The Journal of Economic Perspectives Summer 2014

The Journal of Economic Perspectives Summer 2014

The Journal of Economic Perspectives 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 Benjamin G. Edelman, Harvard University Amy Finkelstein, Massachusetts Institute of Technology Gordon Hanson, University of California at San Diego Anil K Kashyap, University of Chicago Adam Looney, US Department of the Treasury David McKenzie, World Bank Richard Newell, Duke University Chad Syverson, University of Chicago Christopher Udry, Yale University Managing Editor Timothy Taylor Assistant Editor Ann Norman Editorial offices: Journal of Economic Perspectives American Economic Association Publications 2403 Sidney St., #260 Pittsburgh, PA 15203 email: [email protected] The Journal of Economic Perspectives gratefully acknowledges the support of Macalester College. Registered in the US Patent and Trademark Office (®). Copyright © 2014 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 0895-3309), Summer 2014, Vol. 28, No. 3. The JEP is published quarterly (February, May, August, November) by the American Economic Association, 2014 Broadway, Suite 305, Nashville, TN 37203-2418. 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 http://www.vanderbilt.edu/AEA/. Periodicals postage paid at Nashville, TN, and at additional mailing offices. POSTMASTER: Send address changes to the Journal of Economic Perspectives, 2014 Broadway, Suite 305, Nashville, TN 37203. Printed in the U.S.A. The Journal of Economic Perspectives Contents Volume 28 • Number 3 • Summer 2014 Symposia Entrepreneurship Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda, “The Role of Entrepreneurship in US Job Creation and Economic Dynamism” . 3 William R . Kerr, Ramana Nanda, and Matthew Rhodes-Kropf, “Entrepreneurship as Experimentation” . 25 Thomas Åstebro, Holger Herz, Ramana Nanda, and Roberto A . Weber, “Seeking the Roots of Entrepreneurship: Insights from Behavioral Economics” . 49 Classic Ideas in Development Douglas Gollin, “The Lewis Model: A 60-Year Retrospective” . 71 Chang-Tai Hsieh and Benjamin A . Olken, “The Missing ‘Missing Middle’” . 89 Rafael La Porta and Andrei Shleifer, “Informality and Development” . 109 Aart Kraay and David McKenzie, “Do Poverty Traps Exist? Assessing the Evidence” . 127 Academic Production David Card and Stefano DellaVigna, “Page Limits on Economics Articles: Evidence from Two Journals” . 149 Raj Chetty, Emmanuel Saez, and László Sándor, “What Policies Increase Prosocial Behavior? An Experiment with Referees at the Journal of Public Economics” . 169 Kristin F . Butcher, Patrick J . McEwan, and Akila Weerapana, “The Effects of an Anti-Grade-Inflation Policy at Wellesley College” . 189 John P . Conley and Ali Sina Önder, “The Research Productivity of New PhDs in Economics: The Surprisingly High Non-Success of the Successful” . 205 Articles Raluca Dragusanu, Daniele Giovannucci, and Nathan Nunn, “The Economics of Fair Trade” . 217 John Mueller and Mark G . Stewart, “Evaluating Counterterrorism Spending” . 237 Features Timothy Taylor, “Recommendations for Further Reading” . 249 Statement of Purpose The Journal of Economic Perspectives 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 read- ings 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 Economic Perspectives 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 Economic Perspectives are expected to disclose any potential conflicts of interest that may arise from their consulting activities, financial interests, or other nonacademic activities . Journal of Economic Perspectives Advisory Board Tim Besley, London School of Economics Robert E . Hall, Stanford University Greg Ip, The Economist Christopher Jencks, Harvard University Carmen Reinhart, Peterson Institute John Roemer, Yale University Paul Romer, New York University Howard Rosenthal, New York University The American Economic Association Correspondence relating to advertising, Founded in 1885 business matters, permission to quote, or change of address should be sent to the EXECUTIVE COMMITTEE AEA business office: aeainfo@vanderbilt. Elected Officers and Members edu. Street address: American Economic Association, 2014 Broadway, Suite 305, President Nashville, TN 37203. For membership, WILLIAM D. NORDHAUS, Yale University subscriptions, or complimentary JEP for President-elect your e-reader, go to the AEA website: RICHARD H. THALER, University of Chicago http://www.aeaweb.org. Annual dues for regular membership are $20.00, $30.00, or Vice Presidents $40.00, depending on income; for an addi- DAVID CARD, University of California at Berkeley tional fee, you can receive this journal, or N. GREGORY MANKIW, Harvard University any of the Association’s journals, in print. Members Change of address notice must be received ANIL K KASHYAP, University of Chicago at least six weeks prior to the publication ROSA L. MATZKIN, University of California at Los Angeles month. AMY N. FINKELSTEIN, Massachusetts Institute of Technology Copyright © 2014 by the American Eco- JONATHAN LEVIN, Stanford University nomic Association. Permission to make DORA L. COSTA, University of California at Los Angeles dig ital or hard copies of part or all of this GUIDO W. IMBENS, Stanford University work for personal or classroom use is grant- ed without fee provided that copies are not Ex Officio Members made or distributed for profit or direct CLAUDIA GOLDIN, Harvard University commercial advantage and that copies show CHRISTOPHER A. SIMS, Princeton University this notice on the first page or initial screen of a display along with the full citation, in- Appointed Members cluding the name of the author. Copyrights Editor, The American Economic Review for components of this work owned by oth- PINELOPI KOUJIANOU GOLDBERG, Yale University ers than AEA must be honored. Abstract- Editor, The Journal of Economic Literature ing with credit is permitted. The author STEVEN N. DURLAUF, University of Wisconsin has the right to republish, post on servers, redistribute to lists, and use any component Editor, The Journal of Economic Perspectives of this work in other works. For others to DAVID H. AUTOR, Massachusetts Institute of Technology do so requires prior specific permission Editor, American Economic Journal: Applied Economics and/or a fee. Per missions may be requested ESTHER DUFLO, Massachusetts Institute of Technology from the American Economic Association, 2014 Broadway, Suite 305, Nashville, TN Editor, American Economic Journal: Economic Policy 37203; e-mail: [email protected]. MATTHEW D. SHAPIRO, University of Michigan 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, Pennsylvania State University 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 Journal of Economic Perspectives—Volume 28, Number 3—Summer 2014—Pages 3–24 The Role of Entrepreneurship in US Job Creation and Economic Dynamism† Ryan Decker, John Haltiwanger, Ron Jarmin, and Javier Miranda he United States has long been viewed as having among the world’s most entrepreneurial, dynamic, and flexible economies. It is often argued that T this dynamism and flexibility has enabled the

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