Economics Insights @ CBS

The global economic crisis in September 2008 was preceded by the crises of 2007: the subprime mortgage crisis, the corporate credit crunch, and the "quant liquidity crunch." The evolution of these crises appears to have resulted from a set of "deleveraging" that started in the subprime mortgage market but then spilled over into a number of other asset markets and resulted in large premiums in multiple markets. To respond to these events, new proprietary factors have been deployed that are not vulnerable to the actions of others.

Research across disciplines suggests that bad is stronger than good and that individuals punish deception more than they reward honesty. However, methodological issues in previous research limit the latter conclusion. Three experiments resolved these issues and consistently found the opposite pattern: Individuals rewarded honesty more frequently and intensely than they punished deception.

Heterogeneity is ubiquitous in firm-level and sectoral data. Equilibrium models, however, typically assume a representative firm, as in Andrew B. Abel and Olivier J. Blanchard (1983). The representative firm paradigm leaves no role for the distribution of capital. We model capital reallocation in a general equilibrium model with two sectors. Capital adjustment costs capture illiquidity in our model, similar to Hirofumi Uzawa's (1969) capital installation technology.

Many new products (e.g., PDA phones) share features with multiple categories, but are also significantly different from each of these categories. When consumers encounter such a product, they may create a new subcategory (e.g., smart phones) to accommodate it. In such situations, consumers must decide where to position the new subcategory. We develop the Category Activation Model (CAM) to predict where within a category structure consumers are likely to position a subcategory that they have created to accommodate a new product that could potentially belong to multiple product categories.