Working Papers
By Year:
Paper #  Author  Title  

14007 
Aislinn Bohren 
"Informational Herding with Model Misspecification"  
This paper demonstrates that a misspecified model of information processing interferes with longrun learning and offers an explanation for why individuals may continue to choose an inefficient action, despite sufficient public information to learn the true state. I consider a social learning environment where agents draw inference from private signals, public signals and the actions of their predecessors, and sufficient public information exists to achieve asymptotically efficient learning. Prior actions aggregate multiple sources of information; agents face an inferential challenge to distinguish new information from redundant information. I show that when individuals significantly overestimate the amount of new information contained in prior actions, beliefs about the unknown state become entrenched and incorrect learning may occur. On the other hand, when individuals sufficiently overestimate the amount of redundant information, beliefs are fragile and learning is incomplete. When agents have an approximately correct model of inference, learning is complete  the model with no informationprocessing bias is robust to perturbation. Download Paper


14006 
Sarah Baird Aislinn Bohren Craig McIntosh Berk Ozler 
"Designing Experiments to Measure Spillover Effects"  
This paper formalizes the design of experiments intended specifically to study spillover effects. By first randomizing the intensity of treatment within clusters and then randomly assigning individual treatment conditional on this clusterlevel intensity, a novel set of treatment effects can be identified. We develop a formal framework for consistent estimation of these effects, and provide explicit expressions for power calculations. We show that the power to detect average treatment effects declines precisely with the quantity that identifies the novel treatment effects. A demonstration of the technique is provided using a cash transfer program in Malawi. Download Paper


14005 
Simone CerreiaVioglio David Dillenberger Pietro Ortoleva 
"Cautious Expected Utility and the Certainty Effect"  
Many violations of the Independence axiom of Expected Utility can be traced to subjects' attraction to riskfree prospects. The key axiom in this paper, Negative Certainty Independence (Dillenberger, 2010), formalizes this tendency. Our main result is a utility representation of all preferences over monetary lotteries that satisfy Negative Certainty Independence together with basic rationality postulates. Such preferences can be represented as if the agent were unsure of how to evaluate a given lottery p; instead, she has in mind a set of possible utility functions over outcomes and displays a cautious behavior: she computes the certainty equivalent of p with respect to each possible function in the set and picks the smallest one. The set of utilities is unique in a welldefined sense. We show that our representation can also be derived from a `cautious' completion of an incomplete preference relation. Download Paper


14004 
Daron Acemoglu Ufuk Akcigit Murat Alp Celik 
"Young, Restless and Creative: Openness to Disruption and Creative Innovations"  
This paper argues that openness to new, unconventional and disruptive ideas has a .firstorder impact on creative innovations  innovations that break new ground in terms of knowledge creation. After presenting a motivating model focusing on the choice between incremental and radical innovation, and on how managers of different ages and human capital are sorted across different types of firms, we provide crosscountry, firmlevel and patentlevel evidence consistent with this pattern. Our measures of creative innovations proxy for innovation quality (average number of citations per patent) and creativity (fraction of superstar innovators, the likelihood of a very high number of citations, and generality of patents). Our main proxy for openness to disruption is manager age. This variable is based on the idea that only companies or societies open to such disruption will allow the young to rise up within the hierarchy. Using this proxy at the country, firm or patent level, we present robust evidence that openness to disruption is
associated with more creative innovations. Download Paper


14003 
Hulya Eraslan Antonio M. Merlo 
"Some Unpleasant Bargaining Arithmetic?"  
It is commonly believed that, since unanimity rule safeguards the rights of each individual, it protects minorities from the possibility of expropriation, thus yielding more equitable outcomes than majority rule. We show that this is not necessarily the case in bargaining environments. We study a multilateral bargaining model à la Baron and Ferejohn (1989), where players are heterogeneous with respect to the potential surplus they bring to the bargaining table. We show that unanimity rule may generate equilibrium outcomes that are more unequal (or less equitable) than under majority rule. In fact, as players become perfectly patient, we show that the more inclusive the voting rule, the less equitable the equilibrium allocations. Download Paper


14002 
Guido Menzio 
"The Morphology of Price Dispersion"  
This paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period. We find that the typical price distribution is symmetric and leptokurtic, with a standard deviation between 19% and 36%. Only 10% of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold, while the remaining 90% is due, in approximately equal parts, to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store. We show that the distribution of prices that households pay for the same bundle of goods is approximately Normal, with a standard deviation between 9% and 14%. Half of this dispersion is due to differences in the expensiveness of the stores where households shop, while the other half is mostly due to differences in households’ choices of which goods to purchase at which stores. We find that households with fewer employed members pay lower prices, and do so by visiting a larger number of stores, rather than by shopping more frequently. Download Paper


14001 
Maciej H. Kotowski Fei Li 
"On the Continuous Equilibria of AffiliatedValue, AllPay Auctions with Private Budget Constraints", Third Version  
We consider allpay auctions in the presence of interdependent, affiliated valuations and private budget constraints. For the sealedbid, allpay auction we characterize a symmetric equilibrium in continuous strategies for the case of N bidders. Budget constraints encourage more aggressive bidding among participants with large endowments and intermediate valuations. We extend our results to the war of attrition where we show that budget constraints lead to a uniform amplification of equilibrium bids among bidders with sufficient endowments. An example shows that with both interdependent valuations and private budget constraints, a revenue ranking between the two auction formats is generally not possible. Equilibria with discontinuous bidding strategies are discussed. Download Paper


13071 
Rong Hai 
"The Determinants of Rising Inequality in Health Insurance and Wages", Second Version  
What has caused the rising gap in health insurance coverage by education in the U.S. over the last thirty years? How does the employmentbased health insurance market interact with the labor market? What are the effects of social insurance such as Medicaid? By developing and structurally estimating an equilibrium model, I find that the interaction between labor market technological changes and the cost growth of medical services explains 60% to 70% of the gap. Using counterfactual experiments, I also evaluate the impact of further Medicaid eligibility expansion and employer mandates introduced in the Affordable Care Act on labor and health insurance markets. Download Paper


13070 
Francis X. Diebold Kamil Yilmaz 
"Measuring the Dynamics of Global Business Cycle Connectedness"  
Using a connectednessmeasurement technology fundamentally grounded in modern network theory, we measure real output connectedness for a set of six developed countries, 19622010. We show that global connectedness is sizable and timevarying over the business cycle, and we study the nature of the time variation relative to the ongoing discussion about the changing nature of the global business cycle. We also show that connectedness corresponding to transmissions to others from the United States and Japan is disproportionately important. Download Paper


13069 
Ufuk Akcigit Murat Alp Celik Jeremy Greenwood 
"Buy, Keep or Sell: Economic Growth and the Market for Ideas"  
An endogenous growth model is developed where each period firms invest in researching and developing new ideas. An idea increases a firm's productivity. By how much depends on how central the idea is to a firm's activity. Ideas can be bought and sold on a market for patents. A firm can sell an idea that is not relevant to its business or buy one if it fails to innovate. The developed model is matched up with stylized facts about the market for patents in the U.S. The analysis attempts to gauge how efficiency in the patent market affects growth. Download Paper


13068 
David Dillenberger Andrew Postlewaite Kareen Rozen 
"Optimism and Pessimism with Expected Utility", Fourth Version  
Maximizing subjective expected utility is the classic model of decisionmaking under uncertainty. Savage (1954) provides axioms on preference over acts that are equivalent to the existence of a subjective expected utility representation, and further establishes that such a representation is essentially unique. We show that there is a continuum of other "expected utility" representations in which the probability distributions over states used to evaluate acts depend on the set of possible outcomes of the act and suggest that these alternate representations can capture pessimism or optimism. We then extend the DM's preferences to be defined over both subjective acts and objective lotteries, allowing for sourcedependent preferences. Our result permits modeling ambiguity aversion in Ellsberg's twourn experiment using a single utility function and pessimistic probability assessments over prizes for lotteries and acts, while maintaining the axioms of Savage and von NeumannMorganstern on the appropriate domains Download Paper


13067 
David Dillenberger Juan Sebastian Lleras Philipp Sadowski Norio Takeoka 
"A Theory of Subjective Learning", Third Version  
We study an individual who faces a dynamic decision problem in which the process of information arrival is unobserved by the analyst. We elicit subjective information directly from choice behavior by deriving two utility representations of preferences over menus of acts. One representation uniquely identifies information as a probability measure over posteriors and the other identifies information as a partition of the state space. We compare individuals who expect to learn differently in terms of their preference for flexibility. On the extended domain of datedmenus, we show how to accommodate gradual learning over time by means of a subjective filtration. Download Paper


13066 
David Dillenberger Uzi Segal 
"Skewed Noise"  
Experimental evidence suggests that individuals who face an asymmetric distribution over the likelihood of a specific event might actually prefer not to know the exact value of this probability. We address these findings by studying a decision maker who has recursive, nonexpected utility preferences over twostage lotteries. For a binary lottery that yields the better outcome with probability p, we identify noise around p with a compound lottery that induces a probability distribution over the exact value of the probability and has an average value p. We first propose and characterize a new notion of skewed distributions. We then use this result to provide conditions under which a decision maker who always rejects symmetric noise around p will always reject skewed to the left noise, but might accept skewed to the right noise. The model can be applied to the areas of investment under risk, medical decision making, and criminal law procedures, and can also be used to address the phenomenon of ambiguity seeking in the context of decision making under uncertainty. Download Paper


13065 
David S. Abrams Ufuk Akcigit Jillian Popadak 
"Patent Value and Citations: Creative Destruction or Strategic Disruption?"  
Prior work suggests that more valuable patents are cited more and this view has become standard in the empirical innovation literature. Using an NPEderived dataset with patentspecific revenues we find that the relationship of citations to value in fact forms an invertedU, with fewer citations at the high end of value than in the middle. Since the value of patents is concentrated in those at the high end, this is a challenge to both the empirical literature and the intuition behind it. We attempt to explain this relationship with a simple model of innovation, allowing for both productive and strategic patents. We find evidence of greater use of strategic patents where it would be most expected: among corporations, in fields of rapid development, in more recent patents and where divisional and continuation applications are employed. These findings have important implications for our basic understanding of growth, innovation, and intellectual property policy. Download Paper


13064 
Minchul Shin Molin Zhong 
"Does realized volatility help bond yield density prediction?"  
This paper examines the importance of realized volatility in bond yield density prediction. We incorporate realized volatility into a Dynamic NelsonSiegel (DNS) model with stochastic volatility and evaluate its predictive performance on US bond yield data. When compared to popular specifications in the DNS literature without realized volatility, we find that having this information improves density forecasting performance. Download Paper


13063 
Francesc Dilme 
"Dynamic Quality Signaling with Hidden Actions", Second Version  
Asymmetric information is an important source of inefficiency when an asset (such as a firm) is transacted. The two main sources of this asymmetry are the unobserved idiosyncratic characteristics of the asset (such as future profitability) and unobserved idiosyncratic choices (like secret price cuts). Buyers may use noisy signals (such as sales) in order to infer actions and characteristics. In this situation, does the seller prefer to release information fast or slowly? Is it incentive compatible? When the market is pessimistic, is it better to give up or keep signaling? We introduce hidden actions in a dynamic signaling model in order to answer these questions. Separation is found to be fast in equilibrium when sending highly informative signals is efficient. When the market is pessimistic about the quality of the asset, depending on the cost structure, the seller either “givesup” by stopping signaling, or the seller “rushesout” by increasing the informativeness of the signal. We find that the unobservability of the action causes equilibrium effort to be too low and the seller to stop signaling too early. The model can be applied to education where grades depend on students’ effort, which is endogenously related to their skills. Download Paper


13062 
Xu Cheng Zhipeng Liao 
"Select the Valid and Relevant Moments: An InformationBased LASSO for GMM with Many Moments", Second Version  
This paper studies the selection of valid and relevant moments for the generalized method of moments (GMM) estimation. For applications with many candidate moments, our asymptotic analysis accommodates a diverging number of moments as the sample size increases. The proposed procedure achieves three objectives in onestep: (i) the valid and relevant moments are distinguished from the invalid or irrelevant ones; (ii) all desired moments are selected in one step instead of in a stepwise manner; (iii) the parameters of interest are automatically estimated with all selected moments as opposed to a postselection estimation. The new method performs moment selection and efficient estimation simultaneously via an informationbased adaptive GMM shrinkage estimation, where an appropriate penalty is attached to the standard GMM criterion to link moment selection to shrinkage estimation. The penalty is designed to signal both moment validity and relevance for consistent moment selection. We develop asymptotic results for the highdimensional GMM shrinkage estimator, allowing for nonsmooth sample moments and weakly dependent observations. For practical implementation, this onestep procedure is computationally attractive. Download Paper


13061 
Xu Cheng Bruce E. Hansen 
"Forecasting with FactorAugmented Regression: A Frequentist Model Averaging Approach", Second Version  
This paper considers forecast combination with factoraugmented regression. In this framework, a large number of forecasting models are available, varying by the choice of factors and the number of lags. We investigate forecast combination across models using weights that minimize the Mallows and the leavehout cross validation criteria. The unobserved factor regressors are estimated by principle components of a large panel with N predictors over T periods. With these generated regressors, we show that the Mallows and leavehout cross validation criteria are asymptotically unbiased estimators of the onestepahead and multistepahead mean squared forecast errors, respectively, provided that N, T → ∞. (However, the paper does not establish any optimality properties for the methods.) In contrast to wellknown results in the literature, this result suggests that the generatedregressor issue can be ignored for forecast combination, without restrictions on the relation between N and T. Simulations show that the Mallows model averaging and leavehout crossvalidation averaging methods yield lower mean squared forecast errors than alternative model selection and averaging methods such as AIC, BIC, cross validation, and Bayesian model averaging. We apply the proposed methods to the U.S. macroeconomic data set in Stock and Watson (2012) and find that they compare favorably to many popular shrinkagetype forecasting methods. Download Paper


13060 
George J. Mailath Andrew Postlewaite Larry Samuelson 
"Premuneration Values and Investments in Matching Markets"  
We analyze a model in which agents make investments and then match into pairs to create a surplus. The agents can make transfers to reallocate their pretransfer ownership claims on the surplus. Mailath, Postlewaite, and Samuelson (2013) showed that when investments are unobservable, equilibrium investments are generally inefficient. In this paper we work with a more structured model that is sufficiently tractable to analyze the nature of the investment inefficiencies. We provide conditions under which investment is inefficiently high or low and conditions under which changes in the pretransfer ownership claims on the surplus will be Pareto improving, as well as examine how the degree of heterogeneity on either side of the market affects investment efficiency. Download Paper


13059 
Frank Schorfheide Kenneth I. Wolpin 
"To Hold Out or Not to Hold Out"  
A recent literature has developed that combines two prominent empirical approaches to ex ante policy evaluation: randomized controlled trials (RCT) and structural estimation. The RCT provides a “goldstandard" estimate of a particular treatment, but only of that treatment. Structural estimation provides the capability to extrapolate beyond the experimental treatment, but is based on untestable assumptions and is subject to structural data mining. Combining the approaches by holding out from the structural estimation exercise either the treatment or control sample allows for external validation of the underlying behavioral model. Although intuitively appealing, this holdout methodology is not well grounded. For instance, it is easy to show that it is suboptimal from a Bayesian perspective. Using a stylized representation of a randomized controlled trial, we provide a formal rationale for the use of a holdout sample in an environment in which data mining poses an impediment to the implementation of the ideal Bayesian analysis and a numerical illustration of the potential benefits of holdout samples. Download Paper


13058 
Yonghong An Xun Tang 
"Identifying Structural Models of Committee Decisions with Heterogeneous Tastes and Ideological Bias"  
We study the nonparametric identification and estimation of a structural model for committee decisions. Members of a committee share a common information set, but differ in ideological bias while processing multiple information sources and in individual tastes while weighing multiple objectives. We consider two cases of the model where committee members have or don't have strategic incentives for making recommendations that conform with the committee decision. For both cases, purestrategy Bayesian Nash equilibria exist, and we show how to use variations in the common information set to recover the distribution of members' private types from individual recommendation patterns. Building on the identification result, we estimate a structural model of interest rate decisions by the Monetary Policy Committee (MPC) at the Bank of England. We find some evidence that recommendations from external committee members are less distorted by strategic incentives than internal members. There is also evidence that MPC members differ more in their tastes for multiple objectives than in ideological bias. Download Paper


13057 
Mian Dai Xun Tang 
"Regulation and Capacity Competition in Health Care: Evidence from Dialysis Markets"  
This paper studies entry and capacity decisions by dialysis providers in the U.S. We estimate a structural model where providers make strategic continuous choices of capacities based on private information about own costs and beliefs about competitors’ behaviors. We evaluate the impact on market structure and provider profits under counterfactual regulatory policies that increase per capacity cost or reduce per capacity payment. We find that these policies reduce the market capacity of dialysis stations. However, the downward sloping reaction curve shields some providers from negative profit shocks in certain markets. The paper also has a methodological contribution in that it proposes new estimators for Bayesian games with continuous actions, which differ qualitative from discrete Bayesian games such as those with binary entry decisions. Download Paper


13056 
Hanming Fang Xun Tang 
"Inference of Bidders’ Risk Attitudes in Ascending Auctions with Endogenous Entry"  
Bidders’ risk attitudes have key implications for choices of revenuemaximizing auction formats. In ascending auctions, bid distributions do not provide information about risk preference. We infer risk attitudes using distributions of transaction prices and participation decisions in ascending auctions with entry costs. Nonparametric tests are proposed for two distinct scenarios: first, the expected entry cost can be consistently estimated from data; second, the data does not report entry costs but contains exogenous variations of potential competition and auction characteristics. In the first scenario, we exploit the fact that the risk premium required for entry  the difference between ex ante expected profits from entry and the certainty equivalent .is strictly positive if and only if bidders are risk averse. Our test is based on identification of bidders’ ex ante profits. In the second scenario, our test builds on the fact that risk attitudes affect how equilibrium entry probabilities vary with observed auction characteristics and potential competition. We also show identification of risk attitudes in a more general model of ascending auctions with selective entry, where bidders receive entrystage signals that are correlated with private values. Download Paper


13055 
Antonio M. Merlo 
"Identification and Estimation of Preference Distributions When Voters Are Ideological, Second Version"  
This paper studies the nonparametric identification and estimation of voters’ preferences when voters are ideological. We establish that voter preference distributions and other parameters of interest can be identified from aggregate electoral data. We also show that these objects can be consistently estimated and illustrate our analysis by performing an actual estimation using data from the 1999 European Parliament elections. Download Paper


13054 
Andriy Norets Xun Tang 
"SemiParametric Inference in Dynamic Binary Choice Models"  
We introduce an approach for semiparametric inference in dynamic binary choice models that does not impose distributional assumptions on the state variables unobserved by the econometrician. The proposed framework combines Bayesian inference with partial identification results. The method is applicable to models with finite space of observed states. We demonstrate the method on Rust's model of bus engine replacement. The estimation experiments show that the parametric assumptions about the distribution of the unobserved states can have a considerable effect on the estimates of perperiod payoffs. At the same time, the effect of these assumptions on counterfactual conditional choice probabilities can be small for most of the observed states. Download Paper


13053 
Elena Krasnokutskaya Kyungchul Song Xun Tang 
"The Role of Quality in Service Markets Organized as MultiAttribute Auctions"  
We develop an empirical methodology to study markets for services. These markets are typically organized as multiattribute auctions in which buyers take into account seller's
price as well as various characteristics, including quality. Our identification and estimation strategies exploit observed buyers' and sellers' decisions to recover the distribution of sellers' qualities, the distribution of seller's costs conditional on quality, and the distribution of buyers' tastes. Our empirical results from the online market for programming services
confirm that quality plays an important role. We use our estimates to study the effect of licensing restrictions and to assess the loss of value from using standard rather than
multiattribute auctions as is common in public procurement. Download Paper


13052 
Wilfred J. Ethier 
"The Floating World: Issues in International Trade Theory"  
A deranged publisher decided to produce a volume of some of my papers and asked me to write some comments. Since these amount to a summary of my views about international trade theory over the latest forty years or so, I’m giving the comments a separate alternative existence as a discussion paper. Download Paper


13051 
Ufuk Akcigit Douglas Hanley Nicolas SerranoVelarde 
"Back to Basics: Basic Research Spillovers, Innovation Policy and Growth  
This paper introduces a model of endogenous growth through basic and applied research. Basic research differs from applied research in the nature and the magnitude of the generated spillovers. We propose a novel way of empirically identifying these spillovers and embed them in a general equilibrium framework with private firms and a public research sector. After characterizing the equilibrium, we estimate our model using microlevel data on research expenditures by French firms. Our key finding is that standard R&D policies can accentuate the dynamic misallocation in the economy. We also find a strong complementarity between the property rights of basic research and the optimal funding of public research. Download Paper


13050 
Ilwoo Hwang 
"A Theory of Bargaining Deadlock"  
I study a dynamic onesidedoffer bargaining model between a seller and a buyer under incomplete information. The seller knows the quality of his product while the buyer does not. During bargaining, the seller randomly receives an outside option, the value of which depends on the hidden quality. If the outside option is sufficiently important, there is an equilibrium in which the uninformed buyer fails to learn the quality and continues to make the same randomized offer throughout the bargaining process. As a result, the equilibrium behavior produces an outcome path that resembles the outcome of a bargaining deadlock and its resolution. The equilibrium with deadlock has inefficient outcomes such as a delay in
reaching an agreement and a breakdown in negotiations. Bargaining inefficiencies do not vanish even with frequent offers, and they may exist when there is no static adverse selection problem. Under stronger parametric assumptions, the equilibrium with deadlock is unique under a monotonicity criterion, and all equilibria exhibit inefficient outcomes. Download Paper


13049 
Wilfred J. Ethier 
"The Trade Agreement Embarrassment", Second Version  
The dominant academic literature about trade agreements maintains that they are only about national termsoftrade manipulation and not at all about purely political concerns. Nonacademic economists, commentators, and diplomats by contrast think that trade agreements are all about political concerns. There are two substantive and important distinctions between the two views. i Practitioners maintain that policymakers care virtually not at all about the terms of trade or about tradetax revenue ii Practitioners, unlike academics, maintain that tradeagreement negotiations themselves change the underlying political economy. Observation of actual trade policy measures, though not conclusive, suggests that the practitioners are right and that the academics are wrong. Download Paper


13048 
Francesc Dilme Fei Li 
"Dynamic Education Signaling with Dropout, Second Version"  
We study students' dropout behavior and its consequences in a dynamic signaling model. Workers pay an education cost per unit of time and cannot commit to a fixed education length. Workers face an exogenous dropout risk before graduation. Since lowproductivity students' cost is high, pooling with early dropouts helps them to avoid a high education cost. In equilibrium, lowproductivity students choose to endogenously drop out over time, so the productivity of students in college increases along the education process. We find that the maximum education length is decreasing in the prior about a student being highly productive. We characterize the joint dynamics of returns to education and the dropout rate and provide an explanation of the declining dropout rate over the time students spend in school. We also extend the baseline model by allowing human capital accumulation and show that the dynamics of the dropout rate are helpful in decomposing the returns to education into the signaling effect and the human capital accumulation effect. Download Paper


13047 
Ilwoo Hwang Fei Li 
"Coasian Bargaining with An Arriving Outside Option"  
We consider Coasian bargaining problems where the buyer has an outside option arriving at a stochastic time. We study both observable outside option models and unobservable outside option models. In both models, we show that a Coasian equilibrium exists if (1) the arrival of the outside option is public, or (2) the arrival of the outside option is private but the arrival probability is small enough. (1) the seller makes multiple rounds of offers, and (2) the Coase conjecture holds for an arbitrarily large arrival rate of the outside option. The result also applies to the timevarying outside option model. This exercise helps us to understand the sharp difference between Board and Pycia (2013), where the buyer's outside option is always available, and the standard Coasian bargaining literature, where the buyer has no outside option. Download Paper


13046 
Rong Hai Dirk Krueger Andrew Postlewaite 
"On the Welfare Cost of Consumption Fluctuations in the Presence of Memorable Goods"  
We propose a new classification of consumption goods into nondurable goods, durable goods and a new class which we call “memorable" goods. A good is memorable if a consumer can draw current utility from its past consumption experience through memory. We propose a novel consumptionsavings model in which a consumer has a welldefined preference ordering over both nondurable goods and memorable goods. Memorable goods consumption differs from nondurable goods consumption in that current memorable goods consumption may also impact future utility through the accumulation process of the stock of memory. In our model, households optimally choose a lumpy profile of memorable goods consumption even in a frictionless world. Using Consumer Expenditure Survey data, we then document levels and volatilities of different groups of consumption goods expenditures, as well as their expenditure patterns, and show that the expenditure patterns on memorable goods indeed differ significantly from those on nondurable and durable goods. Finally, we empirically evaluate our model's predictions with respect to the welfare cost of consumption fluctuations and conduct an excesssensitivity test of the consumption response to predictable income changes. We find that (i) the welfare cost of householdlevel consumption fluctuations may be overstated by 1:7 percentage points (11:9% points as opposed to 13:6% points of permanent consumption) if memorable goods are not appropriately accounted for; (ii) the finding of excess sensitivity of consumption documented in
important papers of the literature might be entirely due to the presence of memorable goods. Download Paper


13045 
Mitchell H. Kellman 
"Montenegrin Trade Specialization Index"  
Montenegro, newly independent since 2006, saw its commodity exports collapse in the worldwide financial crisis of 2008. It took three years for the volume of its exports to recover. Using one to fourdigit Standard Industrial Trade Classification (SITC) commodity trade data, this paper analyzes trade patterns as they evolve, both globally, and within individual product sectors, since independence to the year 2012. The Kellman – Shachmurove Trade Specialization Index (TSI) is employed to study the degree of the Montenegrin specialization. The paper warns about high degree of specialization with overreliance on commodity exports of aluminum alloys. Download Paper


13044 
George J. Mailath Larry Samuelson 
"Reputations in Repeated Games", Second Version  
This paper, prepared for the Handbook of Game Theory, volume 4 (Peyton Young and Shmuel Zamir, editors, Elsevier Press), surveys work on reputations in repeated games of incomplete information. Download Paper
