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Abstract:
This paper examines the labor market for mutual fund managers and managers' responses to the implicit incentives created by their career concerns. We find that managerial turnover is sensitie to a fund's recent performance. Consistent with the hypothesis that fund companies are learning about managers' abilities, managerial turnover is more performance-sensitive for younger fund managers. Interpreting the separation-performance relationship as an incentive scheme, several of our results suggest that a desire to avoid separation may induce managers at different stages of their careers to behave differently. Younger fund managers appear to be given less discretion in the management of their funds; i.e. they are more likely to lose their jobs if their fund's beta or unsystematic risk level deviates from the mean for their fund's objective group. We also show that the shape of the job separation-performance relationship may provide an incentive for young mutual fund managers to be risk averse in selecting their fund's portfolio. Consistent with these implicit labor market incentives, younger fund managers do take on lower unsystematic risk and deviate less from typical behavior than their older counterparts. Finally, additional results on the flow of investments into mutual funds suggest that rather than just being due to a screening process, firing decisions may also be influenced by a desire to stimulate inflows of investment into the fund.

Abstract:
We examine the labor market for mutual fund managers. Using data from 1992-1994, we find that "termination" is more performance-sensitive for younger managers. We identify possible implicit incentives created by the termination-performance relationship. The shape of the termination-performance relationship may give younger managers an incentive to avoid unsystematic risk. Direct effects of portfolio composition may also give younger managers an incentive to "herd" into popular sectors. Consistent with these incentives, we find that younger managers hold less unsystematic risk and have more conventional portfolios. Promotion incentives and market responses to managerial turnover are also studied.

Abstract:
We examine the competition between a group of Internet retailers that operate in an environment where a price search engine plays a dominant role. We show that for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation - practices that frustrate consumer search or make it less damaging to firms - resulting in much less price sensitivity on some other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically. Observed markups are adequate to allow efficient online retailers to survive.

search, obfuscation, Internet, retail, search engines, loss leaders, add-on pricing, website design, demand elasticities, frictionless commerce

Abstract:
We examine the competition between a group of Internet retailers that operate in an environment where a price search engine plays a dominant role. We show that, for some products in this environment, the easy price search makes demand tremendously price-sensitive. Retailers, though, engage in obfuscation - practices that frustrate consumer search or make it less damaging to firms - resulting in much less price sensitivity on other products. We discuss several models of obfuscation and examine its effects on demand and markups empirically. Observed markups are adequate to allow efficient online retailers to survive.

Abstract:
Many industries are geographically concentrated. Many mechanisms that could account for such agglomeration have been proposed. We note that these theories make different predictions about which pairs of industries should be coagglomerated. We discuss the measurement of coagglomeration and use data from the Census Bureau's Longitudinal Research Database from 1972 to 1997 to compute pairwise coagglomeration measurements for U.S. manufacturing industries. Industry attributes are used to construct measures of the relevance of each of Marshall's three theories of industry agglomeration to each industry pair: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. We assess the importance of the theories via regressions of coagglomeration indices on these measures. Data on characteristics of corresponding industries in the United Kingdom are used as instruments. We find evidence to support each mechanism. Our results suggest that input-output dependencies are the most important factor, followed by labor pooling.

Abstract:
Over the last three decades there has been a dramatic slowdown of the publication process at top economics journals. A substantial part is due to journals' requiring more extensive revisions. Various explanations are considered: democratization of the review process, increases in the complexity of papers, growth of the profession, and cost and benefit arguments. Changes in the profession are examined using time-series data. Connections between these changes and the slowdown are examined using paper-level data. There is evidence for some explanations, but most of the slowdown remains unexplained. Changes may reflect evolving social norms.

Abstract:
Over the last three decades there has been a dramatic increase in the length of time necessary to publish a paper in a top economics journal. This paper documents the slowdown and notes that a substantial part is due to an increasing tendency of journals to require that papers be extensively revised prior to acceptance. A variety of potential explanations for the slowdown are considered: simple cost and benefit arguments; a democratization of the publishing process; increases in the complexity of papers; the growth of the profession; and an evolution of preferences for different aspects of paper quality. Various time series are examined for evidence that the economics profession has changed along these dimensions. Paper-level data on review times is used to assess connections between underlying changes in the profession and changes in the review process. It is difficult to attribute much of the slowdown to observable changes in the economics profession. Evolving social norms may play a role.

Economics Journals, Slowdown, Economics Profession, Specialization, Revisions

Abstract:
This paper develops models of quality standards to examine two trends: academic journals increasingly require extensive revisions of submissions; and articles are becoming longer and changing in other ways. Papers are modeled as varying along two quality dimensions: q reflects the importance of the main ideas and r other aspects of quality. Observed trends are regarded as increases in r-quality. A static equilibrium model illustrates comparative statics explanations. A dynamic model in which referees (with a biased view of their own work) learn social norms for weighting q and r is shown to produce a long, gradual evolution of social norms.

Abstract:
This paper develops a model of evolving standards for academic publishing. It is motivated by the increasing tendency of academic journals to require multiple revisions of articles and by changes in the content of articles. Papers are modeled as varying along two quality dimensions: q and r. The former represents the clarity and importance of a paper's main ideas and the latter its craftsmanship and polish. Observed trends are regarded as increases in r-quality. A static equilibrium model in which an arbitrary social norm determines how q and r are weighted is developed and used to discuss comparative statics explanations for increases in r. The paper then analyzes a learning model in which referees (who have a biased view of the importance of their own work) try to learn the social norm from observing how their own papers are treated and the decisions editors make on papers they referee. The model predicts that social norms will gradually but steadily evolve to increasingly emphasize r-quality.

Academic publishing, journals, social norms, evolution, standards, overconfidence, quality

Abstract:
Data on sales of memory modules are used to explore several aspects of e-retail demand. There is a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from online retailers. This suggests that there is substantial substitution between online and online retail, and tax avoidance may be an important contributor to e-retail activity. Geography matters in two ways: we find some evidence that consumers prefer purchasing from firms in nearby states to benefit from faster shipping times as well as evidence of a separate preference for buying from in-state firms. Consumers appear fairly rational in some ways, but boundedly rational in others.

Abstract:
Data on sales of memory modules are used to explore several aspects of e-retail demand. There is a strong relationship between e-retail sales to a given state and sales tax rates that apply to purchases from offline retailers. This suggests that there is substantial substitution between online and offline retail and tax avoidance may be an important contributor to e-retail activity. Geography matters in two ways: we find some evidence that consumers prefer purchasing from firms in nearby states to benefit from faster shipping times as well as evidence of a separate preference for buying from in-state firms. Consumers appear fairly rational in some ways, but boundedly rational in others.

Ecommerce, internet taxation, discrete choice analysis

Abstract:
This paper studies the conditions under which two competing and otherwise identical markets or auction sites of different sizes can coexist in equilibrium, without the larger one attracting all of the smaller one's patrons. We find that the range of equilibrium market sizes depends on the aggregate buyer-seller ratio, and also whether the markets are especially "thin."

Abstract:
This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's [1991b] model of labor market pooling, a heterogeneous-agent version of Pagano's [1989] asset market model, and Ellison, Fudenberg and Moebius's [2002] model of competing auctions.

Tipping, Agglomeration, Two-sided Markets, Network Externalities, Increasing Returns

Abstract:
Consider a model of location choice by two sorts of agents, called buyers and sellers: In the first period agents simultaneously choose between two identical possible locations; following this, the agents at each location play some sort of game with the other agents there. Buyers prefer locations with fewer other buyers and more sellers, and sellers have the reverse preferences. We study the set of possible equilibrium sizes for the two markets, and show that two markets of very different sizes can co-exist even if larger markets are more efficient. This extends the analysis of Ellison and Fudenberg [3] (EF), who ignored the constraint that the number of agents of each type in each market should be an integer, and instead analyzed the quasi-equilibria where agents are treated as infinitely divisible.

Abstract:
In this paper we explore cross-sectional differences in the behavior and performance of mutual fund managers. In our simplest regression of a fund's market excess return on characteristics of its manager we find that younger managers earn much higher returns than older managers and that managers who attended colleges with higher average SAT scores earn much higher returns than do managers from less selective institutions. These differences appear to derive both from systematic differences in expense ratios and risk-taking behavior and from additional systematic differences in performance managers from higher SAT schools have higher risk-adjusted excess returns. Managers with the paper also presents a preliminary look at the labor market for mutual fund managers. Our data suggest that managerial turnover is more performance sensitive for younger managers

Abstract:
This paper develops a new approach to testing for strategic entry deterrence and applies it to the behavior of pharmaceutical incumbents just before they lose patent protection. The approach involves looking at a cross-section of markets and examining whether behavior is nonmonotonic in the size of the market. Under certain conditions, investment levels will be monotone in market size if firms are not influenced by a desire to deter entry. Strategic investments, however, may be nonmonotone because entry deterrence is unnecessary in very small markets and impossible in very large ones, resulting in overall nonmonotonic investment. The pharmaceutical data contain advertising, product proliferation, and pricing information for a sample of drugs which lost patent protection between 1986 and 1992. Among the findings consistent with an entry deterrence motivation are that incumbents in markets of intermediate size have lower levels of advertising and are more likely to reduce advertising immediately prior to patent expiration.

Abstract:
This paper examines the agency conflict between mutual fund investors and mutual fund companies. Investors would like the fund company to use its judgement to maximize risk-adjusted fund returns. A fund company, however, in its desire to maximize its value as a concern has an incentive to take actions which increase the inflow of investment. We use a semiparametric model to estimate the shape of the flow-performance relationship for a sample of growth and growth and income funds observed over the 1982-1992 period. The shape of the flow-performance relationship creates incentives for fund managers to increase or decrease the riskiness of the fund which are dependent on the fund's year-to-date return. Using a new dataset of mutual fund portfolios which includes equity portfolio holdings for September and December of the same year, we show that mutual funds do alter their portfolio riskiness between September and December in a manner consistent with these risk incentives.

Abstract:
This paper examines the agency conflict between mutual fund investors and mutual fund companies. Investors would like the fund company to use its judgment to maximize risk- adjusted fund returns. A fund company, however, in its desire to maximize its value as a concern has an incentive to take actions which increase the inflow of investment. We use a semiparametric model to estimate the shape of the flow-performance relationship for a sample of growth and growth and income funds observed over the 1982-1992 period. The shape of the flow-performance relationship creates incentives for fund managers to increase or decrease the riskiness of the fund which are dependent on the fund's year-to-date return. Using a new data set of mutual fund portfolios which includes equity portfolio holdings for September and December of the same year, we show that mutual funds do alter their portfolio riskiness between September and December in a manner consistent with these risk incentives.

Abstract:
This paper studies the effect of randomness in per-period matching on the long-run outcome of non-equilibrium adaptive processes. If there are many matchings between each strategy revision, the randomness due to matching will be small; our question is when a very small noise due to matching has a negligible effect. We study two different senses of this idea, and provide sufficient conditions for each. The less demanding sense corresponds to sending the matching noise to zero while holding fixed all other aspects of the adaptive process. The second sense in which matching noise can be negligible is that it doesn't alter the limit distribution obtained as the limit of the invariant distributions as an exogeneous "mutation rate" goes to zero. When applied to a model with mutations, the difference between these two senses is in the order of limits: the first sense asks for continuity of e.g. the ergodic distribution in the matching noise holding the mutation rate fixed, whereas the second sense asks for continuity of the limit distribution in the matching noise.

Abstract:
Many industries are geographically concentrated. Many mechanisms that could account for such agglomeration have been proposed. We note that these theories make different predictions about which pairs of industries should be coagglomerated. We discuss the measurement of coagglomeration and use data from the Census Bureau's Longitudinal Research Database from 1972 to 1997 to compute pairwise coagglomeration measurements for U.S. manufacturing industries. Industry attributes are used to construct measures of the relevance of each of Marshall's three theories of industry agglomeration to each industry pair: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. We assess the importance of the theories via regressions of coagglomeration indices on these measures. Data on characteristics of corresponding industries in the United Kingdom are used as instruments. We find evidence to support each mechanism. Our results suggest that input-output dependencies are the most important factor, followed by labor pooling.

Abstract:
This paper discusses the prevalence of Silicon Valley-style localizations of individual manufacturing industries in the United States. Several models in which firms choose locations by throwing darts at a map are used to test whether the degree of localization is greater than would be expected to arise randomly and to motivate a new index of geographic concentration. The proposed index controls for differences in the size distribution of plants and for differences in the size of the geographic areas for which data is available. As a consequence, comparisons of the degree of geographic concentration across industries can be made with more confidence. We reaffirm previous observations in finding that almost all industries are localized, although the degree of localization appears to be slight in about half of the industries in our sample. We explore the nature of agglomerative forces in describing patterns of concentration, the geographic scope of localization, and the extent to which agglomerations involve plants in similar as opposed to identical industries.

Abstract:
The degree of geographic concentration of individual manufacturing industries in the U.S. has declined only slightly in the last twenty years. At the same time, new plant births, plant expansions, contractions and closures have shifted large quantities of employment across plants, firms, and locations. This paper uses data from the Census Bureau's Longitudinal Research Database to examine how relatively stable levels of geographic concentration emerge from this dynamic process. While industries' agglomeration levels tend to remain fairly constant, we find that there is greater variation in the locations of these agglomerations. We then decompose aggregate concentration changes into portions attributable to plant births, expansions, contractions, and closures, and find that the location choices of new firms and differences in growth rates have played the most significant role in reducing levels of geographic concentration, while plant closures have tended to reinforce agglomeration. Finally, we look at coagglomeration patterns to test three of Marshall's theories of industry agglomeration: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. While there is some truth behind all three theories, we find that industrial location is far more driven by labor mix than by any of the other explanatory variables.

Abstract:
This paper examines a competitive model of add-on pricing, the practice of advertising low prices for one good in hopes of selling additional products (or a higher quality product) to consumers at a high price at the point of sale. The main conclusion is that add-on pricing softens price competition between firms and results in higher equilibrium profits.

Abstract:
Over the past decade there has been a decline in the fraction of papers in top economics journals written by economists from the highest-ranked economics departments. This paper documents this fact and uses additional data on publications and citations to assess various potential explanations. Several observations are consistent with the hypothesis that the Internet improves the ability of high-profile authors to disseminate their research without going through the traditional peer-review process.

Abstract:
This paper studies whether agents must agglomerate at a single location in a class of models of two-sided interaction. In these models there is an increasing returns effect that favors agglomeration, but also a crowding or market-impact effect that makes agents prefer to be in a market with fewer agents of their own type. We show that such models do not tip in the way the term is commonly used. Instead, they have a broad plateau of equilibria with two active markets, and tipping occurs only when one market is below a critical size threshold. Our assumptions are fairly weak, and are satisfied in Krugman's [1991b] model of labor market pooling, a heterogeneous-agent version of Pagano's [1989] asset market model, and Ellison, Fudenberg and Moebius's [2002] model of competing auctions.

Abstract:
This paper presents a simple framework for testing the specification of parametric conditional means. The test statistics are based on quadratic forms in the residuals of the null model. Under general assumptions the test statistics are asymptotically normal under the null. With an appropriate choice of the weight matrix, the tests are shown to be consistent and to have good local power. Specific implementations involving matrices of bin and kernel weights are discussed. Finite sample properties are explored in simulations and an application to some parametric models of gasoline demand is presented.

Abstract:
This paper uses a new data source, American Mathematics Competitions, to examine the gender gap among high school students at very high achievement levels. The data bring out several new facts. There is a large gender gap that widens dramatically at percentiles above those that can be examined using standard data sources. An analysis of unobserved heterogeneity indicates that there is only moderate variation in the gender gap across schools. The highest achieving girls in the U.S. are concentrated in a very small set of elite schools, suggesting that almost all girls with the ability to reach high math achievement levels are not doing so.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
This paper develops search-theoretic models in which it is individually rational for firms to engage in obfuscation. It considers oligopoly competition between firms selling a homogeneous good to a population of rational consumers who incur search costs to learn each firm's price. Search costs are endogenized: obfuscation is equated with unobservable actions that make it more time-consuming to inspect a product and learn its price. We note two mechanisms by which obfuscation can affect consumer beliefs about future search costs: a direct effect that applies when search costs are convex in time spent searching and a signal-jamming effect that applies when an informational link is present. As long as obfuscation is costless for firms, the presence of either of these mechanisms guarantees that obfuscation must occur in equilibrium, unless consumer search costs are already so high that consumers are willing to purchase at the highest equilibrium price in the absence of obfuscation. Changes in consumer search costs are at least partially offset by changes in the equilibrium level of obfuscation, raising doubts about whether reductions in consumer search costs must make markets more competitive. We also examine patterns of obfuscation and show that higher markups are usually associated with more obfuscation.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
This paper examines a model in which advertisers bid for sponsored-link positions on a search engine. The value advertisers derive from each position is endogenized as coming from sales to a population of consumers who make rational inferences about firm qualities and search optimally. Consumer search strategies, equilibrium bidding, and the welfare benefits of position auctions are analyzed. Implications for reserve prices and a number of other auction design questions are discussed.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract:
The paper examines the behaviour of ?evolutionary? models with epsilon-noise like those which have been used recently to discuss the evolution of social conventions. The paper is built around two main observations: that the?long run stochastic stability? of a convention is related to the speed with which evolution toward and away from the convention occurs,and that evolution is more rapid (and hence more powerful) when it may proceed via a series of small steps between intermediate steady states. The formal analysis uses two new measures, the radius and modified coradius, to characterize the long run stochastically stable set of an evolutionary model and to bound the speed with which evolutionary change occurs. Though notuniversally powerful, the result can be used to make many previous analyses more transparent and extends them by providing results on waiting times. A number of applications are also discussed. The selection of the risk dominant equilibrium in 2?2 games is generalized to the selection of?-dominant equilibria in arbitrary games. Other applications involve two-dimensional local interaction and cycles as long run stochastically stable sets.

Abstract:
The paper provides a general analysis of the types of models with e-perturbations which have been used recently to discuss the evolution of social conventions. Two new measures of the size and structure of the basins of attraction of dynamic systems, the radius and coradius, are introduced in order to bound the speed with which evolution occurs. The main theorem uses these measures to provide a chacterization useful for determining long-run equilibria and rates of convergence. Evolutionary forces are most powerful when evolution may proceed via small steps through a series of intermediate steady states. A number of applications are discussed. The selection of the risk dominant equilibrium in 2x2 games is generalized to the seldction of 1/2-dominant equilibria in arbitrary games. Other applications involve two-dimensional local interaction and cycles as long-run equilibria.