NAJ Economics

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Susan Athey
Ted Bergstrom
Michele Boldrin
V.V. Chari
Drew Fudenberg
David K. Levine
Thomas R. Palfrey
Wolfgang Pesendorfer
Matt Rabin
Ariel Rubinstein
Jose A. Scheinkman
Jean Tirole

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Volume 7 - June 04, 2004 Previous Next

1. Allen Head and Alok Kumar Price Dispersion, Inflation and Welfare

This paper introduces prices dispersion into a monetary model. This has two striking consequences: first, inflation effects the variance of prices as well as the level of prices. Second, because price dispersion has an impact on the monopoly power of firms, inflation has unexpected welfare consequences. A mild inflation can be beneficial because it induces more search by consumers and reduces the monopoly power of firms.
original link cached copy reviewed by David K. Levine on 06/04/04

2. Alberto Alesina and George-Marios Angeletos Fairness and Redistribution

If wealth is due to luck optimal insurance implies a confiscatory tax is efficient; if wealth is due to effort transfers should be low to encourage effort. But even if wealth is due to effort, if taxes are confiscatory, effort does not generate wealth, only luck does so beliefs that only luck matters will be self-confirming. Alesina and Angeletos use the resulting multiplicity of self-confirming equilibria to reconcile cross-country correlation of perceptions about wealth formation and tax policy.
original link cached copy reviewed by David K. Levine on 07/20/04

3. Alex Gershkov and Balazs Szentes Optimal Voting Schemes with Costly Information Acquisition

This is a nice representative of a growing literature on mechanism design when information acquisition is costly. It examines the case of a common objective in a setting where commitment to ex post inefficiency is not practical, and characterizes the optimal mechanism. The optimal mechanism is not a committee, but rather to anonymously and sequentially consult people until a threshold of precision is reached. As a practical matter it can be thought of as a process of getting a second (and third) opinion based on the information in the first (and second) opinion. For incentive reasons, it is best not to let the different "doctors" know that you have consulted with the others.
original link cached copy reviewed by David K. Levine on 07/20/04

4. J Sefton and M Weale The Concept of Income in a General Equilibrium

Theorists are rightfully skeptical of national income accounting, recognizing that the arbitrary methods used have no theoretical basis. This paper shows that - if it is done correctly - national income accounting can have a theoretical basis, and income measured to directly correlate with welfare.
original link cached copy reviewed by David K. Levine on 01/15/05

5. Alvaro Sandroni Untitled

This is the latest word in a fascinating literature on testing expert forecasters. A forecaster is making probabilistic predictions about the realizations of a stochastic process. A principal wishes to test these predictions against the observed outcomes to determine whether the forecaster is a true expert or not. Previous literature had considered "calibration tests" and it is known that even a completely ignorant forecaster can pass any such test. Here there are literally no restrictions on the type of test and it is shown that an ignorant forecaster can use a mixed forecasting strategy to pass *any* test that a true expert can pass. The mixed strategy depends on the test, so an open question is whether the principal can improve by randomizing the test and keeping it secret. Erratum added December 3, 2005: The assertion in (4.1) on p. 7 is not correct, and the main Proposition, Proposition 1, must be viewed as unproven.
original link cached copy reviewed by Jeff Ely on 12/02/05