work throughout his career: define the issues, examine the facts, analyze what forces shaped the outcomes, and ask what we can or should do in the way of policy. His longtime friend, Professor Lord Nicholas Stern, interviewed Sir Tony about his life and work on August 17, 2016, in Oxford.
Quantitative Spatial EconomicsRedding, Stephen J.; Rossi-Hansberg, Esteban
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103713
The observed uneven distribution of economic activity across space is influenced by variation in exogenous geographical characteristics and endogenous interactions between agents in goods and factor markets. Until the past decade, the theoretical literature on economic geography had focused on stylized settings that could not easily be taken to the data. This article reviews more recent research that has developed quantitative models of economic geography. These models are rich enough to speak to first-order features of the data, such as many heterogeneous locations and gravity equation relationships for trade and commuting. At the same time, these models are sufficiently tractable to undertake realistic counterfactual exercises to study the effect of changes in amenities, productivity, and public policy interventions such as transport infrastructure investments. We provide an extensive taxonomy of the different building blocks of these quantitative spatial models and discuss their main properties and quantification.
Trade and the Environment: New Methods, Measurements, and ResultsCherniwchan, Jevan; Copeland, Brian R.; Taylor, M. Scott
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103756
We review recent research linking international trade to the environment, with a focus on new results and methods. The review is given structure by a novel decomposition linking changes in emissions to changes in productive activity at the plant, firm, industry, and national levels. Although some new results have emerged from the application of a Melitz-style approach to trade and the environment, the full potential of this approach has not yet been realized. We discuss existing empirical and theoretical work, introduce three new hypotheses, and suggest paths for future researchers to follow.
Bestseller Lists and the Economics of Product DiscoverySorensen, Alan T.
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-080614-115708
Innovations in information technology have increased the prevalence of markets with large numbers of products. Each week, for example, an average of over 800 books are published, and an average of over 1,100 iOS apps are released in Apple's App Store. This review summarizes existing research about how consumers learn about new products in such markets, focusing on mechanisms like bestseller lists and user-generated product reviews. In addition to reviewing research findings about how these mechanisms directly influence sales, this article also discusses how these mechanisms affect broader market outcomes, such as the shape of the success distribution and the likelihood that good products are discovered.
Set Identification, Moment Restrictions, and InferenceBontemps, Christian; Magnac, Thierry
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103658
For the past 10 years, the topic of set identification has been much studied in the econometric literature. Classical inference methods have been generalized to the case in which moment inequalities and equalities define a set instead of a point. We review several instances of partial identification by focusing on examples in which the underlying economic restrictions are expressed as linear moments. This setting illustrates the fact that convex analysis helps not only for characterizing the identified set but also for inference. From this perspective, we review inference methods using convex analysis or inversion of tests and detail how geometric characterizations can be useful.
Quantile Regression: 40 Years OnKoenker, Roger
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103651
Since Quetelet's work in the nineteenth century, social science has iconified the average man, that hypothetical man without qualities who is comfortable with his head in the oven and his feet in a bucket of ice. Conventional statistical methods since Quetelet have sought to estimate the effects of policy treatments for this average man. However, such effects are often quite heterogeneous: Medical treatments may improve life expectancy but also impose serious short-term risks; reducing class sizes may improve the performance of good students but not help weaker ones, or vice versa. Quantile regression methods can help to explore these heterogeneous effects. Some recent developments in quantile regression methods are surveyed in this review.
Globalization and Labor Market DynamicsMcLaren, John
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103720
Historically, the trade research field has usually ignored dynamic adjustment of workers, but a recent wave of work has developed a rich set of theoretical and empirical tools to analyze this factor. Empirical approaches have ranged from reduced-form regressions to the structural estimation of underlying parameters, which is necessary to understand welfare effects. A major distinction is that between models that do and those that do not allow for unobserved heterogeneity across workers; these models are useful for different purposes. Consistent findings across methods and countries indicate that costs of switching sectors and occupations are high and that both switching costs and option value are crucial in computing the welfare effects of globalization for workers.
Agricultural Insurance and Economic DevelopmentCole, Shawn A.; Xiong, Wentao
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-080315-015225
This article provides a review of recent research on agricultural insurance (AI) in developing countries. Agricultural producers face a variety of significant risks; historically, only government-subsidized products have achieved widespread adoption. A recent contractual innovation, which links insurance payouts to realized weather rather than farmer indemnity, has spurred substantial research in the past decade. This review begins by describing the experience in developed economies and then turns to developing countries, covering the following topics: farmers' adoption of AI, how AI affects their decision to invest in risky assets, and the extent to which AI helps farmers smooth income and consumption. We conclude with suggestions for future research and practice related to AI in developing countries.
Conflict and DevelopmentRay, Debraj; Esteban, Joan
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-061109-080205
In this review, we examine the links between economic development and social conflict. By economic development, we refer broadly to aggregate changes in per capita income and wealth or in the distribution of that wealth. By social conflict, we refer to within-country unrest, ranging from peaceful demonstrations, processions, and strikes to violent riots and civil war. We organize our review by critically examining three common perceptions: that conflict declines with ongoing economic growth; that conflict is principally organized along economic differences rather than similarities; and that conflict, most especially in developing countries, is driven by ethnic motives.
Quantitative Trade Models: Developments and ChallengesKehoe, Timothy J.; Pujols, Pau S.; Rossbach, Jack
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-080614-115502
Applied general equilibrium (AGE) models, which feature multiple countries, multiple industries, and inputoutput linkages across industries, have been the dominant tool for evaluating the impact of trade reforms since the 1980s. We review how these models are used to perform policy analysis and document their shortcomings in predicting the industry-level effects of past trade reforms. We argue that, to improve their performance, AGE models need to incorporate product-level data on bilateral trade relations by industry and better model how trade reforms lower bilateral trade costs. We use the least-traded-products methodology of Kehoe et al. (2015) to provide guidance on how improvements can be made. We provide further suggestions on how AGE models can incorporate recent advances in quantitative trade theory to improve their predictive ability and better quantify the gains from trade liberalization.
The Economics of Nonmarital Childbearing and the Marriage Premium for ChildrenKearney, Melissa S.; Levine, Phillip B.
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103749
A large body of literature exists on the impact of family structure on children's outcomes, typically focusing on average effects. In this review, we build on this with an economic framework that has heterogeneous predictions regarding the potential benefit for children of married parents. We propose that the gains due to marriage from a child's perspective depend on a mother's own level of resources, the additional net resources that her partner brings, and the outcome-specific returns to resources. Data from the Panel Study of Income Dynamics are consistent with the heterogeneous predictions of this framework. In terms of high school completion or avoiding poverty at age 25, the so-called marriage premium for children is highest for children of mothers with high school degrees and mothers in their early to mid-20s. For the more advanced outcomes of college completion or high income at age 25, the marriage premium monotonically increases with observed maternal age and education.
The Formation of Consumer Brand PreferencesBronnenberg, Bart J.; Dub, Jean-Pierre
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-110316-020949
Brands and brand capital have long been theorized to play an important role in the formation of the industrial market structure of consumer goods industries. We summarize several striking empirical regularities in the concentration, magnitude, and persistence of brand market shares in consumer goods categories. We then survey the theoretical and empirical literatures on the formation of brand preferences and the ways in which brand preferences contribute to our understanding of these empirical regularities. We also review the literature on how brand capital creates strategic advantages to firms that own established brands.
Health, Health Insurance, and Retirement: A SurveyFrench, Eric; Jones, John Bailey
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103616
The degree to which retirement decisions are driven by health is a key concern for both academics and policy makers. In this review, we survey the economic literature on the healthretirement link in developed countries. We describe the mechanisms through which health affects labor supply and discuss how these mechanisms interact with public pensions and public health insurance. The historical evidence suggests that health is not the primary source of variation in retirement across countries and over time. Furthermore, the decline of health with age can only explain a small share of the decline in employment near retirement age. Health considerations nonetheless play an important role, especially in explaining cross-sectional variation in employment and other outcomes within countries. We review the mechanisms through which health affects retirement and discuss recent empirical analyses.
Large-Scale Global and Simultaneous Inference: Estimation and Testing in Very High DimensionsCai, T. Tony; Sun, Wenguang
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-104355
Due to rapid technological advances, researchers are now able to collect and analyze ever larger data sets. Statistical inference for big data often requires solving thousands or even millions of parallel inference problems simultaneously. This poses significant challenges and calls for new principles, theories, and methodologies. This review provides a selective survey of some recently developed methods and results for large-scale statistical inference, including detection, estimation, and multiple testing. We begin with the global testing problem, where the goal is to detect the existence of sparse signals in a data set, and then move to the problem of estimating the proportion of nonnull effects. Finally, we focus on multiple testing with false discovery rate (FDR) control. The FDR provides a powerful and practical approach to large-scale multiple testing and has been successfully used in a wide range of applications. We discuss several effective data-driven procedures and also present efficient strategies to handle various grouping, hierarchical, and dependency structures in the data.
How Do Patents Affect Research Investments?Williams, Heidi L.
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-110216-100959pmid: 29104716
Although patent systems have been widely used both historically and internationally, there is nonetheless a tremendous amount of controversy over whether patent systems, in practice, improve the alignment between private returns and social contributions. In this article, I describe three parametershow the disclosure function affects research investments, how patent strength affects research investments in new technologies, and how patents on existing technologies affect follow-on innovationneeded to inform the question of how patents affect research investments, and review the available evidence that has attempted to empirically estimate these parameters.
Mobile MoneySuri, Tavneet
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-063016-103638
This review provides an overview of the operations and impacts of mobile money in the developing world. Over the past decade, mobile money has become a ubiquitous tool in some developing economies, allowing individuals to digitally transact money without formal bank accounts. The impacts, where documented, have been sizeable: For example, poverty decreased by two percentage points in Kenya. However, adoption still lags in many economies and, even where there is universal adoption, product innovation over the rails of these digital accounts has been slow. The review concludes by discussing what the future of mobile money in developing economies may look like and, thus, where the most exciting opportunities for research may be.
Nonparametric Welfare AnalysisHausman, Jerry A.; Newey, Whitney K.
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-080315-015107
Exact consumer's surplus and deadweight loss are the most widely used welfare and economic efficiency measures. These measures can be computed from demand functions in straightforward ways. Nonparametric estimation can be used to estimate the welfare measures. In doing so, it seems important to account correctly for unobserved heterogeneity, given the high degree of unexplained demand variation often found in applications. This review surveys work on nonparametric welfare analysis, focusing on work that allows for general heterogeneity in demand, such as that of Hausman & Newey (2016).
The History and Economics of Safe AssetsGorton, Gary
2017 Annual Review of Economics
doi: 10.1146/annurev-economics-033017-125810
Safe assets play a critical role in an(y) economy. A safe asset is an asset that is (almost always) valued at face value without expensive and prolonged analysis. By design, there is no benefit to producing (private) information about its value, and this is common knowledge. Consequently, agents need not fear adverse selection when buying or selling safe assets. Safe assets can be easily used to exchange for goods or services or for another asset. These short-term safe assets can be money or money-like. A long-term safe asset can store value over time or be used as collateral. Much of human history can be written in terms of the search for and production of safe assets. But the most prevalent, privately produced short-term safe assets, bank debts, are subject to runs, and this has important implications for macroeconomics and for monetary policy.