Books

Solving the world’s biggest problems—from climate catastrophe and pandemics to wildfires and corporate malfeasance—requires, more than anything else, coming up with new ways to manage the powerful interactions that surround us. For carbon emissions and other environmental damage, this means ensuring that those responsible pay their full costs rather than continuing to pass them along to others, including future generations. In The Spirit of Green, Nobel Prize–winning economist William Nordhaus describes a new way of green thinking that would help us overcome our biggest challenges without sacrificing economic prosperity, in large part by accounting for the spillover costs of economic collisions.

In a discussion that ranges from the history of the environmental movement to the Green New Deal, Nordhaus explains how the spirit of green thinking provides a compelling and hopeful new perspective on modern life. At the heart of green thinking is a recognition that the globalized world is shaped not by isolated individuals but rather by innumerable interactions inside and outside the economy. He shows how rethinking economic efficiency, sustainability, politics, profits, taxes, individual ethics, corporate social responsibility, finance, and more would improve the effectiveness and equity of our society. And he offers specific solutions—on how to price carbon, how to pursue low-carbon technologies, how to design an efficient tax system, and how to foster international cooperation through climate clubs.

The result is a groundbreaking new vision of how we can have our environment and our economy too.

Financial econometrics brings financial theory and econometric methods together with the power of data to advance understanding of the global financial universe upon which all modern economies depend. Financial Econometric Modeling is an introductory text that meets the learning challenge of integrating theory, measurement, data, and software to understand the modern world of finance. Empirical applications with financial data play a central position in this book’s exposition. Each chapter is a how-to guide that takes readers from ideas and theories through to the practical realities of modeling, interpreting, and forecasting financial data. The book reaches out to a wide audience of students, applied researchers, and industry practitioners, guiding readers of diverse backgrounds on the models, methods, and empirical practice of modern financial econometrics.

Financial Econometric Modeling delivers a self-contained first course in financial econometrics, providing foundational ideas from financial theory and relevant econometric technique. From this foundation, the book covers a vast arena of modern financial econometrics that opens up empirical applications with data of the many different types that are now generated in financial markets. Every chapter follows the same principle ensuring that all results reported in the book may be reproduced using standard econometric software packages such as Stata or EViews, with a full set of data and programs provided to ensure easy implementation.

In a world in which internet troll farms attempt to influence foreign elections, can we afford to ignore the power of viral stories to affect economies? In this groundbreaking book, Nobel Prize winning economist and New York Times bestselling author Robert Shiller offers a new way to think about the economy and economic change.

Using a rich array of historical examples and data, Shiller argues that studying popular stories that affect individual and collective economic behavior, what he calls “narrative economics” has the potential to vastly improve our ability to predict, prepare for, and lessen the damage of financial crises, recessions, depressions, and other major economic events.

Spread through the public in the form of popular stories, ideas can go viral and move markets, whether it’s the belief that tech stocks can only go up, that housing prices never fall, or that some firms are too big to fail. Whether true or false, stories like these, transmitted by word of mouth, by the news media, and increasingly by social media, drive the economy by driving our decisions about how and where to invest, how much to spend and save, and more. But despite the obvious importance of such stories, most economists have paid little attention to them. Narrative Economics sets out to change that by laying the foundation for a way of understanding how stories help propel economic events that have had led to war, mass unemployment, and increased inequality. The stories people tell, about economic confidence or panic, housing booms, the American dream, or Bitcoin, affect economic outcomes. Narrative Economics explains how we can begin to take these stories seriously.

An international and historical look at how parenting choices change in the face of economic inequality.

Parents everywhere want their children to be happy and do well. Yet how parents seek to achieve this ambition varies enormously. For instance, American and Chinese parents are increasingly authoritative and authoritarian, whereas Scandinavian parents tend to be more permissive. Why? Love, Money, and Parenting investigates how economic forces and growing inequality shape how parents raise their children. From medieval times to the present, and from the United States, the United Kingdom, Germany, Italy, Spain, and Sweden to China and Japan, Matthias Doepke and Fabrizio Zilibotti look at how economic incentives and constraints—such as money, knowledge, and time—influence parenting practices and what is considered good parenting in different countries.

Through personal anecdotes and original research, Doepke and Zilibotti show that in countries with increasing economic inequality, such as the United States, parents push harder to ensure their children have a path to security and success. Economics has transformed the hands-off parenting of the 1960s and ’70s into a frantic, overscheduled activity. Growing inequality has also resulted in an increasing “parenting gap” between richer and poorer families, raising the disturbing prospect of diminished social mobility and fewer opportunities for children from disadvantaged backgrounds. In nations with less economic inequality, such as Sweden, the stakes are less high, and social mobility is not under threat. Doepke and Zilibotti discuss how investments in early childhood development and the design of education systems factor into the parenting equation, and how economics can help shape policies that will contribute to the ideal of equal opportunity for all.

Love, Money, and Parenting presents an engrossing look at the economics of the family in the modern world.

(Contributing editors: Bo Honoré, Ariel Pakes, Monika Piazzesi, Serena Ng, Jesse M. Shapiro, Ulrich K. Müller, Mark W. Watson, Harald Uhlig, Dirk Krueger, Kurt Mitman, Fabrizio Peeri, Johannes Brumm, Felix Kubler, Simon Scheidegger, Jakub Kastl, Ivan A. Canay, Azeem M. Shaikh, Kate Ho, Adam M. Rosen)

This is the second of two volumes containing papers and commentaries presented at the Eleventh World Congress of the Econometric Society, held in Montreal, Canada in August 2015. These papers provide state-of-the-art guides to the most important recent research in economics. The book includes surveys and interpretations of key developments in economics and econometrics, and discussion of future directions for a wide variety of topics, covering both theory and application. These volumes provide a unique, accessible survey of progress on the discipline, written by leading specialists in their fields. The second volume addresses topics such as big data, macroeconomics, financial markets, and partially identified models.

(Contributing editors: Bo Honoré, Ariel Pakes, Monika Piazzesi, Alessandro Pavan, Johannes Hörner, Andrzej Skrzypacz, Igal Hendel, Bernard Salanie, Fuhito Kojima, Parag A. Pathak, Sanjeev Goyal, Áureo de Paula, Rachel E. Kranton) 

This is the first of two volumes containing papers and commentaries presented at the Eleventh World Congress of the Econometric Society, held in Montreal, Canada in August 2015. These papers provide state-of-the-art guides to the most important recent research in economics. The book includes surveys and interpretations of key developments in economics and econometrics, and discussion of future directions for a wide variety of topics, covering both theory and application. These volumes provide a unique, accessible survey of progress on the discipline, written by leading specialists in their fields. The first volume includes theoretical and applied papers addressing topics such as dynamic mechanism design, agency problems, and networks.

(with Christopher A. Pissarides, Dimitri Vayanos, and Nikolaos Vettas)

Prominent economists present detailed analyses of the conditions that made Greece vulnerable to economic crisis and offer policy recommendations for comprehensive and radical change.

More than eight years after the global financial crisis began, the economy of Greece shows little sign of recovery, and its position in the eurozone seems tenuous. Between 2008 and 2014, incomes in Greece shrank by more than 25 percent, homes lost more than a third of their value, and the unemployment rate reached 27 percent. Most articles on Greece in the media focus on the effects of austerity, repayment of its debt, and its future in the eurozone. In Beyond Austerity: Reforming the Greek Economy, leading Greek economists from institutions both within and outside Greece, take a broader and deeper view of the Greek crisis, examining the pathologies that made Greece vulnerable to the crisis and the implications for the entire eurozone.

Each chapter takes on a specific policy area, examining it in terms of Greece’s economic reality and offering possible directions for policy. The topics range from macroeconomic issues to markets and their regulation to finance to the public sector. Individual chapters address the costs and benefits of participation in the eurozone, Greece’s international competitiveness, taxation, pensions, the labor market, privatization, product markets, finance, education, healthcare, corruption, the justice system, and public administration. The contributors argue that Greek institutions require a deep overhaul rather than quick fixes to enable long-term growth and prosperity.

(With Eric M. Patashnik and Conor M. Dowling) The U.S. medical system is touted as the most advanced in the world, yet many common treatments are not based on sound science. Treatments can go into widespread use before they are rigorously evaluated, and every year patients are harmed because they receive too many procedures—and too few treatments that really work. Unhealthy Politics sheds new light on why the government’s response to this troubling situation has been so inadequate, and why efforts to improve the evidence base of U.S. medicine continue to cause so much political controversy and public trepidation.

This critically important book draws on public opinion surveys, physician surveys, case studies, and political science models to explain how political incentives, polarization, and the misuse of professional authority have undermined efforts to tackle the medical evidence problem and curb wasteful spending. It paints a portrait of a medical industry with vast influence over which procedures and treatments get adopted, and a public burdened by the rising costs of health care yet fearful of going against “doctor’s orders.” The book shows how the government’s efforts to promote evidence-based medicine have become mired in partisan debates. It also proposes sensible solutions that can lead to better, more efficient health care for all of us.

(Contributing editors: Eric Schickler, R. Douglas Arnold, Gary Jacobson, Robert S. Erikson, Christopher Achen, Frances E. Lee, John Mark Hansen, Shigeo Hirano, James M. Snyder, Jr, Joshua D. Clinton, Ira Katznelson, John S. Lapinski, Sarah Binder, Stephen Ansolabehere, Maxwell Palmer, Benjamin Schneer, Eric M. Patashnik, Justin Peck, Katherine Levine Einstein, Jennifer Hochschild, Keith Krehbiel, David E. Price, David R. Mayhew)

Many political observers have expressed doubts as to whether America’s leaders are up to the task of addressing major policy challenges. Yet much of the critical commentary lacks grounding in the systematic analysis of the core institutions of the American political system including elections, representation, and the law-making process. Governing in a Polarized Age brings together more than a dozen leading scholars to provide an in-depth examination of representation and legislative performance. Drawing upon the seminal work of David Mayhew as a point of departure, these essays explore the dynamics of incumbency advantage in today’s polarized Congress, asking whether the focus on individual re-election that was the hallmark of Mayhew’s ground-breaking book, Congress: The Electoral Connection, remains useful for understanding today’s Congress. The essays link the study of elections with close analysis of changes in party organization and with a series of systematic assessments of the quality of legislative performance.

What are the properties of a good financial reporting regime? There are three broad approaches to defining better financial reporting based on attributes, goals, and practice. The first specifies some attributes of good reporting. A second approach is to focus on goals of society or of some specified individuals or groups. Looking to practice for guidance on defining and understanding the financial reporting regime is the third major approach. These three approaches – attributes, goals, and practice – are not mutually exclusive. It is unlikely that any one of them is entirely satisfactory by itself; they complement one another. Better Financial Reporting argues for such a syncretic attitude to financial reporting regime.

(with George A. Akerlof)  Ever since Adam Smith, the central teaching of economics has been that free markets provide us with material well-being, as if by an invisible hand. In Phishing for Phools, Nobel Prize-winning economists George Akerlof and Robert Shiller deliver a fundamental challenge to this insight, arguing that markets harm as well as help us. As long as there is profit to be made, sellers will systematically exploit our psychological weaknesses and our ignorance through manipulation and deception. Rather than being essentially benign and always creating the greater good, markets are inherently filled with tricks and traps and will “phish” us as “phools.”

Phishing for Phools therefore strikes a radically new direction in economics, based on the intuitive idea that markets both give and take away. Akerlof and Shiller bring this idea to life through dozens of stories that show how phishing affects everyone, in almost every walk of life. We spend our money up to the limit, and then worry about how to pay the next month’s bills. The financial system soars, then crashes. We are attracted, more than we know, by advertising. Our political system is distorted by money. We pay too much for gym memberships, cars, houses, and credit cards. Drug companies ingeniously market pharmaceuticals that do us little good, and sometimes are downright dangerous.

Phishing for Phools explores the central role of manipulation and deception in fascinating detail in each of these areas and many more. It thereby explains a paradox: why, at a time when we are better off than ever before in history, all too many of us are leading lives of quiet desperation. At the same time, the book tells stories of individuals who have stood against economic trickery — and how it can be reduced through greater knowledge, reform, and regulation.

(with Humberto Llavador and Joaquim Silvestre)  Human-generated greenhouse gas emissions imperil a global resource: a biosphere capable of supporting life as we know it. What is the fair way to share this scarce resource across present and future generations, and across regions of the world? This study offers a new perspective based on the guiding ethics of sustainability and egalitarianism.

Sustainability is understood as a pattern of economic activity over time that sustains a given rate of growth of human welfare indefinitely. To achieve this, the atmospheric concentration of carbon must be capped at some level not much higher than exists today, and investments in education and research should be higher than they currently are. International cooperation between developing and developed nations is also vital, because economic growth and the climate problem are intertwined.

The authors propose that the guiding principle of bargaining should be that the dates at which developing countries’ living standards catch up with those of developed countries should not be altered by the agreement. They conclude that developed economies would have to agree not to exceed 1 percent growth in per capita GDP annually, while developing nations should grow at a faster rate, but still lower than current projections, until they converge. The authors acknowledge that achieving such a dramatic slowdown would carry political and economic challenges.

In this revised, updated, and expanded edition of his New York Times bestseller, Nobel Prize–winning economist Robert Shiller, who warned of both the tech and housing bubbles, now cautions that signs of irrational exuberance among investors have only increased since the 2008–9 financial crisis. With high stock and bond prices in the United States, and rising housing prices in many countries, the post-subprime boom may well turn out to be another illustration of Shiller’s influential argument that psychologically driven volatility is an inherent characteristic of all asset markets. In other words, Irrational Exuberance is as relevant as ever.

But Irrational Exuberance is about something far more important than the current situation in any given market because the book explains the forces that move all markets up and down. It shows how investor euphoria can drive asset prices up to dizzying and unsustainable heights, and how, at other times, investor discouragement can push prices down to very low levels.

Previous editions covered the stock and housing markets — and famously predicted their crashes. This new edition expands its coverage to include the bond market, so that the book now addresses all of the major investment markets. This edition also includes updated data throughout, as well as Shiller’s 2013 Nobel Prize lecture, which puts the book in broader context.

In addition to diagnosing the causes of asset bubbles, Irrational Exuberance recommends urgent policy changes to lessen their likelihood and severity — and suggests ways that individuals can decrease their risk before the next bubble bursts. No one whose future depends on a retirement account, a house, or other investments can afford not to read it.
 

(Contributors: D. Autor, A. Costinot, R. Feenstra, G. Hanson, E. Helpman, N. Pavcnik, S. Redding, P. Topalova, E. Verhoogen, A. Wood) 

This volume brings together the most influential theoretical and empirical contributions to the topic of trade and inequality from recent years. Segregating it into four key areas, the collection forms a comprehensive study of the subject, targeted at academic readers familiar with the main trade models and empirical methods used in economics. The first two parts cover empirical evidence on trade and inequality in developed and developing countries, while the third and fourth sections confront transition dynamics following trade liberalization and new theoretical contributions inspired by the previously-discussed empirical evidence, respectively.

(With Daniel Friedman, R. Mark Isaac, and Duncan James)  Seven decades ago, Von Neumann and Morgenstern proposed curved utility functions for explaining choice under risk, generalizing a suggestion two centuries earlier by Daniel Bernoulli. That proposal continues to dominate the field, as theorists continue to devise new parameterized curves (e.g., for value from gains and losses, and for cumulative probability) while experimenters devise new protocols to elicit data and report estimates of parameters. From intensive interest and large volume of this literature, it is easy to get the impression of scientific progress.

In this book we show that the empirical harvest so far has, in fact, been quite meager. Estimated parameters (e.g., risk-aversion coefficients) exhibit remarkably little stability outside the context in which they are fitted. Their power to predict out-of-sample is in the poor-to-nonexistent range, and we have seen no convincing victories over naïve alternatives. Outside the laboratory, expected utility theory and its generalizations have provided surprisingly little insight into economic phenomena such as securities, real estate or labor markets, insurance, gambling, or business cycles.It is perhaps time to ask whether the failure to find stable replicable results is the result.

Although our main purpose is to raise doubt about the current approach, we do offer some positive suggestions. We reconsider the meaning and measures of risk and of risk aversion; we recommend using simple expected value criterion, while looking for explanatory power in the constraints and the real options that decision makers face; and we note recent work in evolution, learning, and physiology that someday might lead to a better understanding of, and ability to predict, decisions in an uncertain world.