{"title":"Alternatives to Bayesian Updating","authors":"Pietro Ortoleva","doi":"10.1146/annurev-economics-100223-050352","DOIUrl":"https://doi.org/10.1146/annurev-economics-100223-050352","url":null,"abstract":"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 prior probabilities they initially used. We then consider non-Bayesian behavior resulting from the optimal response to constraints on perception, cognition, or memory, as well as models based on motivated beliefs or distance minimization. Finally, we briefly discuss models of updating after zero probability events.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":5.6,"publicationDate":"2024-06-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141363640","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
David R. Agrawal, Jan K. Brueckner, Marius Brülhart
{"title":"Fiscal Federalism in the Twenty-First Century","authors":"David R. Agrawal, Jan K. Brueckner, Marius Brülhart","doi":"10.1146/annurev-economics-081623-020713","DOIUrl":"https://doi.org/10.1146/annurev-economics-081623-020713","url":null,"abstract":"Fiscal federalism concerns the division of policy responsibilities among different levels of government. Many current economic and policy developments, such as globalization, environmental crises, and rising inequality, may not appear to be favorable to fiscal federalism, yet countries are further decentralizing their fiscal systems. We summarize the efficiency and equity aspects of fiscal decentralization, fiscal competition, fiscal externalities, and intergovernmental grants. The review introduces readers to theoretical reasons for/against a federalist structure. We discuss how federalism relates to classic problems in economics: externalities, inequality, spillovers, information, and aspects of political economy. Our review integrates both theory and empirics, while also focusing on the variety of federal systems in different countries, both developing and developed. We conclude by discussing how fiscal federalism is being shaped by economic, technological, and environmental changes, while discussing the effects of globalization, polarization, and global crises on the future of federal systems.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":5.6,"publicationDate":"2024-05-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141121312","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Modern Industrial Policy and the World Trade Organization","authors":"Chad P. Bown","doi":"10.1146/annurev-economics-100223-041958","DOIUrl":"https://doi.org/10.1146/annurev-economics-100223-041958","url":null,"abstract":"This article surveys the economics of industrial policy as it relates to the World Trade Organization (WTO). Motivated by concern that the modern use of industrial policy is emerging in ways that threaten cooperation in the international trading system, the article begins with the basic historical economic framework for tying industrial policy to underlying market failures. It then introduces the dominant economic understanding of the role played by the WTO, examining the WTO's rules on subsidies (and thus industrial policy), the unease with the evolution of the trading system's subsidy rules, gaps in knowledge, and important data and measurement shortcomings. The main part of the article examines four areas in which modern industrial policy operates differently and has become especially important for the trading system: China, supply chain resilience, supply chain responsiveness, and climate change. The article identifies the evidence to date, open questions, and potential paths forward for economic research to help inform policymakers’ efforts to restore international economic cooperation in trade and industrial policy.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":5.6,"publicationDate":"2024-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141025065","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Experiments About Institutions","authors":"Michael Callen, Jonathan L. Weigel, Noam Yuchtman","doi":"10.1146/annurev-economics-091823-031317","DOIUrl":"https://doi.org/10.1146/annurev-economics-091823-031317","url":null,"abstract":"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 coordination and thus the process of institutional change; and an inability to conduct experiments to identify causal effects. We argue that critical junctures are identifiable in real time as moments of deep uncertainty about future institutions. Consistent with this conception, the papers reviewed (a) examine changes to institutions, i.e., the fundamental rules of the game; (b) are real-time studies of plausible critical junctures; and (c) use field experiments to achieve causal identification. We also advocate for more systematic measurement of beliefs about future institutions to identify critical junctures as they happen and provide an empirical proof of concept. Such work is urgent given contemporary critical junctures arising from democratic backsliding, state fragility, climate change, and conflicts over the rights of the marginalized.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":5.6,"publicationDate":"2024-04-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"140653682","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Global Risk, Non-Bank Financial Intermediation, and Emerging Market Vulnerabilities","authors":"Anusha Chari","doi":"10.1146/annurev-economics-082222-074901","DOIUrl":"https://doi.org/10.1146/annurev-economics-082222-074901","url":null,"abstract":"Over the last two decades, the unprecedented increase in non-bank financial intermediation, particularly the rise of open-end mutual funds and exchange-traded funds, accounts for nearly half of the external financing flows to emerging markets, exceeding cross-border lending by global banks. Evidence suggests that investment fund flows enhance risk sharing across borders and provide emerging markets access to more diverse forms of financing. However, a growing body of evidence also indicates that investment funds are inherently more vulnerable to liquidity and redemption risks during periods of global financial market stress, increasing the volatility of capital flows to emerging markets. Benchmark-driven investments, namely passive funds, appear particularly sensitive to global risk shocks, such as tightening US dollar funding conditions, compared to their active fund counterparts. The procyclicality of investment fund flows to emerging markets during times of global stress poses financial stability concerns, with implications for the role of macroprudential policy.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134989496","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Micro Propagation and Macro Aggregation","authors":"David Baqaee, Elisa Rubbo","doi":"10.1146/annurev-economics-082322-012833","DOIUrl":"https://doi.org/10.1146/annurev-economics-082322-012833","url":null,"abstract":"This article reviews a framework for studying the aggregation and propagation of microeconomic shocks in general equilibrium. We discuss the determinants of aggregate measures of real economic activity, like real GDP, real domestic absorption, and aggregate productivity in both efficient and inefficient environments. We also discuss how shocks from one set of producers are transmitted to other producers through prices and quantities. The framework we provide is amenable to generalization and can be used to study any collection of producers ranging from one isolated producer to an industry consisting of heterogeneous producers to an entire economy. We conclude with a brief survey of some of the applied questions that can be addressed using the analytical tools presented in this review and avenues for future work.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134989781","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Non-CES Aggregators: A Guided Tour","authors":"Kiminori Matsuyama","doi":"10.1146/annurev-economics-082322-013910","DOIUrl":"https://doi.org/10.1146/annurev-economics-082322-013910","url":null,"abstract":"The constant-elasticity-of-substitution (CES) aggregator and its demand system are ubiquitous in business cycles theory, macroeconomic growth and development, international trade and other general equilibrium fields; this is because the CES aggregator has many knife-edge properties that help to keep the analysis tractable in the presence of many goods and factors. However, this also makes it hard to tell which properties of CES are responsible for certain results. Furthermore, it is necessary to relax some of those properties for certain applications. In this article, I review several classes of non-CES aggregators, each of which removes some properties of CES and keeps the rest to introduce some flexibility while retaining the tractability of CES as much as possible. These classes are named after the properties of CES they keep. I explain how these classes are related to each other and discuss their relative strengths and weaknesses to indicate which classes are suited for which applications.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135734536","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Lessons from US–China Trade Relations","authors":"Lorenzo Caliendo, Fernando Parro","doi":"10.1146/annurev-economics-082222-082019","DOIUrl":"https://doi.org/10.1146/annurev-economics-082222-082019","url":null,"abstract":"We review theoretical and empirical work on the economic effects of the United States and China trade relations during the past 20 years. We first discuss the origins of the China shock and its measurement and present methods used to study its economic effects on different outcomes. We then focus on the recent US–China trade war. We review methods used to evaluate its effects, describe its economic effects, and analyze whether this increase in trade protectionism reverted the effects of the China shock. The main lessons learned in this review are that ( a) the aggregate gains from US–China trade created winners and losers; ( b) China's trade expansion seems not to be the main cause of the decline in US manufacturing employment during the same period; and ( c) the recent trade war generated welfare losses, had small employment effects, and was ineffective in reversing the distributional effects due to the China shock.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134989495","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Cognitive Limitations: Failures of Contingent Thinking","authors":"Muriel Niederle, Emanuel Vespa","doi":"10.1146/annurev-economics-091622-124733","DOIUrl":"https://doi.org/10.1146/annurev-economics-091622-124733","url":null,"abstract":"In recent years, experiments have documented a new mechanism that leads to failures of profit maximization: the failure of contingent thinking (FCT). This article summarizes key experimental findings, clarifies what constitutes an FCT, and outlines how FCTs can be tested in other environments. Subsequently, we relate FCTs to recent theoretical work on cognitive limitations in behavioral economics. Finally, we connect FCTs to suboptimal behavior documented in applied environments.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134990409","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Advances in the Economic Theory of Cultural Transmission","authors":"Alberto Bisin, Thierry Verdier","doi":"10.1146/annurev-economics-090622-100258","DOIUrl":"https://doi.org/10.1146/annurev-economics-090622-100258","url":null,"abstract":"In this article we survey recent advances in the economic theory of cultural transmission. We highlight three main themes on which the literature has made great progress in the last 10 years: the domain of traits subject to cultural transmission; the microfoundations for the technology of transmission; and feedback effects between culture, institutions, and various socioeconomic environments. We conclude by suggesting interesting areas for future research.","PeriodicalId":47891,"journal":{"name":"Annual Review of Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134990406","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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