We present a theory of context-dependent choice in which a consumer’s attention is drawn to salient attributes of goods, such as quality or price. An attribute is salient for a good when it stands out among the good’s attributes relative to that attribute’s average level in the choice set...

In the presence of aggregate demand spillovers, an imperfectly competitive firm's profit is positively related to aggregate income, which in turn rises with profits of all firms in the economy. This pecuniary externality makes a dollar of a firm's profit raise aggrega te income by more than a...

Recent theories of economic growth, including those of P. Romer (1986, 1990), M. Porter (1990), and J. Jacobs (1969, 1984), have stressed the role of technological spillovers in generating growth. Because such knowledge spillovers are particularly effective in cities, where communication between...

We present a model of lawmaking by appellate courts in which judges influenced by policy preferences can distinguish precedents at some cost. We find a cost and a benefit of diversity of judicial views. Policy-motivated judges distort the law away from efficiency, but diversity of judicial views...

In the Anglo-American constitutional tradition, judicial checks and balances are often seen as crucial guarantees of freedom. Hayek distinguishes two ways in which the judiciary provides such checks and balances: judicial independence and constitutional review. We create a new database of...

This paper explores Paul N. Rosenstein-Rodan's idea that simultaneous industrialization of many sectors of the economy can be profitable for them all even when no sector can break even industrializing alone. The authors analyze this idea in the context of an imperfectly-competitive economy with...

The authors present a simple overlapping generations model of an asset market in which irrational noise traders with erroneous stochastic beliefs both affect prices and earn higher expected returns. The unpredictability of noise traders' beliefs creates a risk in the price of the asset that...