Economic Perspectives

Transcription

1 A journal of the American Economic Association Spring 2013

2 A journal of the American Economic Association Editor David H. Autor, Massachusetts Institute of Technology Co-editors Chang-Tai Hsieh, University of Chicago Ulrike Malmendier, University of California at Berkeley Associate Editors Katherine Baicker, Harvard University Benjamin G. Edelman, Harvard University Raymond Fisman, Columbia University Gordon Hanson, University of California at San Diego Anil K Kashyap, University of Chicago Adam Looney, Brookings Institution David McKenzie, World Bank Kerry Smith, Arizona State University Chad Syverson, University of Chicago Christopher Udry, Yale University Managing Editor Timothy Taylor Assistant Editor Ann Norman Editorial offices: Journal of American Economic Association Publications 2403 Sidney St., #260 Pittsburgh, PA jep@jepjournal.org gratefully acknowledges the support of Macalester College. Registered in the US Patent and Trademark Office ( ). Copyright 2013 by the American Economic Association; All Rights Reserved. Composed by American Economic Association Publications, Pittsburgh, Pennsylvania, USA Printed by R. R. Donnelley Company, Jefferson City, Missouri, 65109, USA No responsibility for the views expressed by the authors in this journal is assumed by the editors or by the American Economic Association. THE JOURNAL OF ECONOMIC PERSPECTIVES (ISSN ), Spring 2013, Vol. 27, No. 2. The JEP is published quarterly (February, May, August, November) by the American Economic Association, 2014 Broadway, Suite 305, Nashville, TN Annual dues for regular membership are $20.00, $30.00, or $40.00 depending on income; for an additional $15.00, you can receive this journal in print. E-reader versions are free. For details and further information on the AEA go to Periodicals postage paid at Nashville, TN, and at additional mailing offices. POSTMASTER: Send address changes to the Journal of, 2014 Broadway, Suite 305, Nashville, TN Printed in the U.S.A.

3 Contents Volume 27 Number 2 Spring 2013 Symposia The Growth of the Financial Sector Robin Greenwood and David Scharfstein, The Growth of Finance....3 John H. Cochrane, Finance: Function Matters, Not Size Andrei A. Kirilenko and Andrew W. Lo, Moore s Law versus Murphy s Law: Algorithmic Trading and Its Discontents Thomas Philippon and Ariell Reshef, An International Look at the Growth of Modern Finance Burton G. Malkiel, Asset Management Fees and the Growth of Finance...97 Early and Later Interventions Greg J. Duncan and Katherine Magnuson, Investing in Preschool Programs Julie Berry Cullen, Steven D. Levitt, Erin Robertson, and Sally Sadoff, What Can Be Done To Improve Struggling High Schools? James E. Rosenbaum and Janet Rosenbaum, Beyond BA Blinders: Lessons from Occupational Colleges and Certificate Programs for Nontraditional Students Articles Daron Acemoglu and James A. Robinson, Economics versus Politics: Pitfalls of Policy Advice Santiago Levy and Norbert Schady, Latin America s Social Policy Challenge: Education, Social Insurance, Redistribution Shai Bernstein, Josh Lerner, and Antoinette Schoar, The Investment Strategies of Sovereign Wealth Funds Features Timothy Taylor, Recommendations for Further Reading Correspondence: Are Cognitive Functions Localizable? Colin Camerer et al. versus Marieke van Rooij and John G. Holden Notes

4 Statement of Purpose attempts to fill a gap between the general interest press and most other academic economics journals. The journal aims to publish articles that will serve several goals: to synthesize and integrate lessons learned from active lines of economic research; to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of economics; to offer readers an accessible source for state-of-the-art economic thinking; to suggest directions for future research; to provide insights and readings for classroom use; and to address issues relating to the economics profession. Articles appearing in the journal are normally solicited by the editors and associate editors. Proposals for topics and authors should be directed to the journal office, at the address inside the front cover. Policy on Data Availability It is the policy of the Journal of to publish papers only if the data used in the analysis are clearly and precisely documented and are readily available to any researcher for purposes of replication. Details of the computations sufficient to permit replication must be provided. The Editor should be notified at the time of submission if the data used in a paper are proprietary or if, for some other reason, the above requirements cannot be met. Policy on Disclosure Authors of articles appearing in the Journal of are expected to disclose any potential conflicts of interest that may arise from their consulting activities, financial interests, or other nonacademic activities. Journal of Advisory Board Tim Besley, London School of Economics Olivier Blanchard, International Monetary Fund Elizabeth Hoffman, Iowa State University Christopher Jencks, Harvard University David Leonhardt, The New York Times Carmen Reinhart, Peterson Institute John Roemer, Yale University Howard Rosenthal, New York University

5 The American Economic Association Correspondence relating to advertising, business matters, permission to quote, or change of address should be sent to the AEA business office: Street address: American Economic Association, 2014 Broadway, Suite 305, Nashville, TN For membership, subscriptions, or complimentary JEP for your e-reader, go to the AEA website: Annual dues for regular membership are $20.00, $30.00, or $40.00, depending on income; for an additional fee, you can receive this journal, or any of the Association s journals, in print. Change of address notice must be received at least six weeks prior to the publication month. Copyright 2013 by the American Economic Association. Permission to make digital or hard copies of part or all of this work for personal or classroom use is granted without fee provided that copies are not made or distributed for profit or direct commercial advantage and that copies show this notice on the first page or initial screen of a display along with the full citation, including the name of the author. Copyrights for components of this work owned by others than AEA must be honored. Abstracting with credit is permitted. The author has the right to republish, post on servers, redistribute to lists, and use any component of this work in other works. For others to do so requires prior specific permission and/ or a fee. Per missions may be requested from the American Economic Association, 2014 Broadway, Suite 305, Nashville, TN 37203; aeainfo@vanderbilt.edu. Founded in 1885 EXECUTIVE COMMITTEE Elected Officers and Members President CLAUDIA GOLDIN, Harvard University President-elect WILLIAM D. NORDHAUS, Yale University Vice Presidents RAQUEL FERNÁNDEZ, New York University PAUL R. MILGROM, Stanford University Members MONIKA PIAZZESI, Stanford University MICHAEL WOODFORD, Columbia University ANIL K KASHYAP, University of Chicago ROSA L. MATZKIN, University of California at Los Angeles AMY N. FINKELSTEIN, Massachusetts Institute of Technology JONATHAN LEVIN, Stanford University Ex Officio Members CHRISTOPHER A. SIMS, Princeton University ORLEY C. ASHENFELTER, Princeton University Appointed Members Editor, The American Economic Review PINELOPI KOUJIANOU GOLDBERG, Yale University Editor, Economic Literature JANET M. CURRIE, Princeton University Editor, DAVID H. AUTOR, Massachusetts Institute of Technology Editor, American Economic Journal: Applied Economics ESTHER DUFLO, Massachusetts Institute of Technology Editor, American Economic Journal: Economic Policy ALAN J. AUERBACH, University of California at Berkeley Editor, American Economic Journal: Macroeconomics JOHN LEAHY, New York University Editor, American Economic Journal: Microeconomics ANDREW POSTLEWAITE, University of Pennsylvania Secretary-Treasurer PETER L. ROUSSEAU, Vanderbilt University OTHER OFFICERS Editor, Resources for Economists WILLIAM GOFFE, State University of New York at Oswego Director of AEA Publication Services JANE EMILY VOROS, Pittsburgh Managing Director of EconLit Product Design and Content STEVEN L. HUSTED, University of Pittsburgh Assistant Secretary-Treasurer JOHN J. SIEGFRIED, Vanderbilt University and University of Adelaide Counsel TERRY CALVANI, Freshfields Bruckhaus Deringer LLP Washington, DC ADMINISTRATORS Administrative Director REGINA H. MONTGOMERY Convention Manager MARLENE HIGHT

6 Spring 2013, Volume 27, Number 2 Symposia The Growth of the Financial Sector Robin Greenwood and David Scharfstein, The Growth of Finance John H. Cochrane, Finance: Function Matters, Not Size Andrei A. Kirilenko and Andrew W. Lo, Moore s Law versus Murphy s Law: Algorithmic Trading and Its Discontents Thomas Philippon and Ariell Reshef, An International Look at the Growth of Modern Finance Burton G. Malkiel, Asset Management Fees and the Growth of Finance Early and Later Interventions Greg J. Duncan and Katherine Magnuson, Investing in Preschool Programs Julie Berry Cullen, Steven D. Levitt, Erin Robertson, and Sally Sadoff, What Can Be Done To Improve Struggling High Schools? James E. Rosenbaum and Janet Rosenbaum, Beyond BA Blinders: Lessons from Occupational Colleges and Certificate Programs for Nontraditional Students Articles Daron Acemoglu and James A. Robinson, Economics versus Politics: Pitfalls of Policy Advice Santiago Levy and Norbert Schady, Latin America s Social Policy Challenge: Education, Social Insurance, Redistribution Shai Bernstein, Josh Lerner, and Antoinette Schoar, The Investment Strategies of Sovereign Wealth Funds Recommendations for Further Reading Correspondence Notes