Published in Annual Review of Economics
We discuss recent work evaluating the role of the government in shaping the economy during the long nineteenth century, a practice we refer to as industrial policy. States deployed a vast variety of different policies aimed primarily, but not exclusively, at fostering industrialization. A thin but growing literature has started to evaluate the econ...
Published in Annual Review of Economics
Labor markets are not perfectly competitive: Monopsony power enables employers to pay workers less than the marginal revenue product of labor. We review three theoretical frameworks explaining monopsony power. Oligopsony models attribute it to strategic interactions among a limited number of firms. Job differentiation models cite imperfect job subs...
Published in Annual Review of Economics
Institutions are a key determinant of economic growth, but the critical junctures in which institutions can change are not precisely defined. For example, such junctures are often identified ex post, raising several methodological problems: a selection on the outcome of institutional change; an inability to study beliefs, which are central to coord...
Published in Annual Review of Economics
We survey the weak instrumental variables (IV) literature with the aim of giving simple advice to applied researchers. This literature focuses heavily on the problem of size inflation in two-stage least squares (2SLS) two-tailed t-tests that arises if instruments are weak. A common standard for acceptable instrument strength is a first-stage F of 1...
Published in Annual Review of Economics
We discuss models of updating that depart from Bayes’ rule even when it is well-defined. After reviewing Bayes’ rule and its foundations, we begin our analysis with models of non-Bayesian behavior arising from a bias, a pull toward suboptimal behavior due to a heuristic or a mistake. Next, we explore deviations caused by individuals questioning the...
Published in Annual Review of Economics
With average temperature ranging from −20°C at the North Pole to 30°C at the Equator and with global warming expected to reach 1.4°C to 4.5°C by the year 2100, it is clear that climate change will have vastly different effects across the globe. Given the abundance of land in northern latitudes, if population and economic activity could freely move ...
Published in Annual Review of Economics
This article reviews the growing economics literature that studies the politico-economic impacts of heterogeneity in moral boundaries across individuals and cultures. The so-called universalism-versus-particularism cleavage has emerged as a main organizing principle behind various salient features of contemporary political competition, including in...
Published in Annual Review of Economics
Inequality in political participation and influence has strongly increased in recent decades, breeding economic inequality. In this review, we focus on three aspects of political inequality: the increasing concentration of both political and charitable donations, the growing gap in descriptive representation, and the persistent lack of substantive ...
Published in Annual Review of Economics
Economic activities are concentrated on a small share of inhabitable land. In our view, this agglomeration is the outcome of a trade-off between increasing returns and transportation costs, which capitalizes into land rents. Our second baseline idea is that Tiebout-like sorting provides a general framework to handle a large array of problems in spa...
Published in Annual Review of Economics
Interpreting individual heterogeneity in terms of probability theory has proved powerful in connecting behavior at the individual and aggregate levels. Returning to Ricardo's focus on comparative efficiency as a basis for international trade, much recent quantitative equilibrium modeling of the global economy builds on particular probabilistic assu...
