Recent NBER Reports

Of interest:

• Coarse Thinking and Persuasion
• The Political Economy of Warfare
• What Do Trade Negotiators Negotiate About? Empirical Evidence
• The "Stern Review" on the Economics of Climate Change

Coarse Thinking and Persuasion
by Sendhil Mullainathan, Joshua Schwartzstein, Andrei Shleifer

Abstract: We present a model of coarse thinking, in which individuals group situations into categories, and transfer the informational content of a given message from situations in a category where it is useful to those where it is not.  The model explains how uninformative messagescan be persuasive, particularly in low involvement situations, and how objectively informative messages can be dropped by the persuader w ithout the audience assuming the worst. The model sheds light on product branding, the structure of product attributes, and several puzzling aspects of mutual fund advertising.

The Political Economy of Warfare
by Edward L. Glaeser

Abstract: Warfare is enormously destructive, and yet countries regularly initiate armed conflict against one another.  Even more surprisingly, wars are often quite popular with citizens who stand to gain little materially and may lose much more.   This paper presents a model of warfare as the result of domestic political calculations.  When incumbents have an edge in fighting wars, they may start wars even if those wars run counter to their country's interests.  Challengers are particularly likely to urge aggression when they are unlikely to come into power and when the gains from coming to power are large. Leaders who start wars will naturally try to create hatred by emphasizing the threat and despicable character of the rival country.  Wars will be more common in dictatorships than in democracies both because dictators have stronger incentives to stay in power and because they have greater control over the media.

What Do Trade Negotiators Negotiate About? Empirical Evidence from the World Trade Organization
by Kyle Bagwell, Robert W. Staiger

Abstract: What do trade negotiators negotiate about? There are two distinct theoretical approaches in the economics literature that offer an answer to this question:  the terms-of-trade theory and the commitment theory.  The terms-of-trade theory holds that trade agreements are useful to governments as a means of helping them escape from a terms-of-trade-driven Prisoners' Dilemma.  The commitment theory holds that trade agreements are useful to governments as a means of helping them make commitments to the private sector.  These theories are not mutually exclusive, but there is little direct evidence on the empirical relevance of either.  We attempt to investigate empirically the purpose served by market access commitments negotiated in the World Trade Organization.  We find broad support for the terms-of-trade theory in the data.  We claim more tentatively to find support in the data for the commitment theory as well.

The "Stern Review" on the Economics of Climate Change
by William D. Nordhaus

Abstract: How much and how fast should the globe reduce greenhouse-gas emissions? How should nations balance the costs of the reductions against the damages and dangers of climate change? This question has been addressed by the recent "Stern Review on the Economics of Climate Change," which answers these questions clearly and unambiguously.  We need urgent, sharp, and immediate reductions in greenhouse-gas emissions.  An analysis of the "Stern Review" finds that these recommendations depend decisively on the assumption of a near-zero social discount rate.  The Review's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of discounting assumptions that are consistent with today's market place.