ALBERT

Beschreibung: This review addresses, from a unified perspective, the important role of conflicts of interest in various facets of asset management and advising, including managing individual portfolios, institutional asset management, and order routing. I use an agency framework to highlight the sources of the underlying incentive conflicts, the nature of efficient solutions, the role of the structure of compensation in mitigating (or creating) the agency problem, and the use of benchmarks as a solution. I also highlight several contemporary contexts in which conflicts of interest are important. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: We review the literature on debt structure, which is a central element in a firm's capital structure. We first survey both theoretical and empirical research pertaining to debt characteristics—maturity and priority—and debt types—bank loans, corporate bonds, credit lines, commercial paper, and capital leases. We then present comprehensive empirical evidence on public US firms’ debt structure over the period 2002–2018, highlighting that more than three-quarters of US firms concentrate their borrowing in one debt type, and offer some suggestive explanations for the observed pattern. Finally, we discuss directions for future research, including a better understanding of debt structure choices by non-US firms and by private firms, the cross-sectional and temporal variations in debt structure, the corporate policy implications of firms’ debt structure choices, and the interaction between types of assets and debt structure. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: Global activities of banks are a core manifestation of broader patterns of globalization of production, trade, and finance. This article reviews the extensive recent empirical and theoretical literature on global banking, emphasizing the careful empirical analyses that incorporate key dimensions of heterogeneity among borrowers and lenders, and across activities. The actions of globally active banks are consequential, with cost and benefit trade-offs that differ during their lifetimes and at times of stress. Both research and policymaking around global banking benefit from improved infrastructures around collection of and access to granular data and repositories of evaluation studies. Although overall positive contributions from welfare perspectives arise from the activities of global banks, these organizations require appropriately targeted policy frameworks and oversight. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: The credit default swap (CDS) remains an important class of derivatives contract despite the declining activity in the single-name corporate market. I provide a quick introduction to the contracts, the pricing formula used to interpret the market premiums, the development in trading volumes, and some key insights that are important for understanding its role in markets. I then take a closer look at the CDS-bond basis and the role of trading and regulatory frictions. Finally, the European sovereign debt crisis brought back in focus the notion of a quanto spread, which I explain. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008–2009, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: Real interest rates have been persistently below historical norms over the past decade, leading economists and policy makers to view the equilibrium real interest rate as likely to be low for some time. Various definitions and approaches to estimating the equilibrium real interest rate are examined, including approaches based on the term structure of interest rates and small macroeconomic models. The individual country approaches common in the literature are extended to allow for global trend and cyclical factors. The analysis finds that global factors dominate the downward trend in the equilibrium interest rate across 13 advanced economies. A corollary of this finding is that the U.S. equilibrium rate can be informed by global developments and is recently lower than estimated in U.S.-only studies. The analysis also highlights how the common global trend confounds empirical assessments of the determinants of movements in the equilibrium rate and the need to better integrate term-structure and macroeconomic approaches. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is Novembe 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: This is an edited version of a talk given at the Robert C. Merton 75th Birthday Celebration Conference held at MIT on August 5 and 6, 2019. A video of the talk is available at https://bit.ly/2nvITM6 . Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is Novembe 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Beschreibung: We review recent research into how firms navigate four complex decisions in corporate takeovers: ( a) deal initiation, ( b) pre-offer toehold acquisition, ( c) the initial (public) offer price, and ( d) the payment method. We focus the evidence on public targets and the theory on first-price or English (ascending-price) auctions with two competing bidders and a single (pivotal) seller. The evidence shows that nearly half of bids are initiated by the target (not a bidder). Notwithstanding the large offer premiums, only a small fraction of bidders acquire a target toehold prior to bidding. The first bid rarely attracts rival bidders, suggesting effective competition deterrence. Bid jumps are high, as predicted when bidding costs are large. Pre-bid stock price run-ups reflect rational market deal anticipation and are understood as such by the deal negotiators. Bidders select stock payment when concerned with adverse selection on the target side of the deal.

Beschreibung: We provide a critical review of macroeconomic models used for monetary policy at central banks from a finance perspective. We review the history of monetary policy modeling, survey the core monetary models used by major central banks, and construct an illustrative model for those readers who are unfamiliar with the literature. Within this framework, we highlight several important limitations of current models and methods, including the fact that local-linearization approximations omit important nonlinear dynamics, yielding biased impulse-response analysis and parameter estimates. We also propose new features for the next generation of macrofinancial policy models, including a substantial role for the financial sector, the government balance sheet, and unconventional monetary policies; heterogeneity, reallocation, and redistribution effects;the macroeconomic impact of large nonlinear risk premium dynamics; time-varying uncertainty; financial sector and systemic risks; imperfect product market and markups; and further advances in solution, estimation, and evaluation methods for dynamic quantitative structural models.

Beschreibung: Starting with his 1970 doctoral dissertation and continuing to today, Robert C. Merton has revolutionized the theory and practice of finance. In 1997, Merton shared a Nobel Prize in Economics “for a new method to determine the value of derivatives.” His contributions to the science of finance, however, go far beyond that. In this article I describe Merton's main contributions. They include the following: 1.  The introduction of continuous-time stochastic models (the Ito calculus) to the theory of household consumption and investment decisions. Merton's technique of dynamic hedging in continuous time provided a bridge between the theoretical complete-markets equilibrium model of Kenneth Arrow and the real world of personal financial planning and management. 2.  The derivation of the multifactor Intertemporal Capital Asset Pricing Model (ICAPM). The ICAPM generalizes the single-factor CAPM and explains why that model might fail to properly account for observed market excess returns. It also provides a theory to identify potential forward-looking risk premia for use in factor-based investment strategies. It is therefore both a positive and normative theory. 3.  The invention of Contingent Claims Analysis (CCA) as a generalization of option pricing theory. CCA applies the technique of dynamic replication to the valuation and risk management of a wide range of corporate and government liabilities. Merton's CCA model for the valuation and analysis of risky debt is known among scholars and practitioners alike as the Merton Model. 4.  The development of financial engineering, which employs CCA to design and produce new financial products. Merton was the first to apply CCA to analyze government guaranty programs such as deposit insurance, and to suggest improvements in the way those programs are managed. He and his students have applied his insights at both the micro and macro policy levels. 5.  And finally, the development of a theory of financial intermediation that explains and predicts how financial systems differ across countries and change over time. Merton has applied that theory, called functional and structural finance, to guide the design and regulation of financial systems at the levels of the firm, the industry, and the nation. He has also used it to propose reforms in pensions, sovereign wealth funds, and macrostabilization policy. This article is one of a pair of articles published in this volume about Robert C. Merton's contributions to the science of financial economics. This article was originally published in Volume 11 of the Annual Review of Financial Economics. The other article in this pair is “ Robert C. Merton: The First Financial Engineer ” by Andrew W. Lo.

Beschreibung: Textual analysis, implemented at scale, has become an important addition to the methodological toolbox of finance. In this review, given the proliferation of papers now using this method, we first provide an updated survey of the literature while focusing on a few broad topics—social media, political bias, and detecting fraud. We do not attempt to survey the various statistical methods and instead initially focus on the construction and use of lexicons in finance. We then center the discussion on readability as an attribute frequently incorporated in contemporaneous research, arguing that its use begs the question of what we are measuring. Finally, we discuss how the literature might build on the intent of measuring readability to measure something more appropriate and more broadly relevant—complexity.

Beschreibung: Life-cycle portfolio choice models capture the role of human capital, housing, borrowing constraints, background risk, and several other crucial ingredients for determining the savings and investment decisions of households. Over the last two decades, this literature has provided us with multiple insights regarding the asset allocation decisions of individual investors. This article provides a critical survey of this research and suggests directions for future research, namely incorporating additional forms of household heterogeneity.

Beschreibung: There is sufficient evidence in the popular, legal, and financial literatures that informed options trading ahead of scheduled and unexpected corporate events is pervasive. In this review, we piece together the extant evidence on this topic into a cohesive picture, which includes abnormal activity ahead of announcements of earnings, mergers and acquisitions, as well as numerous other corporate events. We also discuss the more limited evidence on informed trading in other derivatives markets, such as credit default swaps. In addition, we characterize the impact and features of illegal insider trading and insider trading networks. We also provide a brief overview of the legal framework in the United States concerning legal and illegal insider trading to emphasize the challenges associated with identifying informed options trading. We end with our suggestions regarding future research opportunities in this broad topic.

Beschreibung: Short-term debt that can serve as a medium of exchange is designed to be information insensitive. No one should be tempted to acquire private information to gain an informational advantage in trading that could destabilize the value of the debt. Short-term debt minimizes the incentive to acquire information among all securities of equal value backed by the same underlying asset. Moreover, backing short-term debt with debt (i.e., using debt as collateral) minimizes information sensitivity across all types of collateral with equal value. These features are consistent with financial crises occurring periodically. In the information view adopted here, a financial crisis can occur when the collateral backing the short-term debt is thought to have lost enough value to raise doubts among the traders that some may acquire private information. In a crisis, there is a shift from information-insensitive to information-sensitive debt.

Beschreibung: Technological innovation is critical to a country's economic development and a firm's long-term success. This article reviews the recent literature that links institutions and innovation. Specifically, we focus on five aspects of the linkage. First, we discuss the literature that explores how the culture of a society or a corporation influences the process, features, and outcomes of innovation activities. Second, we review papers that focus on the role of demographic characteristics in innovation. Third, we describe studies examining the relation between market development and firms’ incentives as well as their ability to engage in innovative investments. Fourth, we discuss the literature on how innovation is shaped by a nation's laws and policies. Finally, we review the academic papers regarding the effects of government regulations and policies on innovation activities. Overall, this article aims to provide a synthetic and evaluative review of recent academic research that links various aspects of institutions and innovation. We also provide our views on potential directions for future research in this area.

Beschreibung: This article provides a selective review of the recent literature on econometric models of network formation. I start with a brief exposition on basic concepts and tools for the statistical description of networks; then I offer a review of dyadic models, focusing on statistical models on pairs of nodes, and I describe several developments of interest to the econometrics literature. I also present a discussion of nondyadic models in which link formation might be influenced by the presence or absence of additional links, which themselves are subject to similar influences. This argument is related to the statistical literature on conditionally specified models and the econometrics of game theoretical models. I close with a (nonexhaustive) discussion of potential areas for further development.

Beschreibung: This review describes interactions between monetary and fiscal policies that affect equilibrium price levels and interest rates by critically surveying theories about ( a) optimal anticipated inflation, ( b) optimal unanticipated inflation, and ( c) conditions that secure a nominal anchor in the sense of a unique price level path. We contrast incomplete theories whose inputs are budget-feasible sequences of government-issued bonds and money with complete theories whose inputs are bond/money strategies described as sequences of functions that map time t histories into time t government actions. We cite historical episodes that confirm the theoretical insight that lines of authority between a Treasury and a central bank can be ambiguous, obscure, and fragile.

Beschreibung: This article reviews the literature on aspirations in economics, with a particular focus on socially determined aspirations. The core theory builds on two fundamental principles: ( a) Aspirations can serve to inspire, but still higher aspirations can lead to frustration and resentment; and ( b) aspirations are largely determined by an individual's social environment. Using the structure of this core theory, we discuss the implications of our framework for the study of interpersonal inequality, social conflict, fertility choices, risk taking, and goal setting.

Beschreibung: Data sets that are terabytes in size are increasingly common, but computer bottlenecks often frustrate a complete analysis of the data, and diminishing returns suggest that we may not need terabytes of data to estimate a parameter or test a hypothesis. But which rows of data should we analyze, and might an arbitrary subset preserve the features of the original data? We review a line of work grounded in theoretical computer science and numerical linear algebra that finds that an algorithmically desirable sketch, which is a randomly chosen subset of the data, must preserve the eigenstructure of the data, a property known as subspace embedding. Building on this work, we study how prediction and inference can be affected by data sketching within a linear regression setup. We use statistical arguments to provide “inference-conscious” guides to the sketch size and show that an estimator that pools over different sketches can be nearly as efficient as the infeasible one using the full sample.

Beschreibung: The fast and often chaotic urbanization of the developing world generates both economic opportunity and challenges, like contagious disease and congestion, because proximity increases both positive and negative externalities. In this article, we review the expanding body of economic research on developing-world cities. One strand of this literature emphasizes the economic benefits of urban connection, typically finding that agglomeration benefits are at least as high in poor countries as they are in rich countries. Yet there remains an ongoing debate about whether slums provide a path to prosperity or an economic dead end. A second strand of research analyzes the negative externalities associated with urban density, and the challenges of building and maintaining infrastructure to moderate those harms. Researchers are just beginning to understand the links between institutions (such as public–private partnerships), incentives (such as congestion pricing), and the effectiveness of infrastructure spending in addressing urban problems. A third line of research addresses the spatial structure of cities directly with formal, structural models. These structural models seem particularly valuable when analyzing land-use and transportation systems in the far more fluid cities of the developing world.

Beschreibung: Alternative work arrangements, defined both by working conditions and by workers’ relationship to their employers, are heterogeneous and common in the United States. This article reviews the literature on workers’ preferences over these arrangements, inputs to firms’ decisions to offer them, and the impact of regulation. It also highlights several descriptive facts: The typical worker is in a job where almost none of the tasks can be performed from home, work arrangements have been relatively stable over the past 20 years, work conditions vary substantially with education, and jobs with schedule or location flexibility are less family friendly on average. This last fact explains why women are not more likely to have schedule or location flexibility and seem to largely reduce their working hours to get more family-friendly arrangements.

Beschreibung: This article surveys the literature on capital flows and leverage. We summarize results from the existing papers and document new facts. The empirical literature takes both a macro and a micro approach. The macro approach focuses on aggregate data both over time and in the cross-section of countries, and it documents a positive correlation between total capital flows, build-ups in terms of external and domestic debt to GDP ratio, and financial crises. The micro approach uses granular data and focuses on leverage at the firm and bank level and associates this leverage with country-level capital flows and related exchange rate movements. We document new facts from a hybrid approach that focuses on the relationship between sector-level capital flows and sectoral leverage. We highlight the interconnections between different approaches and argue that harmonization of the macro and micro approaches can yield a more complete understanding of the effect of capital flows on country-, sector-, and firm- and bank-level leverage associated with credit booms and busts.

Beschreibung: This conversation between Nobel Laureates Amartya Sen and Angus Deaton, moderated by Annual Review of Economics Editorial Committee Member Tim Besley, focuses on bringing ethical issues into economics, and the implications that this has for the practice and teaching of economics. A video of this interview is available online at https://www.annualreviews.org/r/EconMoralCompass .

Beschreibung: We review the discontinuous games literature, with a sharp focus on conditions that ensure the existence of pure and mixed strategy Nash equilibria in strategic form games and of Bayes-Nash equilibria in Bayesian games.

Beschreibung: World Bank estimates put absolute poverty in Asia and Africa at 50–60% of the population in 1980 and at negligible levels in the developed world. This review investigates whether Asia was always so poor, as well as the history of poverty in today's rich countries. Poverty measurement methodologies are reviewed, and it is argued that a basic needs approach is the best way to tackle poverty measurement in the past. This approach is related to recent advances in the measurement of historical real wages. Estimates of poverty rates in England between 1290 and 1867 are presented, as are estimates for preindustrial India. About one-quarter of the English population was in extreme poverty in the late Middle Ages, and the proportion had fallen below 10% by 1688. About one-quarter of the people in northern India lived in extreme poverty in the early nineteenth century, and the proportion was likely lower in 1600. The very high poverty rates in India in 1980 were a development of the colonial era.

Beschreibung: Substantial research in development economics has highlighted the presence of weak institutions, market failures, and distortions in developing countries. Yet much of the knowledge generated in international trade comes from workhorse models that abstract from these frictions. This review summarizes the recent literature that assesses how these characteristics interact (or may interact) with trade reforms, resulting in different impacts in developing countries relative to what we would expect in developed countries. We discuss understudied areas that warrant further research.

Beschreibung: This article reviews the economic literature on informality, its causes, and its consequences for development. It covers a comprehensive body of research that ranges from well-identified experimental studies to equilibrium macro models, and which more recently includes structural models that integrate both micro and macro effects. The results available in the literature indicate that lowering the costs of formality is not an effective policy to reduce informality but may generate positive aggregate effects, such as higher output and total factor productivity (TFP). The most effective formalization policy is to increase enforcement on the extensive margin but not on the intensive margin of informality. The former generates substantial gains in aggregate TFP and output, without necessarily increasing unemployment. However, the overall welfare impacts are likely to depend on the transitional dynamics between steady states, which remains an open area for future research.

Beschreibung: The issue of one's identity has loomed large recently and has unfortunately been used more and more as a wedge to separate subgroups. It is important to understand the ramifications of identity, both to limit the negative consequences (such as so-called identity politics) and to be able to use one's sense of identity as a positive force in the world. What are effective approaches to allow positive identities and pride about one's social identity to be reinforced for the greater good? Recent work suggests that some forms of team competition can induce greater effort, which can be applied to areas such as microlending, charitable giving, and organization of the gig economy. And yet many fascinating questions remain; for example, what is the interaction of salience, social norms, and preferences on the effects of social identity in our society?

Beschreibung: This article reviews the broad changes in US trade policy over the course of the nation's history. Import tariffs have been the main instrument of trade policy and have had three main purposes: to raise revenue for the government, to restrict imports and protect domestic producers from foreign competition, and to reach reciprocity agreements that reduce trade barriers. Each of these three objectives—revenue, restriction, and reciprocity—was predominant in one of three consecutive periods in history. The political economy of these tariffs has been driven by the location of trade-related economic interests in different regions and the political power of those regions in Congress. The review also addresses the impact of trade policies on the US economy, such as the welfare costs of tariffs, the role of protectionism in fostering US industrialization, and the relationship between the Smoot–Hawley Tariff Act and the Great Depression of the 1930s.

Beschreibung: This article critically assesses prevailing measures of global poverty. A welfarist interpretation of global poverty lines is augmented by the idea of normative functionings, the cost of which varies across countries. In this light, current absolute measures are seen to ignore important social effects on welfare, while popular, strongly relative measures ignore absolute levels of living. It is argued that a new hybrid measure is called for, combining absolute and weakly relative measures consistent with how national lines vary across countries. Illustrative calculations indicate that we are seeing a falling incidence of poverty globally over the past 30 years. This is mainly due to lower absolute poverty counts in the developing world. While fewer people are poor by the global absolute standard, more are poor by the country-specific relative standard. The vast bulk of poverty, both absolute and relative, is now found in the developing world.

Beschreibung: Traditional decision theory assumes that people respond to the exact features of the options available to them, but observed behavior seems much less precise. This review considers ways of introducing imprecision into models of economic decision making and stresses the usefulness of analogies with the way that imprecise perceptual judgments are modeled in psychophysics—the branch of experimental psychology concerned with the quantitative relationship between objective features of an observer's environment and elicited reports about their subjective appearance. It reviews key ideas from psychophysics, provides examples of the kinds of data that motivate them, and proposes lessons for economic modeling. Applications include stochastic choice, choice under risk, decoy effects in marketing, global game models of strategic interaction, and delayed adjustment of prices in response to monetary disturbances.

Beschreibung: I review evidence that individuals associate themselves—or identify—with groups in two fundamental ways: ingroup bias and conformity to group norms. The evidence spans many spheres of economic activity, including consumption, production, hiring, promotion, education, cooperation, financial investments, and law enforcement. Group identities are not fixed, even when it comes to ethnic and religious identities. I argue that the choice of identity can be captured by a simple trade-off between gains from group status and costs to distance from the group. I outline a simple conceptual framework that captures the main empirical regularities and illustrate how it can be used to study the two-way interaction between economic policy and social identity. The analysis implies, e.g., that inequality and immigration of low-skilled workers can strengthen nationalism and reduce redistribution, and that changes in the economic environment can produce shifts in identification patterns that feed into trade policy. Finally, I discuss open theoretical questions and domains where the interaction between identity and economic activity is not well understood. This includes the provision of public services, the evolution of gender norms, and the use of identity to motivate workers.

Beschreibung: How do the Internet and social media affect political outcomes? We review empirical evidence from the recent political economy literature, focusing primarily on work that considers traits that distinguish the Internet and social media from traditional off-line media, such as low barriers to entry and reliance on user-generated content. We discuss the main results about the effects of the Internet in general, and social media in particular, on voting, street protests, attitudes toward government, political polarization, xenophobia, and politicians’ behavior. We also review evidence on the role of social media in the dissemination of fake news, and we summarize results about the strategies employed by autocratic regimes to censor the Internet and to use social media for surveillance and propaganda. We conclude by highlighting open questions about how the Internet and social media shape politics in democracies and autocracies.

Beschreibung: The frictions that restrict migration are among the largest sources of inefficiency in the global economy. The first step in designing policies to address these frictions is to understand the fundamental forces that drive migration. However, the Roy model—the workhorse model of migration in economics—does a poor job of explaining many important features of this phenomenon. This limitation can be rectified by adding migrant networks to the Roy model. A rich qualitative literature in the social sciences has documented the role played by social networks in supporting migrants in their new locations. Economists have advanced this literature by identifying and quantifying the contribution of these networks to migration. Although much progress has been made over the past two decades, important gaps in the literature remain: Migrant assimilation has received little theoretical or empirical attention, and a richer characterization of the social interactions that support these networks is needed to tie research on migration to the economic literature on networks.

Beschreibung: This review uses the empirical analysis of portfolio choice to illustrate econometric issues that arise in decision problems. Subjective expected utility (SEU) can provide normative guidance to an investor making a portfolio choice. The investor, however, may have doubts on the specification of the distribution and may seek a decision theory that is less sensitive to the specification. I consider three such theories: maxmin expected utility, variational preferences (including multiplier and divergence preferences and the associated constraint preferences), and smooth ambiguity preferences. I use a simple two-period model to illustrate their application. Normative empirical work on portfolio choice is mainly in the SEU framework, and bringing in ideas from robust decision theory may be fruitful.

Beschreibung: We survey the recent, fast-growing literature on peer effects in networks. An important recurring theme is that the causal identification of peer effects depends on the structure of the network itself. In the absence of correlated effects, the reflection problem is generally solved by network interactions even in nonlinear, heterogeneous models. By contrast, microfoundations are generally not identified. We discuss and assess the various approaches developed by economists to account for correlated effects and network endogeneity in particular. We classify these approaches in four broad categories: random peers, random shocks, structural endogeneity, and panel data. We review an emerging literature relaxing the assumption that the network is perfectly known. Throughout, we provide a critical reading of the existing literature and identify important gaps and directions for future research.

Beschreibung: Preferences for schools are important determinants of equitable access to high-quality education, effects of expanded choice on school improvement, and school choice mechanism design. Standard methods for estimating consumer preferences are not applicable in education markets because students do not always get their first-choice school. This review describes recently developed methods for using rich data from a school choice mechanism to estimate student preferences. Our objectives are to present a unifying framework for these methods and to help applied researchers decide which techniques to use. After laying out methodological issues, we provide an overview of empirical results obtained using these models and discuss some open questions.

Beschreibung: I review the recent literature that applies search-and-matching theory to the study of over-the-counter financial markets. I formulate and solve a simple model to illustrate the typical assumptions and economic forces at play in existing work. I then offer thematic tours of the literature and, in the process, discuss avenues for future research.

Beschreibung: The analysis of dynamic economic models routinely leads to the mathematical problem of determining an unknown function for which no closed-form solution exists. Economists must then resort to methods of numerical approximation when analyzing such models. Among the computational methods that have been successfully applied in economics and finance, one set of techniques stands out due to its flexibility and robustness: projection methods. In this article, we describe the basic steps of these methods for several different applications, surveying many successful applications of projection methods to dynamic economic models. Importantly, we emphasize that the ever-increasing complexity and dimensionality of dynamic models have made the previously used simpler methods obsolete and the applications of projection methods all but mandatory. We closely examine the most recent endeavors in the literature on solving economic models with projection methods.

Beschreibung: This article reviews recent developments in revealed preference theory. It discusses the testable implications of theories of choice that are germane to specific economic environments. The focus is on expected utility in risky environments, subjected expected utility and maxmin expected utility in the presence of uncertainty, and exponentially discounted utility for intertemporal choice. The testable implications of these theories for data on choice from classical linear budget sets are described and shown to follow a common thread. The theories all imply an inverse relation between prices and quantities, with different qualifications depending on the functional forms in the theory under consideration.

Beschreibung: This article offers a review of the recent empirical literature on lobbying within political economy. In surveying extant research, we emphasize quid pro quo and informational issues in special interest politics and highlight crucial open questions in both. The two main unresolved methodological issues remain ( a) how to account for the impact of lobbying on which equilibrium policies are chosen and advanced and ( b) how distorted those equilibrium policies are relative to the social optimum. Of the principal open questions within political economy, a comprehensive, quantitative assessment of the welfare effects of lobbying remains one of the most elusive.

Beschreibung: This article reviews recent advances in the study of dynamic taxation, considering three main approaches: the dynamic Mirrlees, the parametric Ramsey, and the sufficient statistics approaches. In the first approach, agents’ heterogeneous abilities to earn income are private information and evolve stochastically over time. Dynamic taxes are not restricted ex ante and are set for redistribution and insurance considerations. Capital is taxed only in order to improve incentives to work. Human capital is optimally subsidized if it reduces posttax inequality and risk on balance. The Ramsey approach specifies ex ante restricted tax instruments and adopts quantitative methods, which allow it to consider more complex and realistic economies. Capital taxes are optimal when age-dependent labor income taxes are not possible. The newer and tractable sufficient statistics approach derives robust tax formulas that depend on estimable elasticities and features of the income distributions. It simplifies the transitional dynamics thanks to a newly defined criterion, the utility-based steady-state approach, which prevents the government from exploiting sluggish responses in the short run. Capital taxes are here based on the standard equity-efficiency trade-off.

Beschreibung: This article reviews the econometrics of static games, with a focus on discrete-choice cases. These models have been used to study a rich variety of empirical problems, ranging from labor force participation to entry decisions. We outline the components of a general game and describe the problem of doing robust inference in the presence of multiple solutions, as well as the different econometric approaches that have been applied to tackle this problem. We then describe the specific challenges that arise in different variations of these models depending on whether players are assumed to have complete or incomplete information, as well as whether or not nonequilibrium play is allowed. We describe the results in 2 × 2 games (the most widely studied games in econometrics), and we present extensions and recent results in games with richer action spaces. Areas for future research are also discussed.

Beschreibung: This article reviews recent developments in the literature on marriage markets. A particular emphasis is put on frameworks based either on frictionless matching models with transfers or on search models.

Beschreibung: This review presents an approach to modeling decision making under misspecified subjective models. The approach is based on the idea that decision makers impose subjective causal interpretations on observed correlations, and it borrows basic concepts and tools from the statistics and artificial intelligence literatures on Bayesian networks. While these background literatures used Bayesian networks as a platform for normative and computational analysis of probabilistic and causal inference, in the framework proposed here graphical models represent causal misperceptions and help analyze their behavioral implications. I show how this approach sheds light on earlier equilibrium models with nonrational expectations and demonstrate its scope of economic applications.

Beschreibung: This article addresses the modern optimal tax progressivity literature, which clarifies the key role of the behavioral response to taxation and accounts for the incomes of the superrich being qualitatively different from others. Some of the superrich may be “superstars” for whom small differences in talent are magnified into much larger earnings differences, while others may work in winner-take-all markets, such that their effort to climb the ladder of success reduces the returns to others. We stress that pivotal tax-rate elasticities are not structural parameters and will be smaller the broader and less plastic is the tax base and the more effective is the enforcement of tax evasion. For this reason, normative analysis of tax rates should be accompanied by attention to the tax base, with a special focus on capital gains, which comprise a large fraction of the taxable income of the superrich.

Beschreibung: White adipose tissue (WAT) and brown adipose tissue (BAT) are involved in whole-body energy homeostasis and metabolic regulation. Changes to mass and function of these tissues impact glucose homeostasis and whole-body energy balance during development of obesity, weight loss, and subsequent weight regain. Omega-3 polyunsaturated fatty acids (ω-3 PUFAs), which have known hypotriglyceridemic and cardioprotective effects, can also impact WAT and BAT function. In rodent models, these fatty acids alleviate obesity-associated WAT inflammation, improve energy metabolism, and increase thermogenic markers in BAT. Emerging evidence suggests that ω-3 PUFAs can also modulate gut microbiota impacting WAT function and adiposity. This review discusses molecular mechanisms, implications of these findings, translation to humans, and future work, especially with reference to the potential of these fatty acids in weight loss maintenance.

Beschreibung: ▪ Abstract  Poor people in developing countries endure the burden of disease caused by four common species of soil-transmitted nematode that inhabit the gastrointestinal tract. Disease accompanying these infections is manifested mainly as nutritional disturbance, with the differing infections having their deleterious effects at different phases during the human life cycle. Reduced food intake, impaired digestion, malabsorption, and poor growth rate are frequently observed in children suffering from ascariasis and trichuriasis. Poor iron status and iron deficiency anemia are the hallmarks of hookworm disease. The course and outcome of pregnancy, growth, and development during childhood and the extent of worker productivity are diminished during hookworm disease. Less is known about the impact of these infections in children under 2 years of age. The severity of disease caused by soil-transmitted nematodes has consistently been found to depend on the number of worms present per person. Cost-effective measures based on highly efficacious anthelminthic drugs are now available to reduce and control disease caused by these infections.

Beschreibung: ▪ Abstract  Peroxisome proliferator-activated receptor gamma (PPARγ) is a nuclear receptor involved in the control of metabolism. Research on PPARγ is oriented towards understanding its role in insulin sensitization, which was inspired by the discovery that antidiabetic agents, the thiazolidinediones, were agonists for PPARγ. PPARγ stimulation improves glucose tolerance and insulin sensitivity in type 2 diabetic patients and in animal models of insulin resistance through mechanisms that are incompletely understood. Upon activation, PPARγ heterodimerizes with retinoid X receptor, recruits specific cofactors, and binds to responsive DNA elements, thereby stimulating the transcription of target genes. Because PPARγ is highly enriched in adipose tissue and because of its major role in adipocyte differentiation, it is thought that the effects of PPARγ in adipose tissue are crucial to explain its role in insulin sensitization, but recent studies have highlighted the contribution of other tissues as well. Although relatively potent for their insulin-sensitizing action, currently marketed PPARγ activators have some important undesirable side effects. These concerns led to the discovery of new ligands with potent antidiabetic properties but devoid of certain of these side effects. Data from human genetic studies and from PPARγ heterozygous knockout mice indicate that a reduction in PPARγ activity could paradoxically improve insulin sensitivity. These findings suggest that modulation of PPARγ activity by partial agonists or compounds that affect cofactor recruitment might hold promise for the treatment of insulin resistance.

Beschreibung: Despite the significant risks and uncertainties that farmers in developing and emerging countries face in their production process, efforts at encouraging them to adopt agricultural insurance to mitigate their production risks have mainly yielded little success. This article reviews the recent literature on the demand for agricultural insurance in developing and emerging countries, by presenting the state of uptake, drivers of the demand for it, and the potential welfare gains from it. Our review reveals that while risk aversion is necessary for the demand for agricultural insurance, liquidity constraints, rates of time preference, basis risk, and trust are equally relevant in explaining the demand for insurance in poor countries. An interesting observation is the increasing number of studies that employ randomized control trials to analyze farmers’ uptake of agricultural insurance in developing and emerging countries. Our comprehensive review finds some information gaps in the literature, and we propose some avenues for further research.

Beschreibung: From the perspective of sending countries, international migrants are positively selected in terms of schooling, particularly in low-income countries. While emigration affects human capital accumulation, it also induces positive spin-offs in the form of remittances, incentives to acquire education, and diffusion of technology and democratic ideas. The net income implications for those left behind are uncertain. This article reviews the main transmission channels investigated in the existing literature and uses a standard development accounting framework to provide estimates of their relative strength and of their combined effect. Although skill biased, emigration increases the disposable income of those left behind in no fewer than three-quarters of the countries of the world. This result is robust to variations in the set of parameter values within a reasonable spectrum established in the empirical literature.

Beschreibung: ▪ Abstract  This review examines the discovery of naturally occurring phytochemicals antagonistic toward plant-parasitic and other nematodes. Higher plants have yielded a broad spectrum of active compounds, including polythienyls, isothiocyanates, glucosinolates, cyanogenic glycosides, polyacetylenes, alkaloids, lipids, terpenoids, sesquiterpenoids, diterpenoids, quassinoids, steroids, triterpenoids, simple and complex phenolics, and several other classes. Many other antinematodal compounds have been isolated from biocontrol and other fungi. Natural products active against mammalian parasites can serve as useful sources of compounds for examination of activity against plant parasites. The agricultural utilization of phytochemicals, although currently uneconomic in many situations, offers tremendous potential.

Beschreibung: ▪ Abstract  Agricultural soils suppressive to soilborne plant pathogens occur worldwide, and for several of these soils the biological basis of suppressiveness has been described. Two classical types of suppressiveness are known. General suppression owes its activity to the total microbial biomass in soil and is not transferable between soils. Specific suppression owes its activity to the effects of individual or select groups of microorganisms and is transferable. The microbial basis of specific suppression to four diseases, Fusarium wilts, potato scab, apple replant disease, and take-all, is discussed. One of the best-described examples occurs in take-all decline soils. In Washington State, take-all decline results from the buildup of fluorescent Pseudomonas spp. that produce the antifungal metabolite 2,4-diacetylphloroglucinol. Producers of this metabolite may have a broader role in disease-suppressive soils worldwide. By coupling molecular technologies with traditional approaches used in plant pathology and microbiology, it is possible to dissect the microbial composition and complex interactions in suppressive soils.

Beschreibung: ▪ Abstract  We hypothesize that the evolutionary potential of a pathogen population is reflected in its population genetic structure. Pathogen populations with a high evolutionary potential are more likely to overcome genetic resistance than pathogen populations with a low evolutionary potential. We propose a flexible framework to predict the evolutionary potential of pathogen populations based on analysis of their genetic structure. According to this framework, pathogens that pose the greatest risk of breaking down resistance genes have a mixed reproduction system, a high potential for genotype flow, large effective population sizes, and high mutation rates. The lowest risk pathogens are those with strict asexual reproduction, low potential for gene flow, small effective population sizes, and low mutation rates. We present examples of high-risk and low-risk pathogens. We propose general guidelines for a rational approach to breed durable resistance according to the evolutionary potential of the pathogen.

Beschreibung: Epigenetic mechanisms play fundamental roles in regulating numerous biological processes in various developmental and environmental contexts. Three highly interconnected epigenetic control mechanisms, including small noncoding RNAs, DNA methylation, and histone modifications, contribute to the establishment of plant epigenetic profiles. During the past decade, a growing body of experimental work has revealed the intricate, diverse, and dynamic roles that epigenetic modifications play in plant–nematode interactions. In this review, I summarize recent progress regarding the functions of small RNAs in mediating plant responses to infection by cyst and root-knot nematodes, with a focus on the functions of microRNAs. I also recapitulate recent advances in genome-wide DNA methylation analysis and discuss how cyst nematodes induce extensive and dynamic changes in the plant methylome that impact the transcriptional activity of genes and transposable elements. Finally, the potential role of nematode effector proteins in triggering such epigenome changes is discussed.

Beschreibung: ▪ Abstract  The usefulness of mixtures (multiline cultivars and cultivar mixtures) for disease management has been well demonstrated for rusts and powdery mildews of small grain crops. Such mixtures are more useful under some epidemiological conditions than under others, and experimental methodology, especially problems of scale, may be crucial in evaluating the potential efficacy of mixtures on disease. There are now examples of mixtures providing both low and high degrees of disease control for a wide range of pathosystems, including crops with large plants, and pathogens that demonstrate low host specificity, or are splash dispersed, soilborne, or insect vectored. Though most analyses of pathogen evolution in mixtures consider static costs of virulence to be the main mechanism countering selection for pathogen complexity, many other potential mechanisms need to be investigated. Agronomic and marketing considerations must be carefully evaluated when implementing mixture approaches to crop management. Practical difficulties associated with mixtures have often been overestimated, however, and mixtures will likely play an increasingly important role as we develop more sustainable agricultural systems.

Beschreibung: ▪ Abstract  Losses from postharvest fruit diseases range from 1 to 20 percent in the United States, depending on the commodity. The application of fungicides to fruits after harvest to reduce decay has been increasingly curtailed by the development of pathogen resistance to many key fungicides, the lack of replacement fungicides, negative public perception regarding the safety of pesticides and consequent restrictions on fungicide use. Biological control of postharvest diseases (BCPD) has emerged as an effective alternative. Because wound-invading necrotrophic pathogens are vulnerable to biocontrol, antagonists can be applied directly to the targeted area (fruit wounds), and a single application using existing delivery systems (drenches, line sprayers, on-line dips) can significantly reduce fruit decays. The pioneering biocontrol products BioSave and Aspire were registered by EPA in 1995 for control of postharvest rots of pome and citrus fruit, respectively, and are commercially available. The limitations of these biocontrol products can be addressed by enhancing biocontrol through manipulation of the environment, using mixtures of beneficial organisms, physiological and genetic enhancement of the biocontrol mechanisms, manipulation of formulations, and integration of biocontrol with other alternative methods that alone do not provide adequate protection but in combination with biocontrol provide additive or synergistic effects.

Beschreibung: Land plants host a vast and diverse virome that is dominated by RNA viruses, with major additional contributions from reverse-transcribing and single-stranded (ss) DNA viruses. Here, we introduce the recently adopted comprehensive taxonomy of viruses based on phylogenomic analyses, as applied to the plant virome. We further trace the evolutionary ancestry of distinct plant virus lineages to primordial genetic mobile elements. We discuss the growing evidence of the pivotal role of horizontal virus transfer from invertebrates to plants during the terrestrialization of these organisms, which was enabled by the evolution of close ecological associations between these diverse organisms. It is our hope that the emerging big picture of the formation and global architecture of the plant virome will be of broad interest to plant biologists and virologists alike and will stimulate ever deeper inquiry into the fascinating field of virus–plant coevolution.