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Annual Review of Economics - Volume 14, 2022
Volume 14, 2022
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The Great Divide: Education, Despair, and Death
Anne Case, and Angus DeatonVol. 14 (2022), pp. 1–21More LessDeaths of despair, morbidity, and emotional distress continue to rise in the United States, largely borne by those without a college degree—the majority of American adults—for many of whom the economy and society are no longer delivering. Concurrently, all-cause mortality in the United States is diverging by education in a way not seen in other rich countries. We review the rising prevalence of pain, despair, and suicide among those without a bachelor's degree. Pain and despair created a baseline demand for opioids, but the escalation of addiction came from pharma and its political enablers. We examine the politics of despair, or how less-educated people have abandoned and been abandoned by the Democratic Party. Whereas healthier states once voted Republican in presidential elections, now the less-healthy states do. We review deaths during COVID-19, finding that mortality in 2020 maintained or exacerbated existing relative mortality differences between those with and without college degrees.
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The Impact of Health Information and Communication Technology on Clinical Quality, Productivity, and Workers
Vol. 14 (2022), pp. 23–46More LessThe adoption of health information and communication technology (HICT) has surged over the past two decades. We survey the medical and economic literature on HICT adoption and its impact on clinical outcomes, productivity, and the health care workforce. We find that HICT improves clinical outcomes and lowers health care costs; however, (a) the effects are modest so far, (b) it takes time for these effects to materialize, and (c) there is much variation in the impact. More evidence on the causal effects of HICT on productivity is needed to improve our analytical understanding and to guide further adoption. There is little econometric work directly investigating the impact of HICT on labor market outcomes, but the existing literature suggests that there are no substantial negative effects on employment and earnings. Overall, although health care is in many ways exceptional, we are struck by the similarities of our conclusions to the wider findingson the relationship between productivity and information and communication technologies, which stress the importance of complementary factors (e.g., management practices and skills) in determining the impact of these new technologies.
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Household Financial Transaction Data
Vol. 14 (2022), pp. 47–67More LessThe growth of the availability and use of detailed household financial transaction micro data has dramatically expanded the ability of researchers to understand both household decision making and aggregate economic fluctuations across a wide range of fields. This class of transaction data is derived from a myriad of sources, including financial institutions, FinTech apps, and payment intermediaries. We review how these detailed data have been utilized in finance and economics research and analyze both their benefits and limitations as compared to more traditional measures of income, spending, and wealth. Finally, we discuss the future potential of this flexible class of data in firm-focused research, real-time policy analysis, and macro statistics.
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Media and Social Capital
Vol. 14 (2022), pp. 69–91More LessWe survey the empirical literature in economics on the impact of media technologies on social capital. Guided by a simple model of information and collective action, we cover a range of different outcomes related to social capital—from social and political participation to interpersonal trust—in its benign and destructive manifestations. The impact of media technologies hinges on their content (information versus entertainment), their effectiveness in fostering coordination, and the networks they create as well as on individual characteristics and media consumption choices.
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The Elusive Explanation for the Declining Labor Share
Vol. 14 (2022), pp. 93–124More LessA vast literature seeks to measure and explain the apparent decline in the labor share in national income that has occurred in recent times in the United States and elsewhere. The culprits include technological change, increased globalization and the rise of China, the enhanced exercise of market power by large firms in concentrated product markets, the decline in unionization rates and the erosion in the bargaining power of workers in labor markets, and the changing composition of the workforce due to a slowdown in population growth and a rise in educational attaintment. We review this literature, with special emphasis on the pitfalls associated with using cross-sectional data to assess this phenomenon and the reasons why the body of papers collectively explains the phenomenon many times over.
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The Past and Future of Economic Growth: A Semi-Endogenous Perspective
Vol. 14 (2022), pp. 125–152More LessThe nonrivalry of ideas gives rise to increasing returns, a fact celebrated in Paul Romer's recent Nobel Prize. An implication is that the long-run rate of economic growth is the product of the degree of increasing returns and the growth rate of research effort; this is the essence of semi-endogenous growth theory. This review interprets past and future growth from a semi-endogenous perspective. For 50+ years, US growth has substantially exceeded its long-run rate because of rising educational attainment, declining misallocation, and rising (global) research intensity, implying that frontier growth could slow markedly in the future. Other forces push in the opposite direction. First is the prospect of “finding new Einsteins”: How many talented researchers have we missed historically because of the underdevelopment of China and India and because of barriers that discouraged women inventors? Second is the longer-term prospect that artificial intelligence could augment or even replace people as researchers. Throughout, the review highlights many opportunities for further research.
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Risks and Global Supply Chains: What We Know and What We Need to Know
Vol. 14 (2022), pp. 153–180More LessRecent supply disruptions catapulted the issue of risk in global supply chains (GSCs) to the top of policy agendas and created the impression that shortages would have been less severe if GSCs had been either shorter and more domestic or more diversified. But is this right? We start our answer by reviewing studies that look at risks to and from GSCs and at how GSCs have recovered from past shocks. We then look at whether GSCs are too risky, starting with business research on how firms approach the cost-resilience trade-off. We propose the risk-versus-reward framework from portfolio theory as a good way to evaluate whether anti-risk policy is justified. We then discuss how exposures to foreign shocks are measured and argue that exposure is higher than direct indicators imply. Finally, we consider the future of GSCs in light of current policy proposals and advancing technology before pointing to the rich menu of topics for future research on the risk-GSC nexus.
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Managing Retirement Incomes
Vol. 14 (2022), pp. 181–204More LessIn this article we discuss the state of the literature relating to the decumulation of retirement wealth and the management of retirement incomes. On the one hand, life-cycle models that allow for strong bequest motives and for the effects of medical expense risks have been shown to be able to rationalize retirees’ wealth, income, and consumption trajectories. On the other, studies of individual asset choices and portfolio decisions seem to suggest low levels of financial literacy and engagement as well as non-negligible consequences of age-related cognitive decline on financial decision making. We argue that future work should try to reconcile these two sets of conflicting findings into a coherent and holistic evidence base to inform policy, because issues concerning the management of retirement incomes, and insurance against different risks in retirement more generally, will become increasingly important for future cohorts of retirees.
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The Economic Impacts of the US–China Trade War
Vol. 14 (2022), pp. 205–228More LessIn 2018, the United States launched a trade war with China, marking an abrupt departure from its historical leadership in integrating global markets. By late 2019, the United States had imposed tariffs on roughly $350 billion of Chinese imports, and China had retaliated on $100 billion of US exports. Economists have used a diversity of data and methods to assess the impacts of the trade war on the United States, China, and other countries. This article reviews what we have learned to date from this work.
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How Economic Development Influences the Environment
Vol. 14 (2022), pp. 229–252More LessReducing global poverty and addressing climate change and other environmental crises are among the most important challenges facing humanity today. This review discusses one way in which these problems are intertwined: how economic development affects the environment. I synthesize recent micro-empirical research on the environmental effects of economic development in low- and middle-income countries. The studies that I discuss identify the causal effects of specific aspects of economic development, such as greater household purchasing power, expanded access to credit, more secure property rights, technological progress, and stronger regulatory capacity. I conclude by outlining some gaps in the literature.
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The Economics of the COVID-19 Pandemic in Poor Countries
Vol. 14 (2022), pp. 253–285More LessThe COVID-19 pandemic has upended health and living standards around the world. This article provides an interim overview of these effects, with a particular focus on low- and middle-income countries (LMICs). Economists have explained how the pandemic is likely to have different consequences for LMICs and demands distinct policy responses compared to those of rich countries. We survey the rapidly expanding body of empirical research that documents the pandemic's many adverse economic and noneconomic effects in terms of living standards, education, health, and gender equality, which appear to be unprecedented in scope and scale. We also review research on successful and failed policy responses, including the failure to ensure widespread vaccine coverage in many LMICs, which is needed to end the pandemic. We close with a discussion of implications for public policy in LMICs and for the institutions of international governance, given the likelihood of future pandemics and other major shocks (e.g., climate).
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The Affordable Care Act After a Decade: Industrial Organization of the Insurance Exchanges
Vol. 14 (2022), pp. 287–312More LessThe regulated insurance exchanges set up in the Affordable Care Act (ACA) were designed to deliver affordable, efficient health coverage through private insurers. It is crucial to study the complex industrial organization (IO) of these exchanges in order to assess their impacts during the first decade of the ACA and to project their effects going forward. We revisit the inherent market failures in health care markets that necessitate key ACA exchange regulations and investigate whether they have succeeded in their goals of expanding coverage, creating robust marketplaces, providing product variety, and generating innovation in health care delivery. We discuss empirical IO research to date and also highlight shortcomings in the existing research that can be addressed moving forward. We conclude with a discussion of IO research-based policy lessons for the ACA exchanges and, more generally, for managed competition of private insurance in health care.
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Helicopter Money: What Is It and What Does It Do?
Vol. 14 (2022), pp. 313–335More LessWe review the different meanings of helicopter money, both in the literature and in the public debate around it, and we clarify the conditions under which helicopter money can have an impact on real activity. To do so, we set out a simple model that encapsulates a number of potential channels of policy transmission. The model provides a taxonomy of possibilities for helicopter money to affect the economy, as well as a benchmark set of conditions under which helicopter money is neutral. We use the model to analyze and discuss the impact that helicopter drops might have in response to a number of economic shocks, including a financial crisis, a fiscal crisis, and a pandemic.
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Relational Contracts and Development
Vol. 14 (2022), pp. 337–362More LessThis article reviews an emerging body of evidence on relational contracts, defined as informal arrangements sustained by the value of future interactions. We focus on developing and international markets, which are often characterized as contexts with weak formal contract enforcement. We introduce relational contracting between firms as a governance form alternative to both firms and markets. We then review evidence on the prevalence of long-term relationships between firms and discuss why this governance form might be particularly common in developing countries. After introducing a simple framework, we discuss the measurement of relational contracting between firms. We review an approach that takes dynamic incentive compatibility constraints to the data to quantify the value of future interactions and illustrate how different types of shocks can be used to uncover the inner functioning of relational contracting. We also review structural models and conclude with policy implications and promising avenues for future research.
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Trade Policy Uncertainty
Kyle Handley, and Nuno LimãoVol. 14 (2022), pp. 363–395More LessTrade policy uncertainty (TPU) has become an important source of economic uncertainty and research. We review the main sources and measures of TPU. We then provide a conceptual framework for modeling TPU and methods for estimating and quantifying its effects. We analyze its role in trade agreements and discuss open questions for future research.
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Bureaucracy and Development
Vol. 14 (2022), pp. 397–424More LessIn recent years, there has been increasing interest in whether and how bureaucratic effectiveness contributes to development. Just what makes for an effective bureaucracy and what are the building blocks of state capacity remain subject to debate. This article reviews the arguments connecting contemporary research using administrative data and field experiments to wider discussions of the origins of state capacity. Most current research has focused on understanding specific features of the environment in which bureaucrats operate. We connect this to discussions of bureaucratic systems, specifically the relationship to politics, citizens, firms, and nongovernmental organizations.
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Misperceptions About Others
Vol. 14 (2022), pp. 425–452More LessPerceptions about others play an important role in shaping people's attitudes and behaviors, as well as social norms more broadly. This review presents a meta-analysis of the recent empirical literature that examines perceptions about others in the field, covering over a million observations for a total of 434 elicited perceptions. We document a number of stylized facts. Misperceptions about others are widespread, asymmetric, much larger when about out-group members, and positively associated with one's own attitudes. Experimental treatments to recalibrate misperceptions generally work as intended; they sometimes lead to meaningful changes in behaviors, though this often occurs only immediately after the treatments. We discuss different conceptual frameworks that could explain the origin, persistence, and rigidity of misperceptions about others. We point to several directions for future research.
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The Affordable Care Act After a Decade: Its Impact on the Labor Market and the Macro Economy
Hanming Fang, and Dirk KruegerVol. 14 (2022), pp. 453–494More LessThe Affordable Care Act (ACA) is one of the most important reforms of the US health insurance system since the introduction of Medicare. Because employment is a main source of health insurance for the working-age population in the USA, this sweeping health insurance reform has also had important implications for the labor market and the macro economy. In this article, we review the prototype models that are used in the macro and labor literature, extended to integrate health and health insurance, to study the short- and long-run consequences of the ACA. We also suggest open areas for future research.
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Expecting Brexit
Vol. 14 (2022), pp. 495–519More LessThe Brexit vote precipitated the unraveling of the United Kingdom's membership in the world's deepest economic integration agreement. This article reviews evidence on the realized economic effects of Brexit. The 2016 Brexit referendum changed expectations about future UK–EU relations. Studying its consequences provides new insights regarding the economic impacts of news and uncertainty shocks. Voting for Brexit had large negative effects on the UK economy between 2016 and 2019, leading to higher import and consumer prices, lower investment, and slower real wage and GDP growth. However, at the aggregate level, there was little or no trade diversion away from the European Union, implying that many of the anticipated long-run effects of Brexit did not materialize before the new UK–EU trade relationship came into force in 2021.
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Salience
Vol. 14 (2022), pp. 521–544More LessWe review the fast-growing work on salience and economic behavior. Psychological research shows that salient stimuli attract human attention bottom up due to their high contrast with surroundings, their surprising nature relative to recalled experiences, or their prominence. The Bordalo, Gennaioli & Shleifer (2012, 2013b, 2020) models of salience show how bottom-up attention can distort economic choice by distracting decision makers from their immediate goals or from relevant choice attributes. This approach unifies probability weighting, menu effects, reference points, and framing as distinct manifestations of bottom-up attention. We highlight new predictions and discuss open conceptual questions, as well as potential applications in finance, industrial organization, advertising, and politics.
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