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Template-Type: ReDIF-Paper 1.0
Title: Transfer Behavior: Measurement and the Redistribution of Resources within the Family
Classification-JEL: J1
Author-Name: Kathleen McGarry
Author-Person: pmc264
Author-Name: Robert F. Schoeni
Author-Person: psc101
Note: AG
Number: 4607
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4607
File-URL: http://www.nber.org/papers/w4607.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, 1995
Abstract: Recent work by a number of economists has opened a debate about the role played by intergenerational transfers. Using the new Health and Retirement Survey (HRS), we are better able to address the issues involved. Contrary to the current literature on bequests, we do not find that parents give transfers equally to all children. Rather we find that in the case of inter vivos transfers, respondents give greater financial assistance to their less well off children, relative to their children with higher incomes. Financial transfers to elderly parents are also found to be negatively related to the (potential) recipient's income. These results hold both for the incidence of transfers and for the amounts. Additionally, we allow for unobserved differences across families by estimating fixed effect models and find our results to be robust to these specifications. Thus we fail to reject altruism as a possible motivation for transfers. A comparison of the HRS transfer data to other survey data demonstrates that the HRS is potentially quite useful for research on transfer behavior.
Handle: RePEc:nbr:nberwo:4607
Template-Type: ReDIF-Paper 1.0
Title: Auctions vs. Negotiations
Author-Name: Jeremy Bulow
Author-Name: Paul Klemperer
Author-Person: pkl5
Note: CF
Number: 4608
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4608
File-URL: http://www.nber.org/papers/w4608.pdf
File-Format: application/pdf
Publication-Status: published as Bulow, Jeremy and Paul Klemperer. "Auctions Versus Negotiations," American Economic Review, 1996, v86(1,Mar), 180-194.
Abstract: Which is the more profitable way to sell a company: a public auction or an optimally structured negotiation with a smaller number of bidders? We show that under standard assumptions the public auction is always preferable, even if it forfeits all the seller's negotiating power, including the ability to withdraw the object from sale, provided that it attracts at least one extra bidder. An immediate public auction also dominates negotiating while maintaining the right to hold an auction subsequently with more bidders. The results hold for both the standard independent private values model and a common values model. They suggest that the value of negotiating skill is small relative to the value of additional competition.
Handle: RePEc:nbr:nberwo:4608
Template-Type: ReDIF-Paper 1.0
Title: The Best Business Schools: A Market Based Approach
Classification-JEL: M10; J31
Author-Name: Joseph Tracy
Author-Person: ptr23
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: LS
Number: 4609
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4609
File-URL: http://www.nber.org/papers/w4609.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business, 1997, vol.70, No.1, pp.1-31
Abstract: We present a new methodology for ranking business schools. Unlike previous rankings based on subjective survey responses (from CEOs, business school deans, recruiters, or graduates), our approach uses data derived from the labor market for new MBAs. We adjust programs' salaries for the quality of entering students in an attempt to distinguish value added from the quality of incoming students. We then rank programs according to value added. Our results are rather surprising. While four of our top five programs are also labelled as top programs in other rankings, ten of our top twenty are previously unranked. By emphasizing program value added, our procedure identifies several programs that have been overlooked by other rankings since they do not recruit the very top students. We explore the determinants of our value added and student quality measures and find that connections to the business community are positively related to value added, while academic research and high faculty salaries are more strongly associated with student quality. We also find that tuition is better explained by our measure of value added than raw salary, suggesting that programs charge according to value added.
Handle: RePEc:nbr:nberwo:4609
Template-Type: ReDIF-Paper 1.0
Title: Quality Improvements in Models of Growth
Classification-JEL: 040; 030
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG PR
Number: 4610
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4610
File-URL: http://www.nber.org/papers/w4610.pdf
File-Format: application/pdf
Publication-Status: published as With N. Gregory Mankiw, published as "Capital Mobility in Neoclassical Models of Growth", American Economic Review, Vol. 85, no. 1 (1995): 103- 115.
Abstract: Technological progress takes the form of improvements in quality of an array of intermediate inputs to production. In an equilibrium that is standard in the literature, all research is carried out by outsiders, and success means that the outsider replaces the incumbent as the industry leader. The equilibrium research intensity involves three considerations: leading-edge goods are priced above the competitive level, innovators value the extraction of monopoly rents from predecessors, and innovators regard their successes as temporary. We show that, if industry leaders have lower costs of research, then the leaders will do all the research in equilibrium. However, if the cost advantage is not too large, then the equilibrium research intensity and growth rate depend on the existence of the competitive fringe and take on the same values as in the standard solution. We discuss the departures from Pareto optimality and analyze the determination of the economy's rate of return and growth rate.
Handle: RePEc:nbr:nberwo:4610
Template-Type: ReDIF-Paper 1.0
Title: International Equity Transactions and U.S. Portfolio Choice
Author-Name: Linda L. Tesar
Author-Person: pte111
Author-Name: Ingrid M. Werner
Note: AP IFM ITI
Number: 4611
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4611
File-URL: http://www.nber.org/papers/w4611.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel ed., pp. 185-216, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as International Equity Transactions and U.S. Portfolio Choice, Linda L. Tesar, Ingrid M. Werner. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: This paper studies the cross-border transactions in equity by investors in Canada, Germany,Japan, the U.K. and the U.S. We find that investors from different countries make very different decisions about the allocation of their portfolio across markets. In contradiction to the notion that high variable transactions costs hinder international diversification, we find that the volume of gross equity flows vastly exceeds net equity flows and the turnover rate on foreign equity investments by some investors even exceeds domestic turnover rates. We also reject the hypothesis that U.S. investors follow the standard CAPM in allocating their global equity portfolio.
Handle: RePEc:nbr:nberwo:4611
Template-Type: ReDIF-Paper 1.0
Title: Cities and Growth: Theory and Evidence from France and Japan
Classification-JEL: F43; R1
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Zvi Eckstein
Author-Person: pec3
Note: ITI
Number: 4612
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4612
File-URL: http://www.nber.org/papers/w4612.pdf
File-Format: application/pdf
Publication-Status: published as Eaton, Jonathan and Zvi Eckstein. "Cities And Growth: Theory And Evidence From France And Japan," Regional Science and Urban Economics, 1997, v27(4-5,Aug), 443-474.
Abstract: The relative distribution of the populations of the top 40 urban areas of France and Japan remained very constant during these countries' periods of industrialization and urbanization. Moreover, projection of their future distributions based on past growth indicates that their size-distributions in steady state will not differ essentially from what they have been historically. Urbanization consequently appears to have taken the form of the parallel growth of cities, rather than of convergence to an optimal city size or of the divergent growth of the largest cities. We develop a model of urbanization and growth based on the accumulation of human capital consistent with these observations. Our model predicts that larger cities will have higher levels of human capital, higher rents, and higher wages per worker, even though workers are homogeneous and free to migrate between cities. Cities grow at a common growth rate, with relative city size depending upon the environment that they provide for learning.
Handle: RePEc:nbr:nberwo:4612
Template-Type: ReDIF-Paper 1.0
Title: Retirement Incentives: The Interaction between Employer-Provided Pensions, Social Security, and Retiree Health Benefits
Classification-JEL: J14; J26
Author-Name: Robin L. Lumsdaine
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG LS PE
Number: 4613
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4613
File-URL: http://www.nber.org/papers/w4613.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Effects of Aging in the United States and Japan, Michael D. Hurd and Naohiro Yashiro, eds., pp. 261-293, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Retirement Incentives: The Interaction between Employer-Provided Pensions, Social Security, and Retiree Health Benefits, Robin L. Lumsdaine, James H. Stock, David A. Wise. in The Economic Effects of Aging in the United States and Japan, Hurd and Yashiro. 1996
Abstract: Proposed changes in the U.S. Social Security provisions include increasing the normal retirement age from 65 to 67 and changing from 3% to 8% the increase in benefits for each year that retirement is delayed after normal retirement. The paper considers the interaction between these changes and the provisions of employer-provided pension plans. For persons with an employer-provided defined benefit plan, the conclusion is that the Social Security changes will have little effect on labor force participation, but that changes in the firm plan - like increasing the early retirement age - would have very large effects on labor force participation.
Handle: RePEc:nbr:nberwo:4613
Template-Type: ReDIF-Paper 1.0
Title: Capital Market Imperfections and Countercyclical Markups: Theory and Evidence
Author-Name: Judith A. Chevalier
Author-Person: pch151
Author-Name: David S. Scharfstein
Author-Person: psc177
Note: IO
Number: 4614
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4614
File-URL: http://www.nber.org/papers/w4614.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol.86, No.4, September,1996.
Abstract: During recessions, output prices tend to rise relative to wages and raw-materials prices. One explanation of this fact is that imperfectly competitive firms compete less aggressively during recessions - that is, markups of price over marginal cost are countercyclical. We present a model in which markups are countercyclical because of capital-market imperfections. During recessions, liquidity-constrained firms try to boost short-run profits by raising prices to cut their investments in market share. We provide evidence from the supermarket industry in support of this theory. We show that during regional and macroeconomic recessions, the most financially constrained supermarket chains tend to raise their prices relative to less financially constrained chains.
Handle: RePEc:nbr:nberwo:4614
Template-Type: ReDIF-Paper 1.0
Title: Structural Flexibility: A Partial Ordering
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Marie Thursby
Author-Person: pth283
Note: ITI
Number: 4615
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4615
File-URL: http://www.nber.org/papers/w4615.pdf
File-Format: application/pdf
Publication-Status: published as Trade, Theory, and Economics: Essays in Honor of John S. Chapman, Melvin, J.R., J.C. Moore, and R. Reizman, eds., London: Routledge, 1999, Chapter 5 (with K.Krishna).
Abstract: We use an approach developed by Krishna and Young to examine the ability of economies to adjust to exogenous shocks. While, in general, economies cannot be ranked in terms of their flexibility, we provide a partial ordering for certain types of economies. In particular, properties of the revenue function are used to show that placing restrictions on factor mobility and on production in certain sectors reduces the flexibility of a small open economy with respect to all price, endowment, and technology shocks of small enough magnitude. Since one can think of these restrictions as distortions, we would expect them to reduce the level of GNP in the economy. The insight provided by the analysis of flexibility is that, not only is the level of GNP affected, but also the intrinsic ability of the economy to adjust to shocks is reduced.
Handle: RePEc:nbr:nberwo:4615
Template-Type: ReDIF-Paper 1.0
Title: Fluctuations, Instability, and Agglomeration
Classification-JEL: R0; R1
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI
Number: 4616
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4616
File-URL: http://www.nber.org/papers/w4616.pdf
File-Format: application/pdf
Abstract: Recent models in economic geography suggest that there may be very large numbers of equilibrium spatial structures. Simulations suggest, however, that the structures that emerge are surprisingly orderly, and often seem approximately to follow simple rules about the spacing of urban sites. This paper offers an explanation in terms of the process by which a spatial economy diverges away from an even distribution of activity across the landscape. It shows that a small divergence of activity away from spatial uniformity, even if it is highly irregular, can be regarded as the sum of a number of simple periodic fluctuations at different spatial 'wavelengths'; these fluctuations grow at different rates. There is a particular 'preferred wavelength' that grows fastest; provided that the initial distribution of activity across space is flat enough, this preferred wavelength eventually dominates the spatial pattern and becomes the typical distance between cities. The approach suggests that surprisingly simple principles of self-organization may lie beneath the surface of models that appear at first to yield hopelessly complex possibilities.
Handle: RePEc:nbr:nberwo:4616
Template-Type: ReDIF-Paper 1.0
Title: Minimum Wage Effects and Low-Wage Labor Markets: A Disequilibrium Approach
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 4617
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4617
File-URL: http://www.nber.org/papers/w4617.pdf
File-Format: application/pdf
Publication-Status: Published as "Minimum Wage Effects on Employment and School Enrollment", Journal of Business & Economic Statistics, Vol. 13, no. 2 (1995): 199-206.
Publication-Status: Published as "Is the Time-Series Evidence on Minimum Wage Effects Contaminated by Publication Bias?", Economic Inquiry, Vol. 36, no. 3 (July 1998): 458-470.
Abstract: We present a new approach to estimating minimum wage effects on employment. In contrast to most previous research, we account for the possibility that the relationship between minimum wages and employment depends on the magnitude of the minimum wage relative to the equilibrium wage in the absence of the legislated minimum. In particular, estimating the employment effects of binding minimum wages requires separation of sample observations into those that are on the labor demand curve but off the labor supply curve, and those that are at labor market equilibria. The paper implements an endogenous switching regression model with unknown sample separation that yields these estimates. The approach also yields estimates of the impact of labor market characteristics on the probability that minimum wages are binding. We also extend the disequilibrium approach to monopsony, which introduces a third regime, between the equilibrium monopsony wage and the equilibrium competitive wage, in which observations are on the labor supply curve but off the labor demand curve and minimum wages are therefore positively related to employment. Minimum wage effects under monopsony are estimated in a three-regime endogenous switching regression model with unknown regimes, and the monopsony characterization of low-wage labor markets is tested against the competitive characterization.
Handle: RePEc:nbr:nberwo:4617
Template-Type: ReDIF-Paper 1.0
Title: The Role of Exclusive Territories in Producers' Competition
Author-Name: Patrick Rey
Author-Name: Joseph Stiglitz
Note: IO
Number: 4618
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4618
File-URL: http://www.nber.org/papers/w4618.pdf
File-Format: application/pdf
Publication-Status: published as With Pierre-Andre Chiappori and Ines Macho, published as "Repeated Moral Hazard: The Role of Memory, Commitment, and the Access to Credit Markers", European Economic Review (1994). RAND Journal of Economics, Vol. 26, no. 3 (1995): 431-451.
Abstract: The central objective of this paper is to show how vertical restraints, which affect intra-brand competition, can and will be used as an effective mechanism for reducing inter-brand competition and increasing producer profits. We show how exclusive territories alter the perceived demand curve, making each producer believe he faces a less elastic demand curve, thereby inducing an increase of the equilibrium price. The use of exclusive territories may increase producers' profits, even if the producers cannot charge franchise fees, and so cannot recapture, from the retailers, the monopoly rents they earn from their exclusive territory: we show that 'double marginalization' effects can be overcome by the strategic effect on producers' competition. We provide a model in which we can clearly specify the full range of feasible contracts between producers and retailers, and show that it is always a dominant strategy for firms to use exclusive territories (so that exclusive territories are used in equilibrium) and that the best situation from the producers' viewpoint may or may not entail franchise fees. In all cases, exclusive territories hurt consumer surplus and reduce total welfare, which yields a different light on vertical restraints from a competition policy perspective.
Handle: RePEc:nbr:nberwo:4618
Template-Type: ReDIF-Paper 1.0
Title: Lifecycle vs. Annual Perspectives on the Incidence of A Value Added Tax
Classification-JEL: H2
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 4619
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4619
File-URL: http://www.nber.org/papers/w4619.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy, vol. 8, ed. James M. Poterba, MIT Press, 1994
Abstract: This paper analyzes the steady state distribution of tax burdens of a Value Added Tax (VAT) in the United States using a lifetime perspective. In contrast to an annual snapshot perspective, I find that a VAT on total expenditures would be proportional over the lifetime. Various modifications to the VAT (zero rating necessities or giving lump sum household rebates) would increase the progressivity of the tax substantially. However, the additional progressivity comes at the cost of substantial tax revenue.
Handle: RePEc:nbr:nberwo:4619
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Gradual Trade Liberalization
Classification-JEL: F13
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 4620
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4620
File-URL: http://www.nber.org/papers/w4620.pdf
File-Format: application/pdf
Publication-Status: published as With Kyle Bagwell, published as "A Theory of Managed Trade", American Economic Review, Vol. 80, no. 4 (1990): 779-795.
Publication-Status: published as A. Deardorff, J. Levinsohn and R. Stern, eds. New Directions in Trade Theory, University of Michigan Press, 1995.
Abstract: This paper proposes a theory of gradual trade liberalization. I consider countries that are limited to self-enforcing arrangements in their trade relations. I argue that enforcement problems associated with the maintenance of low cooperative tariffs are exacerbated by the presence of resources in the import-competing sector that are (or potentially could be) earning rents from their sector-specific skills. Intuitively, by being able to transform into rents a portion of what otherwise would be dead weight loss under a tariff hike, the presence of such resources makes deviation from a low cooperative tariff to a high tariff more desirable for the deviating country, and makes punishments under reciprocally high tariffs less painful. Hence, the presence of rent-collecting resources in an import-competing sector acts as a deterrent to trade liberalization. But if an initial 'round' of liberalization can induce at least a portion of these resources in the import-competing sector to relocate to the rest of the economy, and if by not using their sector-specific skills these resources stand to lose them, then the enforcement issues associated with their presence will also diminish over time, and further rounds of liberalization are made possible by the effects of the initial round. I formalize this gradual process of trade liberalization, and explore the consequences of a failed round of liberalization for the ability to maintain current levels of cooperation.
Handle: RePEc:nbr:nberwo:4620
Template-Type: ReDIF-Paper 1.0
Title: Predictable Risk and Returns in Emerging Markets
Classification-JEL: F3; G0
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP
Number: 4621
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4621
File-URL: http://www.nber.org/papers/w4621.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, 1995, pp. 773-816
Abstract: The emergence of new equity markets in Europe, Latin America, Asia, the Mideast and Africa provides a new menu of opportunities for investors. These markets exhibit high expected returns as well as high volatility. Importantly, the low correlations with developed countries' equity markets significantly reduces the unconditional portfolio risk of a world investor. However, standard global asset pricing models, which assume complete integration of capital markets, fail to explain the cross-section of average returns in emerging countries. An analysis of the predictability of the returns reveals that emerging market returns are more likely than developed countries to be influenced by local information.
Handle: RePEc:nbr:nberwo:4621
Template-Type: ReDIF-Paper 1.0
Title: Sources of Risk and Expected Returns in Global Equity Markets
Author-Name: Wayne E. Ferson
Author-Person: pfe32
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP
Number: 4622
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4622
File-URL: http://www.nber.org/papers/w4622.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Banking and Finance, 1994, pp. 775-803
Abstract: This paper empirically examines multifactor asset pricing models for the returns and expected returns on eighteen national equity markets. The factors are chosen to measure global economic risks. Although previous studies do not reject the unconditional mean- variance efficiency of a world market portfolio, our evidence indicates that the tests are low in power, and the world market betas do not provide a good explanation of cross-sectional differences in average returns. Multiple beta models provide an improved explanation of the equity returns.
Handle: RePEc:nbr:nberwo:4622
Template-Type: ReDIF-Paper 1.0
Title: Conditional Asset Allocation in Emerging Markets
Classification-JEL: F3; G0
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP
Number: 4623
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4623
File-URL: http://www.nber.org/papers/w4623.pdf
File-Format: application/pdf
Publication-Status: Published as "Predictable Risk and Returns in Emerging Markets", Review of Financial Studies, Vol. 8, no. 3 (1995): 773-816.
Abstract: Within the context of conditional asset allocation strategies, this paper explores the implications of the low correlations of the emerging market returns with developed market returns and the relatively high degree predictability of emerging countries' returns. It is well known that low correlations improve investment opportunities and my research provides out-of-sample validation of the improved performance. However, the most dramatic enhancement is generated by the use of conditioning information. Portfolio strategies that use conditioning information to predict emerging market returns produce impressive out-of-sample performance over the 1980-1992 period.
Handle: RePEc:nbr:nberwo:4623
Template-Type: ReDIF-Paper 1.0
Title: The Implications of First-Order Risk Aversion for Asset Market Risk Premiums
Classification-JEL: G12; F3
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Robert J. Hodrick
Author-Person: pho115
Author-Name: David A. Marshall
Author-Person: pma2426
Note: AP
Number: 4624
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4624
File-URL: http://www.nber.org/papers/w4624.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 40 (September 1997): 3-39.
Abstract: Existing general equilibrium models based on traditional expected utility preferences have been unable to explain the excess return predictability observed in equity markets, bond markets, and foreign exchange markets. In this paper, we abandon the expected-utility hypothesis in favor of preferences that exhibit first-order risk aversion. We incorporate these preferences into a general equilibrium two-country monetary model, solve the model numerically, and compare the quantitative implications of the model to estimates obtained from U.S. and Japanese data for equity, bond and foreign exchange markets. Although increasing the degree of first-order risk aversion substantially increases excess return predictability, the model remains incapable of generating excess return predictability sufficiently large to match the data. We conclude that the observed patterns of excess return predictability are unlikely to be explained purely by time-varying risk premiums generated by highly risk averse agents in a complete markets economy.
Handle: RePEc:nbr:nberwo:4624
Template-Type: ReDIF-Paper 1.0
Title: New Facts About Factor-Demand Dynamics: Employment, Jobs, and Workers
Classification-JEL: J23
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: Wolter H. J. Hassink
Author-Name: Jan C. van Ours
Author-Person: pva54
Note: LS
Number: 4625
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4625
File-URL: http://www.nber.org/papers/w4625.pdf
File-Format: application/pdf
Publication-Status: published as Annales d'Economie et de Statistique, No.41/42, pp.21-39 (January 1996).
Abstract: We provide a unified discussion of the relations among flows of workers, changes in employment and changes in the number of jobs at the level of the firm. Using the only available set of data (a nationally representative sample of Dutch firms in 1988 and 1990) we discover that: 1) Nearly half of all hiring is by firms where employment is not growing; 2) Over half of all firing is by firms that are not contracting; 3) Most firing is by firms that are also hiring; 4) Flows of workers within firms are small compared to flows into and out of firms; and 5) Accounting for simultaneous creation and destruction of jobs within firms adds roughly 15 percent to estimates of economywide job creation and destruction. The results imply that macroeconomic fluctuations can have substantial effects beyond those indicated by net employment changes at the firm level, and that studies of dynamic factor demand must account for variations in gross flows of workers.
Handle: RePEc:nbr:nberwo:4625
Template-Type: ReDIF-Paper 1.0
Title: The New Regionalism: Trade Liberalization or Insurance?
Author-Name: Carlo Perroni
Author-Person: ppe298
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI
Number: 4626
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4626
File-URL: http://www.nber.org/papers/w4626.pdf
File-Format: application/pdf
Publication-Status: published as Perroni, Carlo and John Whalley. "The New Regionalism: Trade Liberalization Or Insurance?," Canadian Journal of Economics, 2000, v33(1,Feb), 1-24.
Abstract: Several of the recently negotiated regional trade agreements (Canada-U.S., NAFTA, E.C.-Hungary/Poland/Czeck and Slovak Republics) contain significantly fewer concessions by the large countries to smaller countries than vice versa. Yet, it is small countries that have sought them and see themselves as the main beneficiaries. In this paper we attempt to resolve this seeming paradox by interpreting such agreements as insurance arrangements for smaller countries, which partially protect them against the consequences of a global trade war. What they offer to the large countries in return is largely non-trade benefits (such as restraints on domestic policies in the smaller countries, firmer intellectual property protection, firmer guarantees of royalty arrangements affecting resources on state-owned lands). When evaluated alongside the regional trade arrangements of the 1960s (such as the E.C.), these agreements may appear to produce little or no benefit relative to the status quo for smaller countries; but when evaluated relative to a post-retaliation tariff equilibrium, the value of these agreements to small countries is large because they help preserve existing access to larger foreign markets. There is little incentive for large countries to negotiate such arrangements without side payments of the non-trade variety, because these agreements constrain their ability to play strategically against smaller neighbouring countries (who are still important trade partners) in a trade war. Such regional agreements compared across constrained and unconstrained Nash outcomes will typically be welfare worsening for large countries, and side payments are needed for the
Handle: RePEc:nbr:nberwo:4626
Template-Type: ReDIF-Paper 1.0
Title: The New York Stock Market in the 1920s and 1930s: Did Stock Prices Move Together Too Much?
Classification-JEL: G12; N22
Author-Name: Eugene N. White
Author-Person: pwh5
Author-Name: Peter Rappoport
Note: DAE
Number: 4627
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4627
File-URL: http://www.nber.org/papers/w4627.pdf
File-Format: application/pdf
Publication-Status: published as ANglo-American Financial Systems: Institutions and Markets in the Twentieth Century, ed. by Michael Bordo and Richard Sylla, Burr Ridge Irwin, 1995, pp . 299-316.
Abstract: In this paper, we re-examine the stock market of the 1920s and 1930s for evidence of a bubble, a 'fad' or 'herding' behavior by studying individual stock returns. One story often advanced for the boom of 1928 and 1929 is that it was driven by the entry into the market of largely uninformed investors, who followed the fortunes of and invested in 'favorite' stocks. The recent theoretical literature on how 'noise traders' perturb financial markets is consistent with this description. The result of this behavior would be a tendency for the favorite stocks' prices to move together more than would be predicted by their shared fundamentals. Our results suggest that there was excess comovement in returns even before the boom began, but comovement increased significantly during the boom and was a signal characteristic of the tumultuous market of the early 1930s. These results are thus consistent with the possibility that a fad or crowd psychology played a role in the rise of the market, its crash and subsequent volatility.
Handle: RePEc:nbr:nberwo:4627
Template-Type: ReDIF-Paper 1.0
Title: Evaluating Labour Adjustment Costs from Trade Shocks: Illustrations for the U.S. Economy Using an Applied General Equilibrium Model With Transactions
Author-Name: Ramon L. Clarete
Author-Name: Irene Trela
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI
Number: 4628
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4628
File-URL: http://www.nber.org/papers/w4628.pdf
File-Format: application/pdf
Abstract: This paper presents a general equilibrium approach to calculating labour adjustment costs induced by trade policy changes or external sector shocks, which we illustrate by analyzing the adjustment consequences of eliminating quotas and tariffs on U.S. imports. In our approach, factor adjustments in the presence of transactions costs are endogenously determined within the equilibrium structure. The conventional way of calculating such labour adjustment costs is to use full equilibrium models which exclude adjustment costs, and apply exogenous estimates of duration of unemployment to implied intersectoral labour reallocations. By using an equilibrium model in which adjustment costs are absent, the conventional approach tends to overstate the amount of labour that moves to other sectors and hence introduces an upward bias to estimates of adjustment costs. As well, such an approach tends to ignore the impact on intersectoral wage rates. Our results suggest that concerns over adjustment problems should focus as much on the consequences of adjustment costs in impeding factor mobility, as on the magnitude of the adjustment costs themselves. Compared to the redistributive effects they induce by inhibiting labour movement in response to policy or other changes, these costs may be small.
Handle: RePEc:nbr:nberwo:4628
Template-Type: ReDIF-Paper 1.0
Title: Retirement in a Family Context: A Structural Model for Husbands and Wives
Classification-JEL: D1; J14
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG
Number: 4629
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4629
File-URL: http://www.nber.org/papers/w4629.pdf
File-Format: application/pdf
Publication-Status: published as Gustman, Alan L. and Thomas L. Steinmeier. "Retirement In Dual-Career Families: A Structural Model," Journal of Labor Economics, 2000, v18(3,Jul), 503-545.
Abstract: A structural econometric model of retirement of married couples is specified and estimated with recent panel data from the NLS for Mature Women. A coincidence of spouses retiring together, despite the younger ages of wives, suggests explicit efforts at coordination. The estimates suggest that one reason is a coincidence of tastes for leisure. More importantly, each spouse, and perhaps husbands in particular, values retirement more once their spouse has retired. The opportunity set accounts for peaks in the retirement hazards of each spouse, but coordination in opportunities is not responsible for coordination of retirement dates.
Handle: RePEc:nbr:nberwo:4629
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Volatility, Monetary Policy, and Capital Mobility: Empirical Evidence on the Holy Trinity
Classification-JEL: F31; F33
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 4630
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4630
File-URL: http://www.nber.org/papers/w4630.pdf
File-Format: application/pdf
Publication-Status: published as JIMF, 1996
Abstract: This paper uses a panel of data from twenty-two countries between 1967 and 1992 to explore the tradeoff between the 'Holy Trinity' of fixed exchange rates, independent monetary policy, and capital mobility. I use: flexible- and sticky-price monetary exchange rate models to parameterize monetary divergence; factor analysis to extract measures of capital mobility from a variety of different indicators; and conditional exchange rate volatility to measure the degree to which the exchange rate is fixed. Exchange rate volatility is loosely linked to both monetary divergence and the degree of capital mobility. Interestingly, exchange rate volatility is significantly correlated with the width of the explicitly declared exchange rate band, even after taking monetary divergence and capital mobility into account.
Handle: RePEc:nbr:nberwo:4630
Template-Type: ReDIF-Paper 1.0
Title: Accuracy, Complexity, and the Income Tax
Classification-JEL: H24
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 4631
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4631
File-URL: http://www.nber.org/papers/w4631.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law, Economics, and Organization, vol. 14, no. 1, pp. 61-83, 1998.
Abstract: The complexity of the income tax is an unending source of complaint. Compliance costs have received increasing attention and are estimated to be large. Yet most recognize that some degree of complexity is necessary if ability to pay is to be measured accurately. This article presents a framework for analyzing the value of greater accuracy in income taxation. Formulations for both distributive and incentive benefits of accuracy are offered. The question whether taxpayers have excessive or inadequate incentives to acquire information about taxable income and to challenge tax assessments is also examined.
Handle: RePEc:nbr:nberwo:4631
Template-Type: ReDIF-Paper 1.0
Title: "Public Sector Pension Governance and Performance"
Classification-JEL: B00; J3
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Ping Lung Hsin
Note: AG AP LS
Number: 4632
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4632
File-URL: http://www.nber.org/papers/w4632.pdf
File-Format: application/pdf
Publication-Status: published as in The Economics of Pension; Principles, Policies, and International Exper-ience.ed. Salvador Valdes Prieto. Cambridge: Cambridge University Press, 1997.
Abstract: This paper investigates the determinants of public sector pension plan investment and funding behavior. Its goal is to draw lessons which may be used to improve the design and governance of public pensions. Plan performance is related to characteristics of the pension systems' governance structure and authority, using a new survey of U.S. state and local public pension plan governance practices and performance outcomes. The study suggests that most large public pension systems funded their plans satisfactorily in 1990, but some did not. Better public pension funding was associated with a pension system having in-house actuaries and when pension Board members were required to carry liability insurance. In contrast, public pension funding was lower when states experienced fiscal stress, and when employees were represented on the pension system Board. Pension funding did not appear sensitive to statutes guaranteeing benefits or funding levels, nor by the ability of states to carry budget deficits from one year to the next. The results also suggest that public pension Boards having more retiree-Trustees experienced lower investment returns, as did public sector pension plans required to devote a portion of their assets to in-state investments. Returns did not differ depending on whether a pension Board had in-house, or external money managers. No single set of pension plan management practices can optimize plan performance for all systems across all time periods. Nevertheless, these results suggest that care must be taken when designing the regulatory and investment environment in which these plans operate.
Handle: RePEc:nbr:nberwo:4632
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy with Flexible Exchange Rates and Forward Interest Rates as Indicators
Classification-JEL: E50; F31
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM ME
Number: 4633
Creation-Date: 1994-01
Order-URL: http://www.nber.org/papers/w4633
File-URL: http://www.nber.org/papers/w4633.pdf
File-Format: application/pdf
Publication-Status: published as Banque de France, Cahiers economiques et monetaires, ed. Jean-Marie Roux,vol. 43, no. 0396-4701, pp 305-332, (1994)
Abstract: In the new situation with flexible exchange rates, monetary policy in Europe will have to rely more on indicators than previously under fixed rates. One of the potential indicators, the forward interest rate curve, can be used to indicate market expectations of the time-paths of future short interest rates, monetary policy, inflation rates and currency depreciation rates. The forward rate curve separates market expectations for the short, medium and long term more easily than the standard yield curve. Monetary policy in France, Germany, Great Britain, Sweden and the United States is interpreted with the help of forward rates.
Handle: RePEc:nbr:nberwo:4633
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth and the Environment
Classification-JEL: Q25; O57
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: ITI PE
Number: 4634
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4634
File-URL: http://www.nber.org/papers/w4634.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol. 110, 1995, pp. 353-378
Abstract: Using data assembled by the Global Environmental Monitoring System we examine the reduced-form relationship between various environmental indicators and the level of a country's per capita income. Our study covers four types of indicators: concentrations of urban air pollution; measures of the state of the oxygen regime in river basins; concentrations of fecal contaminants in river basins; and concentrations of heavy metals in river basins. We find no evidence that environmental quality deteriorates steadily with economic growth. Rather, for most indicators, economic growth brings an initial phase of deterioration followed by a subsequent phase of improvement. The turning points for the different pollutants vary, but in most cases they come before a country reaches a per capita income of $8,000.
Handle: RePEc:nbr:nberwo:4634
Template-Type: ReDIF-Paper 1.0
Title: Employee Decisions with Respect to 401(k) Plans: Evidence From Individual-Level Data
Classification-JEL: H2; J3
Author-Name: Andrea L. Kusko
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: David W. Wilcox
Author-Person: pwi165
Note: AG PE
Number: 4635
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4635
File-URL: http://www.nber.org/papers/w4635.pdf
File-Format: application/pdf
Publication-Status: published as in Olivia Mitchell and Syllvester Schieber, eds., Living with Defined Contribution Pensions: Remaking Responsibility for Retirement. (University of Pennsylvania Press, 1997).
Abstract: 401(k) plans have been the most rapidly growing type of employer- provided pension plan during the last decade. This paper utilizes employee-level data from the 401(k) plan at a medium-sized U.S. manufacturing firm to analyze the participation and contribution decisions of workers eligible for this plan. Our analysis reveals two important features of 401(k) participant behavior. First, contribution decisions of eligible employees are relatively insensitive to the rate of employer matching on worker contributions. Most employees maintain the same participation status and contribution rate year after year, despite substantial changes in the employer's match rate at the firm we study. This suggests that employer matching may not be a critical factor in explaining the growth of 401(k) plans. Second, we find that institutional constraints on contributions, imposed either by the employer or by the IRS, are an extremely important influence on contributor behavior. About three quarters of eligible employees contributed at rates that place them at one of the 'corners' or 'kinks' in the 401(k) opportunity set. This finding must be recognized in any analysis of how changes in 401(k) plan provisions are likely to affect contribution levels.
Handle: RePEc:nbr:nberwo:4635
Template-Type: ReDIF-Paper 1.0
Title: Preventing Financial Crises: An International Perspective
Classification-JEL: E5; E65
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 4636
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4636
File-URL: http://www.nber.org/papers/w4636.pdf
File-Format: application/pdf
Publication-Status: published as The Manchester School, vol. 62, S1, pp. 1-40, September 1994 (Papers in Money, Macroeconomics and Finance, Proceedings of the Money, Macroeconomics and Finance Research Group, 1993)
Publication-Status: published as Mishkin, Frederic S, 1994. "Preventing Financial Crises: An International Perspective," The Manchester School of Economic & Social Studies, University of Manchester, vol. 62(0), pages 1-40, Suppl..
Abstract: In recent years the possibility of an international financial crisis has increased because of greater liquidity of international financial markets, an increase in corporate indebtedness and the decline of the banking industry. Using an asymmetric information analysis, this paper outlines what signals a central bank might look for to determine if a financial crisis is occurring and then describes how central banks might operate and cooperate to prevent financial crises.
Handle: RePEc:nbr:nberwo:4636
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Budget Deficits
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Roberto Perotti
Author-Person: ppe66
Note: ME PE
Number: 4637
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4637
File-URL: http://www.nber.org/papers/w4637.pdf
File-Format: application/pdf
Publication-Status: published as With Jose Tavares, published as "The Political Economy of Fiscal Adjustments", Brookings Paper, Vol. 28, no. 1 (1998): 197-248.
Publication-Status: published as Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," Staff Papers - International Monetary Fund, vol 42(1).
Abstract: This paper provides a critical survey of the literature on politico-institutional determinants of the government budget. We organize our discussion around two questions: Why did certain OECD countries, but not others, accumulate large public debts? Why did these fiscal imbalances appear in the last twenty years rather than before? We begin by discussing the 'tax smoothing' model and conclude that this approach alone cannot provide complete answers to these questions. We will then proceed to a discussion of political economy models, which we organize in six groups: i) Models based upon opportunistic policy makers and naive voters with 'fiscal illusion'; ii) Models of intergenerational redistributions; iii) Models of debt as a strategic variable, linking the current government with the next one; iv) Models of coalition governments; v) Models of geographically dispersed interests; vi) Models emphasizing the effects of budgetary institutions.
Handle: RePEc:nbr:nberwo:4637
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth, Population Theory, and Physiology: The Bearing of Long-Term Processes on the Making of Economic Policy
Author-Name: Robert W. Fogel
Note: DAE EFG EH
Number: 4638
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4638
File-URL: http://www.nber.org/papers/w4638.pdf
File-Format: application/pdf
Publication-Status: published as The American Economic Review, Vol. 84, no. 3, pp. 369-395, (June 1994).
Abstract: This paper sketches a theory of the secular decline in morbidity and mortality that takes account of changes in human physiology since 1700. The synergism between technological and physiological improvements has produced a form of human evolution, much more rapid than natural selection, which is still ongoing in both OECD and developing countries. Thermodynamic and physiological aspects of economic growth are defined and their impact on growth rates is assessed. Implications of this theory for population forecasting, measurement of national income, demand for leisure, pension policies, and for the demand for health care are considered.
Handle: RePEc:nbr:nberwo:4638
Template-Type: ReDIF-Paper 1.0
Title: Home Country Effects of Foreign Direct Investment: Evidence from Sweden
Classification-JEL: F23
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Ari Kokko
Author-Person: pko5
Note: ITI
Number: 4639
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4639
File-URL: http://www.nber.org/papers/w4639.pdf
File-Format: application/pdf
Publication-Status: published as Steve Globerman, ed. Canadian-Based Multinationals, Calgary: University of Calgary Press (1994)., pp. 341-364
Abstract: This paper examines two broad issues related to foreign investment by Swedish multinationals: first the effects of outward foreign direct investment on domestic investment, exports, and employment, and second, the effects on the domestic economy from the increasing division of labor between the parents and foreign affiliates of Swedish MNCs. The paper summarizes and synthesizes the existing empirical evidence on these matters (much of which has hitherto only been available in Swedish) and discusses some possible long run effects that have not received much attention in the literature.
Handle: RePEc:nbr:nberwo:4639
Template-Type: ReDIF-Paper 1.0
Title: The Logic of Currency Crises
Classification-JEL: F31
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: IFM
Number: 4640
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4640
File-URL: http://www.nber.org/papers/w4640.pdf
File-Format: application/pdf
Publication-Status: published as Cahiers economiques et monetaires, no. 43, pp. 189-213 (Paris: Banque de France, 1994).
Abstract: Once one recognizes that governments borrow international reserves and exercise other policy options to defend fixed exchange rates during currency crises, the question arises: What factors determine a government's decision to abandon a currency peg or hang on? In a setting of purposeful action by the authorities, the possibility of self-fulfilling crises becomes important. Speculative anticipations depend on conjectured government responses, which depend, in turn, on how price changes that are themselves fueled by expectations affect the government's economic and political positions. The circular dynamic implies a potential for crises that need not have occurred, but that do because market participants expect them to. In contrast to this picture, most previous literature on balance-of- payments crises ignores the response of government behavior to markets. That literature, I argue, throws little light on events such as the European Exchange Rate Mechanism collapse of 1992-93. This paper then presents two different models in which crisis and realignment result from the interaction of rational private economic actors and a government that pursues well-defined policy goals. In both, arbitrary expectational shifts can turn a fairly credible exchange-rate peg into a fragile one.
Handle: RePEc:nbr:nberwo:4640
Template-Type: ReDIF-Paper 1.0
Title: Long-Run Convergence of Ethnic Skill Differentials
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 4641
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4641
File-URL: http://www.nber.org/papers/w4641.pdf
File-Format: application/pdf
Publication-Status: Published as "Long-Run Convergence of Ethnic Skill Differentials: The Children and Grandchildren of the Great Migration", Industrial and Labor Relations Review, Vol. 47, no. 4 (1994): 553-573.
Publication-Status: published as George J. Borjas, 2001. "Long-Run Convergence of Ethnic Skill Differentials, Revisited," Demography, vol 38(3), pages 357-361.
Abstract: This paper investigates if the ethnic skill differentials introduced into the United States by the inflow of very dissimilar immigrant groups during the Great Migration of 1880-1910 disappeared during the past century. An analysis of the 1910, 1940, and 1980 Censuses and the General Social Surveys revealed that ethnic differentials converge slowly. It might take four generations, or roughly 100 years, for the skill differentials introduced by the Great Migration to disappear. The analysis also indicates that the economic mobility experienced by American-born blacks resembles that of the white ethnic groups that made up the Great Migration.
Handle: RePEc:nbr:nberwo:4641
Template-Type: ReDIF-Paper 1.0
Title: France and the Bretton Woods International Monetary System: 1960-1968
Classification-JEL: F42; F33
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Dominique Simard
Author-Name: Eugene White
Author-Person: pwh5
Note: DAE IFM ME
Number: 4642
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4642
File-URL: http://www.nber.org/papers/w4642.pdf
File-Format: application/pdf
Publication-Status: published as The History of International Monetary Arrangements, James Reis (ed). Macmillan: London, 1995.
Publication-Status: published as International Monetary Systems in Historical Perspective, Jaime Reis, ed., 1995, pp. 153-180.
Abstract: We reinterpret the commonly held view in the U.S. that France, by following a policy from 1965 to 1968 of deliberately converting their dollar holdings into gold helped perpetuate the collapse of the Bretton Woods International Monetary System. We argue that French international monetary policy under Charles de Gaulle was consistent with strategies developed in the interwar period and the French Plan of 1943. France used proposals to return to an orthodox gold standard as well as conversions of its dollar reserves into gold as tactical threats to induce the United States to initiate the reform of the international monetary system towards a more symmetrical and cooperative gold-exchange standard regime.
Handle: RePEc:nbr:nberwo:4642
Template-Type: ReDIF-Paper 1.0
Title: Measuring Business Cycles: A Modern Perspective
Classification-JEL: E32
Author-Name: Francis X. Diebold
Author-Person: pdi1
Author-Name: Glenn D. Rudebusch
Author-Person: pru10
Note: EFG
Number: 4643
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4643
File-URL: http://www.nber.org/papers/w4643.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol., LXXVIII, no. 1, February 1996, pp . 67-77
Abstract: In the first half of this century, special attention was given to two features of the business cycle: (1) the comovement of many individual economic series and (2) the different behavior of the economy during expansions and contractions. Both of these attributes were ignored in many subsequent business cycle models, which were often linear representations of a single macroeconomic aggregate. However, recent theoretical and empirical research has revived interest in each attribute separately. Notably, dynamic factor models have been used to obtain a single common factor from a set of macroeconomic variables, and nonlinear models have been used to describe the regime-switching nature of aggregate output. We survey these two strands of research and then provide some suggestive empirical analysis in an effort to unite the two literatures and to assess their usefulness in a statistical characterization of business- cycle dynamics.
Handle: RePEc:nbr:nberwo:4643
Template-Type: ReDIF-Paper 1.0
Title: Saving Babies: The Efficacy and Cost of Recent Expansions of Medicaid Eligibility for Pregnant Women
Classification-JEL: H51; J12
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: EH
Number: 4644
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4644
File-URL: http://www.nber.org/papers/w4644.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Dec.1996, 104(6), pp.1263-1296
Abstract: A key question for health care reform in the U.S. is whether expanded health insurance eligibility will lead to improvements in health outcomes. We address this question in the context of dramatic expansions in the Medicaid eligibility for pregnant women that took place during the 1980s. We build a detailed simulation model of each state's Medicaid policy during the 1979-1990 period, and use this model to estimate 1) the effect of changes in the rules on the eligibility of pregnant women for Medicaid, and 2) the effect of Medicaid eligibility changes on birth outcomes in aggregate Vital Statistics data. We have three main findings. First, the expansions did dramatically increase the Medicaid eligibility of pregnant women, but did so at quite differential rates across the states. Second, the expansions lowered the incidence of infant mortality and low birthweight; we estimate that the 20 percentage point increase in eligibility among 15-44 year old women was associated with a decrease in infant mortality of 7%. Third, earlier, targeted changes in Medicaid eligibility, such as through relaxations of the family structure requirements from the AFDC program, had much larger effects on birth outcomes than broader expansions of eligibility to all women with somewhat higher income levels. We suggest that the source of this difference was the much lower takeup of Medicaid coverage by individuals who became eligible under the broader expansions. We find that the targeted expansions, which raised Medicaid expenditures by $1.7 million per infant life saved, were in line with conventional
Handle: RePEc:nbr:nberwo:4644
Template-Type: ReDIF-Paper 1.0
Title: International Portfolio Choice and Asset Pricing: An Integrative Survey
Author-Name: Rene M. Stulz
Note: AP CF
Number: 4645
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4645
File-URL: http://www.nber.org/papers/w4645.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of Modern Finance, R. Jarrow, M. Maximovich, and W. Ziemba, 1995,pp. 201-228
Abstract: In general, theories of portfolio choice and asset pricing let investors differ at most with respect to their preferences, their wealth and, possibly, their information sets. If there are multiple countries, however, the investment and consumption opportunity sets of investors depend on their country of residence. International portfolio choice and asset pricing theories attempt to understand how the existence of country-specific investment and consumption opportunity sets affect the portfolios held by investors and the expected returns of assets. In this paper, we review these theories within a common framework, discuss how they fare in empirical tests, and assess their relevance for the field of international finance.
Handle: RePEc:nbr:nberwo:4645
Template-Type: ReDIF-Paper 1.0
Title: A Model of Research, Patenting, and Technological Change
Classification-JEL: 030; 040
Author-Name: Samuel Kortum
Author-Person: pko74
Note: PR
Number: 4646
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4646
File-URL: http://www.nber.org/papers/w4646.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 65, no. 6 (November 1997): 1389-1919.
Abstract: I use the aggregate behavior of three indicators of technology (employment of research scientists and engineers, patented inventions, and total factor productivity) to identify a plausible model of endogenous technological change. In the US (as well as in other developed countries) research employment and total factor productivity have both grown, while the rate of patenting has remained relatively flat. One interpretation of these facts is that: (i) patentable inventions are becoming increasingly difficult to discover as the quality of techniques in use increases, (ii) inventions which are patented represent percentage improvements on techniques currently in use, and (iii) the size of the economy is growing, making patents increasingly valuable and justifying increased research efforts devoted to discovering them. This paper presents a general equilibrium search theoretic model of invention which formalizes this view.
Handle: RePEc:nbr:nberwo:4646
Template-Type: ReDIF-Paper 1.0
Title: Did Computer Technology Diffuse Quickly?: Best and Average Practice in Mainframe Computers, 1968-1983
Classification-JEL: L63; O33
Author-Name: Shane M. Greenstein
Author-Person: pgr134
Note: PR
Number: 4647
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4647
File-URL: http://www.nber.org/papers/w4647.pdf
File-Format: application/pdf
Abstract: An economy benefits from advances in technical frontiers only when new technology comes into general use. This paper measures the diffusion of computing equipment at a time when computing technology underwent dramatic technical improvement. These data shed light on the long lag between advances in computing technology and advances in economic performance of users. There is little evidence that long lags were produced by the 'slow diffusion' of new technology embodied in new hardware. 'Average practice' in computing advanced as rapidly as 'best practice,' lagging it by a maximum of 6 to 7 years.
Handle: RePEc:nbr:nberwo:4647
Template-Type: ReDIF-Paper 1.0
Title: "The Federal Deposit Insurance Fund That Didn't Put A Bite on U.S. Tax Payers"
Classification-JEL: G2
Author-Name: Edward J. Kane
Author-Person: pka853
Author-Name: Robert Hendershott
Note: CF
Number: 4648
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4648
File-URL: http://www.nber.org/papers/w4648.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Banking and Finance, 20(September,1996), pp.1305-1327
Abstract: Unlike the Federal Savings and Loan Insurance Corporation and the Bank Insurance Fund, the National Credit Union Share Insurance Fund (NCUSIF) entered the 1990s in a state of accounting solvency. This paper develops evidence to show the more important fact that NCUSIF remained solvent in a market-value sense as well. Differences in institutional product lines and risk-taking opportunities between credit unions and banks and thrifts are not consequential enough to explain the differences in their funds' health. This paper explains how differences in decisionmaking environments made managerial and regulatory risk-taking incentives in the credit-union industry diverge substantially from those governing banks and S&Ls. The differences in incentive structure support the hypothesis that private coinsurance could lessen taxpayer loss exposure elsewhere in the federal deposit insurance system.
Handle: RePEc:nbr:nberwo:4648
Template-Type: ReDIF-Paper 1.0
Title: Health, Income, and Risk Aversion: Assessing Some Welfare Costs of Alcoholism and Poor Health
Classification-JEL: I1
Author-Name: John Mullahy
Author-Name: Jody L. Sindelar
Note: EH
Number: 4649
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4649
File-URL: http://www.nber.org/papers/w4649.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, vol XXX, no. 3, Summer 1995, pp 439-459
Abstract: The economic costs of adverse health outcomes have typically been evaluated in a context of risk neutrality, an approach that ignores the potential welfare importance of individuals' risk preferences. This paper presents a framework that unifies the research in health capital and earnings with that on risk preferences in the presence of stochastic outcomes. The model is implemented to obtain estimates of the economic damages due both to general health problems as well as to one specific health problem that is of considerable interest from society's perspective: alcoholism. Our empirical findings, based on data from the Epidemiologic Catchment Area survey, indicate that failure to recognize the possibility of risk averse preferences leads to a potentially serious underestimation of the magnitudes of the 'costs' of alcoholism and poor health. In particular, it is shown that while alcoholism problems have negative impacts on the conditional mean of income (consistent with most of the existing literature), they also have positive impacts on the conditional variance of income. Our conclusions are to some degree provisional because our estimates of conditional variances are necessarily biased to the extent that unobserved heterogeneity is an important determinant of the moment structure of income in our sample.
Handle: RePEc:nbr:nberwo:4649
Template-Type: ReDIF-Paper 1.0
Title: Is the Business Cycles a Necessary Consequence of Stochastic Growth?
Classification-JEL: E13; E32
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG
Number: 4650
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4650
File-URL: http://www.nber.org/papers/w4650.pdf
File-Format: application/pdf
Publication-Status: published as "Real Business Cycle Models and the Forecastable Movements in Outputs, Hours, and Consumption," American Economic Review, Vol. 86 (1996): 17-89.
Abstract: We compute the forecastable changes in output, consumption, and hours implied by a VAR that includes the growth rate of private value added, the share of output that is consumed, and the detrended level of private hours. We show that the size of the forecastable changes in output greatly exceeds that predicted by a standard stochastic growth model, of the kind studied by real business cycle theorists. Contrary to the model's implications, forecastable movements in labor productivity are small and only weakly related to forecasted changes in output. Also, forecasted movements in investment and hours are positively correlated with forecasted movements in output. Finally, and again in contrast to what the growth model implies, forecasted output movements are positively related to the current level of the consumption share and negatively related to the level of hours. We also show that these contrasts between the model and the observations are robust to allowance for measurement error and a variety of other types of transitory disturbances.
Handle: RePEc:nbr:nberwo:4650
Template-Type: ReDIF-Paper 1.0
Title: Explaining the Duration of Exchange-Rate Pegs
Classification-JEL: F31; F33
Author-Name: Michael W. Klein
Author-Person: pkl9
Author-Name: Nancy P. Marion
Author-Person: pma1464
Note: IFM
Number: 4651
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4651
File-URL: http://www.nber.org/papers/w4651.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 54, no. 2 (December 1997): 387-404.
Abstract: This paper is a theoretical and empirical investigation into the duration of exchange-rate pegs. The theoretical model considers a policy-maker who must trade off the economic costs of real exchange- rate misalignment against the political cost of realignment. The optimal time to spend on a peg is derived and factors that influence peg duration are identified. The predictions of the model are tested using logit analysis with a data set of exchange-rate pegs for sixteen Latin American countries and Jamaica during the 1957-1991 period. We find that the real exchange rate is a significant determinant of the likelihood of a devaluation. Structural variables, such as the openness of the economy and its geographical trade concentration, also significantly affect the likelihood of a devaluation. Finally, political events that change the political cost of realignment, such as regular and irregular executive transfers, are empirically important determinants of the likelihood of a devaluation.
Handle: RePEc:nbr:nberwo:4651
Template-Type: ReDIF-Paper 1.0
Title: Non-Leaky Buckets: Optimal Redistributive Taxation and Agency Costs
Classification-JEL: H21; D82
Author-Name: Karla Hoff
Author-Person: pho255
Author-Name: Andrew B. Lyon
Author-Person: ply2
Note: PE
Number: 4652
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4652
File-URL: http://www.nber.org/papers/w4652.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 58, no. 3 (1995): 365-390.
Abstract: Economists have generally argued that income redistribution comes at a cost in aggregate incomes. We provide a counter-example in a model where private information gives rise to incentive constraints. In the model, a wage tax creates the usual distortion in labor-leisure choices, but the grants that it finances reduce a distortion in investment in human capital. We prove that simple redistributive policies can yield Pareto improvements and increase aggregate incomes. Where higher education is beyond the reach of the poor, the wage tax- transfer policy is under most circumstances more effective than targeted credit taxes or subsidies in increasing over-all efficiency.
Handle: RePEc:nbr:nberwo:4652
Template-Type: ReDIF-Paper 1.0
Title: Intellectual Capital and the Birth of U.S. Biotechnology Enterprises
Classification-JEL: L11
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Author-Name: Marilynn B. Brewer
Note: PR
Number: 4653
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4653
File-URL: http://www.nber.org/papers/w4653.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 88, no. 1, March 1998. pp. 290-306
Abstract: We examine the relationship between the intellectual capital of scientists making frontier discoveries, the presence of great university bioscience programs, the presence of venture capital firms, other economic variables, and the founding of U.S. biotechnology enterprises during 1976-1989. Using a linked cross-section/time- series panel data set, we find that the timing and location of the birth of biotech enterprises is determined primarily by intellectual capital measures, particularly the local number of highly productive 'star' scientists actively publishing genetic sequence discoveries. Great universities are likely to grow and recruit star scientists, but their effect is separable from the universities. When the intellectual capital measures are included in our poisson regressions, the number of venture capital firms in an area reduces the probability of foundings. At least early in the process, star scientists appear to be the scarce, immobile factors of production. Our focus on intellectual capital is related to knowledge spillovers, but in this case 'natural excludability' permits capture of supranormal returns by scientists. Given this reward structure technology transfer was vigorous without any special intermediating structures. We believe biotechnology may be prototypical of the birth patterns in other innovative industries.
Handle: RePEc:nbr:nberwo:4653
Template-Type: ReDIF-Paper 1.0
Title: Asset Sales, Firm Performance, and the Agency Costs of Managerial Discretion
Author-Name: Larry Lang
Author-Name: Annette Poulsen
Author-Name: Rene M. Stulz
Note: AP CF
Number: 4654
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4654
File-URL: http://www.nber.org/papers/w4654.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, 1995, pp. 3-38
Abstract: We argue that management sells assets when doing so provides the cheapest funds to pursue its objectives rather than for operating efficiency reasons alone. This hypothesis suggests that (1) firms selling assets have high leverage and/or poor performance, (2) a successful asset sale is good news and (3) the stock market discounts asset sale proceeds retained by the selling firm. In support of this hypothesis, we find that the typical firm in our sample performs poorly before the sale and that the average stock-price reaction to asset sales is positive only when the proceeds are paid out.
Handle: RePEc:nbr:nberwo:4654
Template-Type: ReDIF-Paper 1.0
Title: Relative Returns on Equities in Pacific Basin Countries
Classification-JEL: F3; F4
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: John H. Rogers
Author-Person: pro248
Note: IFM
Number: 4655
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4655
File-URL: http://www.nber.org/papers/w4655.pdf
File-Format: application/pdf
Publication-Status: published as Charles Engel & John H. Rogers, 1992. "Relative returns on equities in Pacific Basin countries," Proceedings, Federal Reserve Bank of San Francisco, pages 48-67.
Publication-Status: published as Exchange Rate Policy and Interdependence: Perspectives from the Pacific Basin, Reuben Glick and Michal M. Hutchinson, eds. Cambridge University Press , 1994.
Abstract: We examine the factors that determine the differences in ex ante returns on equities in eleven Pacific Basin countries. Our concern is whether real return differentials are primarily caused by nominal return differentials or expected changes in real exchange rates. We find that nominal return differentials account for most of the difference, which suggests that either there is not free mobility of capital between the countries of our study or that there are significant differences in the riskiness of returns across countries. We do not find a significant relationship between the size of the return differentials and the flexibility of the nominal exchange rate.
Handle: RePEc:nbr:nberwo:4655
Template-Type: ReDIF-Paper 1.0
Title: On The Need For Fiscal Discipline in an Union
Classification-JEL: F15; F42
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: IFM
Number: 4656
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4656
File-URL: http://www.nber.org/papers/w4656.pdf
File-Format: application/pdf
Publication-Status: published as "Fiscal discipline in a union," in The Political Economy of Economic Reforms, ed by F. Sturzenegger and M. Tommasi, MIT Press, 1998,pp. 185-208.
Abstract: This paper investigates the behavior of public debt in countries forming a union (as outlined, e.g., by the Maastricht treaty). We consider a federal union of states where the center has limited control over the spending patterns of the union members, and where the union members' behavior has repercussions for the future public debt. The public has preferences against higher public debt, and will oust high-debt administrations. Adverse shocks are shown to induce a regime switch from a cooperative outcome to limited cooperation, and from limited cooperation to the noncooperative outcome. While a transitory adverse shock calls for a higher public debt in the cooperative regime, the switch towards limited cooperation entails a drop in the public debt (relative to the cooperative desirable outcome). With limited cooperation further drops in income will call for a drop in public debt. If the adverse shock is powerful enough, sustaining limited cooperation may become unfeasible. A regime switch may yield nonlinearities, where the macroeconomic behavior is abruptly altered following the switch. Our model provides a tentative support for limits on public debt, needed to free the instrument of deficit financing for use in bad recessions.
Handle: RePEc:nbr:nberwo:4656
Template-Type: ReDIF-Paper 1.0
Title: A Test of the International CAPM Using Business Cycles Indicators as Instrumental Variables
Classification-JEL: G11; G12
Author-Name: Bernard Dumas
Author-Person: pdu519
Note: AP IFM
Number: 4657
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4657
File-URL: http://www.nber.org/papers/w4657.pdf
File-Format: application/pdf
Publication-Status: published as The Internationalization of Equity Markets, Jeffrey A. Frankel ed., pp. 23-50, (Chicago: University of Chicago Press: 1994).
Publication-Status: published as A Test of the International CAPM Using Business Cycles Indicators as Instrumental Variables, Bernard Dumas. in The Internationalization of Equity Markets , Frankel. 1994
Abstract: Previous work by Dumas and Solnik (1993) has shown that a CAPM which incorporates foreign-exchange risk premia (a so-called 'international CAPM') is better capable empirically of explaining the structure of worldwide rates of return than does the classic CAPM. In the specification of that test, moments of rates of return were allowed to vary over time in relation to a number of lagged 'instrumental variables'. Dumas and Solnik used instrumental variables which were endogenous or 'internal' to the financial market (lagged world market portfolio rate of return, dividend yield, bond yield, short-term rate of interest). In the present paper, I use as instruments economic variables which are 'external' to the financial market, such as leading indicators of the business cycles. This is an attempt to explain the behavior of the international stock market on the basis of economically meaningful variables which capture 'the state of the economy'. I find that the leading indicators put together by Stock and Watson (NBER working paper no. 4014, 1992) as predictors of the U.S. business cycle also predict stock returns in the U.S., Germany, Japan and the United Kingdom. These instruments lead again to a rejection of the classic CAPM and no rejection of the international CAPM.
Handle: RePEc:nbr:nberwo:4657
Template-Type: ReDIF-Paper 1.0
Title: Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?
Author-Name: Richard Clarida
Author-Person: pcl69
Author-Name: Jordi Gali
Author-Person: pga43
Note: IFM
Number: 4658
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4658
File-URL: http://www.nber.org/papers/w4658.pdf
File-Format: application/pdf
Publication-Status: published as Research Papers Presented at the 1994 Texas Conference on Monetary Economics, April 23–24, 1994, Federal Reserve Bank of Dallas
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 41, December 1994. pp. 1-56.
Publication-Status: published as Richard Clarida & Jordi Gali, 1994. "Sources of real exchange rate fluctuations: how important are nominal shocks?," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
Abstract: This paper investigates empirically and attempts to identify the sources of real exchange rate fluctuations since the collapse of Bretton Woods. The paper's first two sections survey and extend earlier, non-structural empirical work on this subject by Campbell and Clarida (1987), Meese and Rogoff (1988), and Cumby and Huizinga (1990). The paper's main contribution is to build and estimate a three equation open macro model in the spirit of Dornbusch (1976) and Obstfeld (1985) and to identify the model's structural shocks - to demand, supply, and money -using the approach pioneered by Blanchard and Quah (1989). For two of the four countries we study, Germany and Japan, our structural estimates imply that monetary shocks, to money supply as well as to the demand for real money balances, explain a substantial amount of the variance of real exchange rates relative to the dollar. We find that demand shocks, to national saving and investment, explain the majority of the variance in real exchange rate fluctuations, while supply shocks explain very little. The model's estimated short run dynamics are strikingly consistent with the predictions of the simple textbook Mundell-Fleming model.
Handle: RePEc:nbr:nberwo:4658
Template-Type: ReDIF-Paper 1.0
Title: Balanced and Unbalanced Growth
Classification-JEL: F43; O11
Author-Name: James E. Rauch
Author-Person: pra166
Note: ITI
Number: 4659
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4659
File-URL: http://www.nber.org/papers/w4659.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 53 (June 1997): 41-66. Journal of Development Economics, Vol. 54 (December 1997): 493-518(reprinted with corrected page proofs).
Abstract: A mechanism of endogenous growth suitable for investigation of sectoral or regional interaction is developed. It is shown how the high value placed on production linkages by economic historians might be reconciled with the high value placed on openness (often implying lack of linkages) by observers of contemporary less developed countries. When the output of one sector is traded and the output of the other is nontraded, it is shown how the traded goods sector acts as the 'engine of growth' in the sense that its profitability of knowledge acquisition primarily determines the steady state aggregate growth rate. It is also shown how sectors or regions interact out of steady state through product, labor, and capital markets, and in particular how if the former interaction dominates the growth of one sector 'pulls along' the growth of the other while if the latter two interactions dominate one sector or region booms while the other declines. The paper builds on these results to show why liberalization of foreign trade should lead to a transition from a lower to a higher steady state growth rate and why, during the course of this transition, growth might initially be even slower than before liberalization. On this basis a reinterpretation of the post-1973 economic performance of Chile is offered. A final application to economic integration of previously separate regions or countries shows that the largest growth effects are to be had if one region is allowed to decline and provide a source of cheap labor for the other region.
Handle: RePEc:nbr:nberwo:4659
Template-Type: ReDIF-Paper 1.0
Title: What Determines Expected International Asset Returns?
Classification-JEL: F3; G0
Author-Name: Campbell R. Harvey
Author-Person: pha102
Author-Name: Bruno Solnik
Author-Name: Guofu Zhou
Author-Person: pzh420
Note: AP
Number: 4660
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4660
File-URL: http://www.nber.org/papers/w4660.pdf
File-Format: application/pdf
Publication-Status: published as Harvey, Campbell R., Bruno Solnik, and Guofu Zhou. "What Determines Expected International Asset Returns?" Annals of Economics and Finance 3 (2002): 249-298.
Abstract: This paper characterizes the forces that determine time-variation in expected international asset returns. We offer a number of innovations. By using the latent factor technique, we do not have to prespecify the sources of risk. We solve for the latent premiums and characterize their time-variation. We find evidence that the first factor premium resembles the expected return on the world market portfolio. However, the inclusion of this premium alone is not sufficient to explain the conditional variation in the returns. We find evidence of a second factor premium which is related to foreign exchange risk. Our sample includes new data on both international industry portfolios and international fixed income portfolios. We find that the two latent factor model performs better in explaining the conditional variation in asset returns than a prespecified two factor model. Finally, we show that differences in the risk loadings are important in accounting for the cross-sectional variation in the international returns.
Handle: RePEc:nbr:nberwo:4660
Template-Type: ReDIF-Paper 1.0
Title: Fixed Exchange Rates, Inflation and Macroeconomic Discipline
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Fernando J. Losada
Note: IFM
Number: 4661
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4661
File-URL: http://www.nber.org/papers/w4661.pdf
File-Format: application/pdf
Abstract: We use data from Guatemala and Honduras to investigate some implications of the Purchasing Power Parity theory over the long run. In particular, we address two questions. First, to what extent did the fixed exchange rate regime impose macroeconomic discipline on these countries. Second, what was the impact of terms of trade shocks and growth differentials on inflation rate differentials between those countries and the United States. We found that the fixed parities regime worked properly until the mid-1970s, providing some constraint on central bank behavior. However, the evidence suggests that the fixed exchange rate system was not sufficient to avoid inflation outbursts and balance of payments crises. Specifically, it was unable to accommodate large negative terms of trade shocks in the late 1970s and early 1980s.
Handle: RePEc:nbr:nberwo:4661
Template-Type: ReDIF-Paper 1.0
Title: Do Youths Substitute Alcohol and Marijuana? Some Econometric Evidence
Classification-JEL: I1
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Adit Laixuthai
Note: EH
Number: 4662
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4662
File-URL: http://www.nber.org/papers/w4662.pdf
File-Format: application/pdf
Publication-Status: published as Chaloupka, Frank J. and Adit Laixuthai. "Do Youths Substitute Alcohol And Marijuana? Some Econometric Evidence," Eastern Economic Journal, 1997, v23(3,Summer), 253-276.
Abstract: Data from the 1982 and 1989 Monitoring the Future Surveys are used to examine the substitutability of alcoholic beverages and marijuana among youths. Beer prices and minimum legal drinking ages are used as measures of the full price of alcohol, while an indicator of marijuana decriminalization and its money price capture the full price of marijuana. Results indicate that drinking frequency and heavy drinking episodes are negatively related to beer prices, but positively related to the full price of marijuana. The implications of this substitution for one of the consequences of youth substance abuse, driving while intoxicated, is examined using information on youth non-fatal accidents taken from the surveys and on youth fatal motor vehicle accidents constructed from the Fatal Accident Reporting System. These results indicate that the net effect of an increase in the full price of alcoholic beverages on the probability of a youth traffic crash is negative. However, the opposite is found for marijuana. That is, the results imply that the reduction in accidents resulting from substitution away from alcoholic beverages and other intoxicating substances to marijuana as its full price is lower more than offsets the increase in accidents related to marijuana use.
Handle: RePEc:nbr:nberwo:4662
Template-Type: ReDIF-Paper 1.0
Title: The Impact of the Federal Reserve Bank's Open Market Operations
Classification-JEL: G0; G1
Author-Name: Campbell R. Harvey
Author-Person: pha102
Author-Name: Roger D. Huang
Note: AP ME
Number: 4663
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4663
File-URL: http://www.nber.org/papers/w4663.pdf
File-Format: application/pdf
Publication-Status: published as Harvey, Campbell R. and Roger D. Huang. "The Impact Of The Federal Reserve Bank's Open Market Operations," Journal of Financial Markets, 2002, v5(2,Apr), 223-257.
Abstract: The Federal Reserve Bank has the ability to change the money supply and to shape the expectations of market participants through their open market operations. These operations may amount to 20% of the day's volume and are concentrated during the half hour known as `Fed Time'. Using previously unavailable data on open market operations, our paper provides the first comprehensive examination of the impact of the Federal Reserve Bank's trading on both fixed income instruments and foreign currencies. Our results detail a dramatic increase in volatility during Fed Time. Surprisingly, the Fed Time volatility is higher on days when open market operations are absent. In addition, little systematic differences in market impact are observed for reserve-draining versus reserve-adding operations. These results suggest that the financial markets correctly anticipate the purpose of open market operations but are unable to forecast the timing of the operations.
Handle: RePEc:nbr:nberwo:4663
Template-Type: ReDIF-Paper 1.0
Title: Updated Notes on the Interindustry Wage Structure
Classification-JEL: J3; J5
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 4664
Creation-Date: 1994-02
Order-URL: http://www.nber.org/papers/w4664
File-URL: http://www.nber.org/papers/w4664.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, vol 48, no 2, pp 305-321, Jan 1995
Abstract: This paper documents and analyzes changes in the wage structure across manufacturing industries over the last one hundred years. Inter-industry differentials in wages are highly stable for production workers, but autocorrelation patterns for nonproduction workers are considerably weaker. Industry wage patterns are very similar for production and nonproduction workers today, but this has been true only since 1958. Dispersion of wages across industries has shown varying trends over the last one hundred years, but has never in this century been higher than it is today. The variables that are most strongly correlated with wage growth are productivity growth, rising union density, rising capital intensity, and profit growth.
Handle: RePEc:nbr:nberwo:4664
Template-Type: ReDIF-Paper 1.0
Title: The Consequences of Population Aging on Private Pension Fund Saving and Asset Markets
Classification-JEL: J14; G23
Author-Name: Sylvester J. Schieber
Author-Name: John B. Shoven
Note: AG PE
Number: 4665
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4665
File-URL: http://www.nber.org/papers/w4665.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Effects of Aging in the United States and Japan, Michael D. Hurd, Naohiro Yashiro, eds., pp. 111-130, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as The Consequences of Population Aging for Private Pension Fund Saving and Asset Markets, Sylvester J. Schieber, John B. Shoven. in The Economic Effects of Aging in the United States and Japan, Hurd and Yashiro. 1996
Abstract: This paper examines the impact of the aging demographic structure of the U.S. on its funded private pension system. A 75-year outlook is produced for the pension system corresponding to the 75-year forecast of the Social Security system. The primary result is that the pension system will cease being a source of national saving in the third decade of the next century. The paper speculates about the impact this may have on asset prices.
Handle: RePEc:nbr:nberwo:4665
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Demographics on Housing and Non-Housing Wealth in the United States
Classification-JEL: D91; E21
Author-Name: Hilary Williamson Hoynes
Author-Person: pho278
Author-Name: Daniel McFadden
Note: AG
Number: 4666
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4666
File-URL: http://www.nber.org/papers/w4666.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Effects of Aging in the United States and Japan, Michael D. Hurd and Naohiro Yashiro, eds., pp. 153-194, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as The Impact of Demographics on Housing and Nonhousing Wealth in the United States, Hilary W. Hoynes, Daniel L. McFadden. in The Economic Effects of Aging in the United States and Japan, Hurd and Yashiro. 1996
Abstract: Equity in housing is a major component of household wealth in the United States. Steady gains in housing prices over the last several decades have generated large potential gains in household wealth among homeowners. Mankiw and Weil (1989) and McFadden (1993b) have argued that the aging of the US population is likely to induce substantial declines in housing prices, resulting in capital losses for future elderly generations. However, if households can anticipate changes in housing prices, and if they adjust their non-housing savings accordingly, then welfare losses in retirement could be mitigated. This paper focuses on two questions: (1) Are housing prices forecastable from current information on demographics and housing prices?; and (2) How are household savings decisions affected by capital gains in housing? We use metropolitan statistical area (MSA) level data on housing prices and demographic trends during the 1980's and find mixed evidence on the forecastability of housing prices. Further, we use data on five-year savings rates from the Panel Study of Income Dynamics and find no evidence that households engage in changing their non-housing savings in response to expectations about capital gains in housing. Thus, the projected decline in housing prices could result in large welfare losses to current homeowners and large intergenerational equity differences.
Handle: RePEc:nbr:nberwo:4666
Template-Type: ReDIF-Paper 1.0
Title: Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals
Classification-JEL: H32; H25
Author-Name: Rosanne Altshuler
Author-Person: pal34
Author-Name: T. Scott Newlon
Author-Name: William C. Randolph
Note: PE
Number: 4667
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4667
File-URL: http://www.nber.org/papers/w4667.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. Martin Feldstein, James R. Hines, Jr. and R. Glenn Hubbard; University of Chicago Press, 1995.
Publication-Status: published as Do Repatriation Taxes Matter? Evidence from the Tax Returns of U.S. Multinationals, Rosanne Altshuler. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: An open question in the literature on the taxation of multinational corporations is whether repatriation taxes influence whether the profits of foreign subsidiaries are repatriated or reinvested abroad. Theoretical models suggest that dividend remittances should not be influenced by repatriation taxes. The results of recent empirical work indicate that dividend remittances are sensitive to repatriation taxes. This paper investigates whether the empirical evidence can be reconciled with the theoretical results by recognizing that repatriation taxes on dividends may vary over time and provide firms with an incentive to time repatriations so that they occur in years when repatriation tax rates are relatively low. We use information about cross-country differences in tax rates to separately estimate the influence of permanent tax changes, as would occur due to changes in statutory tax rates, and transitory tax changes on dividend repatriations. Our data contains U.S. tax return information for a large sample of U.S. corporations and their foreign subsidiaries. We find that the permanent tax price effect is significantly different from the transitory price effect and is not significantly different from zero, while the transitory tax price effect is negative and significant. This suggests that repatriation taxes do affect dividend repatriation behavior but only to the extent that they vary over time. Previous empirical work has apparently measured the effect of timing behavior.
Handle: RePEc:nbr:nberwo:4667
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock
Classification-JEL: H2; H87
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: ITI PE
Number: 4668
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4668
File-URL: http://www.nber.org/papers/w4668.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R. Glenn Hubbard, University of Chicago Press, 1995.
Publication-Status: published as The Effects of Outbound Foreign Direct Investment on the Domestic Capital Stock , Martin S. Feldstein. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: This paper analyzes the effect of outbound foreign direct investment (FDI) on the domestic capital stock. The first part of the paper shows that only about 20 percent of the value of assets owned by U.S. affiliates abroad is financed by cross-border flows of capital from the United States. An additional 18 per cent represents retained earnings attributable to U.S. investors. The rest is financed locally by foreign debt and equity. The second part of the paper analyzes data for the major industrial countries of the OECD and finds that each dollar of cross- border flow of foreign direct investment reduces domestic investment by approximately one dollar. This dollar for dollar displacement of domestic investment by outbound FDI is consistent with the Feldstein-Horioka picture of segmented capital markets. It suggests that while portfolio funds are largely segmented into national capital markets, direct investment can achieve cross-border capital flows. A dollar outflow of direct investment reduces domestic investment by a dollar and this is not offset by a change in international portfolio investment. This ability of foreign direct investment to circumvent the segmented national capital markets also appears in the expanded use of foreign debt and equity capital to finance the capital accumulation of foreign affiliates of U.S. firms. Taken together, these estimates suggest that each dollar of foreign assets acquired by U.S. foreign affiliates reduces the U.S. domestic capital stock by between 20 cents and 38 cents.
Handle: RePEc:nbr:nberwo:4668
Template-Type: ReDIF-Paper 1.0
Title: Do Teachers' Race, Gender, and Ethnicity Matter?: Evidence from NELS88
Classification-JEL: I2; J0
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Daniel D. Goldhaber
Author-Name: Dominic J. Brewer
Note: LS
Number: 4669
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4669
File-URL: http://www.nber.org/papers/w4669.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Vol. 48 (April 1995): 547-561.
Abstract: Our study uses a unique national longitudinal survey, the National Educational Longitudinal Study of 1988 (NELS), which permits researchers to match individual students and teachers, to analyze issues relating to how a teacher's race, gender, and ethnicity, per se, influence students from both the same and different race, gender, and ethnic groups. In contrast to much of the previous literature, we focus both on how teachers subjectively relate to and evaluate their students and on objectively how much their students learn. On balance, we find that teachers' race, gender, and ethnicity, per se, are much more likely to influence teachers' subjective evaluations of their students than they are to influence how much the students objectively learn. For example, while white female teachers do not appear to be associated with larger increases in test scores for white female students in mathematics and science than white male teachers 'produce', white female teachers do have higher subjective evaluations than their white male counterparts of their white female students. We relate our findings to the more general literature on gender, race, and ethnic bias in subjective performance evaluations in the world of work and trace their implications for educational and labor markets.
Handle: RePEc:nbr:nberwo:4669
Template-Type: ReDIF-Paper 1.0
Title: "Household Responses for Pricing Garbage by the Bag,"
Classification-JEL: D62; H23
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Thomas C. Kinnaman
Note: PE
Number: 4670
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4670
File-URL: http://www.nber.org/papers/w4670.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol.86, no.4, (September,1996), pp.971-984
Abstract: This paper estimates household reaction to the implementation of unit-pricing for the collection of residential garbage. We gather original data on weight and volume of weekly garbage and recycling of 75 households in Charlottesville, Virginia, both before and after the start of a program that requires an eighty-cent sticker on each bag of garbage. This data set is the first of its kind. We estimate household demands for the collection of garbage and recyclable material, the effect on density of household garbage, and the amount of illegal dumping by households. We also estimate the probability that a household chooses each method available to reduce its garbage. In response to the implementation of this unit-pricing program, we find that households (1) reduced the weight of their garbage by 14%, (2) reduced the volume of garbage by 37% and (3) increased the weight of their recyclable materials by 16%. We estimate that additional illegal -- or at least suspicious -- disposal accounts for 0.42 pounds per person per week, or 28% of the reduction in garbage observed at the curb.
Handle: RePEc:nbr:nberwo:4670
Template-Type: ReDIF-Paper 1.0
Title: Quality Change and other Influences on Measures of Export Prices of Manufactured Goods and the Terms of Trade between Primary Products and Manufacture
Classification-JEL: E30; F10
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI
Number: 4671
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4671
File-URL: http://www.nber.org/papers/w4671.pdf
File-Format: application/pdf
Abstract: Measures of long term trends in world export prices of manufactured goods and in the terms of trade between manufactured goods and primary products are sensitive to the choice of country weights and of base periods and, most important of all, the treatment of quality change. Later base periods and higher weights for rapidly growing exporters, such as Japan or the newly industrializing East Asian countries, are associated with lower estimates of the long-term increase in prices. Conservative estimates of the bias in the most commonly used measure of export prices of manufactured products, the United Nations export unit value index for manufactures, suggest that this measure overstates the long-run rise in manufactured goods prices by more than half of one per cent per year, probably one per cent or more. If this is the case, there has been no long term trend toward rising prices of manufactures relative to primary products. However, no conceivable estimate of bias in measures of manufactured goods prices would reverse the picture of declining relative primary product prices during the 1980s.
Handle: RePEc:nbr:nberwo:4671
Template-Type: ReDIF-Paper 1.0
Title: The Changing Labor Market Position of Canadian Immigrants
Classification-JEL: J15; J31
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Gilles Grenier
Author-Person: pgr424
Author-Name: Morley Gunderson
Author-Person: pgu122
Note: LS
Number: 4672
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4672
File-URL: http://www.nber.org/papers/w4672.pdf
File-Format: application/pdf
Publication-Status: published as David E. Bloom & Gilles Grenier & Morley Gunderson, 1995. "The Changing Labour Market Position of Canadian Immigrants," Canadian Journal of Economics, Canadian Economics Association, vol. 28(4b), pages 987-1005, November.
Abstract: This paper uses pooled 1971, 1981, and 1986 Canadian census data to evaluate the extent to which (1) the earnings of Canadian immigrants at the time of immigration fall short of the earnings of comparable Canadian-born individuals, and (2) immigrants' earnings grow more rapidly over time than those of the Canadian-born. Variations in the labor market assimilation of immigrants according to their gender and country of origin are also analyzed. The results suggest that recent immigrant cohorts have had more difficulty being assimilated into the Canadian labor market than earlier ones, an apparent consequence of recent changes in Canadian immigration policy, labor market discrimination against visible minorities, and the prolonged recession of the early 1980s.
Handle: RePEc:nbr:nberwo:4672
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Prenatal Exposure to Cocaine on Newborn Costs and Length of Stay
Classification-JEL: 913; H
Author-Name: Theodore Joyce
Author-Person: pjo112
Author-Name: Andrew D. Racine
Author-Name: Sandra McCalla
Author-Name: Hassan Wehbeh
Note: EH
Number: 4673
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4673
File-URL: http://www.nber.org/papers/w4673.pdf
File-Format: application/pdf
Publication-Status: forthcoming, Health Services Research, June 1995.
Abstract: This paper determines newborn costs and lengths of stay attributable to prenatal exposure to cocaine and other illicit drugs, using as a data source all parturients who delivered at a large municipal hospital in New York City between November 18, 1991 and April 11, 1992. We performed a cross-sectional analysis in which multivariate, loglinear regressions were used to analyze differences in costs and length of stay between infants exposed and unexposed prenatally to cocaine and other illicit drugs adjusting for maternal race, age, prenatal care, tobacco, parity, type of delivery, birth weight, prematurity, and newborn infection. Urine specimens, with linked obstetric sheets and discharge abstracts provided information on exposure, prenatal behaviors, costs, length of stay and discharge disposition. Our principal findings show that infants exposed to cocaine and some other illicit drug stay approximately 7 days longer at a cost of $7,731 more than infants unexposed. Approximately 60 percent of these costs are indirect, the result of adverse birth outcomes and newborn infection. Hospital screening as recorded on discharge abstracts substantially underestimates prevalence at delivery, but overestimates its impact on costs.
Handle: RePEc:nbr:nberwo:4673
Template-Type: ReDIF-Paper 1.0
Title: Developments in Collective Bargaining in Construction in the 1980s and 1990s
Classification-JEL: J4; J5
Author-Name: Steven G. Allen
Author-Person: pal6
Note: LS
Number: 4674
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4674
File-URL: http://www.nber.org/papers/w4674.pdf
File-Format: application/pdf
Publication-Status: published as Paula B. Voos, ed. Contemporary Collective Bargaining in the Private Sector Madison, WI: Industrial Relations Research Association, 1994, pp. 411-445
Abstract: This paper summarizes important developments in collective bargaining in the construction industry in the 1980s and 1990s. Workers in the industry have experienced high unemployment and a 17 percent drop in real wages. Union density has declined from 33 percent in 1981 to 22 percent in 1992, despite a sizable drop in the union-nonunion differential in wages and a tremendous reduction in the number of strikes. The main reasons for the decline in union strength are the adoption of strategies by contractors and owners to control labor costs and changes in the interpretation of labor laws that have given contractors more flexibility in determining their collective bargaining status.
Handle: RePEc:nbr:nberwo:4674
Template-Type: ReDIF-Paper 1.0
Title: Factor Hoarding and the Propagation of Business Cycles Shocks
Classification-JEL: E3
Author-Name: Craig Burnside
Author-Person: pbu20
Author-Name: Martin Eichenbaum
Author-Person: pei4
Note: EFG
Number: 4675
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4675
File-URL: http://www.nber.org/papers/w4675.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, December,1996.
Abstract: This paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle. To this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding. We find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents' environments. The strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents' environments, in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate U.S. output. Other authors have argued that standard Real Business Cycle (RBC) models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms. These features include the observed positive serial correlation in the growth rate of output, the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates. Allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data.
Handle: RePEc:nbr:nberwo:4675
Template-Type: ReDIF-Paper 1.0
Title: Reverse Engineering the Yield Curve
Classification-JEL: E43; G12
Author-Name: David K. Backus
Author-Person: pba242
Author-Name: Stanley E. Zin
Author-Person: pzi46
Note: AP
Number: 4676
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4676
File-URL: http://www.nber.org/papers/w4676.pdf
File-Format: application/pdf
Abstract: Prices of riskfree bonds in any arbitrage-free environment are governed by a pricing kernel: given a kernel, we can compute prices of bonds of any maturity we like. We use observed prices of multi-period bonds to estimate, in a log-linear theoretical setting, the pricing kernel that gave rise to them. The high-order dynamics of our estimated kernel help to explain why first-order, one-factor models of the term structure have had difficulty reconciling the shape of the yield curve with the persistence of the short rate. We use the estimated kernel to provide a new perspective on Hansen-Jagannathan bounds, the price of risk, and the pricing of bond options and futures.
Handle: RePEc:nbr:nberwo:4676
Template-Type: ReDIF-Paper 1.0
Title: A Sticky-Price Manifesto
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: N. Gregory Mankiw
Note: EFG ME
Number: 4677
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4677
File-URL: http://www.nber.org/papers/w4677.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, vol. 41, (December 1994), pp. 127-151
Publication-Status: published as Laurence Ball & N. Gregory Mankiw, 1994. "A sticky-price manifesto," Proceedings, Federal Reserve Bank of Dallas, issue Apr.
Abstract: Macroeconomists are divided on the best way to explain short-run economic fluctuations. This paper presents the case for traditional theories based on short-run price stickiness. It discusses the fundamental basis for believing in this class of macreconomic models. It also discusses recent research on the microeconomic foundations of sticky prices.
Handle: RePEc:nbr:nberwo:4677
Template-Type: ReDIF-Paper 1.0
Title: International Differences in Male Wage Inequality: Institutions versus Market Forces
Classification-JEL: J3
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Lawrence M. Kahn
Author-Person: pka63
Note: LS
Number: 4678
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4678
File-URL: http://www.nber.org/papers/w4678.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol. 104, no. 4, pp. 791-837, August 1996.
Abstract: While changes in the demand for skilled labor appear to have led to a widening of the wage structures in many countries during the 198Os,considerable differences in the level of wage inequality remain. In this paper, we examine the sources of these differences, focusing primarily on explaining the considerably higher level of wage inequality in the U.S. We find that the greater overall dispersion of the U.S. wage distribution reflects considerably more compression at the bottom of the distribution in the other countries, but relatively little difference in the degree of wage inequality at the top. While differences in the distribution of measured characteristics help to explain some aspects of the international differences, U.S. labor market prices--that is, higher rewards to labor market skills-are an important factor. Labor market institutions, chiefly the relatively decentralized wage-setting mechanisms in the U.S. compared to other countries, appear to provide the most persuasive explanation for these international differences in prices. In contrast, the pattern of cross-country differences in relative supplies of and demands for skills does not appear to be consistent with the pattern of observed differences in wage inequality.
Handle: RePEc:nbr:nberwo:4678
Template-Type: ReDIF-Paper 1.0
Title: Minimum Wage Effects on Employment and School Enrollment
Classification-JEL: J21; J24
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 4679
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4679
File-URL: http://www.nber.org/papers/w4679.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business and Economic Statistics, Vol. 13, no. 2 (April 1995), pp. 199-206
Publication-Status: Published as "Is the Time-Series Evidence on Minimum Wage Effects Contaminated by Publication Bias?" Economic Inquiry, Vol. 36, no. 3 (July 1998), pp. 458-470.
Abstract: We argue in this paper that the focus on employment effects in recent studies of minimum wages ignores an important interaction between schooling, employment, and the minimum wage. To study these linkages, we estimate a conditional logit model of employment and enrollment outcomes for teenagers using state-year observations for the period 1977 to 1989. The results show a negative influence of minimum wages on school enrollment and a positive effect on the proportion of teens neither employed nor in school. We further suggest that our results are consistent with substitution by employers of higher- for lower-skilled teenagers, with the displaced teens ending up both out of work and out of school.
Handle: RePEc:nbr:nberwo:4679
Template-Type: ReDIF-Paper 1.0
Title: The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience
Author-Name: Alwyn Young
Note: EFG ITI
Number: 4680
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4680
File-URL: http://www.nber.org/papers/w4680.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol.110 (August 1995), pp.641-680.
Abstract: This paper documents the fundamental role played by factor accumulation in explaining the extraordinary postwar growth of Hong Kong, Singapore, South Korea and Taiwan. Participation rates, educational levels and (with the exception of Hong Kong) investment rates have risen rapidly in all four economies. In addition, there have been large intersectoral reallocations of labour, with (again, excepting Hong Kong) non-agricultural and manufacturing employment growing one and a half to two times as fast as the aggregate working population. Thus, while the growth of output per capita in these economies has averaged 6% to 7% per annum over the past two and a half decades, the growth of output per effective worker in the non- agricultural sector of these economies has been only 3% to 4% per annum. If one then allows for the doubling, tripling and even quadrupling of the investment to GDP ratio in these economies, one arrives at total factor productivity growth rates, both for the non- agricultural economy and for manufacturing in particular, which are well within the bounds of those experienced by the OECD and Latin American economies over equally long periods of time. While the growth of output and manufacturing exports in the newly industrializing economies of East Asia is virtually unprecedented, the growth of total factor productivity in these economies is not.
Handle: RePEc:nbr:nberwo:4680
Template-Type: ReDIF-Paper 1.0
Title: Policy, Technology Adoption, and Growth
Classification-JEL: O40; E62
Author-Name: William Easterly
Author-Person: pea1
Author-Name: Robert King
Author-Person: pki21
Author-Name: Ross Levine
Author-Person: ple61
Author-Name: Sergio Rebelo
Note: EFG
Number: 4681
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4681
File-URL: http://www.nber.org/papers/w4681.pdf
File-Format: application/pdf
Publication-Status: published as Economic Growth and the Structure of Long Term Development, Luigi L. Pasinetti and Robert M. Solow, eds. St. Martin's Press, 1994.
Abstract: This paper describes a simple model of technology adoption which combines the two engines of growth emphasized in the recent growth literature: human capital accumulation and technological progress. Our model economy does not create new technologies, it simply adopts those that have been created elsewhere. The accumulation of human capital is closely tied to this adoption process: accumulating human capital simply means learning how to incorporate a new intermediate good into the production process. Since the adoption costs are proportional to the labor force, the model does not display the counterfactual scale effects that are standard in models with endogenous technical progress. We show that our model is compatible with various standard results on the effects of economic policy on the rate of growth.
Handle: RePEc:nbr:nberwo:4681
Template-Type: ReDIF-Paper 1.0
Title: International R&D Spillovers Between U.S. and Japanese R&D Intensive Sectors
Classification-JEL: 03; 051
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: Pierre Mohnen
Author-Person: pmo6
Note: PR
Number: 4682
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4682
File-URL: http://www.nber.org/papers/w4682.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics. 44 (1998) pp. 315-338
Abstract: A great deal of empirical evidence shows that a country's production structure and productivity growth depend on its own R&D capital formation. With the growing role of international trade, foreign investment and international knowledge diffusion, domestic production and productivity also depend on the R&D activities of other countries. The purpose of this paper is to empirically investigate the bilateral link between the U.S. and Japanese economies in terms of how R&D capital formation in one country affects the production structure, physical and R&D capital accumulation, and productivity growth in the other country. We find that production processes become less labor intensive as international R&D spillovers grow. In the short-run, R&D intensity is complementary to the international spillover. This relationship persists in the long-run for the U.S., but the Japanese decrease their own R&D intensity. U.S. R&D capital accounts for 60% of Japanese total factor productivity growth, while Japanese R&D capital contributes 20% to U.S. productivity gains. International spillovers cause social rates of return to be about four times the private returns.
Handle: RePEc:nbr:nberwo:4682
Template-Type: ReDIF-Paper 1.0
Title: Foreign Direct Investment, Employment Volatility and Cyclical Dumping
Classification-JEL: F12; F15
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI
Number: 4683
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4683
File-URL: http://www.nber.org/papers/w4683.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance & Economics, Winter 1996, vol. 10: 1-28.
Abstract: This paper analyzes the impact of foreign direct investment (FDI) on the patterns of cyclical dumping (exporting at a price below marginal cost). We consider a global economy where manufacturing is monopolistic-competitive, and productivity is subject to country- specific shocks. Labor is risk averse and immobile across countries, and entrepreneurs are risk neutral. Labor employment and income is governed by implicit contracts, which offer stable real income and volatile employment. Capacity investment is irreversible, and is done prior to the resolution of uncertainty. If investment in manufacturing capacity is characterized by returns to scale, higher volatility of productivity shocks is shown to induce producers to diversify internationally by means of FDI. The resultant integrated equilibrium is characterized by greater volatility of employment, as the multinational effectively reallocates employment from a low- realized-productivity to a high-realized-productivity country. We derive a simple condition characterizing cyclical dumping -- it occurs when the percentage shortfall of the realized employment exceeds Lerner's ratio of market power (the inverse of the demand elasticity). Cyclical dumping is more frequent in more competitive and more labor- intensive industries. FDI is shown both to improve welfare, and to increase the incidences of cyclical dumping.
Handle: RePEc:nbr:nberwo:4683
Template-Type: ReDIF-Paper 1.0
Title: Wage Inequality and Industrial Change: Evidence from Five Decades
Classification-JEL: J23; J31
Author-Name: Chinhui Juhn
Author-Person: pju42
Note: LS
Number: 4684
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4684
File-URL: http://www.nber.org/papers/w4684.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Labor Relations Review, Vol. 52 (April 1999).
Abstract: Using data from the 1940-1980 Decennial Census and the 1988-1992 March Current Population Surveys, this paper examines the impact of industrial change on male wage inequality over a period of five decades (1940-1990). Alternative measures of skill such as the wage percentile, education and occupation indicate that wage inequality between more and less skilled male workers fell substantially during the 1940s and increased most dramatically during the 1980s. Examination of industrial change over this longer time period shows that the demand for the most highly educated and skilled male workers relative to the least skilled male workers increased no faster during the 1970s and the 1980s than during the earlier decades. In contrast, the demand for men in the middle skill categories (such as those in basic manufacturing) expanded during the 1940s and the 1950s and contracted severely during the 1970s and 1980s. This suggests that the growth of jobs in the middle skill categories may be closely related to overall wage inequality. Cross sectional regressions based on state level data also show some empirical support for the hypothesis that a decline in demand for medium skilled groups increases overall wage inequality.
Handle: RePEc:nbr:nberwo:4684
Template-Type: ReDIF-Paper 1.0
Title: Accounting Standards, Information Flow, and Firm Investment Behavior
Author-Name: Jason G. Cummins
Author-Person: pcu10
Author-Name: Trevor S. Harris
Author-Name: Kevin A. Hassett
Author-Person: pha378
Note: PE
Number: 4685
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4685
File-URL: http://www.nber.org/papers/w4685.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R.G. Hubbard, University of Chicago Press, 1995.
Publication-Status: published as Accounting Standards, Information Flow, and Firm Investment Behavior, Jason Cummins, Trevor Harris, Kevin Hassett. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: We present a description of two different accounting regimes that govern reporting practice in most developed countries. 'One-book' countries, e.g. Germany, use their tax books as the basis for financial reporting and 'two-book' countries, e.g. the United States, keep the books largely separate. We derive a structural model and formalize a testable implication of our discussion: firms in one-book countries may be reluctant to claim some tax benefits if reductions in taxable income may be misinterpreted by financial market participants as signals of lower profitability. Econometric estimates suggest that accounting regime differences play an important role in describing domestic investment patterns both within and across countries.
Handle: RePEc:nbr:nberwo:4685
Template-Type: ReDIF-Paper 1.0
Title: Cross-Border Banking
Classification-JEL: F23
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI
Number: 4686
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4686
File-URL: http://www.nber.org/papers/w4686.pdf
File-Format: application/pdf
Publication-Status: published as Financial Factors in Economic Stabilization and Growth, ed. Zvi Eckstein, Zvi Hercowitz and Leonard Lederman, (New York: Cambridge University Press), 1996.
Abstract: The banking systems of some countries export intermediation services to the rest of the world, while many other countries are net exporters of deposits to banks abroad and net importers of loans from banks abroad. Banking center countries typically have lower inflation, deeper financial systems, earn less government revenue from seigniorage, and have lower reserve money relative to bank assets than nonbanking-center countries. This paper develops a stylized model of regulated bank intermediation to examine the role of national monetary policy in determining the international competitiveness of a national banking system. Monetary policy takes the form of controlling the supply of reserve money and imposing restrictions on banks that generate a demand for reserve money (reserve requirements). The international competitiveness of a banking system is enhanced by having a monetary authority who places greater weight on the interests of existing creditors relative to debtors in its constituency, and who has less need to raise revenue from seigniorage. With complete integration of deposit and loan markets the location of intermediation can be indeterminate. Countries that receive more deposits can generate a given amount of seigniorage with less inflation. Monetary authorities in countries that experience deposit outflows may be tempted to impose capital controls in order to maintain their seigniorage base. One implication of the analysis is that integration of monetary policies can facilitate financial integration by reducing the incentive to relocate deposits to avoid the inflation tax.
Handle: RePEc:nbr:nberwo:4686
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Adjustment
Author-Name: Andrew Caplin
Author-Person: pca77
Author-Name: John Leahy
Author-Person: ple189
Note: EFG
Number: 4687
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4687
File-URL: http://www.nber.org/papers/w4687.pdf
File-Format: application/pdf
Publication-Status: published as in Rod Cross, ed., "The National Rate of Unemployment", Cambridge University Press, 1995
Abstract: In this paper we argue that many topics in macroeconomics can be viewed as part of the broader theory of the economics of adjustment. We argue that existing approaches to the economics of adjustment take a very narrow view of the role of information. We outline an approach to this topic that stresses the role of learning and information externalities, and discussed through examples how these concerns alter the qualitative nature of the adjustment process. In particular, there appears to be a general bias towards the underprovision of information in a variety of settings which leads to inefficient adjustment.
Handle: RePEc:nbr:nberwo:4687
Template-Type: ReDIF-Paper 1.0
Title: Why Do Wage Profiles Slope Upwards? Tests of the General Human Capital Model
Author-Name: David Neumark
Author-Person: pne16
Author-Name: Paul Taubman
Note: LS
Number: 4688
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4688
File-URL: http://www.nber.org/papers/w4688.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 13, no. 4 (1995): pp. 736-761.
Abstract: This paper tests some empirical implications of the general human capital model's explanation of rising wage profiles. At the individual level, the model implies that there will be a negative relationship between the initial wage level and wage growth of young, inexperienced workers. At the market level, the model implies that the present value of the wage profile of an investor equals that of an otherwise identical non-investor, or that the ratio of the present values equals one. We test both of these hypotheses. Evidence on the wage level-wage growth tradeoff points to a negative relationship between initial wage levels and wage growth, even after correcting for negative biases that may have influenced existing estimates of this relationship. Evidence on present values of wage profiles suggests that the ratio of the present value of rising wage profiles to flat wage profiles is quite close to one. Alternative estimates of this ratio are tightly clustered around one, and more often than not are insignificantly different from one. Overall, then, the evidence is largely consistent with the general human capital model.
Handle: RePEc:nbr:nberwo:4688
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Leverage and the National Return on Outbound Foreign Direct Investment
Classification-JEL: H2; H87
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 4689
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4689
File-URL: http://www.nber.org/papers/w4689.pdf
File-Format: application/pdf
Publication-Status: published as "Taxes, Leverage and the National Return on Foreign Direct Investment," in Essays in Honor of Erich Streissler, F. Baltzarek, F. Butschek, and G. Tichy (eds.), Von der Theorie zur Wirtschafspoltick - ein osterreichischer Weg. Stuttgart: Lucius & Lucius, 1998, pp 304-319.
Abstract: The effect of outbound foreign direct investment (FDI) on the national income of the parent firm's country depends on the relative importance of two countervailing factors: the loss of tax revenue to the foreign government and the increased use of foreign debt. The present paper develops an explicit analysis of these two factors in the context of the segmented international capital market in which most national saving remains in the country in which the saving is done. The analysis is applied with realistic parameter values for U.S. outbound foreign direct investment. The calculations imply that an increase in outbound FDI raises the present value of U.S. national income by a rather substantial amount. Traditional analyses that conclude that the foreign tax credit causes excess outbound FDI fail to take into account the fact that firms that invest abroad increase their use of foreign debt as they increase the extent of their FDI.
Handle: RePEc:nbr:nberwo:4689
Template-Type: ReDIF-Paper 1.0
Title: Why Is There Corporate Taxation In a Small Open Economy? The Role of Transfer Pricing and Income Shifting
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Jeffrey K. MacKie-Mason
Author-Person: pma1
Note: PE
Number: 4690
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4690
File-URL: http://www.nber.org/papers/w4690.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J . Hines, R. Hubbard, University of Chicago Press, 1995.
Publication-Status: published as Accounting Standards, Information Flow, and Firm Investment Behavior, Jason Cummins, Trevor Harris, Kevin Hassett. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: Several recent papers argue that corporate income taxes should not be used by small, open economies. With capital mobility, the burden of the tax falls on fixed factors (e.g., labor), and the tax system is more efficient if labor is taxed directly. However, corporate taxes not only exist but rates are roughly comparable with the top personal tax rates. Past models also forecast that multinationals should not invest in countries with low corporate tax rates, since the surtax they owe when profits are repatriated puts them at a competitive disadvantage. Yet such foreign direct investment is substantial. We suggest that the resolution of these puzzles may be found in the role of income shifting, both domestic (between the personal and corporate tax bases) and cross-border (through transfer pricing). Countries need cash-flow corporate taxes as a backstop to labor taxes to discourage individuals from converting their labor income into otherwise untaxed corporate income. We explore how these taxes can best be modified to deal as well with cross-border shifting.
Handle: RePEc:nbr:nberwo:4690
Template-Type: ReDIF-Paper 1.0
Title: Outward Direct Investment and the U.S. Economy
Classification-JEL: F21; F23
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI
Number: 4691
Creation-Date: 1994-03
Order-URL: http://www.nber.org/papers/w4691
File-URL: http://www.nber.org/papers/w4691.pdf
File-Format: application/pdf
Publication-Status: published as M. Feldstein, J. Hines, R. Hubbard, eds. The Effects of Taxation on Multinational Corporations, University of Chicago Press, 1995, pp. 7-33
Publication-Status: published as Outward Direct Investment and the U.S. Economy, Robert E. Lipsey. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: Investment in production outside the United States is a method by which U.S. firms raise their shares in foreign markets and defend them against foreign rivals from the host countries and from other countries. The investing firms are exploiting their firm-specific assets such as proprietary technologies, patents, or skills in advertising or marketing, and the opportunity to produce abroad raises the value of these assets and encourages firms' investment in them by extending the range of markets and the length of time over which they can be exploited. Overseas production has contributed to the ability of American multinationals to retain world market shares in the face of the long- term decline in the share of the U.S. as a country and short-term changes such as exchange rate fluctuations. It has performed the same functions for Swedish firms and, more recently, for Japanese firms. Within U.S. multinationals, those with higher shares of their production overseas have higher employment at home relative to home production. Foreign production appears to require larger numbers of employees in headquarters activities such as R&D and supervision.
Handle: RePEc:nbr:nberwo:4691
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy Rules and Financial Stability
Classification-JEL: E44; E58
Author-Name: Bennett T. McCallum
Note: ME
Number: 4692
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4692
File-URL: http://www.nber.org/papers/w4692.pdf
File-Format: application/pdf
Publication-Status: published as Financial Stability in a Changing Environment, Kuniho Sawamoto, Zeuta Makajima and Hiroo Taguchi, eds., pp. 389-421, (New York: St. Martin's Press, 1995).
Abstract: This paper investigates empirically the possibility that a central bank could adhere to a macro-oriented monetary policy rule while also providing lender-of-last-resort services to the financial system. The method considered involves smoothing week-to-week movements of an interest rate instrument so as to achieve quarterly- average intermediate targets for the monetary base, with these specified so as to keep aggregate nominal spending growing steadily at a noninflationary rate. Simulations utilizing weekly U.S. data are conducted with a system consisting of a policy rule for the federal funds rate--one designed to hit monetary base targets obtained from a quarterly macroeconomic rule--and an empirically-based model of the response of base growth to funds rate movements. Results for the periods 1974-1979 (Sept.) and 1988-1991 suggest that such a procedure could succeed in reconciling macroeconomic goals with the provision of lender-of-last-resort services.
Handle: RePEc:nbr:nberwo:4692
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Dynamics Redux
Classification-JEL: F41
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: IFM
Number: 4693
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4693
File-URL: http://www.nber.org/papers/w4693.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy 102 (June 1995), pp 624-660.
Abstract: Until now, thinking on open economy macroeconomics has been largely schizophrenic. When it comes to analyzing exchange rate dynamics, an empirically-minded economist abandons modern current account models which, while theoretically coherent, fail to address the awkward reality of sticky nominal prices. In this paper we develop an analytically tractable two-country model that marries a full account of dynamics to a supply framework based on monopolistic competition and sticky prices. It offers simple and intuitive predictions about exchange rates and current accounts that sometimes differ sharply from those of either modern flexible-price intertemporal models, or traditional sticky-price Keynesian models. The model also leads to a novel perspective on the international welfare spillovers of monetary and fiscal policies.
Handle: RePEc:nbr:nberwo:4693
Template-Type: ReDIF-Paper 1.0
Title: Can Foreign Aid Accelerate Stabilization?
Classification-JEL: E63; F35
Author-Name: Alessandra Casella
Author-Person: pca496
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: IFM
Number: 4694
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4694
File-URL: http://www.nber.org/papers/w4694.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, June 1996
Abstract: This paper studies the effect of foreign aid on economic stabilization. Following Alesina and Drazen (1991), we model the delay in stabilizing as the result of a distributional struggle: reforms are postponed because they are costly and each distributional faction hopes to reduce its share of the cost by outlasting its opponents in obstructing the required policies. Since the delay is used to signal each faction's strength, the effect of the transfer depends on the role it plays in the release of information. We show that this role depends on the timing of the transfer: foreign aid decided and transferred sufficiently early into the game leads to earlier stabilization; but aid decided or transferred too late is destabilizing and encourages further postponement of reforms.
Handle: RePEc:nbr:nberwo:4694
Template-Type: ReDIF-Paper 1.0
Title: Issues in the Industrial Organization of the Market for Physician Services
Classification-JEL: L80; I11
Author-Name: Martin Gaynor
Author-Person: pga1
Note: EH
Number: 4695
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4695
File-URL: http://www.nber.org/papers/w4695.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economics and Management Strategy, Volume 3(1), Spring 1994, pp. 211-255
Abstract: What is the nature of the industrial organization of the market for physician services? Is the market 'competitive?' Are there pareto-relevant market failures, such that there is room for welfare improving policies? Economists have devoted a great deal of attention to this market, but it remains relatively poorly understood. Some background on early studies of this market is presented. The nature of the product being bought and sold, and of demand, are then characterized, in order to establish the character of this market. The key features of this market are that the product being sold is a professional service, and the pervasive presence of insurance for consumers. A professional service is inherently heterogeneous, non-retradable, and subject to an asymmetry of information between buyers and sellers. These characteristics are what bestow market power on sellers, further strengthened by the fact that consumers face only a small fraction of the price of any service due to insurance. The implications of this for agency relationships between patients and physicians, and insurers (both private and public) and physicians are then discussed. Agency relationships within physician firms are also considered. Both theoretical and empirical modelling of contracting between insurers and physicians and of the joint agency problems between patient and physician and insurer and physician are recommended as areas for future research. Since failures in this market are seen to derive largely from the structure of information, the potential gains from government intervention may be sharply circumscribed.
Handle: RePEc:nbr:nberwo:4695
Template-Type: ReDIF-Paper 1.0
Title: Measuring Industry Specific Protection: Antidumping in the United States
Classification-JEL: F13
Author-Name: Robert W. Staiger
Author-Person: pst85
Author-Name: Frank A. Wolak
Note: ITI
Number: 4696
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4696
File-URL: http://www.nber.org/papers/w4696.pdf
File-Format: application/pdf
Publication-Status: published as Brookings Papers on Economic Activity: Microeconomics, Vol. 1, 1994.
Abstract: This paper provides estimates of the trade impacts of U.S. antidumping law and the determinants of suit filing activity from 1980-1985. We study three possible channels through which the threat or mere possibility of antidumping duties can restrict trade which we believe, when combined with the direct effects of duties, capture most of the trade effects of antidumping law. We refer to these three non- duty effects as the investigation effect, the suspension effect, and the withdrawal effect. Investigation effects occur when an antidumping investigation takes place; suspension effects occur under so-called 'suspension agreements'; and withdrawal effects occur after a petition is simply withdrawn without a final determination. We find substantial trade restrictions associated with the first two effects, but not with the third. Finally, we find evidence suggesting that some firms initiate antidumping procedures for the trade restricting investigation effects alone.
Handle: RePEc:nbr:nberwo:4696
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Stabilization in Latin America: Recent Experience and Some Sequencing Issues
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 4697
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4697
File-URL: http://www.nber.org/papers/w4697.pdf
File-Format: application/pdf
Abstract: This paper reviews the experience of Latin American countries with structural reforms, and discusses the relationship between macroeconomic stabilization and trade liberalization programs undertaken in the region since the early 1980s. The problem of sequencing of stabilization and structural reforms is analyzed with detail. First from a theoretical perspective, second, reviewing the stabilization programs implemented in Latin America on a case by case basis. Particular emphasis is given to the analysis of the fiscal consequences of the chosen sequencing, as well as its impact on the evolution of domestic savings and investment, and on foreign investment. The final part of the paper concentrates on the behavior of real exchange rates during the stabilization programs and its relationship with trade reforms.
Handle: RePEc:nbr:nberwo:4697
Template-Type: ReDIF-Paper 1.0
Title: Shocks
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG
Number: 4698
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4698
File-URL: http://www.nber.org/papers/w4698.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, vol. 41, (1994),pp. 295-364, (December 1994).
Abstract: What are the shocks that drive economic fluctuations? I examine technology and money shocks in some detail, and briefly review the evidence on oil price and credit shocks. I conclude that none of these popular candidates accounts for the bulk of economic fluctuations. I then examine whether 'consumption shocks,' news that agents see but we do not, can account for fluctuations. I find that it may be possible to construct models with this feature, though it is more difficult than is commonly realized. If this view is correct, we will forever remain ignorant of the fundamental causes of economic fluctuations.
Handle: RePEc:nbr:nberwo:4698
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Monetary Policy Shocks: Some Evidence from the Flow of Funds
Classification-JEL: E32
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Charles Evans
Author-Person: pev23
Note: ME EFG
Number: 4699
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4699
File-URL: http://www.nber.org/papers/w4699.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 16-34
Abstract: This paper uses the Flow of Funds accounts to assess the impact of a monetary policy shock on the borrowing and lending activities of different sectors of the economy. Our measures of contractionary monetary policy shocks have the following properties: (i) they are associated with a fall in nonborrowed reserves, total reserves, M1, the Federal Reserves' holdings of government securities and a rise in the federal funds rate, (ii) they lead to persistent declines in real GNP, employment, retail sales and nonfinancial corporate profits as well as increases in unemployment and manufacturing inventories, (iii) they generate sharp, persistent declines in commodity prices and (iv) the GDP price deflator does not respond to them for roughly a year. After that the GDP price deflator declines. Our major findings regarding the borrowing activities of different sectors can be summarized as follows. First, following a contractionary shock to monetary policy, net funds raised by the business sector increases for roughly a year. Thereafter, as the recession induced by the policy shock gains momentum, net funds raised by the business sector begins to fall. This pattern is not captured by existing monetary business cycle models. Second, we cannot reject the view that households do not adjust their financial assets and liabilities for several quarters after a monetary shock. This is consistent with a key assumption of several recent monetary business cycle models.
Handle: RePEc:nbr:nberwo:4699
Template-Type: ReDIF-Paper 1.0
Title: Information and the Demand for Supplemental Medicare Insurance
Classification-JEL: D8; I1
Author-Name: Paul Gertler
Author-Person: pge194
Author-Name: Roland Sturm
Author-Name: Bruce Davidson
Note: EH
Number: 4700
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4700
File-URL: http://www.nber.org/papers/w4700.pdf
File-Format: application/pdf
Abstract: While the critical role of imperfect information has become axiomatic in explaining health care market failure, the theory is backed by little empirical evidence. In this paper we use a unique panel data set with explicit measures of information and an educational intervention to investigate the role of imperfect information about health insurance benefits on the demand for supplemental Medicare insurance. We estimate a structural discrete choice model of the demand for supplemental Medicare insurance that allows imperfect information to affect both the mean and the variance of the expected benefits distribution. The empirical specification is a structural panel multinomial probit with an unrestricted variance- covariance, including heteroskedasticity and random effects to control for unobserved heterogeneity. The model is computationally complex and is estimated by simulated maximum likelihood. The empirical results indicate that imperfect information affects the demand for supplemental Medicare insurance by increasing the variance of the expected benefits distribution rather than by systematically shifting the mean of the distribution. We find that the increase in variance due to imperfect information increases the probability of choosing not to purchase supplemental insurance by about 23%. We also found that controlling for unobserved heterogeneity is important. The goodness of fit increased by about 25% and the precision of the estimated effect of information on the variance of the expected benefits distribution improved dramatically.
Handle: RePEc:nbr:nberwo:4700
Template-Type: ReDIF-Paper 1.0
Title: How Much Did Capital Forbearance Add to the Cost of the S&L Insurance Mess
Classification-JEL: G2; K2
Author-Name: Edward J. Kane
Author-Person: pka853
Author-Name: Min-Teh Yu
Note: CF
Number: 4701
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4701
File-URL: http://www.nber.org/papers/w4701.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Review of Economics and Finance, 36 (Fall 1996), pp.189-199.
Abstract: Federal regulators characterize capital forbearance as an efficient way of nursing weak banks and thrifts back to health. An alternative hypothesis is that forbearance reflects inefficient costs of agency that fall on federal deposit-insurance funds. Divergences between regulatory measures of a troubled institution's net worth and GAAP and market-value measures relieved FSLIC from having to book de facto encumbrances that industry losses were imposing on the FSLIC fund. This omission protected the reputations and careers of top officials. Delays in insolvency resolution intensified FSLIC exposure to future losses by distorting management and risk-taking incentives and squeezing profit margins for surviving thrifts. Besides accumulating projects with negative net present value, delay hurt FSLIC indirectly by undermining the average profitability of the industry it insured. This paper seeks to measure the opportunity cost of FSLIC forbearance during 1985-1989. Although the opportunity cost of delay did not increase every year, it did increase on average. Had opportunity-cost standards of capital adequacy been routinely enforced, FSLIC guarantees would not have displaced private capital on a mammoth scale, surviving members of the industry would have proven more profitable, and investments in commercial real estate would have been restrained.
Handle: RePEc:nbr:nberwo:4701
Template-Type: ReDIF-Paper 1.0
Title: Portfolio Inefficiency and the Cross-Section of Expected Returns
Classification-JEL: G12
Author-Name: Shmuel Kandel
Author-Name: Robert F. Stambaugh
Author-Person: pst282
Note: AP
Number: 4702
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4702
File-URL: http://www.nber.org/papers/w4702.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance 50(1995):157-184.
Abstract: A plot of expected returns versus betas obeys virtually no relation to an inefficient index portfolio's mean-variance location. If the index portfolio is inefficient, then the coefficients and R- squared from an ordinary-least-squares regression of expected returns on betas can equal essentially any desired values. The mean-variance location of the index does determine the properties of a cross- sectional mean-beta relation fitted by generalized least squares (GLS). As the index portfolio moves closer to exact efficiency, the GLS mean-beta relation moves closer to the exact linear relation corresponding to an efficient portfolio with the same variance. The goodness-of-fit for the GLS regression is the index portfolio's squared relative efficiency, which measures closeness to efficiency in mean-variance space.
Handle: RePEc:nbr:nberwo:4702
Template-Type: ReDIF-Paper 1.0
Title: The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data
Classification-JEL: H25; F21
Author-Name: Jason G. Cummins
Author-Person: pcu10
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: PE
Number: 4703
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4703
File-URL: http://www.nber.org/papers/w4703.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R. Glenn Hubbard, University of Chicago Press, 1995.
Publication-Status: published as The Tax Sensitivity of Foreign Direct Investment: Evidence from Firm-Level Panel Data, Jason Cummins, R. Glenn Hubbard. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: Understanding the determinants of foreign direct investment (FDI) is important for analyzing capital flows and the industrial organization of multinational firms. Most empirical studies of FDI, however, have focused on case studies of nontax factors in overseas investment decisions or on discerning reduced-form relationships between some measure of FDI and variables relating to nontax and tax aspects of the investment decision. In this paper, we examine the effects of taxation on FDI using previously unexplored (for this purpose) panel data on FDI by subsidiaries of U.S. multinational firms collected by Compustat's geographic segment file project. These firm- level data contain information on new capital investment overseas which enable us to measure tax influences on FDI more precisely and allow us to focus on structural models of subsidiaries' investment decision. Our empirical results cast significant doubt on the simplest notion that 'taxes don't matter' for U.S. firms' FDI decisions. Tax parameters influence FDI in precisely the way indicated by neoclassical models. Our results also lend support to the application of the 'tax capitalization' model to the study of dividend repatriation and foreign direct investment decisions.
Handle: RePEc:nbr:nberwo:4703
Template-Type: ReDIF-Paper 1.0
Title: Executive Pay and Performance: Evidence from the U.S. Banking Industry
Classification-JEL: G32
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Darius Palia
Note: CF ME
Number: 4704
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4704
File-URL: http://www.nber.org/papers/w4704.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, vol. 39, (1995). pp. 105-130
Abstract: This paper examines an effect of deregulating the market for corporate control on CEO compensation in the banking industry. Given that each state's banking regulation defines the competitiveness of its corporate control market, we examine the effect of a state's interstate banking regulation on the level and structure of bank CEO compensation. Using panel data on 147 banks over the decade of the 1980s, we find evidence supporting the hypothesis that competitive corporate control markets (i.e., where interstate banking is permitted) require talented managers whose levels of compensation are higher. We also find that the compensation-performance relationship is stronger than for managers in markets where interstate banking is not permitted. Further, CEO turnover increases substantially after deregulation, as does the proportion in performance-related compensation. These results suggest strong evidence of a managerial talent market -- that is, one which matches the level and structure of compensation with the competitiveness of the banking environment.
Handle: RePEc:nbr:nberwo:4704
Template-Type: ReDIF-Paper 1.0
Title: Recent Developments in the Marriage Tax
Classification-JEL: H24
Author-Name: Daniel R. Feenberg
Author-Person: pfe56
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 4705
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4705
File-URL: http://www.nber.org/papers/w4705.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, vol. XLVIII, no. 1, pp. 91-191, (March 1995).
Abstract: The new tax law increases tax rates of high income individuals, and expands the earned income tax credit for low income individuals. We use a sample of actual tax returns to compute estimates of the 'marriage tax' - the change in couples joint tax upon marriage - under this new law. We predict that in 1994 52 percent of American couples will pay a marriage tax, with an average of about $1,244; 38 percent will receive a subsidy averaging about $1,399. These aggregate figures mask a considerable amount of dispersion in the population. Under the new law, the marriage tax for certain low-income families can exceed $3,000 annually; for certain very high income families it can exceed $10,000 annually.
Handle: RePEc:nbr:nberwo:4705
Template-Type: ReDIF-Paper 1.0
Title: A Semi-Classical Model of Price Level Adjustment
Classification-JEL: E13; E32
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 4706
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4706
File-URL: http://www.nber.org/papers/w4706.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, vol. 41, pp. 251-284 December 1994
Abstract: This paper investigates the theoretical and empirical properties of a model of aggregate supply behavior that was introduced in the 1970s but has received inadequate attention. The model postulates that price changes occur so as to gradually eliminate discrepancies between actual and market-clearing values and to reflect expected changes in market-clearing values. Its implications are more 'classical' than most alternative formulations that reflect gradual price adjustment. Empirical results, which utilize a proxy for market-clearing output that is a function of fixed capital and the real price of oil, are moderately encouraging but not entirely supportive.
Handle: RePEc:nbr:nberwo:4706
Template-Type: ReDIF-Paper 1.0
Title: The U-Shaped Female Labor Force Function in Economic Development and Economic History
Classification-JEL: J21; N30
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE
Number: 4707
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4707
File-URL: http://www.nber.org/papers/w4707.pdf
File-Format: application/pdf
Publication-Status: published as T. Paul Schultz, ed., Investment in Women's Human Capital and Economic Development, University of Chicago Press, 1995.
Abstract: The labor force participation rate of married women first declines and then rises as countries develop. Its þ-shape is revealed both across the process of economic development and through the histories of currently advanced countries. The initial decline in the participation rate is due to the movement of production from the household, family farm, and small business to the wider market, and to a strong income effect. But the income effect weakens and the substitution effect strengthens at some point. This paper explores why the change takes place and why the þ-shape is traced out. When women are poorly educated their only wage labor outside the home and family is in manual work, against which a strong social stigma exists. But when women are educated, particularly at the secondary level, they enter white-collar work, against which no social stigma exists. Data for more than one-hundred countries and for United States history are used to explore the hypothesis of the þ-shaped female labor force function.
Handle: RePEc:nbr:nberwo:4707
Template-Type: ReDIF-Paper 1.0
Title: Alcohol Advertising and Motor Vehicle Fatalities
Classification-JEL: I1; M3
Author-Name: Henry Saffer
Author-Person: psa935
Note: EH
Number: 4708
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4708
File-URL: http://www.nber.org/papers/w4708.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 79, no. 3 (August 1997): 431-442.
Abstract: The purpose of this paper is to empirically estimate the effect of alcohol advertising on motor vehicle fatalities. The concept of an industry level advertising response function is developed and other empirical issues in estimating the effects of advertising are reviewed. The data set consists of quarterly observations, from 1986 to 1989, for 75 advertising markets in the United States and includes 1200 observations. Since motor vehicle fatalities and alcohol advertising are jointly determined, Two Stage Least Squares is used in the estimation. Reduced form fatality models and advertising models are also estimated to predict the effect of changes in the price of advertising. The regression results show that alcohol advertising has a significant and positive effect on motor vehicle fatalities. The data and regression results are used to estimate the effects of two policy options. The first option is to ban all broadcast alcohol advertising. The data indicate that if a ban on broadcast alcohol advertising did not also include bans on other types of alcohol marketing, the effect on motor vehicle fatalities might be in the range of 2000 to 3000 lives saved per year. The second policy is the elimination of the tax deductibility of alcohol advertising. This policy could reduce alcohol advertising by about 27 percent, reduce motor vehicle fatalities by about 2300 deaths per year and raise about $336 million a year in new tax revenue.
Handle: RePEc:nbr:nberwo:4708
Template-Type: ReDIF-Paper 1.0
Title: The U.S. Fiscal Problem: Where We Are, How We Got Here and Where We're Going
Classification-JEL: E65; H62
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: EFG PE
Number: 4709
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4709
File-URL: http://www.nber.org/papers/w4709.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1994. Cambridge: MIT Press, 1994.
Publication-Status: published as The US Fiscal Problem: Where We Are, How We Got Here, and Where We're Going, Alan J. Auerbach. in NBER Macroeconomics Annual 1994, Volume 9, Fischer and Rotemberg. 1994
Abstract: This paper deals with several issues regarding the causes and implications of recent and projected U.S. federal budget deficits. It considers why deficits have remained so large in spite of deficit reduction efforts, evaluates the impact of the recent policies of the Clinton administration, and offers long-range deficit projections. Among the paper's findings are: 1. Until the past year, deficit projections over the past decade have been consistently too optimistic; had initial projections for the current fiscal year proved accurate, the deficit-reducing policies of the early 1990s already would have driven the federal budget well into surplus; there is no single explanation for these large and systematic forecasting errors. 2. The budget rules that legislators have developed to control deficits, including those now in effect, are ill-designed for their apparent purpose. They fail to compensate for forecasting errors and encourage shifts in the timing of revenues and expenditures. The paper presents evidence that such shifting has followed the incentives of the different schemes. 3. The projected decline in the deficit as a share of GDP over the next few years reflects not only the policies already enacted but also the continuation of significant real reductions in discretionary spending -- representing a drop of 2.2 percent of GDP between 1994 and 2004. 4. Even if such optimistic forecasts prove to be correct, longer run projections suggest that current fiscal policy is unsustainable. Without any growth in the relative price of health care, the
Handle: RePEc:nbr:nberwo:4709
Template-Type: ReDIF-Paper 1.0
Title: U.S. Foreign Trade and the Balance of Payments, 1800-1913
Classification-JEL: F14; F2
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: DAE ITI
Number: 4710
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4710
File-URL: http://www.nber.org/papers/w4710.pdf
File-Format: application/pdf
Publication-Status: published as Engerman, Stanley and Robert Gallman (eds.) Cambridge Economic History of the United States, vol II. New York: Cambridge University Press, 2000.
Abstract: This paper reviews the main developments in U.S. trade and the balance of payments from the first years of the 19th century to the first decade of the 20th. American export trade was dominated by agricultural and other resource products long after the majority of the labor force had shifted out of agriculture. The shift out of agriculture was more rapid among the major trading partners of the United States because the American land area increased in the first half of the nineteenth century and agricultural land increased throughout the century. The rise in agricultural land area and a rapid decline in transport cost increased the supply of U.S. agricultural products to Europe and further displaced European agriculture and encouraged migration from Europe. The existence of the large world market, relatively open to the products of American comparative advantage and with a high price elasticity of demand for American exports, encouraged the expansion of U.S. land, agriculture, capital inflows, immigration, and the western migration of population.
Handle: RePEc:nbr:nberwo:4710
Template-Type: ReDIF-Paper 1.0
Title: "Convergence in the Age of Mass Migration"
Classification-JEL: F2; N1
Author-Name: Alan M. Taylor
Author-Person: pta46
Author-Name: Jeffrey G. Williamson
Author-Person: pwi169
Note: DAE
Number: 4711
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4711
File-URL: http://www.nber.org/papers/w4711.pdf
File-Format: application/pdf
Publication-Status: published as European review of economic history, vol. 1, no.1 (April 1997): 27-63.
Abstract: Between 1870 and 1913, economic convergence among present OECD members (or even a wider sample of countries) was dramatic, about as dramatic as it has been over the past century and a half. The convergence can be documented in GDP per worker-hour, GDP per capita and in real wages. What were the sources of the convergence? One prime candidate is mass migration. In the absence of quotas, this was a period of open international migration, and the numbers who elected to move were enormous. If international migration is ever to play a role in contributing to convergence, the pre-quota period surely should be it. This paper offers some estimates which suggest that migration could account for very large shares of the convergence in GDP per worker and real wages, though a much smaller share in GDP per capita. One might conclude, therefore, that the interwar cessation of convergence could be partially explained by the imposition of quotas and other barriers to migration. The paper concludes with caution as it enumerates the possible offsets to the mass migration impact which our partial equilibrium analysis ignores, and with the plea that convergence models pay more attention to open-economy forces.
Handle: RePEc:nbr:nberwo:4711
Template-Type: ReDIF-Paper 1.0
Title: U.S. Interest Allocation Rules: Effects and Policy
Classification-JEL: H25; H32
Author-Name: Rosanne Altshuler
Author-Person: pal34
Author-Name: Jack Mintz
Note: ITI PE
Number: 4712
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4712
File-URL: http://www.nber.org/papers/w4712.pdf
File-Format: application/pdf
Publication-Status: published as International Tax and Public Finance, Vol. 2, no. 1, (1995): pp. 7-35.
Abstract: One of the important changes of the 1986 tax reform for U.S. multinationals is related to the allocation of interest expense. Prior to 1986, U.S. companies allocated domestic interest expense to the income of foreign affiliates on a non-consolidated basis according to the distribution of gross income or assets. After 1986, a U.S. multinational is required to allocate domestic interest expense on a consolidated basis according to the distribution of U.S. and foreign assets. We analyze the impact of the new interest allocation rules on the financial and investment decisions of U.S. multinationals using data from a survey of multinationals assembled by Price Waterhouse. We find that the allocation of interest expense increases the marginal cost of U.S. debt by about 38 percent for firms with excess foreign tax credits. Our empirical tests suggest that firms have altered the location of their borrowings in response to the new rules. We also find that the requirement to allocate interest expense has a significant impact on the effective tax rate faced by U.S. multinationals. For U.S. domestic investments, the interest allocation rules increase the U.S. effective rate from 17.6 percent to 21.9 percent. The rules also increase the effective tax rates on foreign investments made by U.S. firms.
Handle: RePEc:nbr:nberwo:4712
Template-Type: ReDIF-Paper 1.0
Title: Regional Adjustment to Trade Liberalization
Classification-JEL: F14; R11
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: ITI
Number: 4713
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4713
File-URL: http://www.nber.org/papers/w4713.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 28 (1998): 419-444.
Abstract: In this paper, I study the effect of economic integration with the United States on state-industry employment growth in Mexico. I disentangle the effects of two opposing forces on regional labor demand: transport-cost considerations, which, all else equal, encourage firms to relocate their activities to regions with relatively good access to foreign markets, and agglomeration economies, which, all else equal, reinforce the pre-trade pattern of industry location. I find that trade liberalization has strong effects on industry location. Consistent with the transport-costs hypothesis, post-trade employment growth is higher in state-industries that are relatively close to the United States. The results on agglomeration effects are mixed. Employment growth is higher where agglomeration in upstream and downstream industries is higher, but not where the agglomeration of firms in the same industry is higher. The results suggest trade liberalization has contributed to the decomposition of the manufacturing belt in and around Mexico City and the formation of broadly specialized industry centers located in northern Mexico, relatively close to the United States. The North American Free Trade Agreement is likely to reinforce these movements.
Handle: RePEc:nbr:nberwo:4713
Template-Type: ReDIF-Paper 1.0
Title: Evidence on Growth, Increasing Returns and the Extent of the Market
Classification-JEL: F43; O40
Author-Name: Alberto F. Ades
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Note: EFG
Number: 4714
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4714
File-URL: http://www.nber.org/papers/w4714.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 114, no. 3 (August 1999): 1025-1045.
Abstract: We examine two sets of economies, (19th century U.S. states and 20th century less developed countries) where growth rates are positively correlated with initial levels of development to document how these dynamic increasing returns operate. We find that open economies do not display a positive connection between initial levels and later growth; instead, closed economies do display this positive correlation (i.e. divergence). This evidence suggests that increasing returns operate by expanding the extent of the market (as in the big push theories of Murphy, Shleifer and Vishny (1989)). For U.S. states, we also find that larger markets enhance growth by increasing the division of labor. Among LDCs, while more diversified production increases growth, diversification is negatively associated with openness for the poorest economies (as in the quality ladder theories of Boldrin and Scheinkman (1988), Young (1991) and Stokey (1991)). However, and despite the negative effect that openness has on the diversity of production and, thus, on growth, we find that openness still substantially increases growth for these poorer economies.
Handle: RePEc:nbr:nberwo:4714
Template-Type: ReDIF-Paper 1.0
Title: Trade and Circuses: Explaining Urban Giants
Classification-JEL: O40; R10
Author-Name: Alberto F. Ades
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Note: EFG
Number: 4715
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4715
File-URL: http://www.nber.org/papers/w4715.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 110, no. 1 (1995): 195-227.
Abstract: Using theory, case studies, and cross-country evidence, we investigate the factors behind the concentration of a nation's urban population in a single city. High tariffs, high costs of internal trade, and low levels of international trade increase the degree of concentration. Even more clearly, politics (such as the degree of instability) determines urban primacy. Dictatorships have central cities that are, on average, 50 percent larger than their democratic counterparts. Using information about the timing of city growth, and a series of instruments, we conclude that the predominant causality is from political factors to urban concentration, not from concentration to political change.
Handle: RePEc:nbr:nberwo:4715
Template-Type: ReDIF-Paper 1.0
Title: Trade, Wages and Revolving Door Ideas
Author-Name: Edward E. Leamer
Author-Person: ple440
Note: ITI LS
Number: 4716
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4716
File-URL: http://www.nber.org/papers/w4716.pdf
File-Format: application/pdf
Abstract: Recent discussions of the effects of globalization and technological change on U.S. wages have suffered from inappropriate or missing references to the basic international trade theorems: The Factor Price Equalization Theorem, the Stolper-Samuelson Theorem and the Samuelson Duality Theorem. Until the theory is better understood, and until the theory and the estimates are sensibly linked, the jury should remain out. This paper gives examples of the misuse of the international micro theory linking technological change and globalization to the internal labor market. This international micro theory serves as a foundation for a reexamination of the NBER Trade and Immigration Data Base that describes output, employment and investment in 450 4-digit SIC U.S. manufacturing sectors beginning in 1970. Estimates of the impact of technological change on income inequality are shown to vary widely depending on the form of the model and the choice of data subsets, but uniformly the estimates suggest that technological change reduced income inequality not increased it. But the data separation of workers into 'production' and 'non-production' workers has little association with skill levels, and these data probably cannot be used to study income inequality.
Handle: RePEc:nbr:nberwo:4716
Template-Type: ReDIF-Paper 1.0
Title: A Stock Index Mutual Fund Without Net Capital Gains Realizations
Classification-JEL: 314; E
Author-Name: Joel M. Dickson
Author-Name: John B. Shoven
Note: PE
Number: 4717
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4717
File-URL: http://www.nber.org/papers/w4717.pdf
File-Format: application/pdf
Abstract: This paper reconsiders the literature on tax options by examining the ability to defer net capital gains realizations within an equity portfolio whose constituents change over time. Unlike previous studies on the value of tax options, this paper examines after-tax returns to shareholders within an equity mutual fund. The mutual fund context allows certain features of the United States' tax laws -- namely, wash-sale rules and the offsetting of short-term and long-term capital gains and losses -- to be incorporated in assessing the potential improvement in post-tax returns to investors engaging in tax minimization strategies. Specifically, this paper examines the feasibility of managing open-end and closed-end Standard and Poor's 500 index funds which defer net capital gains realizations. A combination of HIFO (highest in, first out) accounting procedures and the systematic booking of significant losses in portfolio constituents would have allowed the open-end fund variant to match the annual pre-tax return of Vanguard's Index 500 Fund while improving annual after-tax performance by as much as ninety-seven basis points through the elimination of all capital gains realizations between 1977 and 1991. Deferring capital gains is shown to be easier for open-end funds relative to closed-end funds while the additional turnover required to implement these strategies is quite modest. The authors name the tax-sensitive funds in this paper 'SURGE (Strategies Using Realized Gains Elimination) funds.'
Handle: RePEc:nbr:nberwo:4717
Template-Type: ReDIF-Paper 1.0
Title: A Nonparametric Approach to Pricing and Hedging Derivative Securities Via Learning Networks
Classification-JEL: G13
Author-Name: James M. Hutchinson
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: Tomaso Poggio
Note: AP
Number: 4718
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4718
File-URL: http://www.nber.org/papers/w4718.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol. 49, no. 3, July 1994, pp 851-889
Abstract: We propose a nonparametric method for estimating the pricing formula of a derivative asset using learning networks. Although not a substitute for the more traditional arbitrage-based pricing formulas, network pricing formulas may be more accurate and computationally more efficient alternatives when the underlying asset's price dynamics are unknown, or when the pricing equation associated with no-arbitrage condition cannot be solved analytically. To assess the potential value of network pricing formulas, we simulate Black-Scholes option prices and show that learning networks can recover the Black-Scholes formula from a two-year training set of daily options prices, and that the resulting network formula can be used successfully to both price and delta-hedge options out-of-sample. For comparison, we estimate models using four popular methods: ordinary least squares, radial basis function networks, multilayer perceptron networks, and projection pursuit. To illustrate the practical relevance of our network pricing approach, we apply it to the pricing and delta-hedging of S&P 500 futures options from 1987 to 1991.
Handle: RePEc:nbr:nberwo:4718
Template-Type: ReDIF-Paper 1.0
Title: Reconsidering the Costs of Business Cycles with Incomplete Markets
Classification-JEL: E60; E32
Author-Name: Andrew Atkeson
Author-Person: pat52
Author-Name: Christopher Phelan
Author-Person: pph1
Note: EFG
Number: 4719
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4719
File-URL: http://www.nber.org/papers/w4719.pdf
File-Format: application/pdf
Publication-Status: published as Reconsidering the Costs of Business Cycles with Incomplete Markets, Andrew Atkeson, Christopher Phelan. in NBER Macroeconomics Annual 1994, Volume 9, Fischer and Rotemberg. 1994
Abstract: In this paper, we measure the potential welfare gains from counter-cyclical policy in an economy with incomplete markets. In the course of conducting this measurement, we focus on two questions as central to the determination of those potential gains: (1) what is the likely effect of counter-cyclical policy on the nature of the income risk faced by individuals in the economy, and (2) what are the likely general equilibrium effects brought about as asset prices change due to the implementation of counter-cyclical policies? In taking up the first question, we see it as critical to distinguish whether the main effect of counter-cyclical policy is to directly reduce the income risk faced by each individual or is simply to reduce the correlation across individuals in the income risk that they face. We present a model of the wage and employment risk faced by individuals over the cycle in which the levels of those risks are chosen endogenously. On the basis of that model, we argue that the main effect of counter- cyclical policy aimed at reducing aggregate fluctuations may be simply to remove the correlation across individuals in the unemployment risk that they face. We then use asset price data to argue that in an incomplete markets framework, the potential welfare gains from counter-cyclical policy are close to zero.
Handle: RePEc:nbr:nberwo:4719
Template-Type: ReDIF-Paper 1.0
Title: Implementing Option Pricing Models When Asset Returns Are Predictable
Classification-JEL: G13
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: Jiang Wang
Note: AP
Number: 4720
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4720
File-URL: http://www.nber.org/papers/w4720.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol. 50, no. 1, March 1995.
Abstract: Option pricing formulas obtained from continuous-time no- arbitrage arguments such as the Black-Scholes formula generally do not depend on the drift term of the underlying asset's diffusion equation. However, the drift is essential for properly implementing such formulas empirically, since the numerical values of the parameters that do appear in the option pricing formula can depend intimately on the drift. In particular, if the underlying asset's returns are predictable, this will influence the theoretical value and the empirical estimate of the diffusion coefficient å. We develop an adjustment to the Black-Scholes formula that accounts for predictability and show that this adjustment can be important even for small levels of predictability, especially for longer-maturity options. We propose a class of continuous-time linear diffusion processes for asset prices that can capture a wider variety of predictability, and provide several numerical examples that illustrate their importance for pricing options and other derivative assets.
Handle: RePEc:nbr:nberwo:4720
Template-Type: ReDIF-Paper 1.0
Title: Congressional Distributive Politics and State Economic Performance
Classification-JEL: D72; H23
Author-Name: Steven D. Levitt
Author-Person: ple59
Author-Name: James M. Poterba
Author-Person: ppo19
Note: PE
Number: 4721
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4721
File-URL: http://www.nber.org/papers/w4721.pdf
File-Format: application/pdf
Publication-Status: published as Public Choice, Vol. 99 (April 1999): 185-216.
Abstract: This paper tests several theories of the effects of congressional representation on state economic growth. States that were represented by very senior Democratic congressmen grew more quickly during the 1953-1990 period than states that were represented by more junior congressional delegations. We find some, but weaker, evidence that states with a high fraction of their delegation on particularly influential committees also exhibit above-average growth. We also test partisan models of distributive politics by studying the relationship between a state's degree of political competition and its growth rate. Our findings support both nonpartisan and partisan models of congressional distributive politics. In spite of our findings with respect to economic growth, we can not detect any substantively important association between congressional delegation seniority, the degree of state political competition, and the geographic distribution of federal funds. The source of the growth relationships we identify therefore remains an open question.
Handle: RePEc:nbr:nberwo:4721
Template-Type: ReDIF-Paper 1.0
Title: Testing Static Trade-off Against Pecking Order Models of Capital Structure
Classification-JEL: G32
Author-Name: Lakshmi Shyam-Sunder
Author-Name: Stewart C. Myers
Note: CF
Number: 4722
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4722
File-URL: http://www.nber.org/papers/w4722.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, February 1999
Abstract: This paper tests traditional capital structure models against the alternative of a pecking order model of corporate financing. The basic pecking order model, which predicts external debt financing driven by the internal financial deficit, has much greater explanatory power than a static trade-off model which predicts that each firm adjusts toward an optimal debt ratio. We show that the power of some usual tests of the trade-off model is virtually nil. We question whether the available empirical evidence supports the notion of an optimal debt ratio.
Handle: RePEc:nbr:nberwo:4722
Template-Type: ReDIF-Paper 1.0
Title: Firm Diversification and CEO Compensation: Managerial Ability or Executive Entrenchment?
Classification-JEL: L2; G3
Author-Name: Nancy L. Rose
Author-Person: pro786
Author-Name: Andrea Shepard
Note: IO
Number: 4723
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4723
File-URL: http://www.nber.org/papers/w4723.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol. 28, no. 3 (Autumn 1997): 489-514.
Abstract: Data for a sample of 558 CEOs over 1985-1990 suggest substantial compensation premia for managers of diversified firms. The CEO of a firm with two distinct lines of business averages 10 to 12 percent more in salary and bonus and 13 to 17 percent more in total compensation than the CEO of a similar-sized but undiversified firm, all else equal. This corresponds to average 1990 salary gains of $115,000 to $145,000 per year for our sample. Diversification may raise pay because the CEO's job requires higher ability or because it is associated with CEO entrenchment. If ability explains the correlation, we would expect the diversification premium to be invariant to tenure. Entrenchment models suggest higher premia for more experienced (more entrenched) CEOs, and an increase in compensation when the CEO diversifies the firm. The data support an ability model over an entrenchment explanation. The diversification premium is unaffected by tenure, and increasing diversification reduces compensation for incumbent CEOs, all else equal.
Handle: RePEc:nbr:nberwo:4723
Template-Type: ReDIF-Paper 1.0
Title: The Valuation of Cash Flow Forecasts: An Empirical Analysis
Author-Name: Steven N. Kaplan
Author-Name: Richard S. Ruback
Note: CF
Number: 4724
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4724
File-URL: http://www.nber.org/papers/w4724.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, volume 50, Sept 1995, pp1059-1094.
Abstract: This paper compares the market value of highly leveraged transactions (HLTs) to the discounted value of their corresponding cash flow forecasts. These forecasts are provided by management to investors and shareholders in 51 HLTs completed between 1983 and 1989. Our estimates of discounted cash flows are within 10%, on average, of the market values of the completed transactions. Our estimates perform at least as well as valuation methods using comparable companies and transactions. We also invert our analysis and estimate the risk premium implied by transaction values and forecast cash flows, and the relation of the implied risk premium to firm-level betas, industry-level betas, firm size, and firm book-to-market ratios.
Handle: RePEc:nbr:nberwo:4724
Template-Type: ReDIF-Paper 1.0
Title: Capital Goods Imports and Long-Run Growth
Classification-JEL: F43; O40
Author-Name: Jong-Wha Lee
Author-Person: ple164
Note: EFG ITI
Number: 4725
Creation-Date: 1994-04
Order-URL: http://www.nber.org/papers/w4725
File-URL: http://www.nber.org/papers/w4725.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 48, no. 1 (1995): 91-110.
Abstract: This paper presents an endogenous growth model of an open economy in which the growth rate of income is higher if foreign capital goods are used relatively more than domestic capital goods for the production of capital stock. Empirical results, using cross country data for the period 1960-85, confirm that the ratio of imported to domestically produced capital goods in the composition of investment has a significant positive effect on per capita income growth rates across countries, in particular, in developing countries. Hence, the composition of investment in addition to the volume of total capital accumulation is highlighted as an important determinant of economic growth.
Handle: RePEc:nbr:nberwo:4725
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of Job Creation and Job Destruction in Canada and the United States
Classification-JEL: C81; E24
Author-Name: John Baldwin
Author-Name: Timothy Dunne
Author-Person: pdu86
Author-Name: John Haltiwanger
Author-Person: pha231
Note: EFG
Number: 4726
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4726
File-URL: http://www.nber.org/papers/w4726.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 80, no. 3 (August 1998): 347-356.
Abstract: In recent years a growing number of countries have constructed data series on job creation and job destruction using establishment- level data sets. This paper provides a description and detailed comparison of these new data series for the United States and Canada. First, the Canadian and United States industry-level job creation and destruction rates are remarkably similar. Industries with high (low) job creation in the U.S. exhibit high (low) job creation in Canada. The same is true for job destruction. In addition, the overall magnitude of gross job flows in the two countries is comparable. Second, the time-series patterns of creation and destruction are qualitatively similar but do differ in a number of important respects. In both countries, job destruction is much more cyclically volatile than job creation. This cyclical asymmetry is, however, more pronounced in the United States. The paper finishes with a characterization of the job flow patterns using a modified Blanchard and Diamond (1992) model.
Handle: RePEc:nbr:nberwo:4726
Template-Type: ReDIF-Paper 1.0
Title: Transaction Costs in Dealer Markets: Evidence From The London Stock Exchange
Classification-JEL: 229; 522; C; G
Author-Name: Peter C. Reiss
Author-Name: Ingrid M. Werner
Note: AP IO
Number: 4727
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4727
File-URL: http://www.nber.org/papers/w4727.pdf
File-Format: application/pdf
Publication-Status: published as The Industrial Organization and Regulation of the Securities Industry, Andrew Lo, ed. University of Chicago Press, 1996. ISBN# 0-226-48847-0, pp. 125
Publication-Status: published as Transaction Costs in Dealer Markets: Evidence from the London Stock Exchange, Peter C. Reiss, Ingrid M. Werner. in The Industrial Organization and Regulation of the Securities Industry, Lo. 1996
Abstract: This paper describes regularities in the intraday spreads and prices quoted by dealers on the London Stock Exchange. It develops a measure of spread-related transaction costs, one that recognizes dealers' willingness to price trades within their quoted spreads. This measure of transaction costs shows that trading costs are systematically related to a trade's size, characteristics of the trading counterparties, and security characteristics. Customers pay the full spread on small trades while medium to large trades receive more favorable execution. Market makers only discount very large customer trades while dealers regularly discount medium to large trades. Inter-dealer trades generally receive favorable execution, and discounts increase in size. Market makers do not discount trades with each other over the phone, but do discount when trading anonymously using inter-dealer-brokers. Quoted and touch spreads are falling in the number of market makers. The rate of decline is interpreted as reflecting economies of scale in market making.
Handle: RePEc:nbr:nberwo:4727
Template-Type: ReDIF-Paper 1.0
Title: Cities and Skills
Classification-JEL: R10; J31
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: David C. Mare
Note: EFG LS
Number: 4728
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4728
File-URL: http://www.nber.org/papers/w4728.pdf
File-Format: application/pdf
Publication-Status: published as Glaeser, Edward L. and David C. Mare. "Cities And Skills," Journal of Labor Economics, 2001, v19(2,Apr), 316-342.
Abstract: This paper examines the productivity (and wage) gains from locating in dense, urban environments. We distinguish between three potential explanations of why firms are willing to pay urban workers more: (1) the urban wage premium is spurious and is the result of omitted ability measures, (2) the urban wage premium works because cities enhance productivity and (3) the urban wage premium is the result of faster skill accumulation in cities. Using a combination of standard regressions, individual fixed effects estimation (using migrants) and instrumental variables methods, we find that the urban wage premium does not represent omitted ability bias and it is only in part a level effect to productivity. The bulk of the urban wage premium accrues over time as a result of greater skill accumulation in cities.
Handle: RePEc:nbr:nberwo:4728
Template-Type: ReDIF-Paper 1.0
Title: Training and the Growth of Wage Inequality
Classification-JEL: J24; J31
Author-Name: Jill Constantine
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 4729
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4729
File-URL: http://www.nber.org/papers/w4729.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Relations, Vol. 35, no. 4 (October 1996): 491-510.
Abstract: Shifts in the incidence of various types of training over the 1980s favored more-educated, more-experienced workers. Coupled with the fact that this training is associated with higher wages, these shifts suggest that training may have contributed to the growth of wage inequality in this period. However, the shifts were apparently too small, or the returns to training too low, for training to have played a substantial role in this increase. The estimated changes in wage differentials associated with schooling and experience are at best only slightly smaller once we account for changes in the distribution of training across schooling and experience groups, as well as changes in the returns to training and in the length of training programs.
Handle: RePEc:nbr:nberwo:4729
Template-Type: ReDIF-Paper 1.0
Title: Externalities and Industrial Development
Author-Name: J. Vernon Henderson
Author-Person: phe30
Number: 4730
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4730
File-URL: http://www.nber.org/papers/w4730.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, Vol. 47 (1997): 449-470.
Abstract: Using a panel data set of county-level employment in machinery, electrical machinery, primary metals, transportation, and instruments, this paper analyzes the role of dynamic externalities for individual industries. Key issues examined include the role of externalities from own industry concentration (localization, or MAR externalities) versus the role of externalities from overall diversity of the local environment (urbanization, or Jacobs externalities). In contrast to previous studies, use of panel data allows us to separate these effects out from fixed/random effects influencing industries over time. Panel data also allow us to estimate a lag structure to externality variables, indicating how long history matters and the time pattern of effects. A particular issue concerns whether conditions from the immediate year or so prior to the current have the biggest impact on current employment, or periods several years prior have the largest impact. For all industries both localization and urbanization effects are important. For traditional industries most effects die out after four or five years, but for high tech industries effects can persist longer. The biggest effects are typically from conditions of three to four years ago, in the county and metropolitan area.
Handle: RePEc:nbr:nberwo:4730
Template-Type: ReDIF-Paper 1.0
Title: An Analysis of Fee-Shifting Based on the Margin of Victory: On FrivolousSuits, Meritorious Suits and the Role of Rule 11
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Author-Name: Howard F. Chang
Note: LE
Number: 4731
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4731
File-URL: http://www.nber.org/papers/w4731.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Legal Studies Vol. XXV, No. 2, pp. 371-403 (1996)
Abstract: We show that, when plaintiffs cannot predict the outcome of litigation with certainty, neither the American rule of litigation cost allocation (under which each litigant bears its own expenses) nor the British rule (under which the losing litigant pays the attorneys' fees of the winning litigant) would induce plaintiffs to make optimal decisions to bring suit. In particular, plaintiffs may bring frivolous suits when litigation costs are sufficiently small relative to the amount at stake, and plaintiffs may not bring some meritorious suits when litigation costs are sufficiently large relative to the amount at stake. We analyze the effect of more general fee-shifting rules that are based not only upon the identity of the winning party but also on how strong the court perceives the case to be at the end of the trial -- that is, the 'margin of victory.' In particular, we explore how and when one can design such a rule to induce plaintiffs to sue if and only if they believe their cases are sufficiently strong. Our analysis suggests some considerations to guide the interpretation of Federal Rule of Civil Procedure 11.
Handle: RePEc:nbr:nberwo:4731
Template-Type: ReDIF-Paper 1.0
Title: Trade Unions and the Dispersion of Earnings in British Establishments, 1980-90
Author-Name: Amanda Gosling
Author-Name: Stephen Machin
Author-Person: pma110
Note: LS
Number: 4732
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4732
File-URL: http://www.nber.org/papers/w4732.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Bulletin of Economics and Statistics, Vol. 57, no. 2 (May 1995): pp. 167-184.
Abstract: The relationship between unions and earnings dispersion is examined using establishment-level data from the 1980, 1984 and 1990 Workplace Industrial Relations Surveys. Initially the cross-sectional relationship is examined using the 1990 data. The earnings dispersion of skilled and semi-skilled workers is seen to be lower across unionised establishments than across non-union establishments; secondly, within-establishment earnings dispersion is lower in plants which recognise trade unions for collective bargaining purposes than in those that do not. All three surveys are then utilised to ascertain to what extent the decline in unionization in Britain has contributed to the rise in earnings inequality of semi-skilled workers. There was a sizable and important widening of the gap in the dispersion of earnings across union and non-union plants between 1980 and 1990. For semi-skilled earnings, the decline in the share of plants with recognised unions can account for 11-17% of the rise in earnings inequality over this time period. The importance of falling union activity (as measured by union recognition) seemed to accelerate through the 1980s. Between 1980 and 1984 the relatively small falls in aggregate recognition explain less than 10% of the inequality increase, whereas between 1984 and 1990 about one-quarter of the increase can be accounted for by the fall in unionisation. The majority of the rise in earnings inequality is, however, due to a large increase in earnings dispersion across non-union establishments.
Handle: RePEc:nbr:nberwo:4732
Template-Type: ReDIF-Paper 1.0
Title: British Unions in Decline: An Examination of the 1980s Fall in Trade Union Recognition
Classification-JEL: J5
Author-Name: Richard Disney
Author-Name: Amanda Gosling
Author-Name: Stephen Machin
Author-Person: pma110
Note: LS
Number: 4733
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4733
File-URL: http://www.nber.org/papers/w4733.pdf
File-Format: application/pdf
Publication-Status: Published as "British Unions in Decline: Determinants of the 1980's Fallin Union Recognition", Industrial and Labor Relations Review, Vol. 48, no. 3 (1995): 403-419. Published as "What Has Happened to Union Recognition in Britain?",
Publication-Status: published as Economica, Vol. 63, no. 249 (February 1996): 1-18.
Abstract: The authors analyze establishment-level data from the three Workplace Industrial Relations Surveys of 1980, 1984 and 1990 to document and explain the sharp decline in unionization that occurred in Britain over the 1980s. Between 1980 and 1990 the proportion of British establishments which recognised manual or non-manual trade unions for collective bargaining over pay and conditions fell by almost 20 percent (from 0.67 to 0.54). The evidence reported demonstrates the importance of the interaction between the labour market, the product market, employer behaviour and the legislative framework in determining union recognition status in new establishments. The sharp fall in trade union recognition appears to be largely driven by a failure to achieve recognition status in establishments set up in the 1980s. These results, when taken in conjunction with recent changes in the nature of employment in the British labour market, seem to paint a bleak picture for unions and there appears to be no reason why the decline in union activity should not continue into the 1990s.
Handle: RePEc:nbr:nberwo:4733
Template-Type: ReDIF-Paper 1.0
Title: The Distribution of Public Sector Wage Premia: New Evidence Using Quantile Regression Methods
Classification-JEL: H72; J45
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Kim S. Rueben
Author-Person: pru27
Note: PE
Number: 4734
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4734
File-URL: http://www.nber.org/papers/w4734.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. and Kim S. Rueben. "The Effect Of Property-Tax Limits On Wages And Employment In The Local Public Sector," American Economic Review, 1995, v85(2), 384-389.
Abstract: This paper documents the changing pattern of wage differentials between state and local government employees and their private sector counterparts during the 1979-1992 period. While the relative wages of women employed in the two sectors changed very little during this period, the relative wages of men employed in the state and local sector rose nearly 8%. There is substantial heterogeneity in the changes in relative wages of public and private sector employees during the 1980s. For highly educated workers, private sector wages rose significantly faster than public sector wages, while for those with at most a high school education, the public sector wage premium increased. We present both least squares and quantile regression estimates of the public sector premium. While the level of this premium is sensitive to our choice of quantile, the change in the premium, and the estimated pattern across skill levels, is not substantially affected by varying the quantile.
Handle: RePEc:nbr:nberwo:4734
Template-Type: ReDIF-Paper 1.0
Title: The Soviet Economic Decline: Historical and Republican Data
Classification-JEL: 040
Author-Name: William Easterly
Author-Person: pea1
Author-Name: Stanley Fischer
Note: EFG
Number: 4735
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4735
File-URL: http://www.nber.org/papers/w4735.pdf
File-Format: application/pdf
Publication-Status: published as Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, Oxford University Press, vol. 9(3), pages 341-71, September.
Abstract: Soviet growth over 1960-89 was the worst in the world after we control for investment and human capital; the relative performance worsens over time. The declining Soviet growth rate over 1950-87 is explained by the declining marginal product of capital; the rate of TFP growth is roughly constant over that period. While the Soviet slowdown has conventionally been attributed to extensive growth (rising capital to output ratios), extensive growth is also a feature of market-oriented economies like Japan and Korea. What led to the relative Soviet decline was a low elasticity of substitution between capital and labor, which caused diminishing returns to capital to be especially acute. Tentative evidence indicates that the burden of defense spending also contributed to the Soviet debacle. Differences in growth performance between the Soviet republics are explained well by some of the same factors that figure in the empirical cross-section growth literature: initial income, human capital, population growth, and the degree of sectoral distortions.
Handle: RePEc:nbr:nberwo:4735
Template-Type: ReDIF-Paper 1.0
Title: On the Speed of Transition Central Europe
Classification-JEL: E1; O1
Author-Name: Philippe Aghion
Author-Person: pag175
Author-Name: Olivier Jean Blanchard
Author-Person: pbl2
Note: EFG
Number: 4736
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4736
File-URL: http://www.nber.org/papers/w4736.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, Stanley and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1994. Cambridge: MIT Press, 1994.
Publication-Status: published as On the Speed of Transition in Central Europe, Philippe Aghion, Olivier Jean Blanchard. in NBER Macroeconomics Annual 1994, Volume 9, Fischer and Rotemberg. 1994
Abstract: Transition in Central Europe is four years old. State firms which dominated the economy are struggling with market forces. A new private sector quickly emerged and has taken hold. Unemployment, which did not exist, is high and still increasing. Will this process of transition accelerate, or slow down? Will unemployment keep increasing? Can things go wrong and how? Our paper represents a first pass at answering those questions. The basic structure of the model we develop is standard, that of the transition from a low to a high productivity sector. But we pay attention to two aspects which strike us as important. The first is the interactions between unemployment and the decisions of both state and private firms. The second are the idiosyncracies which come from the central planning legacy, from the structure of control within state firms to the lack of many market institutions, which limits private sector growth. We start with a description of transition in Poland so far. We then develop a model and use it to think about the determinants of the speed of transition and the level of unemployment. Finally, we return to the role of policy and the future in Poland, as well as the causes of cross-Central European country variations.
Handle: RePEc:nbr:nberwo:4736
Template-Type: ReDIF-Paper 1.0
Title: Anticipations of Foreign Exchange Volatility and Bid-Ask Spreads
Classification-JEL: F31
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Note: IFM
Number: 4737
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4737
File-URL: http://www.nber.org/papers/w4737.pdf
File-Format: application/pdf
Abstract: The paper studies the effect of the market's perceived exchange rate volatility on bid-ask spreads. The anticipated volatility is extracted from currency options data. An increase in the perceived volatility is found to widen bid-ask spreads. The direction of the effect is consistent with an option model of the spread, but the magnitude is smaller. An increase in trading volume of spot exchange rates also widens the spread. The omission of the trading volume, however, does not bias the estimate of the effect of the volatility on the spreads. Although the spread-volatility relation implied by the option model of the spread is close to linear, some form of nonlinearity can still be detected from the data.
Handle: RePEc:nbr:nberwo:4737
Template-Type: ReDIF-Paper 1.0
Title: Insignificant and Inconsequential Hysteresis: The Case of the U.S. Bilateral Trade
Classification-JEL: F32; F31
Author-Name: David C. Parsley
Author-Person: ppa30
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Note: ITI IFM
Number: 4738
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4738
File-URL: http://www.nber.org/papers/w4738.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 75, no. 4 (1993): 606-613.
Abstract: This paper casts doubt on the validity of the hysteresis hypothesis as an explanation of the persistent U.S. trade deficits in the 1980s. We propose two tests to investigate two different implications of the hypothesis. The first implication is that cumulative changes in exchange rates, in addition to current exchange rate levels, are important determinants of trade flows. The second implication is that foreign exporting firms' perceptions of exchange rate volatility will affect their decisions to enter or exit the market. We find little support for either aspect of the hysteresis hypothesis.
Handle: RePEc:nbr:nberwo:4738
Template-Type: ReDIF-Paper 1.0
Title: "Learning By Doing and the Choice of Technology."
Classification-JEL: 014
Author-Name: Boyan Jovanovic
Author-Name: Yaw Nyarko
Author-Person: pny18
Note: PR
Number: 4739
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4739
File-URL: http://www.nber.org/papers/w4739.pdf
File-Format: application/pdf
Publication-Status: published as "Learning By Doing and the Choice of Technology" Econometrica, November 1996: pp.1299-1310.
Abstract: This paper explores a one-agent Bayesian model of learning by doing and technological choice. To produce output, the agent can choose among various technologies. The beneficial effects of learning by doing are bounded on each technology, and so long-run growth in output can take place only if the agent repeatedly switches to better technologies. As the agent repeatedly uses a technology, he learns about its unknown parameters, and this accumulated expertise is a form of human capital. But when the agent switches technologies, part of this human capital is lost. It is this loss of human capital that may prevent the agent from moving up the quality ladder of technologies as quickly as he can, since the loss is greater the bigger is the technological leap. We analyze the global dynamics. We find that a human-capital- rich agent may find it optimal to avoid any switching of technologies, and therefore to experience no long-run growth. On the other hand, a human-capital-poor agent, who because of his lack of skill is not so attached to any particular technology, can find it optimal to switch technologies repeatedly, and therefore enjoy long-run growth in output. Thus the model can give rise to overtaking.
Handle: RePEc:nbr:nberwo:4739
Template-Type: ReDIF-Paper 1.0
Title: The Legacy of Communist Labor Relations
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 4740
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4740
File-URL: http://www.nber.org/papers/w4740.pdf
File-Format: application/pdf
Publication-Status: published as Blanchflower, David G. and Richard B. Freeman. "The Attitudinal Legacy Of Communist Labor Relations," International Labor Relations Review, 1997, v50(3,Apr), 438-459.
Abstract: This paper contrasts International Social Science Programme (ISSP) surveys for Hungary, supplemented with related survey data for East Germany, Poland, and Slovenia, with ISSP data for Western countries, to examine the extent to which workers in traditionally communist societies differ in their attitudes toward work conditions, wage inequality, the role of unions and the role of the state in determining labor market outcomes. We find sufficiently marked differences in responses between Hungary and the other previously communist countries and in Western countries to suggest that communism left an identifiable common legacy in the labor area. The citizens of former communist countries evince a greater desire for egalitarianism, are less satisfied with their jobs, and are more supportive of state interventions in the job market and economy than Westerners. These differences suggest that the move to a market economy will be marked by considerable 'social schizophrenia' due to an attitudinal legacy of their communist past.
Handle: RePEc:nbr:nberwo:4740
Template-Type: ReDIF-Paper 1.0
Title: Downsizing and Productivity Growth: Myth or Reality?
Classification-JEL: E23; E24
Author-Name: Martin Neil Baily
Author-Name: Eric J. Bartelsman
Author-Person: pba253
Author-Name: John Haltiwanger
Author-Person: pha231
Note: EFG PR
Number: 4741
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4741
File-URL: http://www.nber.org/papers/w4741.pdf
File-Format: application/pdf
Publication-Status: published as Small Business Economics, Vol. 8, no. 4 (August 1996): pp. 259-278.
Abstract: The conventional wisdom is that the rising productivity in the U.S. manufacturing sector in the 1980s has been driven by the apparently pervasive downsizing over this period. Aggregate evidence clearly shows falling employment accompanying the rise in productivity. In this paper, we examine the microeconomic evidence using the plant level data from the Longitudinal Research Database (LRD). In contrast to the conventional wisdom, we find that plants that increased employment as well as productivity contribute almost as much to overall productivity growth in the 1980s as the plants that increased productivity at the expense of employment. Further, there are striking differences by sector (defined by industry, size, region, wages, and ownership type) in the allocation of plants in terms of whether they upsize or downsize and whether they increase or decrease productivity. Nevertheless, in spite of the striking differences across sectors defined in a variety of ways, most of the variance of productivity and employment growth is accounted for by idiosyncratic factors.
Handle: RePEc:nbr:nberwo:4741
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Minimum Wages on Employment: Theory and Evidence from the US
Classification-JEL: J42
Author-Name: Richard Dickens
Author-Name: Stephen Machin
Author-Person: pma110
Author-Name: Alan Manning
Author-Person: pma218
Note: LS
Number: 4742
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4742
File-URL: http://www.nber.org/papers/w4742.pdf
File-Format: application/pdf
Publication-Status: Published as "The Effects of Minimum Wages on Employment: Theory and Evidence from Britain", JLE, Vol. 17, no. 1 (January 1999): 1-22.
Abstract: Recent work on the economic effects of minimum wages has stressed that the standard economic model, where increases in minimum wages depress employment, is not supported by the empirical findings in some labour markets. In this paper we present a theoretical framework which is general enough to allow minimum wages to have the conventional negative impact on employment, but which also allows for the possibility of a neutral or a positive effect. The model structure is based on labour market frictions which give employers some degree of monopsony power. The formulated model has a number of empirical implications which we go on to test using data on industry-based minimum wages set by the UK Wages Councils between 1975 and 1990. Some strong results emerge: minimum wages significantly compress the distribution of earnings and, contrary to conventional economic wisdom but in line with several recent studies, do not have a negative impact on employment. If anything, the relationship between minimum wages and employment is estimated to be positive.
Handle: RePEc:nbr:nberwo:4742
Template-Type: ReDIF-Paper 1.0
Title: Information, Trading and Stock Returns: Lessons from Dually-Listed Securities
Author-Name: K.C. Chan
Author-Name: Wai-Ming Fong
Author-Name: Rene M. Stulz
Note: AP
Number: 4743
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4743
File-URL: http://www.nber.org/papers/w4743.pdf
File-Format: application/pdf
Publication-Status: published as Chan, K. C. & Fong, Wai-Ming & Kho, Bong-Chan & Stulz, ReneM. "Information, trading and stock returns: Lessons from dually-listed securities," Journal of Banking & Finance, Elsevier, vol. 20(7), pages 1161-1187, August 1996.
Abstract: This paper compares the intra-day patterns on the NYSE and AMEX of volatility, trading volume and bid-ask spreads for European dually- listed stocks, Japanese dually-listed stocks also listed in London, and Japanese dually-listed stocks not listed in London with American stocks of comparable average trading volume and volatility. It is shown that the intra-day patterns for these stocks are remarkably similar even though the public information flows differ markedly across these stocks during the trading day. In the morning, Japanese stocks have the greatest volatility and volume, followed by European stocks and American stocks. These rankings are reversed in the afternoon. We argue that these patterns are consistent with markets reacting to the overnight accumulation of public information which is greatest for Japanese stock and smallest for American stocks and inconsistent with the view that early morning volatility can be attributed to monopolistic specialist behavior.
Handle: RePEc:nbr:nberwo:4743
Template-Type: ReDIF-Paper 1.0
Title: Localization Economies, Vertical Organization and Trade
Classification-JEL: E14; O18
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: ITI
Number: 4744
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4744
File-URL: http://www.nber.org/papers/w4744.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol.86, no.5, December 1996, pp.1266-1278.
Abstract: This paper develops a model of regional production networks based on localization economies. I consider an industry with two activities: one with location-specific external economies, the other with constant returns. Under autarky, localization economies imply the formation of an industry center. Agglomeration drives up wages in the center, causing the constant returns activity to disperse to outlying regions. Trade recreates the regional production network on a global scale. I apply the model to data from the Mexican apparel industry. Estimation results on Mexico's pre- and post-trade regional apparel wage structure are consistent with localization economies. Implications for the North American Free Trade Agreement (NAFTA) are discussed.
Handle: RePEc:nbr:nberwo:4744
Template-Type: ReDIF-Paper 1.0
Title: Trade Politics and the Semiconductor Industry
Classification-JEL: F13
Author-Name: Douglas A. Irwin
Author-Person: pir25
Note: ITI
Number: 4745
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4745
File-URL: http://www.nber.org/papers/w4745.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.,pp. 11-66, (University of Chicago Press, 1996).
Publication-Status: published as Trade Policies and the Semiconductor Industry, Douglas A. Irwin. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: A coalition of well-organized semiconductor producers along with compliant government agencies (USTR and the Commerce Department) brought about a 1986 trade agreement in which the United States forced Japan to end the 'dumping' of semiconductors in all world markets and to help secure 20 percent of the Japanese semiconductor market for foreign firms within five years. The antidumping provisions of the 1986 agreement, which later proved to be partly GATT-illegal, resulted in such steep price rises for certain semiconductors that downstream user industries (primarily computer systems manufacturers) forced the U.S. government to remove those provisions in the 1991 renegotiation of the agreement. The equally controversial 20 percent market share provision - based on circumstantial evidence that the Japanese market was closed -provided 'affirmative action' for the industry in its efforts to sell more in Japan, but has been criticized as constituting 'export protectionism.' This paper examines how the U.S. semiconductor industry became the beneficiary of this unique and unprecedented sectoral trade agreement by analyzing the political and economic forces leading up to the 1986 accord and shaping subsequent events.
Handle: RePEc:nbr:nberwo:4745
Template-Type: ReDIF-Paper 1.0
Title: The Political-Economy of U.S. Automobile Protection
Author-Name: Douglas R. Nelson
Author-Person: pne5
Note: ITI
Number: 4746
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4746
File-URL: http://www.nber.org/papers/w4746.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.pp. 133-191, (University of Chicago Press, 1996).
Publication-Status: published as The Political Economy of U.S. Automobile Protection, Douglas Nelson. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: This paper examines the political process through which the U.S. auto industry pursued and ultimately received protection from Japanese competition. Following a brief review of research on the competitiveness of the industry (section II) and on the effects of protection on industry performance (section III), it is not at all obvious that trade protection was the most effective policy response to the industry's economic problems. The remainder of the paper argues that the industry's political strategy reflects a response to a crisis in the political-economic regime regulating relations among the major interests in the U.S. auto industry. To make this argument, section IV develops the notion of a sectoral regime and applies it to the auto industry. Section V develops the argument further suggesting that conditions in the industry constituted a regime crisis and reexamines the industry's pursuit of aggressive trade policy toward Japanese producers in this context. Section VI illustrates the usefulness of this perspective by examining the politics of North American integration from the perspective of the auto industry. Section VII concludes.
Handle: RePEc:nbr:nberwo:4746
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of U.S. Export Subsidies for Wheat
Classification-JEL: Q18
Author-Name: Bruce L. Gardner
Note: ITI
Number: 4747
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4747
File-URL: http://www.nber.org/papers/w4747.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.pp. 291-331, (University of Chicago Press, 1996).
Publication-Status: published as The Political Economy of U.S. Export Subsidies for Wheat, Bruce Gardner. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: During 1985-93 the U.S. Government provided $4.9 billion in subsidies to targeted foreign buyers of U.S. wheat under its Export Enhancement Program (EEP). The subsidies averaged $31 per metric ton, or about 25 percent of the U.S. price. The EEP generates a small gain to U.S. farmers, compared to its costs. Lacking a clear economic justification, the debate on the EEP indicates the following were the key factors in its political success: farmers and agribusiness have been unified in support of the program, and have excellent political channels through which to express their views; domestic users of wheat have not opposed the program; and the program received an initial boost because of its use of large government-owned wheat stocks, allowing it to be treated as budget neutral in Congress. An economic argument that carried political weight was that the EEP, by increasing the costs of the European Community's wheat export subsidies, would encourage them to negotiate joint U.S./EC subsidy reductions. In fact, the EC in 1993 did agree to multilateral subsidy reductions in the GATT, as well as reforming their own policies unilaterally. But it remains questionable whether this outcome justifies the EEP.
Handle: RePEc:nbr:nberwo:4747
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Wage Structure on Trends in U.S. Gender Wage Differentials 1975-1987
Classification-JEL: J16; J31
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Lawrence M. Kahn
Author-Person: pka63
Note: LS
Number: 4748
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4748
File-URL: http://www.nber.org/papers/w4748.pdf
File-Format: application/pdf
Publication-Status: Published as "Swimming Upstream: Trends in the Gender Wage Differential in the 1980's" Journal of Labor Economics (January 1997, part 1): 1-42
Abstract: The U.S labor market experienced two dramatic developments over the past twenty years: a falling male-female pay gap and a rising level of wage inequality. This paper uses Michigan Panel Study on Income Dynamics (PSID) data for 1975 and 1987 and Current Population Survey (CPS) data for 1971 and 1988 to analyze how this dramatic decline in the gender gap was achieved in the face of shifts in overall wage structure that were increasingly unfavorable to low wage workers. The decrease is traced to a rise in women's relative experience levels and occupational status, and a larger negative impact of de-unionization on male than female workers. In addition, there was a substantial decline in the 'unexplained' portion of the pay gap. These 'gender-specific' factors were more than sufficient to counterbalance changes in both measured and unmeasured prices which worked against women. Using a simply supply and demand framework, we find that the net effect of supply and demand shifts was unfavorable for women as a group: shifts in the composition of demand during this period favoring female workers were more than offset by the rising relative supply of women. However, supply and demand changes match up fairly well with observed relative changes in the gender gap among skill groups, specifically a faster closing of the gap at the bottom of the skill distribution than at the top. Moreover, our analysis of the sources of the greater progress at the bottom than at the top is consistent with the operation of demand and supply forces.
Handle: RePEc:nbr:nberwo:4748
Template-Type: ReDIF-Paper 1.0
Title: Precedent and Legal Argument in U.S. Trade Policy: Do They Matter To The Political Economy of the Lumber Dispute?
Author-Name: Joseph P. Kalt
Note: ITI
Number: 4749
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4749
File-URL: http://www.nber.org/papers/w4749.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.pp. 261-288, (University of Chicago Press, 1996).
Publication-Status: published as Precedent and Legal Argument in U.S. Trade Policy: Do They Matter to the Political Economy of the Lumber Dispute? , Joseph P. Kalt. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: For more than a decade, the United States and Canada have been engaged in a rancorous dispute over trade in softwood lumber. Through three successive rounds of administrative litigation before the U.S. Department of Commerce, the U.S. sawmill industry has sought to have countervailing duties imposed upon Canadian lumber imports. The U.S. interests argue that Canada subsidizes its sawmills by providing timber from public forests at below-market prices, and by restricting exports of Canadian logs. This study examines whether, and to what extent, the institutional framework -- the legal rules, standards and precedents - - of CVD law influences the success or failure of the contending parties. Two alternative theories of political economy are tested. Capture Theory de-emphasizes the role of institutional settings of the kind at work here: The outcomes of political action are determined by the stakes and organization of rent-seeking parties, and the quasi- judicial regulatory proceedings of the Department of Commerce are mere Stiglerian theater. The New Institutionalism, on the other hand, posits that the structure and form of such proceedings are conditioning constraints, with the capacity to significantly influence the outcome of rent-seeking battles. Applying pseudo-regression Boolean techniques to a set of the actual legal issues argued before the Department of Commerce, this study finds more support for Capture Theory than for the New Institutionalism. An issue with large stakes is never lost by the politically-favored party, even when legal precedent and the burden of argument is against the party's interest.
Handle: RePEc:nbr:nberwo:4749
Template-Type: ReDIF-Paper 1.0
Title: The Consumption Smoothing Benefits of Unemployment Insurance
Classification-JEL: J65; H31
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: LS PE
Number: 4750
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4750
File-URL: http://www.nber.org/papers/w4750.pdf
File-Format: application/pdf
Publication-Status: published as Gruber, Jonathan. "The Consumption Smoothing Benefits Of Unemployment Insurance," American Economic Review, 1997, v87(1,Mar), 192-206.
Abstract: Previous research on unemployment insurance (UI) has focused on the costs of the program, in terms of the distorting effects of generous UI benefits on worker and firm behavior. For assessing the optimal size of an unemployment insurance program, however, it is also important to gauge the benefits of increased UI generosity, in terms of smoothing consumption across periods of joblessness. I do so through a reduced form approach which directly measures the effect of legislated variations in UI benefits on consumption changes among individuals becoming unemployed. I use annual observations on food consumption expenditures for 1968-1987 from the Panel Study of Income Dynamics, matched to information on the UI benefits for which unemployed persons were eligible in each state and year. I estimate that a 10 percentage point increase in the UI replacement rate leads to a consumption fall upon unemployment which is 2.7% smaller. Over this period, the average fall in consumption for the unemployed was 7%; my results imply that, in the absence of unemployment insurance, this fall would have been over three times as large. I also find that the positive effect of UI only extends for one period, smoothing consumption during initial job loss but having no permanent effect on consumption levels; that individuals who anticipate layoff see a smaller consumption smoothing effect; and that UI appears to somewhat crowd out other forms of public consumption insurance. Despite the substantial estimated consumption smoothing effect, however, my results imply that the optimal UI benefit level is within the range of current replacement rates only at fairly high levels of risk aversion.
Handle: RePEc:nbr:nberwo:4750
Template-Type: ReDIF-Paper 1.0
Title: The MFA Paradox: More Protection and More Trade?
Classification-JEL: F1; L6
Author-Name: J. Michael Finger
Author-Name: Ann Harrison
Author-Person: pha441
Note: ITI
Number: 4751
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4751
File-URL: http://www.nber.org/papers/w4751.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger ed.pp. 197-254, (University of Chicago Press, 1996).
Publication-Status: published as The MFA Paradox: More Protection and More Trade? , J. Michael Finger, Ann Harrison. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: The textile industry's political power stemmed from its importance in southern states plus the power of the Southern delegation in the U.S. Congress in the 1960s. The strongest resistance to the industry's pressure for protection came from the foreign policy interests of the Executive branch. A constellation of influences explains why negotiated, or voluntary export restraints (VERs), sanctioned by international agreements (the Multi-Fiber Arrangement) was the form protection took. First, the Japanese industry, at the time the world's leading textile exporter, already in the 1930s had exhibited a willingness to accept negotiated agreements to trade disputes. Second, the U.S. Executive, having been a leader in establishing the GATT system to control the sort of unilateral restrictive actions that contributed to the 1930s depression, was reluctant to take unilateral action. Third, the arrangement was acceptable to the U.S. industry because, through their particular power over agricultural legislation, the Southern delegation won passage, as amendments to agriculture bills, of legislation to enforce these 'voluntary' restraints at the U.S. border. But because enforcement remained with the Executive branch, it tended to follow the letter of the agreements, hence exports could continue to expand by shifting to new product varieties and to new supplier countries.
Handle: RePEc:nbr:nberwo:4751
Template-Type: ReDIF-Paper 1.0
Title: The Great Wars, The Great Crash, and the Unit Root Hypothesis: Some New Evidence About an Old Stylized Fact
Classification-JEL: C21; O40
Author-Name: Dan Ben-David
Author-Person: pbe276
Author-Name: David H. Papell
Author-Person: ppa73
Note: EFG
Number: 4752
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4752
File-URL: http://www.nber.org/papers/w4752.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol. 36, December 1995, pp. 453-475.
Abstract: For decades, the prevailing sentiment among economists was that growth rates remain constant over the long run. Kaldor considered this to be one of the six important 'stylized facts' that theory should address, and until the emergence of endogenous growth models, this was a fundamental feature of growth theory. This paper uses an endogenous trend break model to investigate the unit root hypothesis for 16 countries, using annual GDP data spanning up to 130 years. Rejection of the unit root, which is facilitated by the inclusion of a trend break, introduces the possibility of examining the long run behavior of growth rates. We find that most countries exhibited fairly steady growth for a period lasting several decades. The termination of this period was usually characterized by a significant, and sudden, drop in GDP levels. But rather than simply returning to their previous steady state path, as predicted by the standard neoclassical growth model, most countries continued to grow at roughly double their prebreak rates for many decades, even after their original growth path had been surpassed.
Handle: RePEc:nbr:nberwo:4752
Template-Type: ReDIF-Paper 1.0
Title: American Regionalism and Global Free Trade
Author-Name: Edward E. Leamer
Author-Person: ple440
Note: ITI
Number: 4753
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4753
File-URL: http://www.nber.org/papers/w4753.pdf
File-Format: application/pdf
Abstract: A free trade agreement supports global free trade since trade barriers tend to divert trade in favor of members, but not reduce imports. The term: 'mutual assured deterrence' is used to refer to a regional free trade association that has the feature that no member can gain individually from the imposition of a barrier against a non- member. Mutual assured deterrence is shown to be possible for a surprisingly rich set of partners. A customs union is compatible with global free trade if the vast majority of trade takes place naturally within the confines of the association. A customs union that is likely to have this property would combine countries to form a nearly exact economic replica of the globe. The economic combination of Mexico and the United States doesn't form a replica of the global economy because, compared with Asia, North America has relatively high capital per worker even after adding the Mexican workforce. However, NAFTA does seem to have the property of mutual assured deterrence, and may for that reason amount to a commitment to global free trade as well as regional free trade.
Handle: RePEc:nbr:nberwo:4753
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Structure of Family Income Inequality in the United States and Other Industrial Nationa During the 1980s
Classification-JEL: J0
Author-Name: McKinley L. Blackburn
Author-Person: pbl77
Author-Name: David E. Bloom
Author-Person: pbl79
Note: LS
Number: 4754
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4754
File-URL: http://www.nber.org/papers/w4754.pdf
File-Format: application/pdf
Publication-Status: published as Blackburn, McKinley and David E. Bloom. "Changes in the Structure of Family Income Inequality in the United States and Other IndustrializedNations during the 1980s." Research in Labor Economics, Volume 14. Greenwich, Conn. JAI Press, 1995, pp. 141-70
Abstract: We examine the detailed structure of family income inequality in the United States, Canada, and Australia at various points during the 1980s. In each of these countries we find that income inequality increased among married couple families and that the increases are closely associated with increases in the inequality of husbands' earnings. However, only in the United States is the increased inequality of husbands' earnings also associated with an increase in education-earnings differentials. In addition, increased earnings inequality is associated with increases in both the variance of wages and the variance of labor supply in the United States and Canada, but only with an increase in the variance of labor supply in Australia. Evidence of an increase in married-couple income inequality is found for France and the United Kingdom, but not for Sweden or the Netherlands. For married couple families in Canada, Sweden, the United Kingdom, and the United States, we find that increased inequality of family income is closely associated with an increased correlation between husbands' and wives' earnings. A more detailed examination of this correlation in Canada and the United States suggests that the increase in this correlation cannot be explained by an increase in the similarity of husbands' and wives' observable labor market characteristics in either country. Rather, it is explained partly by changes in the way those characteristics translate into labor market outcomes and, more important, by changes in the interspousal correlation between unobservable factors that influence labor market outcomes.
Handle: RePEc:nbr:nberwo:4754
Template-Type: ReDIF-Paper 1.0
Title: Changing Wage Structure and Black-White Differentials Among Men and Women: A Longitudinal Analysis
Classification-JEL: J31; J70
Author-Name: David Card
Author-Person: pca271
Author-Name: Thomas Lemieux
Author-Person: ple92
Note: LS
Number: 4755
Creation-Date: 1994-05
Order-URL: http://www.nber.org/papers/w4755
File-URL: http://www.nber.org/papers/w4755.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 84, No. 2, pp. 29-33, May 1994.
Abstract: Despite several decades of research there is still widespread disagreement over the interpretation of the wage differences between black and white workers. Do the differences reflect productivity differences, discrimination, or both? If lower black earnings reflect a productivity difference, then an economy-wide increase in the relative wages of more highly-skilled workers should lead to a parallel increase in the black-white earnings gap. We evaluate this hypothesis using longitudinal data for men and women from the Panel Study of Income Dynamics. Our findings suggest that returns to observed and unobserved skills of male workers rose by 5-10 percent between 1979 and 1985. For female workers, the return to observed skills was relatively constant while the return to unobserved skills increased by 15 percent. The evidence that black-white wage differentials rise with the return to skill is mixed. Among female workers the black-white wage gap widened in the early 1980s -- consistent with the premise that racial wage differences reflect a productivity difference. For men in our sample the black-white wage gap declined between 1979 and 1985 -- a change that is inconsistent with the rise in the return for skills.
Handle: RePEc:nbr:nberwo:4755
Template-Type: ReDIF-Paper 1.0
Title: Multifactor Models Do Not Explain Deviations from the CAPM
Classification-JEL: G12
Author-Name: A. Craig MacKinlay
Note: AP
Number: 4756
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4756
File-URL: http://www.nber.org/papers/w4756.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 38, no. 1 (1995): 3-28.
Abstract: A number of studies have presented evidence rejecting the validity of the Capital Asset Pricing Model (CAPM). This evidence has spawned research into possible explanations. These explanations can be divided into two main categories - the risk based alternatives and the nonrisk based alternatives. The risk based category includes multifactor asset pricing models developed under the assumptions of investor rationality and perfect capital markets. The nonrisk based category includes biases introduced in the empirical methodology, the existence of market frictions, or explanations arising from the presence of irrational investors. The distinction between the two categories is important for asset pricing applications such as estimation of the cost of capital. This paper proposes to distinguish between the two categories using ex ante analysis. A framework is developed showing that ex ante one should expect that CAPM deviations due to missing risk factors will be very difficult to statistically detect. In contrast, deviations resulting from nonrisk based sources will be easy to detect. Examination of empirical results leads to the conclusion that the risk based alternatives is not the whole story for the CAPM deviations. The implication of this conclusion is that the adoption of empirically developed multifactor asset pricing models may be premature.
Handle: RePEc:nbr:nberwo:4756
Template-Type: ReDIF-Paper 1.0
Title: The Effect of the Minimum Wage When It Really Bites: A Reexamination of the Evidence from Puerto Rico
Classification-JEL: J31
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 4757
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4757
File-URL: http://www.nber.org/papers/w4757.pdf
File-Format: application/pdf
Publication-Status: published as in Solomon Polachek(ed.), Research in Labor Economics, vol.14, (Greenwich, CT:JAI Press, 1995), pp.1-22.
Abstract: This paper reinvestigates the evidence on the impact of the minimum wage on employment in Puerto Rico. The strongest evidence that the minimum wage had a negative effect on employment comes from an aggregate time series analysis. The weakest evidence comes from cross-industry analyses. The main finding of the paper, however, is that the statistical evidence of a negative employment effect of the minimum wage in Puerto Rico is surprisingly fragile.
Handle: RePEc:nbr:nberwo:4757
Template-Type: ReDIF-Paper 1.0
Title: Staggering and Synchronization in Price-Setting: Evidence from Multipro-duct Firms
Author-Name: Saul Lach
Author-Person: pla110
Author-Name: Daniel Tsiddon
Author-Person: pts32
Number: 4759
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4759
File-URL: http://www.nber.org/papers/w4759.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 1996, Vol.86, No.5, pp.1175-1196.
Abstract: Most of the theoretical literature on price-setting behavior deals with the special case in which only a single price is changed. At the retail-store level, at least, where dozens of products are sold by a single price-setter, price-setting policies are not formulated for individual products. This feature of economic behavior raises a host of questions whose answers carry interesting implications. Are price setters staggered in the timing of price changes? Are price changes of different products synchronized within the store? If so, is this a result of aggregate shocks or of the presence of a store- specific component in the cost of adjusting prices? Can observed small changes in prices be rationalized by a menu cost model? We exploit the multiproduct dimension of the dataset on prices used in Lach and Tsiddon (1992a) to explore several of these and other issues. To the best of our knowledge this is the first empirical work on this subject.
Handle: RePEc:nbr:nberwo:4759
Template-Type: ReDIF-Paper 1.0
Title: Steel Protection in the 1980s: The Waning Influence of Big Steel?
Author-Name: Michael O. Moore
Author-Person: pmo290
Note: ITI
Number: 4760
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4760
File-URL: http://www.nber.org/papers/w4760.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.pp. 73-127, (University of Chicago Press, 1996).
Publication-Status: published as Steel Protection in the 1980s: The Waning Influens of Big Steel? , Michael O. Moore. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: The U.S. integrated steel industry has been very successful in securing import protection over the last 20 years. Critical to that success has been a cohesive coalition of steel producers, the steelworkers' union and 'steel-town' congressional representatives. The political strength of this coalition has diminished substantially over the last decade as the integrated steel industry has restructured and as domestic minimills have played an increasingly important role in the U.S. steel sector. In addition, an effective domestic coalition of steel-using industries acted as a critical counterweight beginning with the fight over a VRA extension in 1989. After 1989, quotas on steel were non-binding and the industry was largely unsuccessful in obtaining antidumping duties in its 1993 unfair trade petitions. These factors point to a diminished ability of the integrated steel industry to obtain special trade agreements in the future.
Handle: RePEc:nbr:nberwo:4760
Template-Type: ReDIF-Paper 1.0
Title: Toward a Modern Macroeconomic Model Usable for Policy Analysis
Classification-JEL: E63; E52
Author-Name: Eric M. Leeper
Author-Person: ple3
Author-Name: Christopher A. Sims
Author-Person: psi12
Note: EFG
Number: 4761
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4761
File-URL: http://www.nber.org/papers/w4761.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, S. and J. Rotemberg (eds.) NBER Macroeconomics Annual 1994. Cambridge: MIT Press, 1994.
Publication-Status: published as Toward a Modern Macroeconomic Model Usable for Policy Analysis, Eric M. Leeper, Christopher A. Sims. in NBER Macroeconomics Annual 1994, Volume 9, Fischer and Rotemberg. 1994
Abstract: This paper presents a macroeconomic model that is both a completely specified dynamic general equilibrium model and a probabilistic model for time series data. We view the model as a potential competitor to existing ISLM-based models that continue to be used for actual policy analysis. Our approach is also an alternative to recent efforts to calibrate real business cycle models. In contrast to these existing models, the one we present embodies all the following important characteristics: i) It generates a complete multivariate stochastic process model for the data it aims to explain, and the full specification is used in the maximum likelihood estimation of the model; ii) It integrates modeling of nominal variables -- money stock, price level, wage level, and nominal interest rate -- with modeling real variables; iii) It contains a Keynesian investment function, breaking the tight relationship of the return on investment with the capital-output ratio; iv) It treats both monetary and fiscal policy explicitly; v) It is based on dynamic optimizing behavior of the private agents in the model. Flexible-price and sticky-price versions of the model are estimated and their fits are evaluated relative to a naive model of no-change in the variables and to an unrestricted VAR. The paper displays the model's implications for the dynamic responses to structural shocks, including policy shocks, and evaluates the relative importance of various shocks for determining economic fluctuations.
Handle: RePEc:nbr:nberwo:4761
Template-Type: ReDIF-Paper 1.0
Title: How America Graduated from High School: 1910 to 1960
Classification-JEL: J24; I20
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE
Number: 4762
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4762
File-URL: http://www.nber.org/papers/w4762.pdf
File-Format: application/pdf
Publication-Status: published as (Published with changes as "America's Graduation from High School: The Evolution and Spread of Secondary Schooling in the Twentieth Century") Journal of Economic History, Vol. 58 (June 1998): 345-374.
Abstract: Human capital accumulation and technological change were to the twentieth century what physical capital accumulation was to the nineteenth century -- the engine of growth. The accumulation of human capital accounts for almost 60% of all capital formation and 28% of the per capita growth residual from 1929 to 1982. Advances in secondary schooling account for about 70% of the increase in total educational attainment from 1930 to 1970 for men 40 to 44 years old. High school, not college, was responsible for the enormous increase in the human capital stock during much of this century. In this paper I answer when and where high schools advanced in the 1910 to 1960 period. The most rapid expansion in the non-South regions occurred in the brief period from 1920 to 1935. The 1920s provided the initial burst in high school attendance, but the Great Depression added significantly to high school enrollment and graduation rates. Attendance rates were highest in states, regions, and cities with the least reliance on manufacturing and in areas where agricultural income per worker was high. Schooling was particularly low where certain industries that hired youths were dominant and where the foreign born had entered in large numbers before the immigration restriction of the 1920s. More education enabled states to converge to a higher level of per capita income between 1929 and 1947, and states rich in agricultural resources, yet poor in manufacturing, exported educated workers in later decades.
Handle: RePEc:nbr:nberwo:4762
Template-Type: ReDIF-Paper 1.0
Title: Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Government Intervention
Classification-JEL: H26; K42
Author-Name: Marie C. Thursby
Author-Person: pth283
Author-Name: Jerry G. Thursby
Author-Person: pth25
Note: ITI
Number: 4763
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4763
File-URL: http://www.nber.org/papers/w4763.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal (November 1999).
Abstract: In this paper, we develop and estimate a model of commercial smuggling in which some, but not all, firms smuggle a portion of the cigarettes they sell. The model is used to examine the effects on interstate cigarette smuggling of the Contraband Cigarette Act and a change in the federal excise tax. We find that both policies have unintentional effects. While the Contraband Cigarette Act was imposed to reduce interstate smuggling, we find it had the opposite effect. In contrast, an increase in the federal tax is not intended to affect smuggling, but we find it increases the portion of cigarette sales that is commercially smuggled.
Handle: RePEc:nbr:nberwo:4763
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Fringe Benefits Offered by Employers
Classification-JEL: H32
Author-Name: William M. Gentry
Author-Name: Eric Peress
Note: PE
Number: 4764
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4764
File-URL: http://www.nber.org/papers/w4764.pdf
File-Format: application/pdf
Abstract: Using cross-sectional data for blue and white collar workers for U.S. cities, we examine how the tax treatment of fringe benefits affects whether employers offer benefits. Differences in state-level income taxes cause variation across places in the tax incentives for fringe benefits. We find that employers respond to tax incentives to offer fringe benefits, especially to blue collar workers. The tax incentives affect both the probability of basic benefits, such as medical coverage, and more 'marginal' benefits, such as vision and dental coverage. Higher taxes also reduce the amount of explicit cost sharing for some benefits between employers and employees.
Handle: RePEc:nbr:nberwo:4764
Template-Type: ReDIF-Paper 1.0
Title: What Ends Recessions?
Author-Name: Christina D. Romer
Author-Person: pro407
Author-Name: David H. Romer
Author-Person: pro406
Note: EFG ME
Number: 4765
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4765
File-URL: http://www.nber.org/papers/w4765.pdf
File-Format: application/pdf
Publication-Status: published as Fischer, S. and J. Rotemberg (eds.) NBER Macroeconomics Annual 1994. Cambridge: MIT Press, 1994.
Publication-Status: published as What Ends Recessions?, Christina D. Romer, David H. Romer. in NBER Macroeconomics Annual 1994, Volume 9, Fischer and Rotemberg. 1994
Abstract: This paper analyzes the contributions of monetary and fiscal policy to postwar economic recoveries. We find that the Federal Reserve typically responds to downturns with prompt and large reductions in interest rates. Discretionary fiscal policy, in contrast, rarely reacts before the trough in economic activity, and even then the responses are usually small. Simulations using multipliers from both simple regressions and a large macroeconomic model show that the interest rate falls account for nearly all of the above-average growth that occurs early in recoveries. Our estimates also indicate that on several occasions expansionary policies have contributed substantially to above-normal growth outside of recoveries. Finally, the results suggest that the persistence of aggregate output movements is largely the result of the extreme persistence of the contribution of policy changes.
Handle: RePEc:nbr:nberwo:4765
Template-Type: ReDIF-Paper 1.0
Title: Mass Layoffs and Unemployment
Author-Name: Andrew Caplin
Author-Person: pca77
Author-Name: John Leahy
Author-Person: ple189
Note: EFG
Number: 4766
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4766
File-URL: http://www.nber.org/papers/w4766.pdf
File-Format: application/pdf
Publication-Status: published as Caplin, Andrew and John Leahy. "Mass Layoffs And Unemployment," Journal of Monetary Economics, 2000, v46(1,Aug), 121-142.
Abstract: Mass layoffs give rise to groups of unemployed workers who possess similar characteristics and therefore may learn from one another's experience searching for a new job. Two factors lead them to be too selective in the job offers that they accept. The first is an information externality: searchers fail to take into account the value of their experience to others. The second is an incentive to free ride: each worker would like others to experiment and reveal information concerning productive jobs. Together these forces imply that in equilibrium the natural rate of unemployment is too high.
Handle: RePEc:nbr:nberwo:4766
Template-Type: ReDIF-Paper 1.0
Title: Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investment in the United States
Classification-JEL: F21
Author-Name: Keith Head
Author-Name: John Ries
Author-Person: pri96
Author-Name: Deborah Swenson
Author-Person: psw14
Note: ITI
Number: 4767
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4767
File-URL: http://www.nber.org/papers/w4767.pdf
File-Format: application/pdf
Publication-Status: published as Head, Keith, John Ries and Deborah Swenson. "Agglomeration Benefits And Location Choice: Evidence From Japanese Manufacturing Investments In The United States," Journal of International Economics, 1995, v38(3/4,May), 223-247.
Abstract: Recent theories of economic geography suggest that firms in the same industry may be drawn to the same locations because proximity generates positive externalities or 'agglomeration effects.' Under this view, chance events and government inducements can have a lasting influence on the geographical pattern of manufacturing. However, most evidence on the causes and magnitude of industry localization has been based on stories, rather than statistics. This paper examines the location choices of 751 Japanese manufacturing plants built in the U.S. since 1980. Conditional logit estimates support the hypothesis that industry-level agglomeration benefits play an important role in location decisions.
Handle: RePEc:nbr:nberwo:4767
Template-Type: ReDIF-Paper 1.0
Title: On the Timing and Efficiency of Creative Destruction
Classification-JEL: E32; E6
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Mohamad L. Hammour
Note: EFG
Number: 4768
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4768
File-URL: http://www.nber.org/papers/w4768.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 446, no. 3 (August 1996): 805-852.
Abstract: This paper analyzes the timing, pace and efficiency of the on- going job reallocation that results from product and process innovation. There are strong reasons why an efficient economy ought to concentrate both job creation and destruction during cyclical downturns, when the opportunity cost of reallocation is lowest. Malfunctioning labor markets can disrupt this synchronized pattern and decouple creation and destruction. Moreover, irrespective of whether workers are too strong or too weak, labor market inefficiencies generally lead to technological 'sclerosis,' characterized by excessively slow renovation. Government incentives to production may alleviate high unemployment in this economy, but at the cost of exacerbating sclerosis. Creation incentives, on the contrary, increase the pace of reallocation. We show how an optimal combination of both types of policies can restore economic efficiency.
Handle: RePEc:nbr:nberwo:4768
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Adjustment with Segmented Labor Markets
Classification-JEL: F41
Author-Name: Pierre-Richard Agenor
Author-Person: pag16
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI
Number: 4769
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4769
File-URL: http://www.nber.org/papers/w4769.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 58 (April 1999): 277-296.
Abstract: This paper analyzes the macroeconomic effects of fiscal and labor market policies in a small open developing country. The basic framework considers an economy with a large informal production sector and a heterogeneous work force. The labor market is segmented as a result of efficiency considerations and minimum wage laws. The basic model is then extended to account for unemployment benefits, income taxation, and imperfect labor mobility across sectors. Under the assumption of perfect labor mobility, we show that a permanent reduction in government spending on nontraded goods leads in the long run to a depreciation of the real exchange rate, a fall in the market-clearing wage for unskilled labor, an increase in output of traded goods, and a lower stock of net foreign assets. A permanent reduction in the minimum wage for unskilled workers improves competitiveness, and expands the formal sector at the expense of the informal sector. Hence, in a two-sector economy in which the minimum wage is enforced only in the formal sector and wages in one segment of the labor market are competitively determined, efficiency wage considerations do not alter the standard neoclassical presumption. A reduction in unemployment benefits is also shown to have a positive effect on output of tradable goods by lowering both the level of efficiency wages and the employment rent of skilled workers.
Handle: RePEc:nbr:nberwo:4769
Template-Type: ReDIF-Paper 1.0
Title: Estimating a Wage Curve for Britain 1973-1990
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Andrew J. Oswald
Note: LS
Number: 4770
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4770
File-URL: http://www.nber.org/papers/w4770.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, September 1994, Vol. 104, No. 426, pp. 1025-1043.
Abstract: Following Phillip's original work on the UK, applied research on unemployment and wages has been dominated by the analysis of highly aggregated time-series data sets. However, it has proved difficult with such methods to uncover statistically reliable models. This paper adopts a different approach. It uses microeconomic data on 175,000 British workers from 1973-1990 to provide evidence for the existence of a negatively sloped relationship linking the level of pay to the local rate of unemployment. This 'wage curve' is found to have an elasticity of approximately -0.1. Contrary to the Phillips Curve, no autoregression is found in wages. The paper casts doubt on standard ideas in macroeconomics, regional economics and labour economics.
Handle: RePEc:nbr:nberwo:4770
Template-Type: ReDIF-Paper 1.0
Title: Relative Wage Movements and the Distribution of Consumption
Classification-JEL: J31; D12
Author-Name: Orazio Attanasio
Author-Person: pat7
Author-Name: Steven J. Davis
Author-Person: pda15
Note: EFG
Number: 4771
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4771
File-URL: http://www.nber.org/papers/w4771.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, December 1996, vol.104, no.6, pp.1227-1262.
Abstract: We analyze how relative wage movements across birth cohorts and education groups during the 1980s affected the distribution of household consumption. The analysis integrates the labor economics literature on time variation in the wage structure with the consumption insurance literature. In contrast to previous tests of consumption insurance, we examine the impact of systematic, publicly observable shifts in the hourly wage structure. To circumvent the extreme scarcity of longitudinal data with high quality information on both consumption and labor market outcomes, we draw upon the best available cross-sectional data sources to construct synthetic panel data on consumption, labor supply and wages. We find that low-frequency movements in the cohort-education structure of pre-tax hourly wages drove large changes in the distribution of household consumption. The results constitute a spectacular failure of the consumption insurance hypothesis, and one that is not explained by existing theories of informationally constrained optimal consumption allocations. We also develop a procedure for assessing the welfare consequences of deviations from full consumption insurance and, in particular, from the failure to insulate the consumption distribution from relative wage shifts across cohort-education groups. For a coefficient of relative risk aversion equal to two, fully insulating households from group-specific endowment variation would raise welfare by an amount equivalent to a uniform 2.7% consumption increase.
Handle: RePEc:nbr:nberwo:4771
Template-Type: ReDIF-Paper 1.0
Title: Trade and Industrial Policy Reform in Latin America
Classification-JEL: F13; F14
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: ITI IFM
Number: 4772
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4772
File-URL: http://www.nber.org/papers/w4772.pdf
File-Format: application/pdf
Publication-Status: Published as "The Short-Run Relation Between Growth and Inflation in Latin America: Comment", American Economic Review, Vol. 73, no. 3 (1983): 477-482.
Abstract: This paper documents and evaluates the process of trade reforms in Latin America from the mid-1980s until 1993. It provides an analytical and historical discussion of the consequences of industrial policies in the region, from the early 1950s when import-substitution ideas were supported by the Economic Commission for Latin America to the 1990s when liberal regimes were embraced. A careful distinction is made between policies based on strict import substitution and policies that combine high and uneven import tariffs with export promotion. Additionally, the role of supporting policies to assure the success of trade liberalization is assessed. Important questions related to the sequencing of economic reform are discussed in detail, with particular emphasis on the proper sequencing of stabilization and trade reform policies. The extent of trade reform in Latin America is also discussed. The analysis concentrates on the evolution of productivity and exports, and it deals with several countries' experiences. The role of real exchange rates in the trade liberalization process is studied, and the recent trend towards appreciation observed in many countries in the region is scrutinized. Finally the paper contains an analysis of the recent attempts at reviving regional integration agreements, and of the consequences of the completion of GATT for Latin American nations.
Handle: RePEc:nbr:nberwo:4772
Template-Type: ReDIF-Paper 1.0
Title: Policy Transferability and Hysteresis: Daily and Weekly Hours in the BRD and the US
Classification-JEL: D78; J20
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 4773
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4773
File-URL: http://www.nber.org/papers/w4773.pdf
File-Format: application/pdf
Publication-Status: published as Institutions and Labor Market Performance: Corporate Views on the USand German Economies, R. Butler et. al., eds. London: Routledge. (1995)
Abstract: I develop a model with the path of labor-market outcomes exhibiting hysteresis depending on prior labor-market policy. The results suggest that attempts to transfer policies across economies lead to surprising results even if current economic outcomes in the countries appear similar. Examples of minimum wages, optimal income maintenance, and training programs are given. The results are applied to a discussion of overtime laws and differences in days worked and weekly hours in the U.S. and Germany.
Handle: RePEc:nbr:nberwo:4773
Template-Type: ReDIF-Paper 1.0
Title: Bubbles in Metropolitan Housing Markets
Classification-JEL: G12; R33
Author-Name: Jesse M. Abraham
Author-Name: Patric H. Hendershott
Note: PE
Number: 4774
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4774
File-URL: http://www.nber.org/papers/w4774.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Housing Research, vol. 7, no. 2, 1996, pp.191-207.
Abstract: A commonsense and empirically supported approach to explaining metropolitan real house price changes is for the theory to describe an equilibrium price level to which the market is constantly adjusting. The determinants of real house price appreciation, then, can be divided into two groups, one that explains changes in the equilibrium price and the other that accounts for the adjustment dynamics or changing deviations from the equilibrium price. The former group includes the growth in real income and real construction costs and changes in the real after-tax interest rate. The latter group consists of lagged real appreciation and the difference between the actual and equilibrium real house price levels. Either group of variables can explain a little over two-fifths of the variation in real house price movements in 30 cities over the 1977-92 period; together, they explain three-fifths.
Handle: RePEc:nbr:nberwo:4774
Template-Type: ReDIF-Paper 1.0
Title: Rental Adjustment & Valuation of Real Estate in Overbuilt Markets: Fundamental vs. Reported Office Market Values in Sydney Australia
Classification-JEL: G12
Author-Name: Patric H. Hendershott
Note: PE
Number: 4775
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4775
File-URL: http://www.nber.org/papers/w4775.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, vol. 39, 1996, pp. 51-67
Abstract: Real estate markets are periodically plagued by excess supply, rent concessions and few arms-length transactions. During such periods, valuation is problematic. The model presented here requires the forecasts of future vacancy rates, and equilibrium and actual rental rates. Vacancy rate forecasts of market participants are obtained, the equilibrium rental rate is specified as the cost of capital, and a rental adjustment equation is estimated in which real effective Sydney office market rents are related to gaps between both natural and actual vacancy rates and equilibrium and actual real effective rental rates. Value estimates (relative to replacement cost) for 1992, including that for above-market leases, are computed and the sensitivity to key assumptions is shown. Value/replacement-cost calculations are then made for the entire 1985-92 period and contrasted with comparable estimates implicit in data published by BOMA and JLW, two prominent Australian real estate sources. Lastly, the ratios of real effective rents to equilibrium rents and value to replacement cost are projected for the 1993-2006 period.
Handle: RePEc:nbr:nberwo:4775
Template-Type: ReDIF-Paper 1.0
Title: Internal versus External Capital Markets
Author-Name: Robert H. Gertner
Author-Name: David S. Scharfstein
Author-Person: psc177
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: CF
Number: 4776
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4776
File-URL: http://www.nber.org/papers/w4776.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol CIX, pp 1211-1230, Nov 1994
Abstract: This paper presents a framework for analyzing the costs and benefits of internal vs. external capital allocation. We focus primarily on comparing an internal capital market to bank lending. While both represent centralized forms of financing, in the former case the financing is owner-provided, while in the latter case it is not. We argue that the ownership aspect of internal capital allocation has three important consequences: 1) it leads to more monitoring than bank lending; 2) it reduces managers' entrepreneurial incentives; and 3) it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management.
Handle: RePEc:nbr:nberwo:4776
Template-Type: ReDIF-Paper 1.0
Title: Financial Decision-Making in Markets and Firms: A Behavioral Perspective
Author-Name: Werner F. M. De Bondt
Author-Name: Richard H. Thaler
Number: 4777
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4777
File-URL: http://www.nber.org/papers/w4777.pdf
File-Format: application/pdf
Publication-Status: published as Handbook in Operations Research and Management Science, Vol. 9, Finance, North Hollan 1996.
Abstract: In its attempt to model financial markets and the behavior of firms, modern finance theory starts from a set of normatively appealing axioms about individual behavior. Specifically, people are said to be risk-averse expected utility maximizers and unbiased Bayesian forecasters, i.e., agents make rational choices based on rational expectations. The rational paradigm may be criticized, however, because (1) the assumptions are descriptively false and incomplete, and (2) the theory often lacks predictive power. One way to make progress is to characterize actual decision- making behavior. Efforts along these lines are made by behavioral economists and psychologists. This paper provides a selective review of recent work in behavioral finance. First, we ask why economists should be concerned with the psychology of decision-making. Next, we discuss a series of key behavioral concepts, e.g., people's well-known tendencies to give too much weight to vivid information and to show excessive self-confidence. The body of the paper illustrates the relevance of these concepts to important topics in investment theory and corporate finance. In each case, behavioral finance offers a new perspective on results that are anomalous within the standard approach.
Handle: RePEc:nbr:nberwo:4777
Template-Type: ReDIF-Paper 1.0
Title: Price Reactions to Dividend Initiations and Omissions: Overreaction or Drift?
Classification-JEL: G12
Author-Name: Roni Michaely
Author-Person: pmi132
Author-Name: Richard H. Thaler
Author-Name: Kent Womack
Note: AP
Number: 4778
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4778
File-URL: http://www.nber.org/papers/w4778.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, June 1995.
Abstract: Initiations and omissions of dividend payments are important changes in corporate financial policy. This paper investigates the market reaction to such changes in terms of prices, volume, and changes in clientele. Consistent with the prior literature we find that short run price reactions to omissions are greater than for initiations (-7.0% vs. +3.4% three day return). However, we show that, when we control for the change in the magnitude of dividend yield (which is larger for omissions), the asymmetry shrinks or disappears, depending on the specification. In the 12 months after the announcement (excluding the event calendar month), there is a significant positive market-adjusted return for firms initiating dividends of +7.5% and a significant negative market-adjusted return for firms omitting dividends of -11.0%. However, the post dividend omission drift is distinct from and more pronounced than that following earnings surprises. A trading rule employing both samples (long in initiation stocks and short in omission stocks) earns positive returns in 22 out of 25 years. Although these changes in dividend policy might be expected to produce shifts in clientele, we find little evidence for such a shift. Volume increases, but only slightly and briefly, and there are no important changes in institutional ownership.
Handle: RePEc:nbr:nberwo:4778
Template-Type: ReDIF-Paper 1.0
Title: Technological Linkages, Market Structure, and Optimum Production Policies
Classification-JEL: F12; H21
Author-Name: Douglas Holtz-Eakin
Author-Name: Mary E. Lovely
Author-Person: plo347
Note: PE
Number: 4779
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4779
File-URL: http://www.nber.org/papers/w4779.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 61, 1996, pp. 73-86
Abstract: There has been an increased interest in the efficacy of industrial policy. We show that policy design for vertically-related industries hinges on the nature of market interactions as well as technological linkages. Using a model in which final-good producers realize productivity gains from increasing domestic specialization of intermediate processes, we find no theoretical basis for presuming that an imperfectly competitive intermediates sector restricts output below the optimal level or that the market produces too many varieties. The direction of distortion depends on the relationship between the extent of the external economy and the market power of individual intermediates producers. Optimal corrective policies require two instruments: an output subsidy and a lump-sum tax or subsidy. If only one instrument is available, it may be optimal to tax instead of subsidize the externality-generating activity.
Handle: RePEc:nbr:nberwo:4779
Template-Type: ReDIF-Paper 1.0
Title: Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?
Classification-JEL: H2; H3
Author-Name: Kevin Hassett
Author-Person: pha378
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 4780
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4780
File-URL: http://www.nber.org/papers/w4780.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 109, no. 457 (July 1999): 372-393.
Abstract: In models with irreversible investment, increasing uncertainty about prices has been shown to increase the required rate of return (hurdle rate) and delay investment (e.g., Pindyck, 1988). One serious form of uncertainty faced by firms, a form that policy makers could conceivably control, is tax uncertainty. In this paper, we show that it does not follow from past work that tax policy uncertainty increases the expected hurdle price ratio and delays investment. This is because tax uncertainty has an unusual form that distinguishes it from price uncertainty: tax rates tend to remain constant for many years, and then change in large jumps. When tax policy follows a jump process, firms' expectations of the likelihood of the jump occurring have important effects on investment. Indeed, as we show below, while price uncertainty increases the hurdle rate and slows down investment, tax uncertainty has the opposite effect.
Handle: RePEc:nbr:nberwo:4780
Template-Type: ReDIF-Paper 1.0
Title: Agglomeration and the Price of Land: Evidence from the Prefectures
Classification-JEL: R12; F12
Author-Name: Robert Dekle
Author-Person: pde414
Author-Name: Jonathan Eaton
Author-Person: pea5
Note: ITI
Number: 4781
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4781
File-URL: http://www.nber.org/papers/w4781.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Agglomeration and Land Rents: Evidence from the Prefectures") Journal of Urban Economics, Vol. 46 (September 1999): 200-214. JUE, Vol. 46, no. 2 (September 1999): 200-214.
Abstract: We use Japanese prefectural wage and land price data to estimate the magnitude of agglomeration effects in manufacturing and finance. We also examine the range of agglomeration effects by estimating the extent to which they diminish with distance, using a specification that encompasses the polar cases of purely local agglomeration economies, on the one hand, and national increasing returns to scale, on the other. We find that agglomeration effects are slightly stronger in financial services than in manufacturing, and that they diminish substantially with distance in either sector. Our estimates indicate that agglomeration effects can explain about 5.6 per cent of the growth in Japanese output per worker in manufacturing and about 8.9 per cent of the growth in output per worker in financial services during 1976-1988. Our estimates imply that, while the average elasticity of productivity with respect to agglomeration is between 10 and 15 per cent, agglomeration economies in the largest prefectures are nearly exhausted.
Handle: RePEc:nbr:nberwo:4781
Template-Type: ReDIF-Paper 1.0
Title: Waves of Creative Destruction: Customer Bases and the Dynamics of Innovation
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: CF
Number: 4782
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4782
File-URL: http://www.nber.org/papers/w4782.pdf
File-Format: application/pdf
Publication-Status: published as Stein, Jeremy C. "Waves Of Creative Destruction: Firm-Specific Learning-By-Doing And The Dynamics Of Innovation," Review of Economic Studies, 1997, v64(219,Apr), 265-288.
Abstract: This paper develops a model of repeated innovation with knowledge spillovers. The model's novel feature is that firms compete on two dimensions: 1) product quality or cost, where one firm's innovation ultimately spills over to other firms; and 2) distribution costs, where there are no spillovers across firms and where incumbent firms' existing customer bases give them a competitive advantage over would- be entrants. Customer bases have two important consequences: 1) they can in some circumstances dramatically reduce the long-run average level of innovation; 2) they lead to endogenous bunching, or waves, in innovative activity.
Handle: RePEc:nbr:nberwo:4782
Template-Type: ReDIF-Paper 1.0
Title: The Alternative Minimum Tax and the Behavior of Multinational Corporations
Classification-JEL: H25; H32
Author-Name: Andrew B. Lyon
Author-Person: ply2
Author-Name: Gerald Silverstein
Note: PE
Number: 4783
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4783
File-URL: http://www.nber.org/papers/w4783.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R.G. Hubbard, University of Chicago Press,1995.
Publication-Status: published as The Alternative Minimum Tax and the Behavior of Multinational Corporations, Andrew B. Lyon, Gerald Silverstein. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: This paper examines the extent to which U.S.-based multinational corporations are affected by the alternative minimum tax. More than half of all foreign-source income received by corporations in 1990 was earned by corporations subject to the alternative minimum tax. The AMT rules potentially affect multinational corporations in a manner different from their effect on domestic corporations. The paper examines the differential incentives the AMT creates for locating investment either domestically or abroad and considers how the incentives for the repatriation of foreign-source income are affected by the AMT. Tax return data of U.S.-based multinationals are examined to see the extent to which these incentives may influence the repatriation of foreign-source income.
Handle: RePEc:nbr:nberwo:4783
Template-Type: ReDIF-Paper 1.0
Title: Mathematical Achievement in Eighth Grade: Interstate and Racial Differences
Classification-JEL: H52
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Author-Name: Diane M. Reklis
Note: LS ED
Number: 4784
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4784
File-URL: http://www.nber.org/papers/w4784.pdf
File-Format: application/pdf
Abstract: The 1992 eighth grade mathematics test of the National Assessment of Educational Progress reveals a low average level of achievement, wide variation across states, and a large difference in average scores of white and black students. Multiple regression analysis across states indicates that the characteristics of children (such as readiness to learn in kindergarten) and of the households in which they live (such as mother's education) have much larger effects of NAEP test scores than do variables (such as the student/teacher ratio) that measure school characteristics. White-black differences in the levels of child and household variables account for much of the white- black difference in NAEP test scores.
Handle: RePEc:nbr:nberwo:4784
Template-Type: ReDIF-Paper 1.0
Title: Can State Taxes Redistribute Income?
Classification-JEL: H71; H73
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Marian Vaillant
Note: PE
Number: 4785
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4785
File-URL: http://www.nber.org/papers/w4785.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 68, no. 2, pp. 369-396, 1998.
Abstract: The evidence presented in this paper supports the basic theoretical presumption that state and local governments cannot redistribute income. Since individuals can avoid unfavorable taxes by migrating to jurisdictions that offer more favorable tax conditions, a relatively unfavorable tax will cause gross wages to adjust until the resulting net wage is equal to that available elsewhere. The current empirical findings go beyond confirming this long-run tendency and show that gross wages adjust rapidly to the changing tax environment. Thus, states cannot redistribute income for a period of even a few years. The adjustment of gross wages to tax rates implies that a more progressive tax system raises the cost to firms of hiring more highly skilled employees and reduces the cost of lower skilled labor. A more progressive tax thus induces firms to hire fewer high skilled employees and to hire more low skilled employees. Since state taxes cannot alter net wages, there can be no trade- off at the state level between distribution goals and economic efficiency. Shifts in state tax progressivity, by altering the structure of employment in the state and distorting the mix of labor inputs used by firms in the state, create deadweight efficiency losses without achieving any net redistribution of income.
Handle: RePEc:nbr:nberwo:4785
Template-Type: ReDIF-Paper 1.0
Title: Effectiveness of Government Policy: An Experience from a National HealthCare System
Classification-JEL: I1
Author-Name: Tetsuji Yamada
Author-Name: Tadashi Yamada
Author-Name: Chang Gun Kim
Author-Name: Haruko Noguchi
Note: EH
Number: 4786
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4786
File-URL: http://www.nber.org/papers/w4786.pdf
File-Format: application/pdf
Abstract: This paper examines the trade-off between the length of treatment days and the units of service provided per day for elderly patients in the context of the initiative taken by the Ministry of Health and Welfare of Japan to discourage lengthy hospital treatment and/or stay by elderly patients. By using three leading diseases among the elderly in Japan (cancer, heart related disease and mental illness) and separating care utilization into an episode by types of treatment, our results suggest that the government measures function but they do not effectively work to reduce increases in medical expenditures by the elderly under the fee-for-service basis. The evidence shows the interdependency between days and quantity of services, and the larger impact of services on days than days on services. Providers are more able to raise their revenue by additional services, than by additional treatment days, under the government's current cost containment policy toward the elderly care. For the so-called skilled type of treatment services (injection, general treatment, consultation and operation), the results on all elderly ages 65 and over without disease classification show some statistically significant positive impact on length of treatment in days and quantity of services provided per day. For the so-called material type of service (medication and examination), medical service providers are likely to prescribe more drugs as the price of drugs falls under the current strict drug price control by the Japanese government.
Handle: RePEc:nbr:nberwo:4786
Template-Type: ReDIF-Paper 1.0
Title: "Unemployment Insurance Benefits and Takeup Rates"
Author-Name: Patricia M. Anderson
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS
Number: 4787
Creation-Date: 1994-06
Order-URL: http://www.nber.org/papers/w4787
File-URL: http://www.nber.org/papers/w4787.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, as "Unemployment Insurance Take-up rates and the After-Tax Value of Benefits". vol.112, August 1997.
Abstract: Despite clear theoretical predictions of UI effects on takeup there is little work on the link between program generosity and the propensity to file for benefits. Administrative data allow us to assign the potential level and duration of benefits accurately for a sample of workers separating from their employers, whether or not UI was ever actually received. We then use these values along with marginal tax rates as our main explanatory variables in logit equation estimates of the probability that a separating employee receives UI. We find a strong positive effect of the benefit level on takeup, but little effect of the potential duration of benefits. The estimates imply elasticities of the takeup rate with respect to benefits of about 0.46 to 0.78. Our estimates also show that potential claimants respond to the tax treatment of benefits. Simulations of the effects of taxing UI benefits indicate that recent tax changes can account for most of the decline in UI receipt in the 1980's. In addition, we find theoretical and empirical support for the proposition that those with short unemployment spells are less likely to file. We show that if the decision to file for UI is affected by benefit levels and the expected duration of unemployment, it will bias estimates of the effects of UI on unemployment duration.
Handle: RePEc:nbr:nberwo:4787
Template-Type: ReDIF-Paper 1.0
Title: Efficient and Inefficient Sales of Corporate Control
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Note: LE
Number: 4788
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4788
File-URL: http://www.nber.org/papers/w4788.pdf
File-Format: application/pdf
Publication-Status: published as The Quarterly Journal of Economics, vol. 109, no. 4, pp. 957-993,(November 1994)
Abstract: This paper develops a framework for analyzing transactions that transfer a company's controlling block from an existing controller to a new controller. This framework is used to compare the market rule, which is followed in the United States, with the equal opportunity rule, which prevails in some other countries. The market rule is superior to the equal opportunity rule in facilitating efficient transfers of control but inferior to it in discouraging inefficient transfers. Conditions under which one of the two rules is overall superior are identified; for example, the market rule is superior if existing and new controllers draw their characteristics from the same distributions. Finally, the rules' effects on surplus division are analyzed and this examination reveals a rationale for mandatory rules.
Handle: RePEc:nbr:nberwo:4788
Template-Type: ReDIF-Paper 1.0
Title: The Financial Accelerator and the Flight to Quality
Classification-JEL: E32; E44
Author-Name: Ben Bernanke
Author-Person: pbe55
Author-Name: Mark Gertler
Author-Person: pge11
Author-Name: Simon Gilchrist
Author-Person: pgi28
Note: ME
Number: 4789
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4789
File-URL: http://www.nber.org/papers/w4789.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 1-15
Abstract: Adverse shocks to the economy may be amplified by worsening credit-market conditions-- the financial 'accelerator'. Theoretically, we interpret the financial accelerator as resulting from endogenous changes over the business cycle in the agency costs of lending. An implication of the theory is that, at the onset of a recession, borrowers facing high agency costs should receive a relatively lower share of credit extended (the flight to quality) and hence should account for a proportionally greater part of the decline in economic activity. We review the evidence for these predictions and present new evidence drawn from a panel of large and small manufacturing firms.
Handle: RePEc:nbr:nberwo:4789
Template-Type: ReDIF-Paper 1.0
Title: Agricultural Interest Groups and the North American Free Trade Agreement
Classification-JEL: F13; Q17
Author-Name: David Orden
Note: ITI
Number: 4790
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4790
File-URL: http://www.nber.org/papers/w4790.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.pp. 335-382, (University of Chicago Press, 1996).
Publication-Status: published as Agricultural Interest Groups and the North American Free Trade Agreement, David Orden. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: This paper evaluates the influence of diverse U.S. agricultural interest groups on the North American Free Trade Agreement (NAFTA). Under NAFTA, licenses and quotas that restricted agricultural trade between Mexico and the United States were converted to tariffs in January 1994 and all tariffs are to be phased out over adjustment periods of up to 15 years. The agricultural provisions of the 1988 Canada-U.S. FTA, which left quantitative barriers intact for dairy, poultry and other sectors, remain in effect for bilateral Canadian- U.S. trade. NAFTA received support from export-oriented U.S. producers of most grains, oilseeds, livestock, and some horticultural products. Opposition was expressed by wheat producers, seeking leverage on Canadian export-pricing issues, and protected sugar, peanut, and winter fruit and vegetable producers. The opposition was not addressed in the side agreements negotiated by the Clinton administration but the agricultural commodity groups were able to bargain for accommodations in the subsequent legislative debate. Final concessions protect U.S. sugar from Mexican competition, provide some transition protection to winter fruits and vegetables, and ensnarl the United States in disputes about Canadian exports of wheat and peanut butter. With these concessions, NAFTA results in essentially no reform of entrenched domestic agricultural support programs in the United States (or Canada) during the lengthy tariff phase-out periods.
Handle: RePEc:nbr:nberwo:4790
Template-Type: ReDIF-Paper 1.0
Title: The Ethnic and Racial Character of Self-Employment
Classification-JEL: J10; J20
Author-Name: Robert W. Fairlie
Author-Person: pfa338
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS
Number: 4791
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4791
File-URL: http://www.nber.org/papers/w4791.pdf
File-Format: application/pdf
Publication-Status: published as as "Ethnic and Racial Self-Employment Differences and Possible Explanations ," Journal of Human Resources, 31, Fall 1996, pp.757-793.
Abstract: Using the 1980 and 1990 Censuses, we show that self-employment rates differ substantially across ethnic and racial groups in the U.S. These differences exist for both men and women, within broad combinations of ethnic/racial groups such as Europeans, Asians, Hispanics and blacks, and after controlling for variables such as age, education, immigrant status and time in the country. Although there are large differences in self-employment rates across ethnic/racial groups, the processes determining self-employment within each ethnic/racial group are not substantially different. We find fairly similar effects of age, education, year of immigration, and other factors in determining who is self-employed for most groups. We examine whether ethnic/racial self-employment rates are associated with group returns to self-employment. We find evidence of a positive association between an ethnic/racial group's self- employment rate and the difference between average self-employment and wage/salary earnings for that group. This result suggests that our economic model of the self-employment decision may be useful in explaining differences in self-employment rates across ethnic/racial groups. We also find that different ethnic/racial groups locate their businesses in different types of industries. In addition, we do not find evidence that ethnic/racial groups who immigrate from countries with high self-employment rates have high self-employment rates in the U.S.
Handle: RePEc:nbr:nberwo:4791
Template-Type: ReDIF-Paper 1.0
Title: Recent Private Capital Inflows to Developing Countries: Is the Debt Crisis History?
Classification-JEL: F34
Author-Name: Michael P. Dooley
Author-Person: pdo13
Author-Name: Eduardo Fernandez-Arias
Author-Person: pfe212
Author-Name: Kenneth M. Kletzer
Note: IFM
Number: 4792
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4792
File-URL: http://www.nber.org/papers/w4792.pdf
File-Format: application/pdf
Publication-Status: published as Dooley, Michael & Fernandez-Arias, Eduardo & Kletzer, Kenneth, 1996. "Is the Debt Crisis History? Recent Private Capital Inflows to Developing Countries," World Bank Economic Review, Oxford University Press, vol. 10(1), pages 27-50, January.
Abstract: This empirical study finds that while debt reduction and policy reforms in debtor countries have been important determinants of renewed access to international capital markets, changes in international interest rates have been the dominant factor. We calculate the effects of changes in international interest rates for a 'typical' debtor country. We conclude that increases in interest rates associated with business cycle upturn in industrial countries could depress the secondary market prices of existing debt to levels inconsistent with continued capital inflows.
Handle: RePEc:nbr:nberwo:4792
Template-Type: ReDIF-Paper 1.0
Title: Capital Flight, External Debt and Domestic Policies
Classification-JEL: F32; F34
Author-Name: Michael P. Dooley
Author-Person: pdo13
Author-Name: Kenneth M. Kletzer
Note: IFM
Number: 4793
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4793
File-URL: http://www.nber.org/papers/w4793.pdf
File-Format: application/pdf
Publication-Status: published as Economic Review, Federal Reserve Bank of San Francisco, Number 3, 1994, pp. 29-37.
Abstract: It is now well documented that capital flight has been a dominant feature of capital movements between developing and industrial countries. Since 1988 reductions in the stock of flight capital more than account for private capital flows to emerging markets. This suggests that what appears to be a diversification of portfolios of residents of developed countries may be a restoration of 'home bias' in the portfolios of residents of developing countries. We show that changes in the stock of capital flight can increase or decrease welfare depending on the structure of distortionary taxes and subsidies on capital income and the effects of capital flight on the tax base.
Handle: RePEc:nbr:nberwo:4793
Template-Type: ReDIF-Paper 1.0
Title: Work and Crime: An Exploration Using Panel Data
Classification-JEL: K42; J2
Author-Name: Ann Dryden Witte
Author-Name: Helen Tauchen
Note: LS
Number: 4794
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4794
File-URL: http://www.nber.org/papers/w4794.pdf
File-Format: application/pdf
Publication-Status: published as Public Finance, vol 49 (1994) pp 155-167
Abstract: In this paper we explore the relationship between crime and work using data for a cohort sample of young men. We find that working and going to school significantly decrease the probability of committing criminal acts and by virtually identical amounts. Parochial school education and higher IQ are also significantly associated with lower criminal proclivities, but a high school degree has no significant effect. These findings, in conjunction with other research, suggest that participation in legitimate activities (employment or school) per se has a greater effect on criminal behavior than does the higher income associated with employment or educational attainment.
Handle: RePEc:nbr:nberwo:4794
Template-Type: ReDIF-Paper 1.0
Title: Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey
Classification-JEL: D30; D91
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Author-Name: Guglielmo Weber
Author-Person: pwe54
Note: EFG
Number: 4795
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4795
File-URL: http://www.nber.org/papers/w4795.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, 1992.
Abstract: In this paper we show that some of the predictions of models of consumer intertemporal optimization are not inconsistent with the patterns of non-durable expenditure observed in US household-level data. Our results and our approach are new in several respects. First, we use the only US micro data set which has direct and complete information on household consumption. The microeconomic data sets used in most of the consumption literature so far contained either very limited information on consumption (like the PSID) or none at all, in which case consumption had to be obtained indirectly from income and changes in assets. Second, we propose a flexible and novel specification of preferences which is easily estimable and allows a general treatment jof multiple commodities. We show that aggregation over commodities can be important, both theoretically and in practice. Third, we present empirical results that show that it is possible to find a reasonably simple specification of preferences, which controls for the effects of changes in demographics and labor supply behavior over the life cycle and which is not rejected by the available data. On our preferred specification, we obtain sharp estimates of key behavioral parameters (including the elasticity of intertemporal substitution) and no rejections of theoretical restrictions. Our results contrast sharply with most of the previous evidence, which has typically been interpreted as rejection of the theory. We show that previous rejections can be explained by the simplifying assumptions made to derive empirically tractable equations. We also show that results obtained using food consumption or aggregate data can be extremely misleading.
Handle: RePEc:nbr:nberwo:4795
Template-Type: ReDIF-Paper 1.0
Title: Why is Capital so Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation
Classification-JEL: D82; F21
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: A. Lans Bovenberg
Author-Person: pbo45
Note: ITI IFM PE
Number: 4796
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4796
File-URL: http://www.nber.org/papers/w4796.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol.86, no.5, pp.1057-1075, December1996.
Abstract: The evidence on international capital immobility is extensive, ranging from the correlations between domestic savings and investment pointed out by Feldstein-Horioka (1980), to real interest differentials across countries, to the lack of international portfolio diversification. To what degree does capital immobility modify past results forecasting that small open economies should not tax savings or investment? The answer depends on the cause of this immobility. We argue that asymmetric information between countries provides the most plausible explanation for the above observations. When we examine optimal tax policy in an open economy allowing for asymmetric information, rather than simply finding that savings and investment should not be taxed, we now forecast government subsidies to foreign acquisitions of domestic firms. Some omitted factors that would argue against subsidizing foreign acquisitions are explored briefly.
Handle: RePEc:nbr:nberwo:4796
Template-Type: ReDIF-Paper 1.0
Title: Do Unions Make Enterprises Insolvent?
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Morris M. Kleiner
Note: LS
Number: 4797
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4797
File-URL: http://www.nber.org/papers/w4797.pdf
File-Format: application/pdf
Publication-Status: published as Richard B. Freeman & Morris M. Kleiner, 1999. "Do unions make enterprises insolvent?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 52(4), pages 510-527, July.
Abstract: This study investigates the impact of unionization and firm, business line, or establishment survival. A consistent empirical finding is that unions raise wages above those found in nonunion firms, and that in a competitive product market one would expect to find that unionized firms would go out of business more than nonunion firms. However, if unions engage in economic rent-sharing, then during periods of economic hardship unionized firms may be able to remain solvent by giving back some of these rents. In order to answer this question we analyze three data sets: a data set on the union status of solvent and insolvent enterprises and business lines from the Compustat files, a data set on the union status of workers who have lost their jobs due to permanent plant closures or business failures obtained by matching files from Current Population Survey, and a data set from the Federal Mediation and Conciliation Service on the outcomes of elections won by unions and on the outcomes of labor- management dispute cases. Overall, our results are consistent with the hypothesis that unions behave in an economically rational manner, pushing wages to the point where union firms may expand less rapidly than nonunion firms, but not to the point where the firm, plant, or business line closes down.
Handle: RePEc:nbr:nberwo:4797
Template-Type: ReDIF-Paper 1.0
Title: Education, Income Distribution and Growth: The Local Connection
Classification-JEL: D31; I22
Author-Name: Roland Benabou
Author-Person: pbe27
Note: LS
Number: 4798
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4798
File-URL: http://www.nber.org/papers/w4798.pdf
File-Format: application/pdf
Publication-Status: published as modified title: "Equity and Efficiency in Human Capital Investment: The Local Connection," Review of Economic Studies, vol. 63, no. 2, pp. 237-264, 1996.
Abstract: This paper develops a simple model of human capital accumulation and community formation by heterogeneous families, which provides an integrated framework for analyzing the local determinants of inequality and growth. Five main conclusions emerge. First, minor differences in education technologies, preferences, or wealth can lead to a high degree of stratification. Imperfect capital markets are not necessary, but will compound these other sources. Second, stratification makes inequality in education and income more persistent across generations. Whether or not the same is true of inequality in total wealth depends on the ability of the rich to appropriate the rents created by their secession. Third, the polarization of urban areas resulting from individual residential decisions can be quite inefficient, both from the point of view of aggregate growth and in the Pareto sense, especially in the long run. Fourth, when state-wide equalization of school expenditures is insufficient to reduce stratification, it may improve educational achievement in poor communities much less than it lowers it in richer communities; thus average academic performance and income growth both fall. Yet it may still be possible for education policy to improve both equity and efficiency. Fifth, because of the cumulative nature of the stratification process, it is likely to be much harder to reverse once it has run its course than to arrest it at an early stage.
Handle: RePEc:nbr:nberwo:4798
Template-Type: ReDIF-Paper 1.0
Title: Trade Barriers and Trade Flows across Countries and Industries
Classification-JEL: F12; F13
Author-Name: Jong-Wha Lee
Author-Person: ple164
Author-Name: Phillip Swagel
Author-Person: psw34
Note: ITI
Number: 4799
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4799
File-URL: http://www.nber.org/papers/w4799.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 79, no. 3 (August 1997): 372-382.
Abstract: We use disaggregated data on trade flows, production, and trade barriers for 41 countries in 1988 to examine the political and economic determinants of non-tariff barriers, as well as the impact of protection (both tariff and non-tariff) on trade flows. We use an econometric framework that allows for the simultaneous determination of trade barriers and trade flows. Our results are consistent with political-economy theories of the determinants of protection: even after accounting for industry-specific factors, nations tend to protect industries that are weak, in decline, and threatened by import competition. Countries also give more protection to large industries; these might be thought of as politically important. Nations use tariffs, non-tariff barriers, and exchange rate controls as complementary instruments of protection.
Handle: RePEc:nbr:nberwo:4799
Template-Type: ReDIF-Paper 1.0
Title: Leverage as a State Variable for Employment, Inventory Accumulation, andFixed Investment
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: Athanasios Orphanides
Author-Name: Steven A. Sharpe
Note: CF
Number: 4800
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4800
File-URL: http://www.nber.org/papers/w4800.pdf
File-Format: application/pdf
Publication-Status: published as Capie, Forrest and Geoffrey Wood (eds.) Asset Prices and the Real Economy. Macmillan, 1997.
Abstract: The importance of a firm's balance sheet for determining its investment and employment decisions is the central assumption of macroeconomic models of 'debt deflation' or 'debt overhang.' According to these models, firm investment decisions are influenced not only by the fundamental opportunity set of the firm, but also by the firm's existing financial condition, especially its leverage. This paper tests that assumption by examining whether the responsiveness of employment, investment, and inventory accumulation to exogenous changes in sales depend on the leverage of the firm. We find that leverage acts as an important state variable for conditioning the response of all three variables to changes in sales. We also find that this effect varies depending on the state of the economy. During recessions, higher leverage magnifies the contractionary effect of declines in sales on investment; during times of positive sales growth, higher leverage tends to dampen the expansionary effect of growth in demand. The size and significance of leverage conditioning effects are larger during recessions. These results support theoretical models of the potential importance of 'debt overhang' effects. Firms that use debt to finance expansion during times of increasing demand suffer reduced ability to maintain growth during recessions as a consequence of their higher leverage.
Handle: RePEc:nbr:nberwo:4800
Template-Type: ReDIF-Paper 1.0
Title: Over-the-Counter Derivatives and Systemic Risk to the Global Financial System
Classification-JEL: G15
Author-Name: Michael R. Darby
Note: AP IFM
Number: 4801
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4801
File-URL: http://www.nber.org/papers/w4801.pdf
File-Format: application/pdf
Publication-Status: published as Darby, Michael R. "Over-The-Counter Derivatives And Systematic Risk To The Global Financial System," Advances in International Banking and Finance, 1997, v3(1), 215-235.
Abstract: Over the last decade dealing in derivative financial instruments (basically forwards, futures, options and combinations of these), particularly in the over-the-counter (OTC) derivatives market has become a central activity for major wholesale banks and financial institutions. Measured in terms of notional principal amount, OTC derivatives outstanding are near, if not greater than, US$10 trillion, even after deduction of double-counting for intra-dealer transactions. Major new regulatory initiatives, including proposed new capital requirements, are under consideration as a means of reducing systemic risk. This paper examines the concept of systemic risk -- that failure of one firm will lead to the failure of a large number of other firms or indeed the collapse of the international financial system. Alternative proposed definitions are considered and integrated and the effects of OTC derivatives on these risks discussed. The key conclusion is that systemic risk has been reduced by the development of the OTC derivatives market due to shifting economic risks to those better able either to bear the risk or, in many cases, cancel it against offsetting risks. The implications of the Basle II capital proposals for systemic risk are analyzed and shown to increase this risk due to encouraging transactions which increase portfolio risks of the dealers and discouraging transactions which decrease their portfolio risk.
Handle: RePEc:nbr:nberwo:4801
Template-Type: ReDIF-Paper 1.0
Title: An Evaluation of the Swedish Active Labor Market Policy: New and Received Wisdom
Classification-JEL: J68
Author-Name: Anders Forslund
Author-Person: pfo69
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 4802
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4802
File-URL: http://www.nber.org/papers/w4802.pdf
File-Format: application/pdf
Publication-Status: published as The Welfare State in Transition, Freeman, Richard, Birgitta Swedenborg,and Robert Topel, eds., Chicago: The University of Chicago Press, 1997,pp. 267-298.
Publication-Status: published as An Evaluation of the Swedish Active Labor Market Policy: New and Received Wisdom, Anders Forslund, Alan B. Krueger. in The Welfare State in Transition: Reforming the Swedish Model, Freeman, Topel, and Swedenborg. 1997
Abstract: About 3% of GNP is spent on government labor market programs in Sweden, compared to 2% in Germany and less than 0.5% in the U.S. In Sweden these programs include extensive job training, public sector relief work, recruitment subsidies, youth programs, mobility bonuses, and unemployment benefits. Using county-level data, we provide new evidence that public relief workers displace other workers, especially in the construction sector. Our review of the previous literature suggests that job training programs have small effects on wages and re-employment in Sweden, but precise inferences are difficult because of small sample sizes. We also investigate alternative reasons for the stability of the Beveridge Curve in Sweden, and compare regional evolutions of employment and unemployment in Sweden and the U.S. Lastly, we present cross-country analysis for 1993 which, contrary to studies that use earlier data, shows that the extent of a country's active labor market programs is positively associated with the national unemployment rate.
Handle: RePEc:nbr:nberwo:4802
Template-Type: ReDIF-Paper 1.0
Title: A Working Model for Predicting the Consumption and Revenue Impacts of Large Increases in the U.S. Federal Cigarette Excise Tax
Classification-JEL: I10; I12
Author-Name: Jeffrey E. Harris
Note: EH PE
Number: 4803
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4803
File-URL: http://www.nber.org/papers/w4803.pdf
File-Format: application/pdf
Abstract: This report describes an easily computable model of the relation between cigarette prices and cigarette consumption in the United States. The model is used to predict the revenue impacts of Federal excise tax hikes ranging from $0.45 to $1.76 per pack.
Handle: RePEc:nbr:nberwo:4803
Template-Type: ReDIF-Paper 1.0
Title: High-Cost Domestic Joint Ventures and International Competition: Do Domestic Firms Gain?
Classification-JEL: F12; L22
Author-Name: Ruth R. Raubitschek
Author-Name: Barbara J. Spencer
Author-Person: psp2
Note: ITI
Number: 4804
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4804
File-URL: http://www.nber.org/papers/w4804.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 37, No. 2 (May 1996): 315-340.
Abstract: This paper develops the idea that when markets are imperfectly competitive, final producers may gain from a joint venture that produces part of their input requirements even though marginal cost exceeds the input's market price. Production by the joint venture lowers the market price of the input and this can raise profits sufficiently from final product sales to make the joint venture worthwhile. Also, use of a joint venture internalizes the positive externality from a lower input price. These results are motivated by a setting in which domestic firms are dependent on foreign oligopolistic suppliers for a key input.
Handle: RePEc:nbr:nberwo:4804
Template-Type: ReDIF-Paper 1.0
Title: How Many Monies? A Genetic Approach to Finding Optimum Currency Areas
Classification-JEL: C63; F31
Author-Name: Atish R. Ghosh
Author-Person: pgh16
Author-Name: Holger C. Wolf
Note: IFM
Number: 4805
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4805
File-URL: http://www.nber.org/papers/w4805.pdf
File-Format: application/pdf
Publication-Status: Published as "On the Mark(s): Optimum Currency Areas in Germany", EM, Vol. 13, no. 4 (October 1996): 561-573.
Abstract: Recent moves towards greater monetary integration in Western Europe - and disintegration in Eastern Europe and the former Soviet Union - have rekindled interest in the theoretical and empirical aspects of optimal currency areas (OCA). In this paper, we examine the marginal benefit of increasing the number of currency unions within a given geographical area. We look at six regions; the United States, Europe, the G7, the CFA zone, the FSU and the world at large. Our results suggest that (i) contiguous monetary unions are typically dominated by non-contiguous unions; (ii) neither Europe nor the United States form an optimum currency area, for both regions the costs of adopting a single currency exceeds estimates of the transaction cost savings; (iii) Germany and the United States will almost never find it to their (economic) advantage to join monetary unions.
Handle: RePEc:nbr:nberwo:4805
Template-Type: ReDIF-Paper 1.0
Title: Pricing in International Markets: Lessons From The Economist
Classification-JEL: D4; F31
Author-Name: Atish R. Ghosh
Author-Person: pgh16
Author-Name: Holger C. Wolf
Note: ITI IFM
Number: 4806
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4806
File-URL: http://www.nber.org/papers/w4806.pdf
File-Format: application/pdf
Abstract: Export firms are often assumed to stabilize destination market prices in the face of nominal exchange rate changes in order to protect market share. We show that standard tests of such pricing to market fail to discriminate against the alternative hypothesis of menu costs. As a case study, we examine the characteristics and determinants of changes in the cover prices of The Economist magazine in a sample of twelve countries over the floating rate period. We find that, while the law of one price fails, there is no evidence of systematic attempts to offset nominal exchange rate movements. Instead, the findings are consistent with menu cost driven pricing behavior.
Handle: RePEc:nbr:nberwo:4806
Template-Type: ReDIF-Paper 1.0
Title: Terms of Trade, Productivity, and the Real Exchange Rate
Classification-JEL: F31; F41
Author-Name: Jose De Gregorio
Author-Person: pde80
Author-Name: Holger C. Wolf
Note: IFM
Number: 4807
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4807
File-URL: http://www.nber.org/papers/w4807.pdf
File-Format: application/pdf
Abstract: The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate. We develop a simple model of a small open economy producing exportable and nontradable goods and consuming importable and nontradable goods and present empirical evidence for a sample of fourteen OECD countries. The evidence broadly supports the predictions of the model, namely that faster productivity growth in the tradable relative to the nontradable sector and an improvement in the terms of trade induce a real appreciation.
Handle: RePEc:nbr:nberwo:4807
Template-Type: ReDIF-Paper 1.0
Title: Why Do Americans and Germans Work Different Hours?
Author-Name: Linda Bell
Author-Name: Richard Freeman
Author-Person: pfr23
Note: LS
Number: 4808
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4808
File-URL: http://www.nber.org/papers/w4808.pdf
File-Format: application/pdf
Publication-Status: published as "Why Do Americans and Germans Work Different Hours?", with Linda Bell. Chapter 5 In Friedrich Buttler, Wolfgang Franz, Ronald Schettkat, and David Soskice (eds) Institutional Frameworks and Labor Market Performance: Comparative Views on the U.S. and German Economies
Abstract: This paper documents the difference between the annual hours worked by employed Americans and Germans, decomposes the difference into differences due to vacation and holiday time and to hours worked while on the job, and examines alternative explanations for the difference. Employed Americans work roughly 10-15% more hours than Germans. Since American employment-population rates exceed those of Germans, adult Americans average some 20% more work time than adult Germans. At the same time, Americans show greater preference for additional hours worked than do Germans. Both of these differences developed in the past 20 years. Two decades ago, Americans worked less than Germans, and it was the Germans who wanted to work more hours. Standard labor supply analyses do not appear able to explain this difference. We show that differences in hours worked are related to differences in earnings inequality across countries, and hypothesize that the high rewards to success in the U.S., lack of job security, and low social safety net compared to Germany or other European countries may explain the cross-country differences in an extended supply model.
Handle: RePEc:nbr:nberwo:4808
Template-Type: ReDIF-Paper 1.0
Title: The Real Exchange Rate and Fiscal Policy During the Gold Standard PeriodEvidence from the United States and Great Britain
Classification-JEL: F31; N1
Author-Name: Graciela L. Kaminsky
Author-Person: pka84
Author-Name: Michael Klein
Author-Person: pkl9
Note: IFM
Number: 4809
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4809
File-URL: http://www.nber.org/papers/w4809.pdf
File-Format: application/pdf
Publication-Status: published as Modern Perspectives on the Gold Standard, T. Bayoumi, B. Eichengreen, and Taylor, eds., Cambridge: Cambridge University Press, 1996, pp.309-340.
Abstract: We study the determinants of the dollar/pound real exchange rate from 1879 to 1914 focusing on the role of fiscal policy. We present a simple dynamic model of the real exchange rate to frame our analysis. The econometric results are based upon the decomposition of the sources of the innovation of the real exchange rate drawn from a structural vector autoregression model. We find little evidence that changes in tariffs and government spending affected the real exchange rate. There is some stronger empirical evidence that shocks to deficits were associated with the fluctuations in the real exchange rate.
Handle: RePEc:nbr:nberwo:4809
Template-Type: ReDIF-Paper 1.0
Title: The Welfare State and Competitiveness
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Roberto Perotti
Author-Person: ppe66
Note: ME PE
Number: 4810
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4810
File-URL: http://www.nber.org/papers/w4810.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 87, no. 5 (December 1997): 921-939.
Abstract: In all modern industrial countries, redistributive expenditures are a larger component of the government budget than consumption of goods and services. In this paper, we use a general equilibrium, two- country model with exportables, importables and nontradables to study redistribution across different types of agents in a world characterized by the presence of labor unions and distortionary taxation. We show that an increase in transfers to, say, retirees, financed by distortionary taxation, can generate a loss of competitiveness (defined as an increase in relative unit labor costs for tradable goods), an appreciation of the relative price of nontradables, and a decrease in employment in all sectors of the domestic economy. The same qualitative effects would also obtain in the case of an increase in transfers towards the unemployed even if financed by non-distortionary taxation. Moreover, all these effects of labor taxation depend in a nonlinear way on the degree of centralization of the wage setting process in the labor market. We then estimate the effects of labor taxation on unit labor costs and the relative price of nontradables in a sample of 14 OECD countries. We find considerable empirical support for the model.
Handle: RePEc:nbr:nberwo:4810
Template-Type: ReDIF-Paper 1.0
Title: The Intertemporal Allocation of Consumption: Theory and Evidence
Classification-JEL: D30; D91
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Note: EFG
Number: 4811
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4811
File-URL: http://www.nber.org/papers/w4811.pdf
File-Format: application/pdf
Publication-Status: published as Attanasio, Orazio P., 1995. "The intertemporal allocation of consumption: theory and evidence," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 39-56, June.
Abstract: Liquidity constraints and, more generally, imperfections in credit markets, can be extremely important for the intertemporal allocation of consumption and have received a substantial amount of attention in the theoretical and empirical literature on consumption. In the first part of the paper I review the reasons why liquidity constraints are important. Unfortunately, for several reasons, it is not easy to test for the presence of liquidity constraints. Aggregation issues preclude the use of aggregate time series data for such a purpose. Tests based on micro data, however, are complicated by some serious identification problems. If a simple equilibrium model does not fit some data set, one can change the assumptions about the opportunity set available to the economic agents or the specification of their preferences. For instance, empirical evidence that detects excess sensitivity of consumption to income could be explained by liquidity constraints or by non separability between consumption and leisure. However, the available evidence shows that it is possible to find flexible specifications of preferences that fit consumption movements at business cycle frequencies. I also present some simulation evidence that shows that for many plausible parameter configurations, liquidity constraints are likely to be relevant only for a few economic agents. In the last part of the paper I present some new evidence on the relevance of liquidity constraints based on debt holding data. The data indicate that the demand for debt of individuals more likely to be liquidity constrained is less elastic to changes in the interest rate.
Handle: RePEc:nbr:nberwo:4811
Template-Type: ReDIF-Paper 1.0
Title: Productivity Measurement for a Distribution Firm
Classification-JEL: C43; C81
Author-Name: W. Erwin Diewert
Author-Person: pdi117
Author-Name: Ann Marie Smith
Note: PR
Number: 4812
Creation-Date: 1994-07
Order-URL: http://www.nber.org/papers/w4812
File-URL: http://www.nber.org/papers/w4812.pdf
File-Format: application/pdf
Publication-Status: forthcoming: Journal of Productivity Analysis, 1995
Abstract: The paper derives a consistent accounting framework for the treatment of inventories when measuring the productivity of a distribution firm. The average purchase price of an inventory item during an accounting period must be distinguished from its average selling price and these two average prices should be distinguished from the corresponding balance sheet prices. The accounting framework is implemented for a distribution firm which sold 76,000 separate items. The firm achieved a 9.6 percent per quarter total factor productivity growth rate over 6 quarters.
Handle: RePEc:nbr:nberwo:4812
Template-Type: ReDIF-Paper 1.0
Title: Retirement Research Using the Health and Retirement Survey
Classification-JEL: J14; J26
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 4813
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4813
File-URL: http://www.nber.org/papers/w4813.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, vol. 30, (1995), pp. 557-583.
Abstract: This paper highlights unanswered research questions in the economics of retirement, and shows how these issues can be addressed using the new Health and Retirement Survey (HRS). Unique features of the survey are described including administrative records on earnings and social security benefits, and employer provided data on pensions and health insurance. Also collected are indicators of retirement plans, health status, family structure, income, wealth and employer policies affecting job opportunities and constraints. Data from the first wave of the HRS are used to analyze retirement outcomes and constraints shaping retirement behavior.
Handle: RePEc:nbr:nberwo:4813
Template-Type: ReDIF-Paper 1.0
Title: The Macroeconomics of the Great Depression: A Comparative Approach
Classification-JEL: N10; E3
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Note: EFG ME
Number: 4814
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4814
File-URL: http://www.nber.org/papers/w4814.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, February 1995, vol. 27, no. 1,pp. 1-28
Abstract: Recently, research on the causes of the Great Depression has shifted from a heavy emphasis on events in the United States to a broader, more comparative approach that examines the interwar experiences of many countries simultaneously. In this lecture I survey the current state of our knowledge about the Depression from a comparative perspective. On the aggregate demand side of the economy, comparative analysis has greatly strengthened the empirical case for monetary shocks as a major driving force of the Depression; an interesting possibility suggested by this analysis is that the worldwide monetary collapse that began in 1931 may be interpreted as a jump from one Nash equilibrium to another. On the aggregate supply side, comparative empirical studies provide support for both induced financial crisis and sticky nominal wages as mechanisms by which nominal shocks had real effects. Still unresolved is why nominal wages did not adjust more quickly in the face of mass unemployment.
Handle: RePEc:nbr:nberwo:4814
Template-Type: ReDIF-Paper 1.0
Title: Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Author-Name: Charles D. Kolstad
Author-Person: pko133
Note: IFM
Number: 4815
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4815
File-URL: http://www.nber.org/papers/w4815.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review (Nov 1995) vol 36, no.4, pp.855-873.
Abstract: Variable real exchange rates influence the country choice for location of production facilities by a multinational enterprise. With risk averse investors and fixed productive factors, a parent company should not be indifferent to the choice of production capacity location, even when the expected costs of production are identical across countries. If a non-negative correlation exists between real export demand shocks and real exchange rate shocks, the multinational will optimally locate some of its productive capacity abroad. The share of production capacity optimally located abroad increases as exchange rate volatility rises and as export demand shocks become more correlated. These theoretical results are confirmed by empirical analysis of quarterly United States bilateral foreign-direct- investment flows with Canada, Japan, and the United Kingdom.
Handle: RePEc:nbr:nberwo:4815
Template-Type: ReDIF-Paper 1.0
Title: Reference Point Dependence for Specification Bias from Quality Upgrading
Author-Name: Eric Hutton
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI
Number: 4816
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4816
File-URL: http://www.nber.org/papers/w4816.pdf
File-Format: application/pdf
Publication-Status: Published as "Reference Point Dependence and Specification Bias", EL, Vol. 55, no. 1 (August 1997): 75-83.
Abstract: This paper argues that whether estimates of the welfare cost of natural or artificial trade barriers that do not discriminate by quality are subject to positive or negative specification bias when using models which do not explicitly recognize quality variation depends on the reference point used in counterfactual equilibrium analysis. We use numerical general equilibrium techniques to generate counter examples to the widely held view that (in the competitive case) incorporating quality upgrading will tend to reduce the welfare costs of quality invariant trade barriers. To do this, we use a trade-distorted equilibrium as the reference point, rather than free trade.
Handle: RePEc:nbr:nberwo:4816
Template-Type: ReDIF-Paper 1.0
Title: Intermediate Goods and Business Cycles: Implications for Productivity and Welfare
Classification-JEL: E32; E23
Author-Name: Susanto Basu
Author-Person: pba274
Note: ME
Number: 4817
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4817
File-URL: http://www.nber.org/papers/w4817.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 85, no. 3 (1995): 512-531.
Abstract: This paper presents an aggregate demand-driven model of business cycles that provides a new explanation for the procyclicality of productivity, and simultaneously predicts large welfare losses from monetary non-neutrality. The key features of the model are an input- output production structure, imperfect competition, countercyclical markups, and, for some results, state- dependent price rigidity. True technical efficiency is procyclical even though production takes place with constant returns, without technology shocks or technological externalities. The paper has observable implications that distinguish it empirically from related work. These implications are generally supported by data from U.S. manufacturing industries.
Handle: RePEc:nbr:nberwo:4817
Template-Type: ReDIF-Paper 1.0
Title: The Time Variation of Risk and Return in Foreign Exchange Markets: A General Equilibrium Perspective
Author-Name: Geert Bekaert
Author-Person: pbe52
Note: AP
Number: 4818
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4818
File-URL: http://www.nber.org/papers/w4818.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 9, no. 2 (Summer 1996): 427-470.
Abstract: This paper investigates the statistical properties of high frequency nominal exchange rates and forward premiums in the context of a dynamic two-country general equilibrium model. Primary focus is on the persistence, variability, leptokurtosis and conditional heteroskedasticity of exchange rates and on the behavior of foreign exchange risk premiums. The model combines temporal dependencies in preferences with a transaction cost technology that generates a role for money. Agents in the economy make decisions on a weekly frequency and face shocks which display time-varying uncertainty. Simulations reveal that the model accounts for the statistical properties of exchange rate data much more accurately than previous structural models.
Handle: RePEc:nbr:nberwo:4818
Template-Type: ReDIF-Paper 1.0
Title: Financial Intermediation and Aggregate Fluctuations: A Quantative Analysis
Author-Name: Russell Cooper
Author-Name: Joao Ejarque
Author-Person: pej1
Note: EFG
Number: 4819
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4819
File-URL: http://www.nber.org/papers/w4819.pdf
File-Format: application/pdf
Publication-Status: published as Cooper, Russell & Ejarque, Jo o, 2000. "Financial Intermediation And Aggregate Fluctuations: A Quantitative Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 4(04), pages 423-447, December.
Abstract: This paper investigates the quantitative implications of two business cycle models in which aggregate fluctuations arise in response to variations in the process of financial intermediation. In the first, fundamental shocks in the capital accumulation process lead to fluctuations in the real returns from intermediated investment. For this economy, we find that the correlations produced are not consistent with observations of the U.S. economy. In particular, consumption is not smoother than output, investment is negatively correlated with output, variations in the capital stock are quite large and interest rates are procyclical. In an economy with both intermediation and total factor productivity shocks, the correlations we produce are closer to those observed in the U.S. economy only when the intermediation shock is relatively unimportant. In the second economy, variations in the returns to intermediation are part of a sunspot equilibrium. Fluctuations here are driven by self-fulfilling beliefs by private agents regarding the returns to intermediation as in an economy beset by banking crises. For this non-linear economy, we find that the correlations are closer to those observed but the variability of capital relative to output is still too large.
Handle: RePEc:nbr:nberwo:4819
Template-Type: ReDIF-Paper 1.0
Title: The Tax Unit and Household Production
Author-Name: John Piggott
Author-Person: ppi34
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 4820
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4820
File-URL: http://www.nber.org/papers/w4820.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 104, no. 2 (April 1996): 398-418.
Abstract: The conventional wisdom is that taxing individuals rather than households is superior from an efficiency point of view under progressive income taxation. This is because it leads to secondary workers, whose labour supply elasticity is high, being taxed at a lower marginal rate than primary workers, whose labour supply elasticity is low. But once household production is taken into account, things are more complicated since tax design should also not distort the input use of family members' time in household production. We use a simple general equilibrium model of household production parameterized using Australian data whose results clearly show that welfare effects can be either positive or negative when changing an existing income tax from an individual to a household basis. In so doing, we are able to investigate the comparative static effects of changing the tax unit from an individual to the household basis in a richer model than that used thus far in the literature, since we capture both Ramsey considerations from differential labour supply elasticities, and factor input distortions into household production. Our results challenge conventional wisdom, and suggest that household unit taxation deserves more sympathetic consideration than is currently the case.
Handle: RePEc:nbr:nberwo:4820
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Monetary Policy on Bank Balance Sheets
Author-Name: Anil K. Kashyap
Author-Person: pka35
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: CF ME
Number: 4821
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4821
File-URL: http://www.nber.org/papers/w4821.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, 42, 1995, pp. 151-19 5.
Abstract: This paper uses disaggregated data on bank balance sheets to provide a test of the lending view of monetary policy transmission. We argue that if the lending view is correct, one should expect the loan and security portfolios of large and small banks to respond differentially to a contraction in monetary policy. We first develop this point with a theoretical model; we then test to see if the model's predictions are borne out in the data.
Handle: RePEc:nbr:nberwo:4821
Template-Type: ReDIF-Paper 1.0
Title: Optimal Regulation of Multiply-Regulated Industries: The Case of Physician Services
Classification-JEL: I1; I11
Author-Name: John A. Rizzo
Author-Person: pri334
Author-Name: Jody L. Sindelar
Note: EH
Number: 4822
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4822
File-URL: http://www.nber.org/papers/w4822.pdf
File-Format: application/pdf
Publication-Status: published as Southern Economic Journal, Vol.62 (April 1996): 966-978.
Abstract: This paper models the physician services market which is regulated by two government agencies. The Health Care Financing Administration (HCFA) sets Medicare physician fees through the newly implemented Resource Based Relative Value Scale (RBRVS). The Agency for Health Care Policy and Research (AHCPR) sets practice guidelines for quality. We analyze welfare losses which occur when agencies fail to coordinate their regulatory activities. Specifically, we consider the welfare impacts for cost, quality, practice characteristics, and quantity of care. Perceived ills in the market for physician services, such as excessive expenditures and overly intensive treatment, may be traced to coordination failures. Thus, even if physicians were to act as perfect agents for their patients, and even if moral hazard were to be eliminated, coordination failure could cause the critical problems associated with the physician services market to persist. Although the model is applied to the market for physician services, it can be readily generalized to other settings involving multiple regulators.
Handle: RePEc:nbr:nberwo:4822
Template-Type: ReDIF-Paper 1.0
Title: The Transfer of Human Capital
Classification-JEL: J24
Author-Name: Boyan Jovanovic
Author-Name: Yaw Nyarko
Author-Person: pny18
Note: PR
Number: 4823
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4823
File-URL: http://www.nber.org/papers/w4823.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Dynamics and Control, Vol. 19 (June 1995), pp. 1033-106 4
Abstract: Most of our productive knowledge was handed down to us by previous generations. The transfer of knowledge from the old to the young is therefore a cornerstone of productivity growth. We study this process in a model in which the old sell knowledge to the young - - old workers train the young, and charge them for this service. We take an information-theoretic approach in which training occurs if a young agent watches an old worker perform a task. This assumption has plenty of empirical support -- in their first three months on the job, young workers spend about five times as long watching others work as they do in formal training programs. Equilibrium is not constrained Pareto optimal. The old have private information, and this gives rise to an adverse selection problem: some old agents manage to sell skills that the young would not buy (if only they knew exactly what they were buying). We derive the implications for the lifetime of technological lines, and we show that the model generates a negative relation between a firm's productivity and its probability of failure.
Handle: RePEc:nbr:nberwo:4823
Template-Type: ReDIF-Paper 1.0
Title: Infrastructure in a Structural Model of Economic Growth
Classification-JEL: E62; H54
Author-Name: Douglas Holtz-Eakin
Author-Name: Amy Ellen Schwartz
Author-Person: psc654
Note: PE
Number: 4824
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4824
File-URL: http://www.nber.org/papers/w4824.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, vol. 25, pp. 131-151, 1995
Abstract: Researchers, commentators, and politicians have devoted steadily more attention to infrastructure in response to claims that inadequate accumulation of public capital has contributed to substandard U.S. economic growth. Despite this, the link between infrastructure and productivity growth remains controversial. In this regard, it is somewhat surprising that infrastructure research has developed in isolation from the large literature on economic growth. We develop a neoclassical growth model that explicitly incorporates infrastructure and is designed to provide a tractable framework within which to analyze the empirical importance of public capital accumulation to productivity growth. We find little support for claims of a dramatic productivity boost from increased infrastructure outlays. In a specification designed to provide an upper bound for the influence of infrastructure, we estimate that raising the rate of infrastructure investment would have had a negligible impact on annual productivity growth between 1971 and 1986.
Handle: RePEc:nbr:nberwo:4824
Template-Type: ReDIF-Paper 1.0
Title: Firing Costs, Employment Fluctuations and Average Employment: An Examination of Germany
Classification-JEL: J21; J23
Author-Name: Jennifer Hunt
Author-Person: phu9
Note: LS
Number: 4825
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4825
File-URL: http://www.nber.org/papers/w4825.pdf
File-Format: application/pdf
Publication-Status: published as Hunt, Jennifer. "Firing Costs, Employment Fluctuations And Average Employment: An Examination Of Germany," Economica, 2000, v67(266,May), 177-202.
Abstract: West Germany's Employment Promotion Act of 1985 facilitated the use of fixed term contracts and increased the number of dismissals above which the employer is required to establish a 'social plan' (involving severance payments). The effect of this reduction in 'firing costs' on movements in employment is assessed using manufacturing data by detailed industry for the period 1977-1992: a dynamic specification using the data as a panel, and allowing coefficients to vary by industry (random coefficients) is employed. Compared to the 1977-1981 period, adjustment of blue collar hours was more flexible from 1982-1988, and less flexible in the subsequent period. There is weaker evidence that adjustment of blue collar workers became less flexible in the years following the new legislation and that white collar workers' flexibility fluctuated over the period examined. The timing and direction of these changes, as well as the direction of relative changes in flexibility between industries with high and low sales variability, suggest they are not the result of the Employment Promotion Act.
Handle: RePEc:nbr:nberwo:4825
Template-Type: ReDIF-Paper 1.0
Title: Costs, Institutional Mobility Barriers, and Market Structure: Advertising Agencies as Multiproduct Firms
Classification-JEL: L11; L84
Author-Name: Alvin J. Silk
Author-Name: Ernst R. Berndt
Note: PR
Number: 4826
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4826
File-URL: http://www.nber.org/papers/w4826.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economics and Management Strategy, Vol. 3, no. 3, Fall 1994pp. 437-450
Abstract: What accounts for the diversity and limited concentration that has long characterized the organization of the advertising agency industry? This question is addressed by treating an advertising agency as a multiproduct firm. The firm's product line or service mix is defined in terms of the set of different media categories where an agency places the advertising messages which it creates on behalf of its clients. Evidence is presented indicating that the structure of demand and costs in the advertising agency industry conforms to the conditions that MacDonald and Slivinski (1987) showed were required for an industry to sustain an equilibrium with diversified firms. Building on this framework, we formulate a set of three hypotheses relating to the realization of product-specific scale and scope economies. The first two hypotheses posit that given low fixed costs and minimal entry barriers, both media-specific scale and scope economies are available and can be exploited by relatively small-size agencies. The third hypothesis suggests that large agencies may experience diseconomies of scope as a consequence of excessive diversification induced by two pervasive industry institutional phenomena: (i) 'bundling' of agency services to match client demand for a mix of media advertising; and (ii) 'conflict policy' which prohibits an agency from serving competing accounts and operates as a mobility constraint. Utilizing a multiproduct cost function, we estimate media-specific scale and scope economies for a cross-section of 401 U.S. agencies in 1987. The results obtained support the set of three hypotheses outlined above.
Handle: RePEc:nbr:nberwo:4826
Template-Type: ReDIF-Paper 1.0
Title: Young Workers, Old Workers, and Convergence
Author-Name: Michael Kremer
Author-Person: pkr20
Author-Name: Jim Thomson
Note: EFG
Number: 4827
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4827
File-URL: http://www.nber.org/papers/w4827.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 3, no. 1 (March 1998): 5-28.
Abstract: The human capital of young and old workers are imperfect substitutes both in production and in on-the-job training. This helps explain why capital does not flow from rich to poor countries, causing instantaneous convergence of per capita output. If each generation chooses its human capital optimally given that of the previous and succeeding generations, human capital follows a unique rational- expectations path. For moderate substitutability, human capital within each sector oscillates relative to that in other sectors, but aggregate human capital converges to the steady state monotonically, at rates consistent with those observed empirically.
Handle: RePEc:nbr:nberwo:4827
Template-Type: ReDIF-Paper 1.0
Title: The New Economics of Teachers and Education
Author-Name: Frederick Flyer
Author-Name: Sherwin Rosen
Note: LS
Number: 4828
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4828
File-URL: http://www.nber.org/papers/w4828.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 15, no. 1, part 2 (January 1997): S104-S139.
Abstract: Rapidly growing costs of elementary and secondary education are studied in the context of the rising value of women's time. The three-fold increase in direct costs of education per student in the past three decades was caused by increasing demand and utilization of teacher and staff inputs, attributable to growing market opportunities of women and changes in the structure of families. Substitution of purchased teacher and staff inputs for own household time in the total production of children's education and maturation is a predictable economic response to these forces. On the supply side, the 'flexibility option,' that female teachers who take temporary leaves to raise children do not suffer subsequent wage loss upon reentry, is shown to be an important attraction of the teaching profession to women. Other college educated women suffer reentry wage losses of 10 percent per year of leave. The estimated value of flexibility in teaching is 5 percent of life-cycle earnings and will fall as labor force interruptions of women for child-rearing become less frequent. Both supply and demand considerations suggest that the direct costs of education per student will continue to increase in the future, independent of political and other organization reforms of schools.
Handle: RePEc:nbr:nberwo:4828
Template-Type: ReDIF-Paper 1.0
Title: How Wide is the Border?
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: John H. Rogers
Author-Person: pro248
Note: IFM
Number: 4829
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4829
File-URL: http://www.nber.org/papers/w4829.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 86, (December 1996), pp.1112-1125
Abstract: Failures of the law of one price explain much of the variation in real C.P.I. exchange rates. We use C.P.I. data for U.S. cities and Canadian cities for 14 categories of consumer prices to examine the nature of the deviations from the law of one price. The distance between cities explains a significant amount of the variation in the prices of similar goods in different cities. But, the variation of the price is much higher for two cities located in different countries than for two equidistant cities in the same country. By our most conservative measure, crossing the border adds as much to the volatility of prices as adding 2500 miles between cities.
Handle: RePEc:nbr:nberwo:4829
Template-Type: ReDIF-Paper 1.0
Title: Home Equity Insurance
Classification-JEL: G22
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Allan N. Weiss
Note: AP
Number: 4830
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4830
File-URL: http://www.nber.org/papers/w4830.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Real Estate Finance and Economics, Vol. 19, no. 1 (July 1999): pp. 21-47.
Abstract: Home equity insurance policies, policies insuring homeowners against declines in the price of their homes, would bear some resemblance both to ordinary insurance and to financial hedging vehicles. A menu of choices for the design of such policies is presented here, and conceptual issues are discussed. Choices include pass-through futures and options, in which the insurance company in effect serves as a retailer to homeowners of short positions in real estate futures markets or of put options on real estate. Another choice is a life-event-triggered insurance policy, in which the homeowner pays regular fixed insurance premia and is entitled to a claim if both there is a sufficient decline in the real estate price index and a specified life event (such as a move beyond a certain geographical distance) occurs. Pricing of the premia to cover loss experience is derived, and tables of break-even policy premia are shown, based on estimated models of Los Angeles housing prices 1971- 91.
Handle: RePEc:nbr:nberwo:4830
Template-Type: ReDIF-Paper 1.0
Title: New Evidence on Workplace Education
Classification-JEL: I21
Author-Name: Alan Krueger
Author-Person: pkr63
Author-Name: Cecilia Rouse
Note: LS
Number: 4831
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4831
File-URL: http://www.nber.org/papers/w4831.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 16, no. 1 (January 1998): 61-94.
Abstract: This paper presents an analysis of the impact of a workplace education program that was administered by a community college at two companies. One of the companies we study is in the manufacturing sector and the other is in the service sector. The analysis relies on longitudinal administrative data and cross-sectional survey data. We examine a broad range of outcome variables, including workers' earnings, performance awards, job attendance, and subjective performance measures. Our main finding is that the program had a small, positive impact on earnings at the manufacturing company, but an insignificant impact at the service company. We also find that the training program had a positive association with the incidence of job bids, upgrades, performance awards, and job attendance. At the manufacturing company, occupational courses, such as blue print reading, had the largest impact.
Handle: RePEc:nbr:nberwo:4831
Template-Type: ReDIF-Paper 1.0
Title: Earnings, Schooling, and Ability Revisited
Classification-JEL: I20
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 4832
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4832
File-URL: http://www.nber.org/papers/w4832.pdf
File-Format: application/pdf
Publication-Status: published as Research in Labor Economics, vol 14, pp 23-48, 1995.
Abstract: This paper presents a survey and interpretation of recent research on the return to education. The empirical findings in a series of current papers suggest that the causal effect of education on earnings is understated by standard estimation methods. Using a simple model of optimal schooling developed by Gary Becker (1967), I derive an explicit formula for the conventional estimate of the return to schooling and for alternative instrumental variables and fixed- effects estimators. The analysis suggests that instrumental variables estimates based on 'interventions' that affect the schooling choices of children from relatively disadvantaged family backgrounds will tend to exceed the corresponding OLS estimates.
Handle: RePEc:nbr:nberwo:4832
Template-Type: ReDIF-Paper 1.0
Title: Models of Energy Use: Putty-Putty versus Putty-Clay
Author-Name: Andrew Atkeson
Author-Person: pat52
Author-Name: Patrick J. Kehoe
Author-Person: pke4
Note: EFG
Number: 4833
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4833
File-URL: http://www.nber.org/papers/w4833.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 89, no. 4 (September 1999): 1028-1043.
Abstract: In this paper, we build a version of the putty-clay model in which there is a large variety of types of capital goods which are combined with energy in different fixed proportions. Our principal contribution is to establish easily checked conditions under which the problem of solving for the equilibrium of the model economy reduces to a dynamic programming problem with only two endogenous state variables, regardless of the number of different types of capital goods that are allowed. In appropriate applications, this result allows us to avoid the 'curse of dimensionality' that typically plagues attempts to analyze the dynamics of economies with a wide variety of capital goods and binding non-negativity constraints on investment. We apply these results to study the equilibrium dynamics of value-added, investment, wages, and energy use in a simple model of energy use with putty-clay capital.
Handle: RePEc:nbr:nberwo:4833
Template-Type: ReDIF-Paper 1.0
Title: The Distribution of Exchange Rates in the EMS
Classification-JEL: F3; F4
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: Craig S. Hakkio
Author-Person: pha431
Note: IFM
Number: 4834
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4834
File-URL: http://www.nber.org/papers/w4834.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance and Economics, Vol. 1, pp. 55-67. 1996.
Abstract: Exchange rates of currencies in the Exchange Rate Mechanism of the EMS are characterized by long periods of stability interrupted by periods of extreme volatility. The periods of volatility appear at times of realignments of the central parities and at times when the exchange rate is within the ERM bands. We begin by considering a procedure for finding outliers based on measuring distance as a quadratic form. The evidence suggests that the exchange rates of the EMS can be described by a mixture of two distributions. We therefore model the exchange rate as switching between two distributions--one that holds in stable times and the other that holds in volatile times. In particular, we use Hamilton's Markov-switching model. In addition, we extend Hamilton's model by allowing the probability of switching from one state to another to depend on the position of the exchange rate within its EMS band. This model has the interesting implication that near the edge of the band, large movements--either realignments or large jumps to the center of the band--are more likely if the move to the edge of the band has been precipitous.
Handle: RePEc:nbr:nberwo:4834
Template-Type: ReDIF-Paper 1.0
Title: Economic Consequences of a Changing Litigation Environment: The Case of Patents
Classification-JEL: O34; K41
Author-Name: Jean Olson Lanjouw
Note: LE PR
Number: 4835
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4835
File-URL: http://www.nber.org/papers/w4835.pdf
File-Format: application/pdf
Abstract: A model of patent infringement is developed to analyze the relationship between litigation and aspects of the legal environment such as the probability that the patent is found valid, the size of legal fees and their allocation across agents. Potential challengers first decide whether to infringe and then the patentee decides whether or not to prosecute. The outcome of this game has a fundamental impact on the value of patent protection to a patentee. This model is then linked to a patent renewal model which explicitly incorporates the legal parameters of interest from the litigation game. Estimates of the renewal model allow the empirical estimation of the private value of a patent protection. Simulations are presented for Germany which show the quantitative impact of changes in the legal environment on the value generated by the patent system and hence the incentives created for innovation.
Handle: RePEc:nbr:nberwo:4835
Template-Type: ReDIF-Paper 1.0
Title: Trade, Multinationals, & Labor
Author-Name: Robert Z. Lawrence
Author-Person: pla608
Note: ITI
Number: 4836
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4836
File-URL: http://www.nber.org/papers/w4836.pdf
File-Format: application/pdf
Publication-Status: published as Robert Z Lawrence, 1994. "Trade, Multinationals and Labour," RBA Annual Conference Volume, in: Philip Lowe & Jacqueline Dwyer (ed.), International Intergration of the Australian Economy Reserve Bank of Australia.
Abstract: This paper summarizes and extends previous research on the relationship between low-wage international competition and wage performance in the Developed Countries in the 1980s. The first section argues that poor average US wage performance reflects slow domestic productivity growth rather than international competition. The second section presents evidence which rejects the view that Stolper-Samuelson effects are important in the US, Germany and Japan. In all three countries, neither the wholesale nor the import prices of unskilled-labor intensive products have experienced relative declines. At the same time, despite the rise in relative skilled worker wages, in the US, over the 1980s, the ratio of non-production to production workers grew faster than in the 1960s and 1970s; suggesting that technological change in US manufacturing was particularly biased in favor of white collar workers. The third section explores the employment and wage behavior in US multinational parents and their foreign-owned manufacturing affiliates between 1977 and 1989. Overall the data point to the dominant impact of a commonly shared technological change rather than trade and increased international sourcing. Employment fell, both in US parents and in affiliates in developed countries and grew only modestly" in developing countries. In foreign affiliates in both developed and developing countries, the relative compensation of non-production workers increased and the ratio of production to non-production workers fell. While US parent sourcing from overseas affiliates grew rapidly, the increase accounted for only a small share of sales.
Handle: RePEc:nbr:nberwo:4836
Template-Type: ReDIF-Paper 1.0
Title: Why is Inflation Skewed? A Debt and Volatility Story
Classification-JEL: F34; F4
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Ricardo Hausmann
Author-Person: pha552
Note: ITI IFM
Number: 4837
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4837
File-URL: http://www.nber.org/papers/w4837.pdf
File-Format: application/pdf
Abstract: This paper studies the patterns of inflation skewness in 56 countries. Monthly data suggests that inflation is positively skewed. We investigate linkages between skewness and non-linearity, showing that concavity (convexity) will lead to negative (positive) skewness if the independent variable is symmetrically distributed. We construct a public finance model for a developing country that uses inflation tax and external borrowing as the residual means for fiscal financing. The model predicts a convex dependency of inflation on output, where inflation skewness depends positively on inflation volatility, and external debt difficulties magnify the skewness. We conclude the paper with an assessment of the patterns of inflation between 1979-1993 for the 56 countries. Overall, the patterns are consistent with the predictions of the model.
Handle: RePEc:nbr:nberwo:4837
Template-Type: ReDIF-Paper 1.0
Title: The Production of Human Capital and the Lifecycle of Earnings: Variations on a Theme
Classification-JEL: 800; J
Author-Name: Jacob Mincer
Note: LS
Number: 4838
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4838
File-URL: http://www.nber.org/papers/w4838.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol.15, no.1, Part 2, January 1997
Abstract: After a brief summary of Ben Porath's 1967 model approach, I enquire into the empirical validity and some implications of his insights. Section 2 is an attempt to answer the question: Are the shapes and magnitudes of growth in wage profiles largely attributable to human capital investments? Section 3 tests the proposition that over the working age capacity wages (i.e. wages before netting out investment) decline before observed wages do. Implied timing of labor supply provides the test. The findings shed light on developments in the U.S. labor market in the past several decades. In section 4 some implications are drawn from Ben Porath's model for interpersonal differences and historical changes in life-cycle human capital investments. The positive correlation between schooling and training, predicted by the model is found in cross-sections. It also shows up in parallel movements in schooling and training in the 1980's as the demand for human capital increased. Once again, observed U.S. patterns are highlighted.
Handle: RePEc:nbr:nberwo:4838
Template-Type: ReDIF-Paper 1.0
Title: Are Windfalls a Curse? A Non-Representative Agent Model of the Current Account and Fiscal Policy
Classification-JEL: E62; F32
Author-Name: Aaron Tornell
Author-Person: pto157
Author-Name: Philip Lane
Author-Person: pla15
Note: IFM
Number: 4839
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4839
File-URL: http://www.nber.org/papers/w4839.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 44, pp. 83-112, 1998,
Abstract: In several countries temporary terms of trade improvements have led to a deterioration of the current account. Furthermore, many of these countries failed to attain greater post-boom growth rates. The point we make is that the structure of the fiscal process is critical in determining outcomes. If fiscal control is unitary, then the consumption-smoothing effect is operative, and representative-agent models of the current account have predictive power. However, if control is divided among several fiscal claimants, a voracity effect appears which counteracts the consumption-smoothing effect, leading to a deterioration of the current account in response to a positive shock. We model the interaction among fiscal claimants as a dynamic game, and show that in equilibrium aggregate appropriation increases more than the windfall itself. This results in a deterioration of the current account. We also show that all the windfall is dissipated, with the country experiencing no increase in its growth rate. Lastly, we analyze the experiences of seven countries which have enjoyed large windfalls.
Handle: RePEc:nbr:nberwo:4839
Template-Type: ReDIF-Paper 1.0
Title: Geographic Concentration in U.S. Manufacturing Industries: A Dartboard Approach
Classification-JEL: O40; L11
Author-Name: Glenn Ellison
Author-Person: pel10
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Note: EFG
Number: 4840
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4840
File-URL: http://www.nber.org/papers/w4840.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 105, no. 5 (1997): 889-927.
Abstract: This paper discusses the prevalence of Silicon Valley-style localizations of individual manufacturing industries in the United States. Several models in which firms choose locations by throwing darts at a map are used to test whether the degree of localization is greater than would be expected to arise randomly and to motivate a new index of geographic concentration. The proposed index controls for differences in the size distribution of plants and for differences in the size of the geographic areas for which data is available. As a consequence, comparisons of the degree of geographic concentration across industries can be made with more confidence. We reaffirm previous observations in finding that almost all industries are localized, although the degree of localization appears to be slight in about half of the industries in our sample. We explore the nature of agglomerative forces in describing patterns of concentration, the geographic scope of localization, and the extent to which agglomerations involve plants in similar as opposed to identical industries.
Handle: RePEc:nbr:nberwo:4840
Template-Type: ReDIF-Paper 1.0
Title: Bias in U.S. Import Prices and Demand
Classification-JEL: F14; C43
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Clinton R. Shiells
Note: ITI
Number: 4841
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4841
File-URL: http://www.nber.org/papers/w4841.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 249, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Bias in U.S. Import Prices and Demand, Robert C. Feenstra, Clinton R. Shiells. in The Economics of New Goods, Bresnahan and Gordon. 1997
Abstract: The purpose of the paper is to measure the potential bias in the U.S. import price index due to the appearance of new product varieties, or new foreign suppliers, and determine the effect of this bias on the estimated income elasticity of import demand. Existing import price indexes are based on a sample of products from importing firms. We argue that if the share of import expenditure on the sampled products is falling over time, this will lead to an upward bias in the measured index. Using a correction based on the falling expenditure share on sampled countries, we find that the income elasticity of aggregate U.S. import demand is reduced from 2.5 to 1.7, or about halfway to unity. Our estimates suggest that the aggregate import price index is upward biased by about one and one-half percentage points annually.
Handle: RePEc:nbr:nberwo:4841
Template-Type: ReDIF-Paper 1.0
Title: Passthrough of Exchange Rates and Purchasing Power Parity
Classification-JEL: F31
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Jon D. Kendall
Note: ITI
Number: 4842
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4842
File-URL: http://www.nber.org/papers/w4842.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 43, nos. 1/2 (August 1997): 237-261.
Abstract: In this paper we develop and test two hypotheses about purchasing power parity (PPP) derived from the pricing behavior of profit- maximizing, exporting firms. The first is that changes in the price of traded goods relative to domestic substitutes, due to partial pass- through of exchange rates, will affect the PPP relation. The second is that PPP should hold on forward rather than spot exchange rates, due to hedging by firms. Using quarterly data for the United States, Canada, France, Germany, Japan and the United Kingdom, we find considerable support for the first but not the second hypothesis.
Handle: RePEc:nbr:nberwo:4842
Template-Type: ReDIF-Paper 1.0
Title: Time-Varying World Market Integration
Classification-JEL: F3; G0
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP
Number: 4843
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4843
File-URL: http://www.nber.org/papers/w4843.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 50 (June 1995): 403-444.
Abstract: We propose a conditional measure of capital market integration that allows us to characterize both the cross-section and time-series of expected returns in developed and emerging markets. Our measure, which arises from a conditional regime-switching model, allows us to describe expected returns in countries that are segmented from world capital markets in one part of the sample and become integrated later in the sample. Our results suggest that a number of emerging markets exhibit time-varying integration. Interestingly, some markets appear to be more integrated than one might expect based on prior knowledge of investment restrictions. Other markets appear segmented even though foreigners have relatively free access to their capital markets.
Handle: RePEc:nbr:nberwo:4843
Template-Type: ReDIF-Paper 1.0
Title: Investment in U.S. Education and Training
Classification-JEL: 800; J
Author-Name: Jacob Mincer
Note: LS
Number: 4844
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4844
File-URL: http://www.nber.org/papers/w4844.pdf
File-Format: application/pdf
Publication-Status: published as Research in Labor Economics, Vol. 17 (1998).
Abstract: The current high rates of return to human capital stimulate a supply response via increased investments in education and training. The so increased human capital stock exerts downward pressures on the rates of return that reduce the skill differential in wages. This paper reports estimates of: the responses of investments in post-secondary education, measured by enrollments, to changes in the rate of return; responses of investment in job training, measured by incidence; and effects of accumulated human capital stocks, measured by educational attainment, on educational wage differentials. Enrollment responses and attainment effects are shown to be separated by a time lag of about a decade. The parameter estimates are based on annual CPS and NCES data, covering a recent 25 year period. If demands for human capital cease their acceleration, the rate of return is expected to decline about 25% over the current decade, judging by the estimated parameters and lags.
Handle: RePEc:nbr:nberwo:4844
Template-Type: ReDIF-Paper 1.0
Title: Infrastructure and Public R&D Investments, and the Growth of Factor Productivity in US Manufacturing Industries
Classification-JEL: D24; L11
Author-Name: M. Ishaq Nadiri
Author-Name: Theofanis P. Mamuneas
Author-Person: pma43
Note: PR
Number: 4845
Creation-Date: 1994-08
Order-URL: http://www.nber.org/papers/w4845
File-URL: http://www.nber.org/papers/w4845.pdf
File-Format: application/pdf
Publication-Status: Published as "Public R&D Policies and Cost Behavior of the US Manufacturing Industries", Journal of Public Economics, Vol. 63, no. 1 (December 1996): 57-81.
Abstract: In this paper we examine the effects of publicly financed infrastructure and R&D capital on the cost structure and productivity performance of twelve two-digit U.S. manufacturing industries. A general framework is developed to measure contribution of demand, relative input prices, technical change, as well as publicly financed capital on total factor productivity growth. The magnitude of the contribution of these sources varies considerably across industries: in some changes in demand dominate while in others changes in technology or relative prices are the main contributors. Publicly financed infrastructure and R&D capital contribute to productivity growth. However, the magnitudes of their contribution vary considerably across industries and on the whole they are not the major contributors to TFP in these industries.
Handle: RePEc:nbr:nberwo:4845
Template-Type: ReDIF-Paper 1.0
Title: Differences in the Uses and Effects of Antidumping Law Across Import Sources
Classification-JEL: F33
Author-Name: Robert W. Staiger
Author-Person: pst85
Author-Name: Frank A. Wolak
Note: ITI
Number: 4846
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4846
File-URL: http://www.nber.org/papers/w4846.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of American Trade Policy, Anne O. Krueger, ed.,pp. 385-415, (University of Chicago Press, 1996).
Publication-Status: published as Differences in the Uses and Effects of Antidumping Law across Import Sources, Robert W. Staiger, Frank A. Wolak. in The Political Economy of American Trade Policy, Krueger. 1996
Abstract: This paper studies the differences in the uses and effects of U.S. antidumping law on imports and domestic output across the major regions exporting to the United States. We attempt to characterize the implications of the use of antidumping law for U.S. imports and domestic output, and to distinguish between 'outcome filers'(firms for which the prospect of an antidumping duty is important), 'process filers'(firms that desire to secure the trade-restricting effects of the investigation process itself) Previously we allowed for the coexistence of outcome- and process-filing industries and found evidence consistent with the process filers' presence in some industries However, we restricted filing strategy to be the same for all imports in that industry regardless of their country of origin. Here we abstract from cross- industry heterogeneity in antidumping filing strategies and explore the heterogeneity of filing strategies against different import-source countries, allowing for domestic firms that may pursue independent filing strategies. We argue that the most likely target countries for process filers are those whose export production is primarily destined for the U.S. and accounts for a relatively large and stable U.S. market share. These characteristics point to Canada and Mexico as countries against which process filing by U.S. firms is likely. We find evidence in the filing behavior and in the nature of the trade impacts suggesting that Mexico and Canada are indeed the most likely targets of antidumping petitions filed by process filers in the United States.
Handle: RePEc:nbr:nberwo:4846
Template-Type: ReDIF-Paper 1.0
Title: Trade Liberalization and Trade Adjustment Assistance
Classification-JEL: F13
Author-Name: K.C. Fung
Author-Person: pfu90
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 4847
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4847
File-URL: http://www.nber.org/papers/w4847.pdf
File-Format: application/pdf
Publication-Status: published as The New Transatlantic Economy, Canzoneri, M., W. Ethier and V. Grilli,eds., Cambridge: Cambridge University Press, 1996.
Abstract: We explore the relationship between trade adjustment subsidies and successful reciprocal trade liberalization. We consider economies that are faced with a periodic need to move resources out of a declining import-competing sector, and that are attempting to sustain cooperative but self-enforcing trade agreements in the face of these adjustment needs. If the limitations associated with enforcement of international trade agreements are sufficiently severe, trade adjustment assistance can facilitate reciprocal trade liberalization. We argue that this suggests a possible efficiency rationale for adjustment policies that treat resources differently when traded sectors are involved.
Handle: RePEc:nbr:nberwo:4847
Template-Type: ReDIF-Paper 1.0
Title: Commercial Paper, Corporate Finance, and the Business Cycle: A Microeconomic Perspective
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: Charles P. Himmelberg
Author-Name: Paul Wachtel
Author-Person: pwa884
Note: DAE ME
Number: 4848
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4848
File-URL: http://www.nber.org/papers/w4848.pdf
File-Format: application/pdf
Publication-Status: published as Calomiris, Charles W. & Himmelberg, Charles P. & Wachtel, Paul, 1995. "Commercial paper, corporate finance, and the business cycle: a microeconomic perspective," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 42(1), pages 203-250, June.
Abstract: Little is known about the characteristics of individual commercial paper issuers, or about the reasons for the countercyclical issuance of commercial paper in the aggregate. To address these issues we construct a new panel dataset linking Moody's data on commercial paper issues with Standard and Poor's Compustat. High credit quality is a requirement for entry into the commercial paper market, but long-term credit quality (bond rating) is not a sufficient statistic for short-term quality. These characteristics allow firms to issuenear-riskless short-term debt and supply a near-money asset to themarket, thereby reducing their interest costs by the amount of the" commercial paper liquidity premium. We find that low-credit-quality firms have higher stocks of inventories and financial assets. In contrast to the countercyclicality of aggregate commercial paper, we find that firm-level commercial paper is procyclical. Our data support three explanations for this apparent contradiction, all of which recognize that commercial paper issuers are atypical. First, firms of high credit quality can use commercial paper to finance inventory accumulation during downturns. Second, they also can use commercial paper to finance countercyclical increases in accounts receivable. This suggests that commercial paper issuers serve as intermediaries for other firms during downturns. Third, it may be that portfolio demand for commercial paper -- a highly liquid, safe asset -- increases during downturns.
Handle: RePEc:nbr:nberwo:4848
Template-Type: ReDIF-Paper 1.0
Title: Threats and Promises
Classification-JEL: F02
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Maxim Engers
Note: ITI
Number: 4849
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4849
File-URL: http://www.nber.org/papers/w4849.pdf
File-Format: application/pdf
Abstract: Global environmental concerns have increased the sensitivity of governments and other parties to the actions of those outside their national jurisdiction. Parties have tried to extend influence extraterritorially both by promising to reward desired behavior and by threatening to punish undesired behavior. If information were perfect, the Coase theorem would suggest that either method of seeking influence could provide an efficient outcome. If the parties in question have incomplete information about each other's costs and benefits from different actions, however, either method can be costly, both to those seeking influence and in terms of overall efficiency. We compare various methods of seeking influence. A particular issue is dissembling: taking an action to mislead the other party about the cost or benefit of that action. By creating an incentive to dissemble, attempts to influence another's behavior can have the perverse effect of actually encouraging the action that one is trying to discourage.
Handle: RePEc:nbr:nberwo:4849
Template-Type: ReDIF-Paper 1.0
Title: Issues Concerning Nominal Anchors for Monetary Policy
Classification-JEL: F30; E42
Author-Name: Robert Flood
Author-Person: pfl25
Author-Name: Michael Mussa
Note: IFM ME
Number: 4850
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4850
File-URL: http://www.nber.org/papers/w4850.pdf
File-Format: application/pdf
Publication-Status: published as Balino, Thomas J. and Carlo Cottarelli (eds.) Frameworks for Monetary Stability: Policy Issues and Country Experiences. International Monetary Fund, 1994.
Abstract: This paper presents a selective survey of issues relevant to the choice of nominal anchors for monetary policy. Section I reviews long price-level histories for the United Kingdom and United States, which reveal that the price level behaved very differently following WWII in these countries than it had done in previous post-war experiences. In particular following WWII the responsibilities of monetary policy expanded to encompass a business-cycle stabilization role and the nominal anchor shifted from the fixed anchor or price-level stability to the moving anchor of inflation-rate stability. The remaining sections of the paper review, in the context of a variety of models, some of the considerations that are relevant to setting the average inflation rate in countries without a fixed nominal anchor.
Handle: RePEc:nbr:nberwo:4850
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and International Capital Flows
Classification-JEL: F21; H2
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: IFM ITI PE
Number: 4851
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4851
File-URL: http://www.nber.org/papers/w4851.pdf
File-Format: application/pdf
Publication-Status: published as The 1994 Bernhard Harms Prize Lecture
Publication-Status: published as Martin Feldstein, 1994. "Tax policy and international capital flows," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(4), pages 675-697, December.
Abstract: Although capital is now generally free to move across national borders, there is strong evidence that savings tend to remain and to be invested in the country where the saving takes place. The current paper examines the apparent conflict between the potential mobility of capital and the observed de facto segmentation of the global capital market. The key to reconciling this 'Feldstein-Horioka paradox' is that, although capital is free to move, its owners, and especially the agents who are responsible for institutional investments, prefer to keep funds close to home because of a combination of risk aversion, ignorance and a desire to show prudence in their investing behavior. The paper presents evidence on the capital mobility and on capital market segmentation. The role of hedging and the difference between gross and net capital movements for individual investors and borrowers are discussed. The special place of foreign direct investment is also considered. The segmentation of the global capital market affects the impact of capital income taxes and subsidies. This is discussed in the final section of the paper
Handle: RePEc:nbr:nberwo:4851
Template-Type: ReDIF-Paper 1.0
Title: A Major Risk Approach to Health Insurance Reform
Classification-JEL: H4; I1
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: EH PE
Number: 4852
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4852
File-URL: http://www.nber.org/papers/w4852.pdf
File-Format: application/pdf
Publication-Status: published as A Major Risk Approach to Health Insurance Reform, Martin Feldstein, Jonathan Gruber. in Tax Policy and the Economy, Volume 9, Poterba. 1995
Abstract: This paper examines the implications of a 'major-risk' approach to health insurance using data from the National Medical Expenditure Survey. We study the impact of switching from existing coverage to a policy with a 50 percent coinsurance rate and 10 percent of income limit on out-of-pocket expenditures, as well as several alternative combinations of a high-coinsurance rate with a limited out-of-pocket payment. Our analysis is limited to the population under age 65. Although 80 percent of spending on physicians and hospital care is done by the 20 percent of families who spend over $5,000 in a year, our analysis shows that shifting to a major risk policy could reduce aggregate health spending by nearly 20 percent. The reductions would be greatest among higher income individuals. By reducing excess consumption of health services, the major risk policy increases aggregate economic efficiency. With modest values of both demand sensitivity and risk aversion we find that shifting to a major risk policy would raise aggregate national efficiency by $34 billion a year. Government provision of a major risk policy" to those under 65 could be financed with a premium of about $150 per person because of the increased tax revenue and reduced Medicare outlays that would result from the provision of universal major risk insurance for the population under age 65. Even without government provision, individuals might be induced to select major risk policies by changing existing tax rules to eliminate the advantage of insurance, either by including employer provided insurance in taxable income or by permitting a tax deduction for out-of-pocket medical expenditures.
Handle: RePEc:nbr:nberwo:4852
Template-Type: ReDIF-Paper 1.0
Title: State Abortion Rates: The Impact of Policies, Providers, Politics, Demographics, and Economic Environment
Classification-JEL: I18
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Author-Name: Christine C. George
Author-Name: Rebecca A. London
Note: EH LS
Number: 4853
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4853
File-URL: http://www.nber.org/papers/w4853.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol.15, pp.513-553, 1996.
Abstract: This paper uses data on abortion rates from 1974-88, to estimate two-stage least squares models with fixed state and year effects. The results indicate that implementing restrictions on Medicaid funding for abortion results in lower aggregate abortion rates in-state and higher abortion rates among nearby states, suggesting one of the main effects of these policies is to induce cross-state migration for abortion services. The effect of these restrictions on actual abortions among state residents is much smaller; a maximal estimate suggests that 22 percent of the abortions among low-income women that are publicly funded do not take place after funding is eliminated. We also have substantial evidence that a larger number of abortion providers in a state increases the abortion rate within the state, primarily through inducing cross-state migration, with nonhospital providers being particularly important. Political affiliation variables have mixed effects and are difficult to interpret. Controlling for state fixed effects, the effect of changes in demographic and economic variables over time is typically small, although a rise in unemployment has consistently positive effects on abortion rates.
Handle: RePEc:nbr:nberwo:4853
Template-Type: ReDIF-Paper 1.0
Title: A Time to Sow and a Time to Reap: Growth Based on General Purpose Technologies
Classification-JEL: O3; O4
Author-Name: Elhanan Helpman
Author-Person: phe205
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 4854
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4854
File-URL: http://www.nber.org/papers/w4854.pdf
File-Format: application/pdf
Publication-Status: published as General Purpose Technologies and Economic Growth, Helpman, E., ed., Cambridge: MIT Press, 1998.
Abstract: We develop a model of growth driven by successive improvements in 'General Purpose Technologies' (GPT's), such as the steam engine, electricity, or micro-electronics. Each new generation of GPT's prompts investments in complementary inputs, and impacts the economy after enough such compatible inputs become available. The long-run dynamics take the form of recurrent cycles: during the first phase of each cycle output and productivity grow slowly or even decline, and it is only in the second phase that growth starts in earnest. The historical record of productivity growth associated with electrification, and perhaps also of computerization lately, may offer supportive evidence for this pattern. In lieu of analytical comparative dynamics, we conduct simulations of the model over a wide range of parameters, and analyze the results statistically. We extend the model to allow for skilled and unskilled labor, and explore the implications for the behavior over time of their relative wages. We also explore diffusion in the context of a multi-sector economy.
Handle: RePEc:nbr:nberwo:4854
Template-Type: ReDIF-Paper 1.0
Title: Sticky Prices: New Evidence from Retail Catalogs
Classification-JEL: E31
Author-Name: Anil K. Kashyap
Author-Person: pka35
Note: ME
Number: 4855
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4855
File-URL: http://www.nber.org/papers/w4855.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, 1995, vol CX, no 1
Abstract: This paper presents new results on the size, frequency, and synchronization of price changes for twelve selected retail goods over the past 35 years. Three basic facts about the data are uncovered: first, nominal prices are typically fixed for more than one year although the time between changes is very irregular; second, prices change more often during periods of high overall inflation; third, when prices do change, the sizes of the changes are widely dispersed. Both 'large' and 'small' changes occur for the same item and the sizes of these changes do not closely depend on overall inflation.
Handle: RePEc:nbr:nberwo:4855
Template-Type: ReDIF-Paper 1.0
Title: A Theory of the Welfare State
Classification-JEL: H55; D6
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 4856
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4856
File-URL: http://www.nber.org/papers/w4856.pdf
File-Format: application/pdf
Publication-Status: published as Scandinavian Journal of Economics, Vol. 97, 1995, pp. 495-526.
Abstract: The welfare state can be seen as an insurance device that makes lifetime careers safer, increases risk taking and suffers from moral hazard effects. Adopting this view, the paper studies the trade-off between average income and inequality, evaluating redistributive equilibria from an allocative point of view. It identifies the properties of an optimal welfare state and shows that constant returns to risk taking are likely to imply a redistribution paradox where more redistribution results in more inequality. In general, optimal taxation will either imply that the redistribution paradox is present or that the economy operates at a point of its efficiency frontier where more inequality implies a lower average income.
Handle: RePEc:nbr:nberwo:4856
Template-Type: ReDIF-Paper 1.0
Title: An Asset Allocation Puzzle
Classification-JEL: G11
Author-Name: Niko Canner
Author-Name: N. Gregory Mankiw
Author-Name: David N. Weil
Author-Person: pwe24
Note: AP ME
Number: 4857
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4857
File-URL: http://www.nber.org/papers/w4857.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 87 (March 1997): 181-191.
Abstract: This paper examines popular advice on portfolio allocation among cash, bonds, and stocks. It documents that this advice is inconsistent with the mutual-fund separation theorem, which states that all investors should hold the same composition of risky assets. In contrast to the theorem, popular advisors recommend that aggressive investors hold a lower ratio of bonds to stocks than conservative investors. The paper explores various possible explanations of this puzzle. It concludes that the portfolio recommendations can be explained if popular advisors base their advice on the unconditional distribution of nominal returns. It also finds that the cost of this money illusion is small, as measured by the distance of the recommended portfolios from the mean-variance efficient frontier.
Handle: RePEc:nbr:nberwo:4857
Template-Type: ReDIF-Paper 1.0
Title: Noise Trading, Delegated Portfolio Management, and Economic Welfare
Classification-JEL: G10; G23
Author-Name: James Dow
Author-Person: pdo106
Author-Name: Gary Gorton
Author-Person: pgo458
Note: AP CF
Number: 4858
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4858
File-URL: http://www.nber.org/papers/w4858.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 105, no. 5 (October 1997): 1024-1050.
Abstract: We consider a model of the stock market with delegated portfolio management. All agents are rational: some trade for hedging reasons, some investors optimally contract with portfolio managers who may have stock-picking abilities, and portfolio managers trade optimally given the incentives provided by this contract. Managers try, but sometimes fail, to discover profitable trading opportunities. Although it is best not to trade in this case, their clients cannot distinguish 'actively doing nothing,' in this sense, from 'simply doing nothing.' Because of this problem: (i) some portfolio managers trade even though they have no reason to prefer one asset to another (noise trade). We also show that, (ii), the amount of such noise trade can be large compared to the amount of hedging volume. Perhaps surprisingly, (iii), noise trade may be Pareto-improving. Noise trade may be viewed as a public good. Results (i) and (ii) are compatible with observed high levels of turnover in securities markets. Result (iii) illustrates some of the possible subtleties of the welfare economics of financial markets.
Handle: RePEc:nbr:nberwo:4858
Template-Type: ReDIF-Paper 1.0
Title: Job Stability in the United States
Classification-JEL: C81; E24
Author-Name: Francis X. Diebold
Author-Person: pdi1
Author-Name: David Neumark
Author-Person: pne16
Author-Name: Daniel Polsky
Note: LS
Number: 4859
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4859
File-URL: http://www.nber.org/papers/w4859.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 15 (1997): 206-233.
Abstract: Two key attributes of a job are its wage and its duration. Much has been made of changes in the wage distribution in the 1980s, but little attention has been given to job durations since Hall (1982). We fill this void by examining the temporal evolution of job retention rates in U.S. labor markets, using data assembled from the sequence of Current Population Survey job tenure supplements. In contrast to the distribution of wages, which clearly changed in the 1980s, we find that job retention rates have remained stable.
Handle: RePEc:nbr:nberwo:4859
Template-Type: ReDIF-Paper 1.0
Title: The Specie Standard as a Contingent Rule: Some Evidence for Core and Peripheral Countries, 1880-1990
Classification-JEL: E42; F33
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Anna J. Schwartz
Note: DAE ME
Number: 4860
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4860
File-URL: http://www.nber.org/papers/w4860.pdf
File-Format: application/pdf
Publication-Status: published as Historical Perspectives on the Gold Standard, Barry Eichengreen and Jorge de Macedo, eds. Routledge, 1996. Currency Convertibility: The Gold Standard and Beyond, J. Braga de Macedo, B. Eichengreen, J. Reis, eds., pp. 11-83 (New York: Routledge, 1996).
Abstract: The specie standard that prevailed before 1914 was a contingent rule. Under the rule specie convertibiltity could be suspended in the event of a well understood, exogenously produced emergency, such as a war, on the understanding that after the emergency had safely passed convertibility would be restored at the original parity. Market agents would regard successful adherence as evidence of a credible commitment and would allow th authorities access to seignorage and bond finance at favorable terms. This paper surveys the history of the specie standard as a contingent rule for 21 countries divided into core and peripheral countries. As a comparison we also briedfly consider the Bretton Woods system and the recent managed floating regime. We then present evidence across four regimes (pre-1914 gold standard; interward gold standard; Bretton Woods; the subsequent managed exchange rate float) for the 21 countries on the stability of macro variables as well as on the demand shocks (reflecting policy actions specific to the regime) and supply shocks (reflecting shocks to the environment independence of the regime). These measures allow us to determine whether adherents to the rule consistently pursued different policy actions from nonadherents, and whether persistent adverse shocks to the environment may, for some countries, have precluded adherence to the rule.
Handle: RePEc:nbr:nberwo:4860
Template-Type: ReDIF-Paper 1.0
Title: Equity and Time to Sale in the Real Estate Market
Classification-JEL: L13
Author-Name: David Genesove
Author-Person: pge30
Author-Name: Christopher J. Mayer
Author-Person: pma212
Note: IO
Number: 4861
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4861
File-URL: http://www.nber.org/papers/w4861.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, june 1997.
Abstract: Recent research has proposed a pro-cyclical link between sales volume and prices in the real estate market through changes in the equity of existing homeowners. This article uses data from the Boston condominium market to show that owners with high loan-to-value ratios take longer to sell their properties than owners with low loan-to- value ratios. Properties with high loan-to-value ratios are listed at higher asking prices; when sold, they receive higher prices than units with less debt. Together, these results are consistent with a search model in which owners 'constrained' by large amounts of debt set a higher reservation price than 'unconstrained' owners, accepting a lower probability of sale in exchange for a higher final sales price.
Handle: RePEc:nbr:nberwo:4861
Template-Type: ReDIF-Paper 1.0
Title: Distributional Effects on a Lifetime Basis
Classification-JEL: D58; H22
Author-Name: Don Fullerton
Author-Person: pfu10
Author-Name: Diane Lim Rogers
Note: PE
Number: 4862
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4862
File-URL: http://www.nber.org/papers/w4862.pdf
File-Format: application/pdf
Publication-Status: published as Distributional Analysis of Tax Policy, ed. by David F. Bradford Washington, DC: American Enterprise Institute Press, 1995, pp. 262-294.
Abstract: All government agencies charged with the responsibility of estimating distributional effects use annual income to classify households and one year's tax to characterize tax burdens. In this paper, we describe an alternative procedure to estimate lifetime tax burdens as proportions of lifetime income. To illustrate this model, we calculate lifetime effects of a uniform consumption tax and a wage tax. This kind of analysis can supplement existing annual analyses, since policymakers might want to insure both that current taxes reflect current ability to pay and that lifetime taxes reflect lifetime ability to pay.
Handle: RePEc:nbr:nberwo:4862
Template-Type: ReDIF-Paper 1.0
Title: Mark-Up Pricing in Mergers and Acquisitions
Author-Name: G. William Schwert
Author-Person: psc116
Note: AP
Number: 4863
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4863
File-URL: http://www.nber.org/papers/w4863.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, vol. 41, no. 2, pp. 153-192, June 1992.
Abstract: This paper studies the premiums paid in successful tender offers and mergers involving NYSE and Amex-listed target firms from 1975-91 in relation to pre-announcement stock price runups. It has been conventional to measure corporate control premiums including the price runups that occur before the initial formal bid. There has been little evidence on the relation between the pre-bid runup and the post-announcement premium (the premium paid to target stockholders measured from the date of the first bid). Under what circumstances are runups associated with larger total premiums? The evidence in this paper shows that in most cases, the pre-bid runup and the post- announcement premium are uncorrelated (i.e. little or no substitution between the runup and the post-announcement premium), so the runup is an added cost to the bidder. This has important implications for assessing the costs of illegal insider trading based on private information about a potential bid.
Handle: RePEc:nbr:nberwo:4863
Template-Type: ReDIF-Paper 1.0
Title: Effective Tax Rates in Macroeconomics: Cross-Country Estimates of Tax Rates on Factor Incomes and Consumption
Classification-JEL: E62; F41
Author-Name: Enrique G. Mendoza
Author-Person: pme30
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Linda L. Tesar
Author-Person: pte111
Note: IFM
Number: 4864
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4864
File-URL: http://www.nber.org/papers/w4864.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol. 34, (1994). p. 297-323 December 1994
Abstract: This paper proposes a method for computing tax rates using national accounts and revenue statistics. Using this method we construct time-series of tax rates for large industrial countries. The method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases. This method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework. These tax rates compare favorably with existing estimates of marginal tax rates, and highlight important international differences in tax policy.
Handle: RePEc:nbr:nberwo:4864
Template-Type: ReDIF-Paper 1.0
Title: A Survey of Empirical Research on Nominal Exchange Rates
Classification-JEL: F31
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 4865
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4865
File-URL: http://www.nber.org/papers/w4865.pdf
File-Format: application/pdf
Publication-Status: published as G. Grossman and K. Rogoff, eds. Handbook of International Economics. North Holland, Amsterdam, 1995
Abstract: We survey the empirical literature on floating nominal exchange rates over the past decade. Exchange rates are difficult to forecast at short- to medium-term horizons. There is a bit of explanatory power to monetary models such as the Dornbusch 'overshooting' theory, in the form of reaction to 'news' and in forecasts at long-run horizons. Nevertheless, at short horizons, a driftless random walk characterizes exchange rates better than standard models based on observable macroeconomic fundamentals. Unexplained large shocks to floating rates must then, logically, be due either to innovations in unobservable fundamentals, or to non-fundamental factors such as speculative bubbles. The observed difference in exchange rate and macroeconomic volatility under different nominal exchange rate regimes makes us skeptical of the first view. The theory and evidence on speculative bubbles, however, is not conclusive. We conclude with the hope that promising new studies of the microstructure of the foreign exchange market might eventually rise to insights into these phenomena.
Handle: RePEc:nbr:nberwo:4865
Template-Type: ReDIF-Paper 1.0
Title: Assimilation and Changes in Cohort Quality Revisited: What Happened to Immigrant Earnings in the 1980s?
Classification-JEL: J1; J6
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 4866
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4866
File-URL: http://www.nber.org/papers/w4866.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 13, no. 2 (April 1995): pp. 201-245.
Abstract: This paper uses the 1970, 1980, and 1990 Public Use Samples of the U.S. Census to document what happened to immigrant earnings in the 1980s, and to determine if pre-1980 immigrant flows reached earnings parity with natives. The relative entry wage of successive immigrant cohorts declined by 9 percent in the 1970s, and by an additional 6 percent in the 1980s. Although the relative wage of immigrants grows by 10 percent during the first two decades after arrival, the relative wage of post-1970 immigrants will remain 15 to 20 percent below those of natives throughout much of their working lives.
Handle: RePEc:nbr:nberwo:4866
Template-Type: ReDIF-Paper 1.0
Title: The Seesaw Principle in International Tax Policy
Classification-JEL: H20; F21
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Carl Hansen
Author-Name: Roger Procter
Note: ITI PE
Number: 4867
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4867
File-URL: http://www.nber.org/papers/w4867.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 65, no. 2 (August 1997): 163-176.
Abstract: The standard analysis of the optimal international tax policy of a small country typically assumes that the country either imports or exports capital, but does not do both. This paper considers the situation in which a small country both exports and imports capital and can alter its tax on one or the other, but not both. In each case, a 'seesaw' relationship is identified, in which the optimal tax on the income from capital exports (imports) is inversely related to the given tax rate on income from capital imports (exports). The standard results for optimal taxation of capital exports and imports are shown to be special cases of the more general seesaw principle.
Handle: RePEc:nbr:nberwo:4867
Template-Type: ReDIF-Paper 1.0
Title: A Note on Subsidizing Gifts
Classification-JEL: F21; H23
Author-Name: Louis Kaplow
Author-Person: pka44
Note: LE PE
Number: 4868
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4868
File-URL: http://www.nber.org/papers/w4868.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 58, (1995)., pp. 469-477.
Abstract: Altruistically motivated gifts involve a species of consumption externality. Donors obtain an altruistic benefit from the effect of their gifts on donees' utility but do not take into account that the benefit to donees is itself relevant to social welfare. The level of gift-giving thus will be lower than is optimal. A subsidy can correct this problem, while compulsory transfers (assuming the state lacks information about who is altruistic) and bargaining between donors and donees cannot. The rationale for subsidizing gifts offered here does not depend on whether the donee's activity is a public good (as with gifts for medical research) or whether the transfer tends to equalize the wealth of donors and donees -- factors emphasized in the existing literature on the subject.
Handle: RePEc:nbr:nberwo:4868
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Taxes on Investment and Income Shifting to Puerto Rico
Classification-JEL: H25; F21
Author-Name: Harry Grubert
Author-Name: Joel Slemrod
Author-Person: psl10
Note: ITI PE
Number: 4869
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4869
File-URL: http://www.nber.org/papers/w4869.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 80, no. 3 (August 1998): 365-373.
Abstract: The income of Puerto Rican affiliates of U.S. corporations is essentially untaxed by either Puerto Rico or the U.S. This lowers the tax penalty on real investment there, and also makes it attractive to shift reported taxable income from the U.S. parent corporation to the Puerto Rican affiliate. Because the ability to shift income is affected by the presence of real operations, the true marginal effective tax rate on investment in Puerto Rico depends on the income shifting opportunities.
Handle: RePEc:nbr:nberwo:4869
Template-Type: ReDIF-Paper 1.0
Title: What Does the Political Economy Literature on Trade Policy (Not) Tell UsThat We Ought To Know?
Classification-JEL: F13
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI
Number: 4870
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4870
File-URL: http://www.nber.org/papers/w4870.pdf
File-Format: application/pdf
Publication-Status: published as "The Political Economy of Trade Policy," 1996, in G. Grossman and K.Rogoff,eds., Handbook of International Economics, Vol. III, North-Holland, Amsterdam.
Abstract: Three questions lie at the core of the large and distinguished literature on the political economy of trade policy. First, why is international trade not free? Second, why are trade policies universally biased against (rather than in favor of) trade? Third, what are the determinants of the variation in protection levels across industries, countries, and institutional contexts? These questions are handled only imperfectly by the existing literature. Current models treat trade policy as a redistributive tool, but do not explain why it emerges in political equilibrium in preference over more direct policy instruments. Further, existing models do not generate a bias against trade, implying that pro-trade interventions are as likely as trade-restricting interventions. The greatest contribution of the political economy literature may lie in developing a better grasp of normative economic analysis--that is, in helping design policies, rules, and institutions.
Handle: RePEc:nbr:nberwo:4870
Template-Type: ReDIF-Paper 1.0
Title: Estimating and Interpreting Forward Interest Rates: Sweden 1992 - 1994
Classification-JEL: E50; E52
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM ME
Number: 4871
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4871
File-URL: http://www.nber.org/papers/w4871.pdf
File-Format: application/pdf
Publication-Status: published as "Estimating Forward Interest Rates with the Extended Nelson and Siegel Method," Sveriges Riksbank Quarterly Review 1995:3, pp 13-26
Abstract: The use of forward interest rates as a monetary policy indicator is demonstrated, using Sweden 1992-1994 as an example. The forward rates are interpreted as indicating market expectations of the time- path of future interest rates, future inflation rates, and future currency depreciation rates. They separate market expectations for the short, medium and long term more easily than the standard yield curve. Forward rates are estimated with an extended and more flexible version of Nelson and Siegel's functional form.
Handle: RePEc:nbr:nberwo:4871
Template-Type: ReDIF-Paper 1.0
Title: Immigration and Welfare, 1970-1990
Classification-JEL: J1; J6
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS PE
Number: 4872
Creation-Date: 1994-09
Order-URL: http://www.nber.org/papers/w4872
File-URL: http://www.nber.org/papers/w4872.pdf
File-Format: application/pdf
Publication-Status: published as Polachek, Solomon W. (ed.) Research in labor economics. Volume 14. Greenwich, CN and London: JAI Press, 1995.
Abstract: This paper uses the 1970, 1980, and 1990 Public Use Samples of the U.S. Census to trace the evolution of immigrant participation in welfare programs during the past two decades. The data indicate that immigrant participation in welfare programs is on the rise, and that the dollar costs associated with this trend are rising even faster. By 1990, immigrant households received a disproportionately high share of the cash benefits distributed in the United States. Even though only 8.4 percent of the households are foreign-born, these households accounted for 10.1 percent of all households that received public assistance, and for 13.1 percent of the total cash assistance distributed.
Handle: RePEc:nbr:nberwo:4872
Template-Type: ReDIF-Paper 1.0
Title: Credit Markets and the Welfare Costs of Inflation
Classification-JEL: E31; E44
Author-Name: Jose De Gregorio
Author-Person: pde80
Author-Name: Federico Sturzenegger
Author-Person: pst825
Note: IFM
Number: 4873
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4873
File-URL: http://www.nber.org/papers/w4873.pdf
File-Format: application/pdf
Publication-Status: Published as "Welfare Costs of Inflation, Seigniorage, and Financial Innovation", IMF, Vol. 38, no. 4 (1991): 675-704.
Abstract: We construct a simple model in which high inflation imposes welfare costs because it affects the ability of the financial sector to screen between high and low cost producers. Consumers search for a low price and inflation reduces the incentives to search, resulting in an increase in the demand of high cost producers. We show that beyond a certain level of inflation there is a switch from a separating equilibrium to a pooling equilibrium, where financial institutions become unable to distinguish among clients. In this pooling equilibrium a larger share of credit is allocated to less efficient firms.
Handle: RePEc:nbr:nberwo:4873
Template-Type: ReDIF-Paper 1.0
Title: Following in Her Footsteps? Women's Choices of College Majors and Faculty Gender Composition
Classification-JEL: J24; H52
Author-Name: Brandice J. Canes
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: LS
Number: 4874
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4874
File-URL: http://www.nber.org/papers/w4874.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, vol. 48, no. 3, pp. 486-504 (April 1995)
Abstract: It is frequently asserted that a college's female undergraduate enrollment in the sciences and engineering can be increased by raising female representation on the faculties in these areas. Despite the widespread acceptance of this proposition, it does not appear to have been subjected to any kind of serious statistical analysis. In this paper, we assemble panel data from three rather different educational institutions, and use them to examine the relationship between the gender composition of the students in an academic department and the gender composition of its faculty at the time the students were choosing their majors. We find no evidence for the conventional view that an increase in the share of females on a department's faculty leads to an increase in its share of female majors.
Handle: RePEc:nbr:nberwo:4874
Template-Type: ReDIF-Paper 1.0
Title: What Do We Know About Capital Structure? Some Evidence from International Data
Classification-JEL: G32; G15
Author-Name: Raghuram G. Rajan
Author-Person: pra149
Author-Name: Luigi Zingales
Note: CF
Number: 4875
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4875
File-URL: http://www.nber.org/papers/w4875.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, December 1995, Vol. 50, No. 5, pp. 1421-1460
Abstract: We investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries. At an aggregate level, firm leverage is fairly similar across the G-7 countries. We find that factors identified by previous studies as correlated in the cross-section with firm leverage in the United States, are similarly correlated in other countries as well. However, a deeper examination of the U.S. and foreign evidence suggests that the theoretical underpinnings of the observed correlations are still largely unresolved.
Handle: RePEc:nbr:nberwo:4875
Template-Type: ReDIF-Paper 1.0
Title: Foreign Investment with Endogenous Protection
Classification-JEL: F23; F13
Author-Name: Gene Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 4876
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4876
File-URL: http://www.nber.org/papers/w4876.pdf
File-Format: application/pdf
Publication-Status: published as in R.Feenstra, G.M.Grossman and D.Irwin(eds.), The Economy of Trade Policy Cambridge: The MIT Press, 1996, pp. 199-223.
Abstract: Jagdish Bhagwati coined the phrase quid pro quo foreign investment to describe international investments made in anticipation of host country trade policy and perhaps with the intention of defusing a protectionist threat. We apply Bhagwati's notion to situations where (i) foreign investment is best described as the (uncoordinated) opening of branch plants by multinational corporations, and (ii) protection is a political response by an incumbent government to offers of policy-contingent campaign contributions by domestic firms. We examine the determinants of anticipatory foreign investment and study some of its welfare implications. We also allow for lobbying by workers with sector- specific skills and show how the conflicting interests of these workers and the industrialists are resolved in determining policy toward foreign investment.
Handle: RePEc:nbr:nberwo:4876
Template-Type: ReDIF-Paper 1.0
Title: Electoral Competition and Special Interest Politics
Classification-JEL: D72
Author-Name: Gene Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 4877
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4877
File-URL: http://www.nber.org/papers/w4877.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, (April 1996) vol. 63,no.2, pp. 265-286.
Abstract: We study the competition between two political parties for seats in a parliament. The parliament will set two types of policies: ideological and non-ideological. The parties have fixed positions on the ideological issues, but choose their non-ideological platforms to attract voters and campaign contributions. In this context, we ask: How do the equilibrium contributions from special interest groups influence the platforms of the parties? We show that each party is induced to behave as if it were maximizing a weighted sum of the aggregate welfares of informed voters and members of special interest groups. The party that is expected to win a majority of seats caters more to the special interests.
Handle: RePEc:nbr:nberwo:4877
Template-Type: ReDIF-Paper 1.0
Title: The Attraction of Foreign Manufacturing Investments: Investment Promotion and Agglomeration Economies
Classification-JEL: F21
Author-Name: Keith Head
Author-Name: John C. Ries
Author-Person: pri96
Author-Name: Deborah L. Swenson
Author-Person: psw14
Note: ITI
Number: 4878
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4878
File-URL: http://www.nber.org/papers/w4878.pdf
File-Format: application/pdf
Publication-Status: published as Head, Keith, John Ries and Deborah Swenson. "Agglomeration Benefits And Location Choice: Evidence From Japanese Manufacturing Investments In The United States," Journal of International Economics, 1995, v38(3/4,May), 223-247.
Abstract: We study Japanese investments between 1980 and 1992 to assess the effectiveness of state promotion efforts in light of strong agglomeration economies in Japanese investment. Two policy variables are consistently shown to influence the location of investment - foreign trade zones and labor subsidies. We use simulations to explore the impact these policies had on the geographic distribution of Japanese investment. The simulations reveal that in aggregate promotion programs largely offset each other; however, unilateral withdrawal of promotion causes individual states to lose substantial amounts of foreign investment.
Handle: RePEc:nbr:nberwo:4878
Template-Type: ReDIF-Paper 1.0
Title: Market Failure in Small Group Health Insurance
Classification-JEL: I18
Author-Name: David Cutler
Author-Person: pcu64
Note: EH
Number: 4879
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4879
File-URL: http://www.nber.org/papers/w4879.pdf
File-Format: application/pdf
Abstract: Typically, health insurance premiums depend at least in part on the previous costs of the insuring firm, a factor termed 'experience rating'. This link between health status and future premiums raises concerns of market failure, since it limits the ability of firms to insure the price at which they can purchase insurance in future years. This paper examines the economic factors influencing experience rating. The first part of the paper demonstrates that experience rating is quantitatively important. Premiums at the 90th percentile of the distribution are 2 1/2 times greater than premiums at the 10th percentile of the distribution, and this difference does not appear to be due to the generosity of benefits or the demographic composition of the firm. The second part of the paper then discusses explanations for the prevalence of community rating, including inability to write long-term contracts, lack of demand from firms with below average costs, and public policies that provide subsidies to the uninsured. The last part of the paper examines these predictions empirically. I find evidence that firms with high-wage employees and low turnover have less premium variability than firms with low-wage employees or high turnover, but no evidence that public policies affect premium variability.
Handle: RePEc:nbr:nberwo:4879
Template-Type: ReDIF-Paper 1.0
Title: Health Insurance and the Supply of Entrepreneurs
Classification-JEL: J6; I18
Author-Name: Douglas Holtz-Eakin
Author-Name: John R. Penrod
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: EH LS
Number: 4880
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4880
File-URL: http://www.nber.org/papers/w4880.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 62, no. 1-2, pp. 209-235, (1996)
Abstract: Some commentators have suggested that the absence of portable health insurance impedes people from leaving their jobs to start new firms. We investigate this belief by comparing wage-earners who become self-employed during a given period of time with their counterparts who do not. By examining the impact of variables relating to the health insurance and health status of these workers and their families, we can infer whether the lack of health insurance portability affects the probability that they become self-employed. The evidence does not support the conjecture that the current health insurance system affects the propensity to become self-employed. Hence, whatever its other merits, there is no reason to believe that the introduction of universal health insurance would significantly enhance entrepreneurial activity.
Handle: RePEc:nbr:nberwo:4880
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Endogenous Growth in Open Economies
Classification-JEL: E62; O41
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Gian Maria Milesi-Ferrett
Author-Person: pmi28
Note: IFM PE
Number: 4881
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4881
File-URL: http://www.nber.org/papers/w4881.pdf
File-Format: application/pdf
Publication-Status: Published as "Liquidity Models in Open Economies: Theory and Empirical Evidence", European Economic Review, Vol. 40, nos. 3-5 (1996): 847-859.
Abstract: This paper examines the effects of taxation of human capital, physical capital and foreign assets in a multi-sector model of endogenous growth. It is shown that in general the growth rate is reduced by taxes on capital and labor (human capital) income. When the government faces no borrowing constraints and is able to commit to a given set of present and future taxes, it is shown that the optimal tax plan involves high taxation of both capital and labor in the short run. This allows the government to accumulate sufficient assets to finance spending without any recourse to distortionary taxation in the long run. When restrictions to government borrowing and lending are imposed, the model implies that human and physical capital should be taxed similarly.
Handle: RePEc:nbr:nberwo:4881
Template-Type: ReDIF-Paper 1.0
Title: Optimal Taxation of Human and Physical Capital in Endogenous Capital Models
Classification-JEL: E62; O41
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Gian Maria Milesi-Ferrett
Author-Person: pmi28
Note: IFM PE
Number: 4882
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4882
File-URL: http://www.nber.org/papers/w4882.pdf
File-Format: application/pdf
Publication-Status: published as Roubini, Nouriel and Gian Maria Milesi-Ferretti. "On the Taxation of Human and Physical Capital in Models of Endogenous Growth." Journal of Public Economics (1999).
Abstract: This paper studies the effects of human and physical capital income taxation on growth, and examines how these effects depend on the technologies for human capital accumulation and 'leisure'. It then derives the normative implications of the analysis for the optimal taxation of factor incomes. It is shown that in general both capital and labor (human capital) taxes are growth-reducing. In these cases, the optimal long-run tax on both capital and labor income is zero. The optimal taxation plan consists of taxing both factors in the short run, and financing spending in the long run through accumulated budget surpluses.
Handle: RePEc:nbr:nberwo:4882
Template-Type: ReDIF-Paper 1.0
Title: Income Distribution and Public Education: A Dynamic Quantitative Evaluation of School Finance Reform
Classification-JEL: I22; H42
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Richard Rogerson
Author-Person: pro53
Note: PE
Number: 4883
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4883
File-URL: http://www.nber.org/papers/w4883.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 88 (1998): 813-833.
Abstract: Many states have or are considering implementing school finance reforms aimed at lessening inequality in the provision of public education across communities. These reforms will tend to have complicated aggregate effects on income distribution, intergenerational income mobility, and welfare. In order to analyze the potential effects of such reforms, this paper constructs a dynamic general equilibrium model of public education provision, calibrates it using US data, and examines the quantitative effects of a major school finance reform. The policy reform examined is a change from a system of pure local finance to one in which all funding is done at the federal level and expenditures per student are equal across communities. We find that this policy increases average income and total spending on education as a fraction of income. Moreover, there are large welfare gains associated with this policy; steady-state welfare increases by 3.2% of steady-state income.
Handle: RePEc:nbr:nberwo:4883
Template-Type: ReDIF-Paper 1.0
Title: Precautionary Saving and Social Insurance
Classification-JEL: H3; I3
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Jonathan Skinner
Author-Person: psk23
Author-Name: Stephen P. Zeldes
Note: PE
Number: 4884
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4884
File-URL: http://www.nber.org/papers/w4884.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy 103(2), April 1995, pp. 360-399
Abstract: Microdata studies of household saving often find a significant group in the population with virtually no wealth, raising concerns about heterogeneity in motives for saving. In particular, this heterogeneity has been interpreted as evidence against the life-cycle model of saving. This paper argues that a life-cycle model can replicate observed patterns in household wealth accumulation after accounting explicitly for precautionary saving and asset-based means- tested social insurance. We demonstrate theoretically that social insurance programs with means tests based on assets discourage saving by households with low expected lifetime income. In addition, we evaluate the model using a dynamic programming model with four state variables. Assuming common preference parameters across lifetime- income groups, we are able to replicate the empirical pattern that low-income households are more likely than high-income households to hold virtually no wealth. Low wealth accumulation can be explained as a utility-maximizing response to asset-based means-tested welfare programs.
Handle: RePEc:nbr:nberwo:4884
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Policies, Capital Formation, and Capitalism
Classification-JEL: H00
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 4885
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4885
File-URL: http://www.nber.org/papers/w4885.pdf
File-Format: application/pdf
Publication-Status: published as The 1994 Joseph Schumpeter Lecture to the European Economic Association, European Economic Review, 39(1995), pp.399-420.
Abstract: This lecture examines the effects of tax policy and social security retirement benefits on capital accumulation and economic welfare. The paper begins by examining how capital income taxes reduce the real return to savers and then discusses the welfare loss of capital income taxation relative to the alternatives of taxing consumption and labor income.The second part deals with social security retirement benefits. In 1994, older Americans will receive cash and medical benefits that cost the government $530 billion or $16,000 per person over 65. A final section discusses the implications of international capital flows for this analysis. As capital flows become more important, the response of government policy may be to compete for foreign capital inflows and to tax domestic savers more heavily; leading to a smaller total volume of capital. The sharp decline in the net national saving rate-from over 8% of GDP in the U.S. in the 1970s to only 4.5% in the 1980s & from over 14% of GDP in Europe in the 1970s to 9.9% in the 1980s -- may not only create lower real incomes and slower growth but may weaken capitalism itself. In the US a decade of slow growth has increased protectionist tendencies in international trade and led to a new interest in industrial policies that expand the role of the government in guiding the direction of technology of private investment. Government policies that discourage saving might make the Schumpeterian vision of a shift from private capitalism to government-dominated economy more likely
Handle: RePEc:nbr:nberwo:4885
Template-Type: ReDIF-Paper 1.0
Title: Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management
Classification-JEL: D23; C23
Author-Name: Oliver Hart
Author-Person: pha222
Author-Name: John Moore
Author-Person: pmo265
Note: CF
Number: 4886
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4886
File-URL: http://www.nber.org/papers/w4886.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 85, no. 3, pp. 567-585, (June 1995).
Abstract: We argue that long-term debt has a role in controlling management's ability to finance future investments. A company with high (widely-held) debt will find it hard to raise capital, since new security holders will have low priority relative to existing creditors. Conversely for a company with low debt. We show there is an optimal debt-equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments. We derive conditions under which equity and a single class of senior long-term debt work as well as more complex contracts for controlling investment behavior.
Handle: RePEc:nbr:nberwo:4886
Template-Type: ReDIF-Paper 1.0
Title: Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach
Classification-JEL: E10; E22
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Note: EFG
Number: 4887
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4887
File-URL: http://www.nber.org/papers/w4887.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 67, no.4 (July 1999): 783-826.
Abstract: In this paper we derive a model of aggregate investment that builds from the lumpy microeconomic behavior of firms facing stochastic fixed adjustment costs. Instead of the standard (S,s) bands, firms' optimal adjustment policies are probabilistic, with a probability of adjusting (adjustment hazard) that grows smoothly with firms' disequilibria. Depending upon the specification of the distribution of fixed adjustment costs, the adjustment hazards approach encompasses models ranging from the very non-linear (S,s) model to the linear partial adjustment model. Except for the latter extreme, the processes for aggregate investment obtained from adding up the actions of firms subject to aggregate and idiosyncratic shocks, is highly non-linear. Estimating the aggregate model by maximum likelihood, we find clear evidence supporting non-linear models over linear ones for postwar sectoral U.S. manufacturing equipment and structures investment. For a given sequence of aggregate shocks, the nonlinear model estimated generates brisker expansions and - to a lesser extent - sharper contractions than its linear counterpart. These features fit well the observed positive skewness and large kurtosis of U.S. manufacturing sectoral investment/capital ratios.
Handle: RePEc:nbr:nberwo:4887
Template-Type: ReDIF-Paper 1.0
Title: Measuring Money Growth When Financial Markets Are Changing
Classification-JEL: E44; E51
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: IFM ME EFG
Number: 4888
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4888
File-URL: http://www.nber.org/papers/w4888.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Volume 37, Issue 1, February 1996, Pages 3-27
Abstract: This paper examines the problem of measuring the growth of a monetary aggregate in the presence of innovations in financial markets and changes in the relationship between individual assets and output. We propose constructing a monetary aggregate so that it is a good leading indicator of nominal GDP; in general the weights on its components vary over time. We investigate two specific procedures: one in which subaggregates discretely switch in and out, and one in which the growth of the aggregate is a time-varying weighted average of the growth of the subaggregates, where the weights follow a random walk. These procedures are used to construct aggregates which potentially augment M2 with stock and/or bond mutual funds. Over 1960-1991, the time-varying aggregates look much like M2, but during 1992-93 the time-varying aggregates outperform M2.
Handle: RePEc:nbr:nberwo:4888
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Effects of Military Spending: Evidence from a Panel of States
Classification-JEL: E24; E62
Author-Name: Mark Hooker
Author-Name: Michael Knetter
Note: LS EFG
Number: 4889
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4889
File-URL: http://www.nber.org/papers/w4889.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit, and Banking (August 1997): 400-421.
Abstract: We use data on a panel of states over a 30 year sample to estimate the response of unemployment to military procurement spending. The state panel provides greater variation in both variables and permits us to examine whether responses to procurement spending shocks vary across states. Our main finding is that changes in procurement spending significantly affect unemployment in states heavily dependent on the military sector and subject to large such changes, and that accounting for this variation in responses across states adds approximately 40% to the estimated aggregate unemployment impact of the current drawdown.
Handle: RePEc:nbr:nberwo:4889
Template-Type: ReDIF-Paper 1.0
Title: Market Timing Ability and Volatility Implied in Investment Newletters' Asset Allocation Recommendations
Classification-JEL: G1; G2
Author-Name: John R. Graham
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP EH
Number: 4890
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4890
File-URL: http://www.nber.org/papers/w4890.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, 42 (1996), 397-421 .
Abstract: We analyze the advice contained in a sample of 237 investment letters over the 1980-1992 period. Each newsletter recommends a mix of equity and cash. We construct portfolios based on these recommendations and find that only a small number of the newsletters appear to have higher average returns than a buy-and-hold portfolio constructed to have the same variance. Knowledge of the asset allocation weights also implies knowledge of the exact conditional betas. As a result, we present direct tests of market timing ability that bypass beta estimation problems. Assuming that different letters cater to investors with different risk aversions, we are able to imply the newsletters' forecasted market returns. The dispersion of the newsletters' forecasts provides a natural measure of disagreement in the market. We find that the degree of disagreement contains information about both market volatility and trading activity.
Handle: RePEc:nbr:nberwo:4890
Template-Type: ReDIF-Paper 1.0
Title: Cigarette Taxation and the Social Consequences of Smoking
Author-Name: W. Kip Viscusi
Author-Person: pvi69
Note: EH PE
Number: 4891
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4891
File-URL: http://www.nber.org/papers/w4891.pdf
File-Format: application/pdf
Publication-Status: published as Cigarette Taxation and the Social Consequences of Smoking, W. Kip Viscusi. in Tax Policy and the Economy, Volume 9, Poterba. 1995
Abstract: This paper assesses the appropriate cigarette tax needed to address potential market failures. There is no evidence of inadequate risk decisions by smokers regarding their own welfare. Detailed calculations of the financial externalities of smoking indicate that the financial savings from premature mortality in terms of lower nursing home costs and retirement pensions exceed the higher medical care and life insurance costs generated. The costs of environmental tobacco smoke are highly uncertain, but of potentially substantial magnitude. Even with recognition of these costs, current cigarette taxes exceed the magnitude of the estimated net externalities.
Handle: RePEc:nbr:nberwo:4891
Template-Type: ReDIF-Paper 1.0
Title: Domestic Saving and International Capital Flows Reconsidered
Classification-JEL: F21
Author-Name: Alan M. Taylor
Author-Person: pta46
Note: DAE ITI IFM
Number: 4892
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4892
File-URL: http://www.nber.org/papers/w4892.pdf
File-Format: application/pdf
Abstract: A long literature since Feldstein and Horioka's seminal contribution documents the strong correlation of domestic saving and investment rates since the 1960s. According to conventional wisdom, the result provides evidence of international capital market imperfections. The macroeconomic theory of small open economies prescribes a relationship between the composition of aggregate demand and its relative price structure, a linkage hitherto ignored in the saving-investment literature. Theory and evidence also suggest a role for growth and demographic effects, well known in previous studies. If one controls for these effects, the standard correlation of saving and investment disappears. International capital markets may be better integrated than once thought, and the former correlations may have been spurious. The pattern of domestic investment rates is better explained by domestic price distortions and other variables than by domestic saving constraints.
Handle: RePEc:nbr:nberwo:4892
Template-Type: ReDIF-Paper 1.0
Title: The Intertemporal Approach to the Current Account
Classification-JEL: F32
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: IFM ITI
Number: 4893
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4893
File-URL: http://www.nber.org/papers/w4893.pdf
File-Format: application/pdf
Publication-Status: published as Gene Grossman and Kenneth Rogoff, eds. Handbook of International Economicsvol 3, Amsterdam: North-Holland, Elsevior Press, 1995.
Abstract: The intertemporal approach views the current-account balance as the outcome of forward-looking dynamic saving and investment decisions. This paper, a chapter in the forthcoming third volume of the Handbook of International Economics, surveys the theory and empirical work on the intertemporal approach as it has developed since the early 1980s. After reviewing the basic one-good, representative- consumer model, the paper considers a series of extended models incorporating relative prices, complex demographic structures, consumer durables, asset-market incompleteness, and asymmetric information. We also present a variety of empirical evidence illustrating the usefulness of the intertemporal approach, and argue that intertemporal models provide a consistent and coherent foundation for open-economy policy analysis. As such, the intertemporal approach should supplant the expanded versions of the Mundell-Fleming IS-LM model that currently furnish the dominant paradigm used by central banks, finance ministries, and international economic agencies.
Handle: RePEc:nbr:nberwo:4893
Template-Type: ReDIF-Paper 1.0
Title: Why are Retail Prices in Japan so High?: Evidence from German Export Prices
Classification-JEL: F13; F14
Author-Name: Michael M. Knetter
Note: IFM ITI
Number: 4894
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4894
File-URL: http://www.nber.org/papers/w4894.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Industrial Organization (August 1997): 549-572.
Abstract: It is well documented that retail prices in Japan are higher than in other countries for similar products. The two main competing explanations for this finding are: (1) a relatively high degree of discriminatory practices against imports and (2) relatively high distribution costs associated with getting goods to the point of final sale in Japan. The first of these explanations implies that foreign exporters should charge higher prices on shipments to Japan than elsewhere, provided at least some of the rent associated with restrictive practices can be captured by the exporter. For the vast majority of the 37 7-digit German export industries studied here, the data are consistent with this implication. Prices on shipments to Japan appear to be significantly higher than prices on shipments to the United States, the United Kingdom, and Canada.
Handle: RePEc:nbr:nberwo:4894
Template-Type: ReDIF-Paper 1.0
Title: Insulation of Pensions from Political Risk
Classification-JEL: H55; J14
Author-Name: Peter Diamond
Author-Person: pdi24
Note: AG
Number: 4895
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4895
File-URL: http://www.nber.org/papers/w4895.pdf
File-Format: application/pdf
Publication-Status: published as in S. Valdez, editer, The Economics of Pensions: Principles, Policies, and International Experience; Cambridge University Press ; Cambridge, 1997
Abstract: There are many sources of political risk to public provision of pensions. This paper analyzes legislation to alter the retirement income system. This approach naturally recognizes that some changes in the system are good responses to social risks, while others generate such risks. Thus the discussion is in terms of the effect of institutional structure on the likelihood of alternative legislative actions. Particular attention is paid to the roles of automatic pension adjustment and pension professionals in providing insulation. Briefly touched upon is the tendency of legislation to redistribute as a function of the type of system being created.
Handle: RePEc:nbr:nberwo:4895
Template-Type: ReDIF-Paper 1.0
Title: Environmental Taxation and the "Double Dividend:" A Reader's Guide
Classification-JEL: H21; H23
Author-Name: Lawrence H. Goulder
Note: PE EEE
Number: 4896
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4896
File-URL: http://www.nber.org/papers/w4896.pdf
File-Format: application/pdf
Publication-Status: published as Lawrence H. Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, vol 2(2), pages 157-183.
Abstract: In recent years there has been great interest in the possibility of substituting environmentally motivated or 'green' taxes for ordinary income taxes. Some have suggested that such revenue-neutral reforms might offer a 'double dividend:' not only (1) improve the environment but also (2) reduce certain costs of the tax system. This paper articulates different notions of 'double dividend' and examines the theoretical and empirical evidence for each. It also draws connections between the double dividend issue and principles of optimal environmetal taxation in a second-best setting. A weak double dividend claim is that returning tax revenues through cuts in distortionary taxes leads to cost savings relative to the case where revenues are returned lump sum. This claim is easily defended on theoretical grounds and (thankfully) receives wide support from numerical simulations.The stronger versions contend that revenue-neutral swaps of environmental taxes for ordinary distortionary taxes involve zero or negative gross costs.Analyses numerical results tend to cast doubt on the strong double dividend claim.Yet the theoretical case against the strong form is not air-tight, and numerical dividend claim is dividend claim is rejected (upheld) are related to the conditions where the second-best optimal environmental tax is less than (greater than) the marginal environmental damages.The difficulty of establishing a strong double dividend claim heightens the importance of attending to and evaluating the (environmental) benefits from environmental taxes.
Handle: RePEc:nbr:nberwo:4896
Template-Type: ReDIF-Paper 1.0
Title: Optimal Environmental Taxation in the Presence of Other Taxes: General Equilibrium Analyses
Classification-JEL: H21; H23
Author-Name: A. Lans Bovenberg
Author-Person: pbo45
Author-Name: Lawrence H. Goulder
Note: PE
Number: 4897
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4897
File-URL: http://www.nber.org/papers/w4897.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 86, no. 4 (September 1996): 985-1006. Published as "Costs of Environmentally Motivated Taxes in the Presence of Other Taxes: General Equilibrium Analyses", NTJ, Vol. 50, no. 1 (March 1997.
Abstract: This paper examines the optimal setting of environmental taxes in economies where other, distortionary taxes are present. We employ analytical and numerical models to explore the degree to which, in a second best economy, optimal environmental tax rates differ from the rates implied by the Pigovian principle (according to which the optimal tax rate equals the marginal environmental damages). Both models indicate, contrary to what several analysts have suggested, that the optimal tax rate on emissions of a given pollutant is generally less than the rate supported by the Pigovian principle. Moreover, the optimal rate is lower the larger are the distortions posed by ordinary taxes. Numerical results indicate that previous studies may have seriously overstated the size of the optimal carbon tax by disregarding pre-existing taxes.
Handle: RePEc:nbr:nberwo:4897
Template-Type: ReDIF-Paper 1.0
Title: Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System
Classification-JEL: F31; F32
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Andrew K. Rose
Author-Person: pro71
Author-Name: Charles Wyplosz
Author-Person: pwy2
Note: IFM ME
Number: 4898
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4898
File-URL: http://www.nber.org/papers/w4898.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, October 1995
Publication-Status: published as The New Transatlantic Economy, Canzoneri, Matthew, William Ethier and Vittorio Grilli, eds., Cambridge: Cambridge University Press, 1996.
Abstract: This paper presents an empirical analysis of speculative attacks on pegged exchange rates in 22 countries between 1967 and 1992. We define speculative attacks or crises as large movements in exchange rates, interest rates, and international reserves. We develop stylized facts concerning the univariate behavior of a variety of macroeconomic variables, comparing crises with periods of tranquility. For ERM observations we cannot reject the null hypothesis that there are few significant differences in the behavior of key macroeconomic variables between crises and non-crisis periods. This null can be decisively rejected for non-ERM observations, however. Precisely the opposite pattern is evident in the behavior of actual realignments and changes in exchange rate regimes. We attempt to tie these findings to the theoretical literature on balance of payments crises.
Handle: RePEc:nbr:nberwo:4898
Template-Type: ReDIF-Paper 1.0
Title: From Superminis to Supercomputers: Estimating Surplus in the Computing Market
Classification-JEL: C30; D43
Author-Name: Shane Greenstein
Author-Person: pgr134
Note: PR
Number: 4899
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4899
File-URL: http://www.nber.org/papers/w4899.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 329, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as From Superminis to Supercomputers: Estimating Surplus in the Computing Market, Shane M. Greenstein. in The Economics of New Goods, Bresnahan and Gordon. 1997
Abstract: Innovation was rampant in the computer industry during the late 1960s and the 1970s. Did innovation vastly extend the capabilities of computers or simply reduce the costs of doing the same thing? This question goes to the heart of whether the rate of decline in 'constant-quality' computing prices incorrectly identifies the sources of improvement and benefits from technological change. This paper argues that innovation freed computers of technical constraints to providing new services, manifesting many new capabilities in systems with larger capacity. Both anecdotal and quantitative evidence suggest that many buyers adopted new systems to get access to these new capabilities, not solely to take advantage of lower prices. The analysis divides itself into several related questions. First, what innovations in this period are associated with extensions of capabilities? Second, do buyers adopt products that embody extensions of capabilities? Third, how does a measurement framework represent that action? Are extensions embodied only in increases in capacity or are they embodied in other measurable features of a computer system as well?
Handle: RePEc:nbr:nberwo:4899
Template-Type: ReDIF-Paper 1.0
Title: IRAs and Household Saving Revisited: Some New Evidence
Classification-JEL: D12; D91
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Author-Name: Thomas C. DeLeire
Author-Person: pde167
Note: PE
Number: 4900
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4900
File-URL: http://www.nber.org/papers/w4900.pdf
File-Format: application/pdf
Abstract: The effectiveness of tax-favored savings accounts in raising national savings depends crucially upon the willingness of households to reduce consumption in order to finance contributions to these accounts. The debate over the tax deductibility of IRA's has centered on whether IRA contributions represented new savings or reshuffled assets. We devise a test to distinguish between these two hypotheses where we compare the behavior of households which just opened an IRA account with that of households which already had an IRA account. Our test accounts for any unobservable heterogeneity across the two groups. We find evidence that supports the view that households financed their IRA contributions primarily through reductions in their stocks of other assets. Our results indicate that less than 20% of IRA contributions represented addition to national savings.
Handle: RePEc:nbr:nberwo:4900
Template-Type: ReDIF-Paper 1.0
Title: The Competitive Crash in Large-Scale Commercial Computing
Author-Name: Timothy F. Bresnahan
Author-Person: pbr34
Author-Name: Shane Greenstein
Author-Person: pgr134
Note: IO PR
Number: 4901
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4901
File-URL: http://www.nber.org/papers/w4901.pdf
File-Format: application/pdf
Publication-Status: published as in Ralph Landan, Timothy Taylor (eds.),The Mosaic of Economic Growth, pp. 357-397, Stanford University Press, Stanford, CA, 1996.
Abstract: We examine the factors underlying buyer demand for large Information Technology solutions in order to understand the competitive crash in large scale commercial computing. We examine individual buyer data from two periods. The first is in the mid 1980's, late in the period of a mature and stable large-systems market. The other period is in the early 1990's, very early in the diffusion of a new, competitive technology, client/server, when many buyers chose to wait for the new technology to mature. We clarify the implications of different theories of the competitive crash and then test them. The most popular theories are far wrong, while the correct view emphasizes the 'internal' adjustment costs to organizations making IT investments. Understanding buyer behavior not only illuminates the competitive crash, but also the factors underlying the slow realization of the social gains to Information Technology in large complex applications more generally.
Handle: RePEc:nbr:nberwo:4901
Template-Type: ReDIF-Paper 1.0
Title: Free-Trade Taxation and Protectionist Taxation
Classification-JEL: H20; F21
Author-Name: Joel Slemrod
Author-Person: psl10
Note: ITI PE
Number: 4902
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4902
File-URL: http://www.nber.org/papers/w4902.pdf
File-Format: application/pdf
Publication-Status: published as International Tax and Public Finance, vol. 2, no. 3, pp. 471-489, November 1995
Abstract: This paper explores the normative theory of international taxation by recasting it in parallel with the theory of international trade. It first sets out a definition of 'free trade taxation,' first in the global context and then in the unilateral context. It then evaluates against this standard the existing international tax regime and the U.S. international tax policy, and characterizes which aspects of tax policy are free trade and which are protectionist, differentiating the 'predatory protectionism' of tax havens and the 'ownership protectionism' of tax policies that favor domestically- resident multinational corporations.
Handle: RePEc:nbr:nberwo:4902
Template-Type: ReDIF-Paper 1.0
Title: Resisting Migration: The Problems of Wage Rigidity and the Social Burden
Classification-JEL: F2; H2
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: IFM LS
Number: 4903
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4903
File-URL: http://www.nber.org/papers/w4903.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Papers and Proceedings, vol. 85, no. 2, pp. 312- 316, May 1995
Abstract: Just like any trade activity in well-functioning markets, migration tends to enhance the efficiency of the allocation of resources. With non-distortionary income distribution policy instruments which can compensate losers, migration generates income gains. But the gains tend to be typically rather small. However, when the labor market is malfunctioning and wages are rigid, migration exacerbates imperfections in the market. Consequently, it may lead to losses to the established population which can be quite sizable. Another problem raised by migration is the toll it imposes on the welfare state. Being unable to perfectly exclude migrants from various entitlement programs and public services, the modern welfare state finds it more and more costly to run its various programs. These two economic considerations may help explain why there is strong resistance to migration. Consequently, improvements in functioning of the labor markets (with a possible compensation to wage earners that compete with unskilled migrants) and more selectivity in the scope of and the eligibility for the state entitlement programs may potentially ease, to a large extent, the resistance to migration from the established population.
Handle: RePEc:nbr:nberwo:4903
Template-Type: ReDIF-Paper 1.0
Title: The Roles of Marketing, Product Quality and Price Competition in the Growth and Composition of the U.S. Anti-Ulcer Drug Industry
Classification-JEL: D43; L65
Author-Name: Ernst R. Berndt
Author-Name: Linda Bui
Author-Person: pbu244
Author-Name: David Reiley
Author-Person: pre371
Author-Name: Glen Urban
Note: IO PR
Number: 4904
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4904
File-URL: http://www.nber.org/papers/w4904.pdf
File-Format: application/pdf
Publication-Status: published as Berndt, Ernst R., Linda T. Bui, David R. Reiley and Glen L. Urban. "Information, Marketing, And Pricing In The U.S. Antiulcer Drug Market," American Economic Review, 1995, v85(2), 100-105.
Publication-Status: published as The Economics of New Goods, Timothy Bresnahan and Robert Gordon, eds. pp. 277, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as The Roles of Marketing, Product Quality, and Price Competition in the Growth and Composition of the U.S. Antiulcer Drug Industry, Ernst R. Berndt, Linda T. Bui, David H. Lucking-Reiley, Glen L. Urban. in The Economics of New Goods, Bresnahan and Gordon. 1997
Abstract: The introduction of Tagamet in the United States in 1977 represented both a revolution in ulcer therapy and the beginning of an important new industry. Today there are four prescription H2- antagonist drugs: Tagamet, Zantac, Pepcid and Axid, and they comprise a multi-billion dollar market for the treatment of ulcers and other gastric acid conditions. In this paper, we examine the determinants of sales in this market, using a carefully constructed data set made possible by IMS America. We concentrate particularly on the marketing of these drugs to physicians through detailing and medical journal advertising, and we make an innovative attempt to distinguish between 'industry-expanding' and 'rivalrous' marketing efforts. We find that the impact of total marketing on the expansion of overall industry sales declines as the number of products on the market increases. In addition, we find that the stock of industry-expanding marketing depreciates at a near-zero rate, while the stock of marketing oriented towards rivalrous market share competition depreciates at a 40% annual rate. We also find that the products' sales are affected significantly by price, quality attributes (such as number of FDA- approved indications and number of adverse drug interactions), and order of entry into the market.
Handle: RePEc:nbr:nberwo:4904
Template-Type: ReDIF-Paper 1.0
Title: How a Fee Per-Unit Garbage Affects Aggregate Recycling in a Model with Heterogeneous Households
Classification-JEL: H23; H42
Author-Name: Thomas C. Kinnaman
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 4905
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4905
File-URL: http://www.nber.org/papers/w4905.pdf
File-Format: application/pdf
Publication-Status: published as Public Economics and the Environment in an Imperfect World, ed. by A.L. Bovenberg and S. Crossen; Dordrecht, The Netherlands: Kluwer Academic Publishers (1995): 135-159.
Abstract: This paper develops a utility maximizing model of household choice among garbage disposal, recycling, and littering. The impact of a user fee for garbage collection is modelled for heterogeneous households with different preferences for recycling. The model explains (1) why some households participate in curbside recycling programs even in the absence of a user fee, (2) why other households do not participate, even in the presence of a user fee, and (3) why some households choose to litter when others do not. Household choices are aggregated to determine the effect of a user fee on the community-wide quantities of garbage, recycling, and litter. We show how an increase in the user fee can decrease aggregate recycling.
Handle: RePEc:nbr:nberwo:4905
Template-Type: ReDIF-Paper 1.0
Title: Aging and Productivity, Rationality and Matching: Evidence from Economists
Classification-JEL: J41
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 4906
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4906
File-URL: http://www.nber.org/papers/w4906.pdf
File-Format: application/pdf
Publication-Status: published as "Aging and Productivity among Economists: Note" Oster, Sharon M.; Hamermesh, Daniel S.; Review of Economics and Statistics, February 1998, v. 80, iss. 1, pp. 154-56
Abstract: Economists' productivity, as measured by publication in leading journals, declines very sharply with age. Additional evidence shows that this is a rational response to economic incentives and/or changing physical or mental abilities: There is no difference by age in the probability that an article submitted to a leading journal will be accepted. The probability of acceptance does show increasing heterogeneity with age that is related to the author's quality, consistent with models of optimal investment in human capital and especially with occupational matching models.
Handle: RePEc:nbr:nberwo:4906
Template-Type: ReDIF-Paper 1.0
Title: Investment Opportunities, Managerial Decisions, and the Security Issue Decision
Author-Name: Kooyul Jung
Author-Name: Yong-Cheol Kim
Author-Name: Rene M. Stulz
Note: CF
Number: 4907
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4907
File-URL: http://www.nber.org/papers/w4907.pdf
File-Format: application/pdf
Publication-Status: published as Jung, Kooyul, Yong-Cheol Kim and Rene M. Stulz. "Timing, Investment Opportunities, Managerial Discretion, And The Security Issue Decision," Journal of Financial Economics, 1996, v42(2,Oct), 159-185.
Abstract: With agency costs of managerial discretion, equity financing is advantageous for the shareholders of firms with valuable investment opportunities but not for the shareholders of other firms. Accordingly, we find that firms with good investment opportunities are more likely to issue equity than debt, have a smaller abnormal return in absolute value when the issue is announced, and experience substantial asset growth following the issue. Firms that issue equity even though they do not have good investment opportunities experience a larger abnormal return in absolute value when the issue is announced and invest more after the issue than comparable firms that issue debt.
Handle: RePEc:nbr:nberwo:4907
Template-Type: ReDIF-Paper 1.0
Title: How Different is Japanese Corporate Finance? An Investigation of the Information Content of New Security Issues
Author-Name: Jun-Koo Kang
Author-Name: Rene M. Stulz
Note: CF
Number: 4908
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4908
File-URL: http://www.nber.org/papers/w4908.pdf
File-Format: application/pdf
Publication-Status: published as Kang, Jun-Koo and Rene M. Stulz. "How Different Is Japanese Corporate Finance? An Investigation Of The Information Content Of New Security Issues," Review of Financial Studies, 1996, v9(1,Spring), 109-139.
Abstract: This paper studies the shareholder wealth effects associated with 875 new security issues in Japan from January 1, 1985 to May 31, 1991. The sample includes public equity, private equity, rights offerings, straight debt, warrant debt and convertible debt issues. Contrary to the U.S., the announcement of convertible debt issues is accompanied by a significant positive abnormal return of 1.05%. The announcement of equity issues has a positive abnormal return of 0.45%, significant at the 0.10 level, but this positive abnormal return can be attributed to one year in our sample and is offset by a negative issue date abnormal return of -1.01%. The abnormal returns are negatively related to firm size, so that for equity issues (but not for convertible debt issues), large Japanese firms have significant negative announcement abnormal returns. Our evidence is consistent with the view that Japanese managers decide to issue shares based on different considerations than American managers.
Handle: RePEc:nbr:nberwo:4908
Template-Type: ReDIF-Paper 1.0
Title: Democracy & Growth
Classification-JEL: 010; 040
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 4909
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4909
File-URL: http://www.nber.org/papers/w4909.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. "Democracy And Growth," Journal of Economic Growth, 1996, v1(1,Mar), 1-27.
Abstract: Growth and democracy (subjective indexes of political freedom) are analyzed for a panel of about 100 countries from 1960 to 1990. The favorable effects on growth include maintenance of the rule of law, free markets, small government consumption, and high human capital. Once these kinds of variables and the initial level of real per-capita GDP are held constant, the overall effect of democracy on growth is weakly negative. There is a suggestion of a nonlinear relationship in which democracy enhances growth at low levels of political freedom but depresses growth when a moderate level of freedom has already been attained. Improvements in the standard of living - measured by GDP, life expectancy, and education - substantially raise the probability that political freedoms will grow. These results allow for predictions about which countries will become more or less democratic in the future.
Handle: RePEc:nbr:nberwo:4909
Template-Type: ReDIF-Paper 1.0
Title: Crime and the Job Market
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LE LS
Number: 4910
Creation-Date: 1994-10
Order-URL: http://www.nber.org/papers/w4910
File-URL: http://www.nber.org/papers/w4910.pdf
File-Format: application/pdf
Abstract: This paper presents evidence on the relation among incarceration, crime, and the economic incentives to crime, ranging from unemployment to income inequality. It makes three points: 1) The U.S. has incarcerated an extraordinarily high proportion of men of working age overall, and among blacks. In 1993 the number incarcerated was 1.9 percent of the male work force; among blacks, the number incarcerated was 8.8 percent of the work force. 2) The rising trend in incarceration should have reduced the rate of crime, through the incapacitation of criminals and through the deterrent effect of potential arrest and imprisonment. But administrative records show no such drop in crime and the victims survey shows a fall far below what could be expected on the basis of incapacitation by itself. 3) The implication is that there was an increased propensity to commit crime among the non-institutional population. The paper focuses attention on the possibility that the continued high rate of crime in the U.S., despite massive imprisonment of criminals may be one of the costs of the rising inequality in the country, and in particular of the falling real earnings of the less educated. While we lack a 'smoking gun' for such a relation, the preponderance of evidence suggests that economic incentives have played a role in the increased propensity to commit crime.
Handle: RePEc:nbr:nberwo:4910
Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of Part-Time Work
Classification-JEL: J22
Author-Name: Rebecca M. Blank
Author-Person: pbl56
Note: LS
Number: 4911
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4911
File-URL: http://www.nber.org/papers/w4911.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Labor Market Dynamics and Part-Time Work") Research in Labor Economics, Vol. 17, Pelachek, Solomom, ed., Greenwich, CT: JAI Press, 1998.
Abstract: This paper uses 14 years of data from the PSID to explore dynamic labor supply choices among adult women between full-time, part-time, or no labor market work. A variety of models indicate that past choices should be important in predicting current labor supply choices. This paper compares the effectiveness of several estimation strategies which require more or less historical information. The results indicate that past history in labor supply choices among adult women is very important in predicting current labor supply; given the lack of such data in many cases, the paper explores how much is lost when limited or no longitudinal information is available. In addition, the paper explores the substantive question of the role of part-time work in the labor market. Part-time workers are a very heterogeneous group; different part-time workers are in the midst of very different labor supply patterns. Most women use part-time work as a temporary alternative to full-time work or to being out of the labor market; few women use it as a transitional step into full-time employment. Simulations suggest the potential impact on future labor supply of mandating that low-skilled women who are out of the labor market enter part-time work.
Handle: RePEc:nbr:nberwo:4911
Template-Type: ReDIF-Paper 1.0
Title: Ethnicity, Neighborhoods, and Human Capital Externalities
Classification-JEL: J1
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 4912
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4912
File-URL: http://www.nber.org/papers/w4912.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 85, no. 3 (1995): 365-390.
Abstract: The socioeconomic performance of today's workers depends not only on parental skills, but also on the average skills of the ethnic group in the parent's generation (or ethnic capital). This paper investigates the link between the ethnic externality and ethnic neighborhoods. The evidence indicates that residential segregation and the external effect of ethnicity are linked, partly because ethnic capital summarizes the socioeconomic background of the neighborhood where the children were raised. Ethnicity has an external effect, even among persons who grow up in the same neighborhood, when children are exposed frequently to persons who share the same ethnic background.
Handle: RePEc:nbr:nberwo:4912
Template-Type: ReDIF-Paper 1.0
Title: Who Leaves? The Outmigration of the Foreign-Born
Classification-JEL: J1
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: Bernt Bratsberg
Author-Person: pbr193
Note: LS
Number: 4913
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4913
File-URL: http://www.nber.org/papers/w4913.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 78, no. 1 (February 1996): 165- 176.
Abstract: This paper analyzes the return migration of foreign-born persons in the United States. We argue that return migration may have been planned as part of an optimal life cycle residential location sequence. Return migration also occurs because immigrants based their initial migration decision on erroneous information about opportunities in the United States. The study uses the 1980 Census and administrative data from the Immigration and Naturalization Service. Immigrants tend to return to wealthy countries which are not too far from the United States. Moreover, return migration accentuates the type of selection characterizing the immigrant population left in the United States.
Handle: RePEc:nbr:nberwo:4913
Template-Type: ReDIF-Paper 1.0
Title: Economic Conditions and Alcohol Problems
Classification-JEL: I12
Author-Name: Christopher Ruhm
Author-Person: pru7
Note: EH
Number: 4914
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4914
File-URL: http://www.nber.org/papers/w4914.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, vol. 14, no. 5, December,1995, pp. 583-603.
Abstract: This study investigates the relationship between macroeconomic conditions and two alcohol-related outcomes -- liquor consumption and highway vehicle fatalities. Fixed-effect models are estimated for the 48 contiguous states over the 1975-1988 time period and within-state variations are the focus of analysis. Alcohol consumption and traffic deaths vary procyclically, with a major portion of the effect of economic downturns attributed to reductions in incomes. The intake of hard liquor is the most sensitive to the state of the macroeconomy. There is no evidence, however, that fluctuations in economic conditions have a disproportionate impact on the drunk-driving of young adults.
Handle: RePEc:nbr:nberwo:4914
Template-Type: ReDIF-Paper 1.0
Title: Cadillac Contracts and Up-Front Payments: Efficient Investment Under Expectation Damages
Classification-JEL: K; L
Author-Name: Aaron S. Edlin
Author-Person: ped12
Note: LE
Number: 4915
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4915
File-URL: http://www.nber.org/papers/w4915.pdf
File-Format: application/pdf
Publication-Status: published as Edlin, Aaron S. "Cadillac Contracts And Up-Front Payments: Efficient Investment Under Expectation Damages," Journal of Law, Economics and Organization, 1996, v12(1,Apr), 98-118.
Abstract: This paper shows that up-front payments can play a crucial role in providing efficient investment incentives when contracts are incomplete. They can eliminate the overinvestment effect identified by Rogerson [1984] and Shavell [1980] when courts use an expectation damage remedy. This method extends to complex contracting situations if parties combine up-front payments with what we call 'Cadillac' contracts (contracts for a very high quality or quantity). This combination provides efficient investment incentives in complex contracting problems when an expectation damage remedy is accompanied by a broad duty to mitigate damages. This indicates that an expectation remedy is well-suited to multidimensional, but one-sided, investment problems, in contrast to specific performance, which Edlin and Reichelstein [1993] showed is well-suited to two-sided, but unidimensional, investment problems.
Handle: RePEc:nbr:nberwo:4915
Template-Type: ReDIF-Paper 1.0
Title: Government Intervention in the Markets for Education and Health Care: How and Why?
Classification-JEL: H10; H51
Author-Name: James M. Poterba
Author-Person: ppo19
Note: EH LS PE
Number: 4916
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4916
File-URL: http://www.nber.org/papers/w4916.pdf
File-Format: application/pdf
Publication-Status: published as Individual and Social Responsibility, Victor R. Fuchs, ed., pp. 277-304(Chicago: University of Chicago Press, 1996).
Publication-Status: published as Government Intervention in the Markets for Education and Health Care: How and Why?, James M. Poterba. in Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, Fuchs. 1996
Abstract: Education and health care are the two largest government expenditure items in the United States. The public sector directly provides the majority of educational services, through the public school bureaucracy, while most public support for health care is channelled through a system of tax-supported government payments for services provided by private providers. The contrast between public policies in these markets raises a host of questions about the scope of government in a mixed economy, and the structure of policies for market intervention. This paper examines how two standard arguments for government intervention in private markets, market failure and redistribution, apply to the markets for education and medical care. It then considers the 'choice of instrument' problem, the choice between intervention via price subsidies, mandates, and direct public provision of services in these markets. Economic arguments alone seem unable to explain the sharp divergence between the nature of public policies with respect to education and medical care. Moreover, there is virtually no evidence on the empirical magnitudes of many of the key parameters needed to guide policy in these areas, such as the social externalities associated with primary and secondary education or the degree to which adverse selection in the insurance market prevents private insurance purchase.
Handle: RePEc:nbr:nberwo:4916
Template-Type: ReDIF-Paper 1.0
Title: High Wage Workers and High Wage Firms
Classification-JEL: J31; C23
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: Francis Kramarz
Author-Person: pkr29
Author-Name: David N. Margolis
Note: LS
Number: 4917
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4917
File-URL: http://www.nber.org/papers/w4917.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 67, no. 2 (March 1999): 251-337.
Abstract: We study a longitudinal sample of over one million French workers and over 500,000 employing firms. Real total annual compensation per worker is decomposed into components related to observable characteristics, worker heterogeneity, firm heterogeneity and residual variation. Except for the residual, all components may be correlated in an arbitrary fashion. At the level of the individual, we find that person-effects, especially those not related to observables like education, are the most important source of wage variation in France. Firm-effects, while important, are not as important as person-effects. At the level of firms, we find that enterprises that hire high-wage workers are more productive but not more profitable. They are also more capital and high-skilled employee intensive. Enterprises that pay higher wages, controlling for person-effects, are more productive and more profitable. They are also more capital intensive but are not more high-skilled labor intensive. We also find that person-effects explain 92% of inter-industry wage differentials.
Handle: RePEc:nbr:nberwo:4917
Template-Type: ReDIF-Paper 1.0
Title: An Economic Analysis of Works Councils
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 4918
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4918
File-URL: http://www.nber.org/papers/w4918.pdf
File-Format: application/pdf
Publication-Status: published as "An Economic Analysis of Works Councils." Works Councils: Consultation, Representation and Cooperation in Industrial Relations University of Chicago Press, 1996. Eds. Joel Rogers and Wolfgang Streeck.
Publication-Status: published as An Economic Analysis of Works Councils, Richard B. Freeman, Edward P. Lazear. in Works Councils: Consultation, Representation, and Cooperation in Industrial Relations, Rogers and Streeck. 1995
Abstract: Works councils, found in most Western European economies, are elected bodies of employees with rights to information, consultation, and in some cases co-determination of employment conditions at local workplaces, mandated by law. Many European employers and unions believe that councils improve communication between workers and management, raising social output, while reducing the speed with which decisions are made. This paper analyzes the operation of councils as a means of improving social output by creating more cooperative labor relations. It argues that councils are mandated because the incentive for companies to institute them and delegate them power falls short of the social incentive; that workers provide more accurate information to employers about preferences when councils have some say over how that information is used; and that the communication from employers to workers produces socially desirable worker concessions in bad times that would not occur absent this institution. It compares a jury style random selection of works councilors with selection via elections.
Handle: RePEc:nbr:nberwo:4918
Template-Type: ReDIF-Paper 1.0
Title: A Model of Fiat Money and Barter
Classification-JEL: D51; E42
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Akihiko Matsui
Note: ME
Number: 4919
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4919
File-URL: http://www.nber.org/papers/w4919.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Theory, vol. 68, no. 1, pp. 111-132, January 1996.
Abstract: We present an infinite horizon model with capital in which fiat money and barter are two competing means of payment. Fiat money has value because barter is limited by the extent of a double coincidence of wants. The pattern of exchange generally involves both money and barter. We find that the Chicago rule is sufficient for Pareto efficiency, while nominal interest smoothing is necessary. For a specific utility function we provide a complete characterization of the patterns of exchange and calculate the range of inflation rates over which a stationary monetary equilibrium exists.
Handle: RePEc:nbr:nberwo:4919
Template-Type: ReDIF-Paper 1.0
Title: Does Competition from HMOs Affect Fee-For-Service Physicians?
Classification-JEL: I1; L8
Author-Name: Laurence C. Baker
Note: EH
Number: 4920
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4920
File-URL: http://www.nber.org/papers/w4920.pdf
File-Format: application/pdf
Abstract: This paper develops county-level estimates of HMO market share for all counties in the United States and uses them to examine the relationship between HMO market share and the fee for a normal office visit with an established patient charged by 2,845 fee-for-service (FFS) physicians. Two-stage least squares estimates indicate that increases of 10 percentage points in HMO market share are associated with decreases of approximately 11 percent in the normal office visit fee. However, further examination indicates that the incomes of the physicians in the sample are not lower in areas with higher HMO market share. In addition, the quantity of services provided, measured by the number of hours worked and the number of patients seen per week, is not higher in these areas. While it is possible that physicians induce demand to change the volume or mix of services provided to patients in ways that do not affect the number of hours worked or patients seen, another hypothesis consistent with these findings is that FFS physicians respond to competition from HMOs by adopting multi-part pricing strategies in which the price for an office visit is reduced but prices for other services are raised.
Handle: RePEc:nbr:nberwo:4920
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Credit Market Competition on Lending Relationships
Classification-JEL: G21; G28
Author-Name: Mitchell A. Petersen
Author-Person: ppe42
Author-Name: Raghuram G. Rajan
Author-Person: pra149
Note: CF
Number: 4921
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4921
File-URL: http://www.nber.org/papers/w4921.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1995, pp. 407-443.
Abstract: This paper provides a simple model showing that the extent of competition in credit markets is important in determining the value of lending relationships. Creditors are more likely to finance credit constrained firms when credit markets are concentrated because it is easier for these creditors to internalize the benefits of assisting the firms. The model has implications about the availability and the price of credit as firms age in different markets. The paper offers evidence for these implications from small business data. It concludes with conjectures on the costs and benefits of liberalizing financial markets, as well as the timing of such reforms.
Handle: RePEc:nbr:nberwo:4921
Template-Type: ReDIF-Paper 1.0
Title: Wage Differentials in Italy: Market Forces, Institutions, and Inflation
Author-Name: Christopher L. Erikson
Author-Name: Andrea Ichino
Author-Person: pic3
Note: LS
Number: 4922
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4922
File-URL: http://www.nber.org/papers/w4922.pdf
File-Format: application/pdf
Publication-Status: published as Differences and Changes in Wage Structures, ed. Lawrence Katz and Richard Freeman, University of Chicago Press, 1995.
Publication-Status: published as Wage Differentials in Italy: Market Forces, Institutions, and Inflation, Christopher Erickson, Andrea Ichino. in Differences and Changes in Wage Structures, Freeman and Katz. 1995
Abstract: During the 1970s, Italy experienced an extreme compression of wage differentials, similar to the better-known situation in Sweden. Most evidence suggests that this compression came to a stop around 1982-83, coincident with a major institutional change (in the form of the escalator clause in Italian union contracts), a major economic change (the slowdown in inflation), a major technological change (industrial restructuring and the computer revolution), and a major political change (the loss of support for unions and their egalitarian pay policies). While we cannot definitively distinguish among the relative influences of institutions, market forces, technology and politics on the evolution of earnings inequality in Italy, our analysis of skill level wage differentials and our comparisons at the individual level with the more laissez-faire system of the United States suggest that both inflation and egalitarian wage-setting institutions have importantly influenced Italian wage compression in the regular sector of the economy. Yet, this very compression may well have contributed to the flight away from the regular sector of the economy at both ends of the skill distribution, plausibly leading to a greater overall degree of inequality for the whole economy than is apparent from our analysis of wage differentials in the regular sector.
Handle: RePEc:nbr:nberwo:4922
Template-Type: ReDIF-Paper 1.0
Title: Tests of Three Parity Conditions: Distinguishing Risk Premia and Systematic Forecast Errors
Classification-JEL: F31
Author-Name: Richard C. Marston
Note: IFM
Number: 4923
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4923
File-URL: http://www.nber.org/papers/w4923.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 16, no. 2 (April 1997): 285-303.
Abstract: Two explanations are given for why nominal or real returns differ across currencies: foreign exchange risk premia and systematic (rational) forecast errors. This study reexamines three parity conditions in international finance, uncovered interest parity, purchasing power parity, and real interest parity, to determine the relative importance of these two factors. The study develops joint tests of the three parity conditions by relating nominal and real interest differentials and inflation differentials to the same set of variables currently known to investors. The study tests parameter restrictions based on knowing that risk premiums only affect nominal and real interest differentials, but not inflation differentials, while systematic errors in forecasting exchange rates only affect nominal interest differentials and inflation differentials, but not real interest differentials.
Handle: RePEc:nbr:nberwo:4923
Template-Type: ReDIF-Paper 1.0
Title: Interest Allocation Rules, Financing Patterns, and the Operations of U.S. Multinationals
Classification-JEL: H25; F23
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: IFM ITI PE
Number: 4924
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4924
File-URL: http://www.nber.org/papers/w4924.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, ed. Martin Feldstein J. Hines, R.G. Hubbard, University of Chicago Press, 1995, pp. 277-307
Publication-Status: published as Interest Allocation Rules, Financing Patterns, and the Operations of U.S. Multinationals, Kenneth A. Froot, James R. Hines, Jr.. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: This paper examines the impact of the 1986 change in U.S. interest allocation rules on the investment and financing decisions of American multinationals. The 1986 change reduced the tax deductibility of the interest expenses of firms with excess foreign tax credits. The resulting increase in the cost of debt gives firms incentives to substitute away from using debt finance. Furthermore, to the extent that perfect financing substitutes are not available, the overall cost of capital rises as well. The empirical tests indicate that the loss of tax deductibility of parent-company interest expenses appears to reduce significantly borrowing and investing by firms with excess foreign tax credits. The same firms tend to undertake new lease commitments, which may reflect the use of leases as alternatives to capital ownership. In addition, firms affected by the tax change tend to scale back the scope of their foreign and total operations. These results are consistent with the hypothesis that firms substitute away from debt when debt becomes more expensive, and also with the hypothesis that the loss of interest tax shields increases a firm's cost of capital.
Handle: RePEc:nbr:nberwo:4924
Template-Type: ReDIF-Paper 1.0
Title: Do Pensions Increase the Labor Supply of Older Men?
Classification-JEL: J26
Author-Name: Christopher J. Ruhm
Author-Person: pru7
Note: AG LS
Number: 4925
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4925
File-URL: http://www.nber.org/papers/w4925.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 59, No. 2, February 1996, pp.157-175.
Abstract: This paper investigates the relationship between pension coverage and the retirement behavior of older men. Pensions are associated with higher work involvement for males in their late fifties and early sixties but with lower rates of job holding for those aged 65 through 69. Age of entry into pension employment is shown to be positively correlated with future labor supply. When combined with evidence on age-specific changes in labor force participation rates, this pattern casts doubt on the hypothesis that broadened pension coverage explains a substantial portion of the trend toward earlier male retirement.
Handle: RePEc:nbr:nberwo:4925
Template-Type: ReDIF-Paper 1.0
Title: Technology and Trade
Classification-JEL: F10; O30
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 4926
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4926
File-URL: http://www.nber.org/papers/w4926.pdf
File-Format: application/pdf
Publication-Status: published as G. Grossman and K. Rogoff, eds., Handbook of International Economics, vol. 3, North-Holland, Amsterdam, 1995, pp. 1279-1337.
Abstract: We survey research on the relationship between technology and trade. We begin with the old literature, which treated the state of technology as exogenous and asked how changes in technology affect the trade pattern and welfare. Recent research has attempted to endogenize technological progress which results either from learning- by-doing or from investments in research and development. This allows one to examine not only how technology affects trade, but also how trade affects the evolution of technology. We emphasize the parallels between the models with learning-by-doing and those with explicit R&D and highlight the role that the geographic extent of knowledge spillovers plays in mediating the relationship between trade and technological progress.
Handle: RePEc:nbr:nberwo:4926
Template-Type: ReDIF-Paper 1.0
Title: Foreign-Owned Firms and U.S. Wages
Classification-JEL: F23; J31
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI LS
Number: 4927
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4927
File-URL: http://www.nber.org/papers/w4927.pdf
File-Format: application/pdf
Abstract: Foreign-owned establishments in the United States pay higher wages, on average, than domestically-owned establishments. The foreign-owned establishments tend to be in higher-wage industries and also to pay higher wages within industries. They tend to locate in lower-wage states, but to pay more than domestically-owned firms within industries within states. Wages in general and wages in domestically-owned establishments tend to be higher in states and industries in which foreign-owned establishments account for a larger proportion of employment. Foreign-owned establishments that were new in 1990, mostly takeovers, had lower than average wage levels in that year but larger increases between 1990 and 1991. Increases in sales per worker and average wages were larger where employment growth was lower, possibly an indication that lower-productivity, lower-wage workers were dropped by the new owners.
Handle: RePEc:nbr:nberwo:4927
Template-Type: ReDIF-Paper 1.0
Title: Fixes: Of The Forward Discount Puzzle
Classification-JEL: F31
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 4928
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4928
File-URL: http://www.nber.org/papers/w4928.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics (1996).
Abstract: Regressions of ex post changes in floating exchange rates on appropriate interest differentials typically imply that the high- interest rate currency tends to appreciate, the `forward discount puzzle.' Using data from the European Monetary System, we find that a large part of the forward discount puzzle vanishes for regimes of fixed exchange rates. That is, deviations from uncovered interest parity appear to vary in a way which is dependent upon the exchange rate regime. By using the many EMS realignments, we are also able to quantify the `peso problem.'
Handle: RePEc:nbr:nberwo:4928
Template-Type: ReDIF-Paper 1.0
Title: Health and Labor Force Participation of Older Men, 1900-1991
Classification-JEL: J26; N31
Author-Name: Dora L. Costa
Author-Person: pco358
Note: AG DAE EH LS
Number: 4929
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4929
File-URL: http://www.nber.org/papers/w4929.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, vol. 56, no. 1, pp. 62-89, March 1996.
Abstract: I investigate how the relationship between health status and retirement among older men has changed since 1900 using weight adjusted for height or Body Mass Index (BMI) as a proxy for health. I find that both in 1900 and in 1985-1991 the relative risk of labor force non-participation increases for the excessively lean and obese and that the BMI level that minimizes the relative risk of labor force non-participation remains unchanged. However, in 1900 both the relative risk of non-participation among men at low and high BMI levels and the elasticity of non-participation with respect to BMI were greater than today, suggesting that health is now less important to the retirement decision than in the past. The difference in the relative risk of non-participation is especially pronounced at high BMI levels. Declining physical job demands and improved control of chronic conditions may explain the difference. The findings suggest that the impact of improvements in health on participation rates is increasingly more likely to be outweighed by the impact of other factors. Greater efforts made to increase the incorporation of the old and disabled into the labor force may therefore have a minimal impact on retirement rates. The findings also imply that in the past the economic costs of poor health were substantial.
Handle: RePEc:nbr:nberwo:4929
Template-Type: ReDIF-Paper 1.0
Title: Physician Payments and Infant Mortality: Evidence from Medicaid Fee Policy
Classification-JEL: I18; H51
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Michael Fischer
Note: EH PE
Number: 4930
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4930
File-URL: http://www.nber.org/papers/w4930.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, May 1995, vol. 85, no. 2, pp. 106-111
Abstract: While efforts to improve the health of the uninsured have focused on demand side policies such as increasing insurance coverage, supply side changes may be equally important. Yet there is little direct evidence on the effect of policies designed to increase the supply of Medicaid services to the poor. We provide such evidence by examining the relationship between infant mortality and the ratio of Medicaid fees to private fees for obstetrician/gynecologists. We build a state and year specific index of the fee ratio for 1979-1992, a period of substantial variation in relative Medicaid fees. We find that increases in fee ratios are associated with significant declines in the infant mortality rate. We also find that higher fees raise payments made to physicians and clinics under the Medicaid program, but reduce payments to hospitals. Finally, we compare the cost effectiveness of reducing infant mortality by increasing fee ratios to the efficacy of reducing mortality by expanding the Medicaid eligibility of pregnant women. Although our results are sensitive to the time period used, we conclude that raising fee ratios is at least as cost effective as increasing eligibility.
Handle: RePEc:nbr:nberwo:4930
Template-Type: ReDIF-Paper 1.0
Title: International Patenting and Technology Diffusion
Classification-JEL: F43; O14
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Samuel Kortum
Author-Person: pko74
Note: EFG ITI PR
Number: 4931
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4931
File-URL: http://www.nber.org/papers/w4931.pdf
File-Format: application/pdf
Publication-Status: published as (French translation appearing as "La Diffusion de la Technologie au Niveau International: Theorie at Mesures") Globalisationet Politiques Economiques: Les Marges de Manouvre, Bouet, A. and J. le Chacheux, eds., Paris: Economica, 1999.
Publication-Status: published as (Published as "International Technology: Theory and Measurement") International Economic Review, Vol. 40, no. 3 (August 1999): 537-570.
Abstract: We model the invention of new technologies and their diffusion across countries. Our model predicts that, eventually, all countries will grow at the same rate, with each country's productivity ranking determined by how rapidly it adopts inventions. The common growth rate depends on research efforts in all countries, while research effort is determined by how much inventions earn at home and abroad. Patents affect the return to invention. We relate the decision to patent an invention internationally to the cost of patenting in a country and to the expected value of patent protection in that country. We can thus infer the direction and magnitude of the international diffusion of technology from data on international patenting, productivity, and research. We fit the model to data from the five leading research economies. The parameters indicate how much technology flows between these countries and how much each country earns from its inventions domestically and elsewhere. Our results imply that foreign countries are important sources of technology even though countries earn most of their return to innovation at home. For example, about half of U.S. productivity growth derives from foreign technology yet U.S. investors earn 98 per cent of the revenue from their inventions domestically.
Handle: RePEc:nbr:nberwo:4931
Template-Type: ReDIF-Paper 1.0
Title: Taxes, Technology Transfer, and the R&D Activities of Multinational Firms
Classification-JEL: H25; F23
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: ITI PR PE
Number: 4932
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4932
File-URL: http://www.nber.org/papers/w4932.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of Taxation on Multinational Corporations, eds. M. Feldstein, J. Hines, R. G. Hubbard, University of Chicago Press, 1995, pp. 225-248
Publication-Status: published as Taxes, Technology Transfer, and the R&D Activities of Multinational Firms, James R. Hines, Jr.. in The Effects of Taxation on Multinational Corporations, Feldstein, Hines, and Hubbard. 1995
Abstract: Multinational firms that use domestic technologies in foreign locations are required to pay royalties from foreign users to domestic owners. Foreign governments often tax these royalty payments. High royalty tax rates raise the cost of imported technologies. This paper examines the effect of royalty taxes on the local R&D intensities for foreign affiliates of multinational corporations, looking both at foreign-owned affiliates in the United States and at American-owned affiliates in other countries. The results indicate that higher royalty taxes are associated with greater R&D intensity on the part of affiliates, suggesting that local R&D is a substitute for imported technology.
Handle: RePEc:nbr:nberwo:4932
Template-Type: ReDIF-Paper 1.0
Title: Physician Financial Incentives and Cesarean Section Delivery
Classification-JEL: I11
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Maria Owings
Note: EH PE
Number: 4933
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4933
File-URL: http://www.nber.org/papers/w4933.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Spring 1996
Abstract: The 'induced demand' model states that in the face of negative income shocks physicians may exploit their agency relationship with patients by providing excessive care in order to maintain their incomes. We test this model by exploiting an exogenous change in the financial environment facing obstetrician/gynecologists during the 1970s: declining fertility in the U.S. We argue that the 13.5% fall in fertility over the 1970-1982 period increased the income pressure on ob/gyns, and led them to substitute from normal childbirth towards a more highly reimbursed alternative, cesarean delivery. Using a nationally representative micro-data set for this period, we show that there is a strong correlation between within state declines in fertility and within state increases in cesarean utilization. This correlation is robust to consideration of a variety of alternative hypotheses, and appears to be symmetric with respect to periods of fertility decline and fertility increase.
Handle: RePEc:nbr:nberwo:4933
Template-Type: ReDIF-Paper 1.0
Title: Contagion and Bank Failures During the Great Depression: The June 1932 Chicago Banking Panic
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: Joseph R. Mason
Note: DAE
Number: 4934
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4934
File-URL: http://www.nber.org/papers/w4934.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 87, no. 5 (December 1997): 863-883.
Publication-Status: published as Charles W. Calomiris & Joseph R. Mason, 1995. "Contagion and bank failures during the Great Depression: the June 1932 Chicago banking panic," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 110-122.
Abstract: Studies of pre-Depression banking argue that banking panics resulted from depositor confusion about the incidence of shocks, and that interbank cooperation avoided unwarranted failures. This paper uses individual bank data to address the question of whether solvent Chicago banks failed during the panic asthe result of confusion by depositors. Chicago banks are divided" into three groups: panic failures, failures outside the panic window, and survivors. The characteristics of these three groups are compared to determine whether the banks that failed during the panic were similar ex ante" to those that survived the panic or whether they shared characteristics with other banks that failed. Each category of comparison -- the market-to-book value of equity, the estimated probability or failure or duration of survival the composition of debt, the rates of withdrawal of debt during 1931, and the interest rates paid on debt -- leads to the same conclusion: banks that failed during the panic were similar to others that failed and different from survivors. The special attributes of failing banks were distinguishable at least six months before the panic and were reflected in stock prices, failure probabilities, debt composition, and interest rates at least that far in advance. We conclude that failures during the panic reflected relative weakness in the face of common asset value shock rather than contagion. Other evidence points to cooperation among solvent Chicago banks a key factor in avoiding unwarranted bank failures during the panic.
Handle: RePEc:nbr:nberwo:4934
Template-Type: ReDIF-Paper 1.0
Title: Historical Macroeconomics and American Macroeconomic History
Author-Name: Charles W. Calomiris
Author-Person: pca421
Author-Name: Christopher Hanes
Author-Person: pha665
Note: DAE EFG
Number: 4935
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4935
File-URL: http://www.nber.org/papers/w4935.pdf
File-Format: application/pdf
Publication-Status: published as Hoover, Kevin D. (ed.) Macroeconometrics: Developments, Tensions, and Prospects. Kluwer Academic Press, 1995.
Abstract: What can macroeconomic history offer macroeconomic theorists and macroeconometricians? Macroeconomic history offers more than longer time series or special `controlled experiments.' It suggests an historical definition of the economy, which has implications for macroeconometric methods. The defining characteristic of the historical view is its emphasis on `path dependence': ways in which the cumulative past, including the history of shocks and their effects, change the structure of the economy. This essay reviews American macroeconomic history to illustrate its potential uses and draw out methodological implications. `Keynesian' models can account for the most obvious cycle patterns in all historical periods, while `new classical' models cannot. Nominal wage rigidity was important historically and some models of wage rigidity receive more support from history than others.A shortcoming of both Keynesian and new-classical approaches is the assumption that low-frequency change is exogenous to demand. The history of the Kuznets cycle shows how aggregate-demand shocks can produce endogenous changes in aggregate supply. Economies of scale, learning effects, and convergences of expectations-many within the spatial contexts of city building and frontier settlement-seem to have been very important in making the aggregate supply `path-dependent.' Institutional innovation (especially government regulation) has been another source of endogenous change in aggregate supply. The historical view's emphasis on endogenous structural change points in the analysis over short sample periods to identify the sources and consequences of macroeconomic shocks.
Handle: RePEc:nbr:nberwo:4935
Template-Type: ReDIF-Paper 1.0
Title: Eliciting Student Expectations of the Returns to Schooling
Author-Name: Jeff Dominitz
Author-Name: Charles F. Manski
Author-Person: pma111
Note: LS
Number: 4936
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4936
File-URL: http://www.nber.org/papers/w4936.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 31, no. 1 (Winter 1996): 1-26.
Abstract: We report here on the design and first application of an interactive computer-administered personal interview (CAPI) survey eliciting from high school students and college undergraduates their expectations of the income they would earn if they were to complete different levels of schooling. We also elicit respondents' beliefs about current earnings distributions. Whereas a scattering of earlier studies have elicited point expectations of earnings unconditional on future schooling, we elicit subjective earnings distributions under alternative scenarios for future earnings. We find that respondents, even ones as young as high school sophomores, are willing and able to respond meaningfully to questions eliciting their earnings expectations in probabilistic form. Respondents vary considerably in their earnings expectations but there is a common belief that the returns to a college education are positive and that earnings rise between ages 30 and 40. There is a common belief that one's own future earnings are rather uncertain. Moreover, respondents tend to overestimate the current degree of earnings inequality in American society.
Handle: RePEc:nbr:nberwo:4936
Template-Type: ReDIF-Paper 1.0
Title: Using Expectations Data to Study Subjective Income Expectations
Author-Name: Jeff Dominitz
Author-Name: Charles F. Manski
Author-Person: pma111
Note: LS
Number: 4937
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4937
File-URL: http://www.nber.org/papers/w4937.pdf
File-Format: application/pdf
Publication-Status: published as Jeff Dominitz & Charles F. Manski, 1997. "Using Expectations Data to Study Subjective Income Expectations," Journal of the American Statistical Association, vol 92(439), pages 855-867.
Abstract: We have collected data on the one-year-ahead income expectations of members of American households in our Survey of Economic Expectations (SEE), a module of a national continuous telephone survey conducted at the University of Wisconsin. The income-expectations questions take this form: `What do you think is the percent chance (or what are the chances out of 100) that your total household income, before taxes, will be less than Y over the next 12 months?' We use the responses to a sequence of such questions posed for different income thresholds Y to estimate each respondent's subjective probability distribution for next year's household income. We use the estimates to study the cross-sectional variation in income expectations for one year into the future.
Handle: RePEc:nbr:nberwo:4937
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and the Term Structure of Interest Rates
Classification-JEL: E43; E5
Author-Name: Bennett T. McCallum
Note: ME EFG
Number: 4938
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4938
File-URL: http://www.nber.org/papers/w4938.pdf
File-Format: application/pdf
Publication-Status: published as Economic Quarterly, Federal Reserve Bank of Richmond, Vol. 91, no. 4, (Fall 2005), pp. 1-21
Publication-Status: Published as "An Optimizing IS-LM Specification for Monetary Policy and Business Cycle Analysis", Journal of Money, Credit and Banking, Vol. 31, no. 3, part 1, (August 1999): 296-316.
Abstract: This paper addresses a prominent empirical failure of the expectations theory of the term structure of interest rates under the assumption of rational expectations. This failure concerns the magnitude of slope coefficients in regressions of short rate (or long- rate) changes on long-short spreads. It is shown that the anomalous empirical findings can be rationalized with the expectations theory by recognition of an exogenous random (but possibly autoregressive) term premium plus the assumption that monetary policy involves smoothing of an interest rate instrument -- the short rate -- together with the responses to the prevailing level of the spread.
Handle: RePEc:nbr:nberwo:4938
Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of Domestic Violence: Does Arrest Matter?
Classification-JEL: K42; C32
Author-Name: Helen V. Tauchen
Author-Name: Ann Dryden Witte
Note: LS
Number: 4939
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4939
File-URL: http://www.nber.org/papers/w4939.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol 85 (1995) pp 414-418
Abstract: In this paper, we estimate a stochastic-dynamic model for domestic violence using data collected by the Minneapolis Domestic Violence Experiment. Our primary finding is that arrest deters domestic violence, but the effect wears off quite quickly. We find also that current employment for the male is associated with lower levels of violence. Like arrest, the effect of employment is transitory. If the male becomes unemployed, the level of violence will increase quite rapidly. Violence in one period is associated with higher probabilities of violence in subsequent periods. From a methodological perspective, our results suggest that policy evaluation and deterrence research would benefit from using models that allow examination of the dynamic path of intervention effects. The effect of private and social programs need not be constant over time, and applying traditional, static models that necessarily impose such an assumption may produce misleading results. For Minneapolis, static models produced the result `arrest works.' The dynamic model suggests a different conclusion `arrest buys us a little time.'
Handle: RePEc:nbr:nberwo:4939
Template-Type: ReDIF-Paper 1.0
Title: International Trade Theory: The Evidence
Classification-JEL: F10
Author-Name: Edward E. Leamer
Author-Person: ple440
Author-Name: James Levinsohn
Author-Person: ple386
Note: ITI
Number: 4940
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4940
File-URL: http://www.nber.org/papers/w4940.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of International Economics, forthcoming 1995, Eds. G. Grossman and K. Rogoff, North Holland
Abstract: This paper provides a critical look at recent empirical work in international trade theory. The paper addresses the issue of why empirical work in international trade has perhaps not been as influential as it could have been. The paper also provides several suggestions on directions for future empirical research in international trade.
Handle: RePEc:nbr:nberwo:4940
Template-Type: ReDIF-Paper 1.0
Title: Disability Insurance Rejection Rates and the Labor Supply of Older Workers
Classification-JEL: H55; J26
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Jeffrey D. Kubik
Note: AG EH LS PE
Number: 4941
Creation-Date: 1994-11
Order-URL: http://www.nber.org/papers/w4941
File-URL: http://www.nber.org/papers/w4941.pdf
File-Format: application/pdf
Publication-Status: published as Gruber, Jonathan and Jeffrey D. Kubik. "Disability Insurance Rejection Rates And The Labor Supply Of Older Workers," Journal of Public Economics, 1997, v64(1,Apr), 1-23.
Abstract: Disability Insurance (DI), which provides income support to disabled workers, has been criticized for inducing a large fall in the labor force participation rate of older workers. We study the effects of one policy response designed to address this moral hazard problem: raising the rate at which DI claims are denied. Initial DI applications are decided at the state level, and, in response to a funding crisis for the DI program in the late 1970s, the states raised their rejection rates for first time applicants by 30% on average. The extent of this rise, however, varied substantially across states. We use this variation to estimate a significant reduction in labor force non-participation among older workers in response to denial rate rises. A 10% increase in denial rates led to a 2.7% fall in non- participation among 45-64 year old males; between 1/2 and 2/3 of this effect is a true reduction in labor force leaving, with the remainder accounted for by the return to work of denied applicants. We find some support for the notion that increases in denial rates effectively target their incentive effects to more able individuals; the fall in labor force non-participation was much stronger among more able workers, according to an anthropometric measure of disability.
Handle: RePEc:nbr:nberwo:4941
Template-Type: ReDIF-Paper 1.0
Title: Can Having Fewer Partners Increase Prevalence of Aids?
Classification-JEL: 022; 913; H
Author-Name: Michael Kremer
Author-Person: pkr20
Note: EH
Number: 4942
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4942
File-URL: http://www.nber.org/papers/w4942.pdf
File-Format: application/pdf
Abstract: Under asymmetric information about sexual history, sexual activity creates externalities. Abstinence by those with few partners perversely increases the average probability of HIV infection in the pool of available partners. Since this increases prevalence among the high activity people who disproportionately influence the disease's future spread, it may increase long-run prevalence. Preliminary calculations using standard epidemiological models and survey data on sexual activity suggest that most people have few enough partners that further reductions would increase steady-state prevalence. To the extent the results prove robust, they suggest that public health messages will be more likely to reduce steady-state prevalence and create positive externalities if they stress condom use rather than abstinence.
Handle: RePEc:nbr:nberwo:4942
Template-Type: ReDIF-Paper 1.0
Title: Insurance Rationing and the Origins of Workers' Compensation
Classification-JEL: D45; J38
Author-Name: Price V. Fishback
Author-Person: pfi13
Author-Name: Shawn Everett Kantor
Author-Person: pka54
Note: DAE
Number: 4943
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4943
File-URL: http://www.nber.org/papers/w4943.pdf
File-Format: application/pdf
Publication-Status: published as "Precautionary Saving, Insurance, and the Origins of Worker's Compensation," Journal of Political Economy, 104, April 1996, pp.419- 442.
Abstract: A central question concerning the economic motivation for the adoption of workers' compensation is the extent to which workers had access to their desired levels of private accident insurance around the turn of the century. If insurance were rationed then workers' primary option would have been to use savings to protect against accident risk. We develop a theoretical model that suggests that workers' compensation, under this market condition, should have caused a reduction in households' precautionary saving. Our empirical test is based on a sample of over 7000 households surveyed for the 1917- 1919 Bureau of Labor Statistics Cost-of-Living study. Regression analysis suggests that households tended to save less, holding all else constant, if their states had workers' compensation in force. This finding, in concert with qualitative information about the insurance industry, provides some evidence that insurance companies were unable to effectively offer workplace accident insurance to a wide range of workers. By shifting the burden of insurance from workers to employers, workers' compensation benefitted risk-averse workers who were rationed out of the insurance market, even if they paid for their more generous post-accident benefits through lower wages.
Handle: RePEc:nbr:nberwo:4943
Template-Type: ReDIF-Paper 1.0
Title: The GATT's Contribution to Economic Recovery in Post-War Western Europe
Classification-JEL: F02; F13
Author-Name: Douglas A. Irwin
Author-Person: pir25
Note: ITI
Number: 4944
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4944
File-URL: http://www.nber.org/papers/w4944.pdf
File-Format: application/pdf
Publication-Status: published as Europe's Postwar Recover, Barry Eichengreen, ed., (Cambridge University Press, 1995).
Abstract: This paper examines the role of trade liberalization under the auspices of the General Agreement on Tarrifs and Trade (GATT) in promoting economic recovery and growth in Europe in the decade after World War II. The formation of the GATT does not appear to have stimulated a particularly rapid liberalization of world trade in the decade after 1947. It is therefore difficult to attribute much of a role to the GATT in the dramatic economic recovery during the immediate post-war period beyond that of an effective supporting actor. The principal contribution of the GATT during its first decade of operation rests more in securing binding agreements on early tariff reductions, thereby preventing countries from instituting higher tariffs as import quotas and foreign exchange controls were being phased out during the 1950s under the guidance of other international institutions.
Handle: RePEc:nbr:nberwo:4944
Template-Type: ReDIF-Paper 1.0
Title: Generating Equality and Eliminating Poverty, The Swedish Way
Author-Name: Anders Bjorklund
Author-Name: Richard B. Freeman
Author-Person: pfr23
Note: LS
Number: 4945
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4945
File-URL: http://www.nber.org/papers/w4945.pdf
File-Format: application/pdf
Publication-Status: published as Generating Equality and Eliminating Poverty, the Swedish Way, Anders Bjorklund, Richard B. Freeman. in The Welfare State in Transition: Reforming the Swedish Model, Freeman, Topel, and Swedenborg. 1997
Abstract: Sweden has a remarkable record in reducing inequality and virtually eliminating poverty. This paper shows that: 1) Sweden achieved its egalitarian income distribution and eliminated poverty largely because of its system of earnings and income determination, not because of the homogeneity of the population nor of its educational system. 2) In the job market Sweden is distinguished by a relatively egalitarian distribution of hours of work among those employed, which may be an interrelated part of the Swedish economic system, and until the recent recession, by a high employment rate. 3) Tax and transfer policies contribute substantially to Sweden's overall distribution record. In contrast to many social welfare systems, Sweden's is largely a workfare system, providing benefits for those with some work activity. 4) Part of Sweden's historic success in maintaining jobs for low wage workers while raising their wages resulted from policies that directly or indirectly buttress demand for low skill workers, notably through public sector employment. 5) Sweden's tax and transfer policies have maintained the position of lower income workers and families, including those with children, during its recent economic decline.
Handle: RePEc:nbr:nberwo:4945
Template-Type: ReDIF-Paper 1.0
Title: Intellectual Capital and the Firm: The Technology of Geographically Localized Knowledge Spillovers
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Author-Name: Jeff Armstrong
Note: PR
Number: 4946
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4946
File-URL: http://www.nber.org/papers/w4946.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry. Vol 36, January 1998. pp. 65-86
Abstract: We examine the effects of university-based star scientists on three measures of performance for California biotechnology enterprises: the number of products in development, the number of products on the market, and changes in employment. The `star' concept which Zucker, Darby, and Brewer (1994) demonstrated was important for birth of U.S. biotechnology enterprises also predicts geographically localized knowledge spillovers at least for products in development. However, when we break down university stars into those who have collaborated on publications with scientists affiliated with the firm and all other university stars, there is a strong positive effect of the linked stars on all three firm-performance measures and little or no evidence of an effect from the other university stars. We develop a new hypothesis of geographically localized effects of university research which is consistent with market exchange: Geographically localized effects occur for scientific discoveries characterized by natural excludability, those which can be learned only by working with discoverers or others who have received the knowledge through working together in the laboratory. Natural excludability results in intellectual capital, a transitory form of human capital, embodied in particular scientists whose services must be employed in order to practice the discovery. Contractual and/or ownership relationships occur between firms and the university scientists with intellectual capital and importantly determine firm productivity and growth.
Handle: RePEc:nbr:nberwo:4946
Template-Type: ReDIF-Paper 1.0
Title: Did Workers Pay for the Passage of Workers' Compensation Laws?
Classification-JEL: J31; N32
Author-Name: Price V. Fishback
Author-Person: pfi13
Author-Name: Shawn Everett Kantor
Author-Person: pka54
Note: DAE LS
Number: 4947
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4947
File-URL: http://www.nber.org/papers/w4947.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, 110 (August 1995) pp 713-742.
Abstract: Market responses to legislative reforms often mitigate the expected gains that reformers promise in legislation. Contemporaries hailed workers' compensation as a boon to workers because it raised the amount of post-accident compensation paid to injured workers. Despite the large gains to workers, employers often supported the legislation. Analysis of several wage samples from the early 1900s shows that employers were able to pass a significant part of the added costs of higher post-accident compensation onto some workers in the form of reductions in wages. The size of the wage offsets, however, were smaller for union workers.
Handle: RePEc:nbr:nberwo:4947
Template-Type: ReDIF-Paper 1.0
Title: Prices, Output and Hours: An Empirical Analysis Based on a Sticky Price Model
Classification-JEL: E3; E5
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: EFG ME
Number: 4948
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4948
File-URL: http://www.nber.org/papers/w4948.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 37, no. 3 (June 1996): 505-533.
Abstract: I show that a simple sticky price model based on Rotemberg (1982) is consistent with a variety of facts concerning the correlation of prices, hours and output. In particular, I show that it is consistent with a negative correlation between the detrended levels of output and prices when the Beveridge-Nelson method is used to detrend both the price and output data. Such a correlation, i.e., a negative correlation between the predictable movements in output and the predictable movements in prices is present (and very strong) in U.S. data. Consistent with the model, this correlation is stronger than correlations between prices and hours of work. I also study the size of the predictable price movements that are associated with predictable output movements as well as the degree to which there are predictable movements in monetary aggregates associated with predictable movements in output. These facts are used to shed light on the degree to which the Federal Reserve has pursued a policy designed to stabilize expected inflation.
Handle: RePEc:nbr:nberwo:4948
Template-Type: ReDIF-Paper 1.0
Title: Education and Health: Where There's Smoke There's an Instrument
Classification-JEL: J38; I2
Author-Name: William N. Evans
Author-Person: pev28
Author-Name: Edward Montgomery
Note: EH LS
Number: 4949
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4949
File-URL: http://www.nber.org/papers/w4949.pdf
File-Format: application/pdf
Publication-Status: published as Jean Evans, 2010. "Health education," Practical Pre-School, vol 2010(109), pages 11-12.
Abstract: Victor Fuchs has suggested that the persistent positive correlation between education and health habits can be explained by interpersonal differences in the discount rate. If Fuchs is correct, some health habits can be used as instruments for education in standard wage equations. We use whether an individual smoked at age 18 in such a fashion. The instrument is strongly correlated with years of education, and IV estimates of the return to schooling are 10 percent larger than the OLS estimates. We fail to reject tests of overidentifying restrictions, show how the smoking/education link varies systematically across age cohorts and income groups, and demonstrate that the instrument is correlated with other intertemporal decisions such as home ownership. The results are replicated in four additional data sets, and for both males and females.
Handle: RePEc:nbr:nberwo:4949
Template-Type: ReDIF-Paper 1.0
Title: An Intergenerational Model of Wages, Hours and Earnings
Classification-JEL: D10; J22
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Thomas A. Dunn
Note: LS
Number: 4950
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4950
File-URL: http://www.nber.org/papers/w4950.pdf
File-Format: application/pdf
Publication-Status: published as Altonji, Joseph G. and Thomas A. Dunn. "An Intergenerational Model Of Wages, Hours, And Earnings," Journal of Human Resources, 2000, v35(2,Spring), 221-258.
Abstract: In this paper we develop and estimate a factor model of the earnings, labor supply, and wages of young men and young women, their parents and their siblings. We estimate the model using data on matched sibling and parent-child pairs from the National Longitudinal Survey of Labor Market Experience. We measure the extent to which a set of unobserved parental and family factors that drive wage rates and work hours independently of wage rates lead to similarities among family members in labor market outcomes. We find strong family similarities in work hours that run along gender lines. These similarities are primarily due to preferences rather than to labor supply responses to family similarities in wages. The wage factors of the father and mother influence the wages of both sons and daughters. A `sibling' wage factor also plays an important role in wage determination. We find that intergenerational correlations in wages substantially overestimate the direct influence of fathers, and especially mothers, on wages. This is because the father's and mother's wage factors are positively correlated. The relative importance for the variance in earnings of the direct effect of wages, the labor supply response induced by wages, and effect of hours preferences varies by gender, and by age in the case of women. For all groups most of the effect of wages on earnings is direct rather than through a labor supply response.
Handle: RePEc:nbr:nberwo:4950
Template-Type: ReDIF-Paper 1.0
Title: Puzzles in International Financial Markets
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: AP IFM
Number: 4951
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4951
File-URL: http://www.nber.org/papers/w4951.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of International Economics, G. Grossman and K. Rogoff, eds.(North Holland: Amsterdam), 1995.
Abstract: This paper presents a survey of two basic puzzles in international finance. The first puzzle is the `predictable excess return puzzle.' The returns on foreign currency deposits relative to domestic currency deposits should be equalized based upon uncovered interest parity. However, not only do researchers find that deviations from uncovered interest parity are predictable ex ante, but their variance exceeds the variance in expected exchange rate changes. In the paper, I describe different explanations of this phenomenon including the view that excess returns are driven by a foreign exchange risk premium, peso problems or learning, and market inefficiencies. While the research to date has been able to better define the `predictable excess return puzzle' and to suggest the most likely directions for future progress, no one explanation has provided a full answer to the puzzle. The second puzzle is the `home bias puzzle.' Empirical evidence shows that domestic residents do not diversify sufficiently into foreign stocks. This evidence is clear whether looking at models based on portfolio holdings or outcomes of consumption realizations across countries. In this paper, I examine several possible explanations including non-traded goods and market inefficiencies, although even after considering these possibilities, the puzzle remains.
Handle: RePEc:nbr:nberwo:4951
Template-Type: ReDIF-Paper 1.0
Title: Perspectives on PPP and Long-Run Real Exchange Rates
Classification-JEL: 410; F
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 4952
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4952
File-URL: http://www.nber.org/papers/w4952.pdf
File-Format: application/pdf
Publication-Status: published as Chapter 32 in Handbook of International Economics, Vol. 3. [Handbooks in Economics 3], edited by Gene Grossman and Kenneth Rogoff, p. 1647-1688, Amsterdam: Elsevier.
Abstract: This paper reviews the large and growing literature which tests PPP and other models of the long-run real exchange rate. We distinguish three different stages of PPP testing and focus on what has been learned from each. The most important overall lesson has been that the real exchange rate appears stationary over sufficiently long horizons. Simple, univariate random walk specifications can be rejected in favor of stationary alternatives. However, we argue that multivariate tests, which ask whether any linear combination of prices and exchange rates are stationary, have not necessarily provided meaningful rejections of nonstationarity. We also review a number of other theories of the long run real exchange rate -- including the Balassa-Samuelson hypothesis -- as well as the evidence supporting them. We argue that the persistence of real exchange rate movements can be generated by a number of sensible models and that Balassa- Samuelson effects seem important, but mainly for countries with widely disparate levels of income of growth. Finally, this paper presents new evidence testing the law of one price on 200 years of historical commodity price data for England and France, and uses a century of data from Argentina to test the possibility of sample-selection bias in tests of long-run PPP.
Handle: RePEc:nbr:nberwo:4952
Template-Type: ReDIF-Paper 1.0
Title: Economic Effects of Quality Regulations in the Daycare Industry
Classification-JEL: K23; L51
Author-Name: Tasneem Chipty
Author-Name: Ann Dryden Witte
Note: LS PE
Number: 4953
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4953
File-URL: http://www.nber.org/papers/w4953.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol 85 (1995) pp 419-424.
Abstract: We estimate reduced form models to discern the effect of state regulation of the quality of center and family day care. Specifically, we consider the effects of the number of mandated inspections, limits on group size and staff/child ratio, and staff training requirements on equilibrium price and hours of care and the quality of care as measured by the actual staff/child ratio. The specification of the reduced form model is derived from an eight equation market model for wages and work hours, type of child care chosen, price and hours of care and a set of hedonic equations for the characteristics of care. The results indicate strongly that child care regulations do affect equilibrium price, hours of care, and staff/child ratios. Child care regulations are binding. In equilibrium, only regulations regarding staff training appear to have consistently desirable effects. Such regulations decrease equilibrium price and hours of care and increase the staff/child ratio for both centers and family day care. Regulations of group size and the staff/child ratio have significant effects, but the welfare implications of the effects are more ambiguous. Tax deductions and subsidies for child care have similarly ambiguous welfare effects. For example, households that take a tax deduction for child care pay higher prices for care, consume more hours of care and consume higher quality day care.
Handle: RePEc:nbr:nberwo:4953
Template-Type: ReDIF-Paper 1.0
Title: Neither a Borrower nor a Lender Be: An Economic Analysis of Interest Restrictions and Usury Laws
Classification-JEL: G28; O40
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: Jose A. Scheinkman
Author-Person: psc26
Note: EFG
Number: 4954
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4954
File-URL: http://www.nber.org/papers/w4954.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, Vol. 41, no. 1 (April 1998): 1-36.
Abstract: Interest rate restrictions are among the most pervasive forms of economic regulations. This paper explains that these restrictions can be explained as a means of primitive social insurance. Interest rate limits are Pareto improving because agents borrow when they have temporary negative income shocks -- interest rate restrictions transfer wealth to agents who have received those negative shocks and whose marginal utility of income is high. We assume that these shocks are not otherwise insurable because of problems related to asymmetric information or the difficulties inherent in writing complex contracts. The model predicts that interest rate restriction will be tighter when income inequality is high (and impermanent) and when growth rates are low. Data from U.S. states' regulations supports a connection between inequality and usury laws. The history of usury laws suggests that this social insurance mechanism is one reason why usury laws persist, but it also suggests that usury laws have had different functions across time (eg. rent-seeking, limiting agency problems within the church, limiting overcommitment of debts, and attacking commerce generally).
Handle: RePEc:nbr:nberwo:4954
Template-Type: ReDIF-Paper 1.0
Title: The Economic Benefits from Immigration
Classification-JEL: J6
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 4955
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4955
File-URL: http://www.nber.org/papers/w4955.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 9, no. 2, (Spring 1995), pp. 3-22.
Abstract: Natives benefit from immigration mainly because of production complementarities between immigrant workers and other factors of production, and these benefits are larger when immigrants are sufficiently `different' from the stock of native productive inputs. The available evidence suggests that the economic benefits from immigration for the United States are small, on the order of $6 billion and almost certainly less than $20 billion annually. These gains, however, could be increased considerably if the United States pursued an immigration policy which attracted a more skilled immigrant flow.
Handle: RePEc:nbr:nberwo:4955
Template-Type: ReDIF-Paper 1.0
Title: Unnatural Experiments? Estimating the Incidence of Endogenous Policies
Classification-JEL: H73; J38
Author-Name: Timothy Besley
Author-Person: pbe46
Author-Name: Anne Case
Author-Person: pca108
Note: LS PE
Number: 4956
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4956
File-URL: http://www.nber.org/papers/w4956.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol. 110, no. 467, (November 2000), pp. F672-F694.
Abstract: The US federal system provides great potential for estimating the effects of policy on behavior. There are numerous empirical studies that exploit variation in policies over space and time. In pursuing this line of enquiry, the issue of policy endogeneity is central. If state policy making is purposeful action, responsive to economic and political conditions within the state, then it may be necessary to identify and control for the forces that lead policies to change if one wishes to obtain unbiased estimates of a policy's incidence. The aim of this paper is to investigate how recognition of policy endogeneity affects attempts to analyze policy incidence. Throughout, we take a specific context -- workers' compensation benefits. We contrast the use of differences-in-differences estimation, where a comparison is made between a group affected by the policy change and a control group, with instrumental variables estimation when political variables are used as instruments. Although conclusions drawn must be confined to the example at hand, we believe that the analysis illustrates why it may be important to consider the implications of policy endogeneity more generally.
Handle: RePEc:nbr:nberwo:4956
Template-Type: ReDIF-Paper 1.0
Title: The Size and Timing of Devaluations in Capital-Controlled Developing Countries
Classification-JEL: F3
Author-Name: Robert Flood
Author-Person: pfl25
Author-Name: Nancy Marion
Author-Person: pma1464
Note: IFM
Number: 4957
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4957
File-URL: http://www.nber.org/papers/w4957.pdf
File-Format: application/pdf
Publication-Status: Published as "The Size and Timing of Devaluations in Capital-Controlled Economies", Vol. 54, no. 1 (October 1997): 123-147.
Abstract: A developing country often pegs its exchange rate to a single currency, such as the U.S. dollar, even though it faces a higher inflation rate than the country to which it is pegged. As a consequence, it experiences real exchange-rate misalignments and a series of easily-anticipated devaluations. While the chaotic capital market events surrounding anticipated devaluations are avoided through quantitative capital controls, the country is left with the classic devaluation problem: when should it devalue, and by how much? In this paper, we consider a policymaker who pegs the nominal exchange rate and adjusts the peg periodically so as to minimize a set of costs. The control problem is made difficult by the fact that the future times for devaluations are currently unknown stochastic variables. Characterizing the real exchange rate as regulated Brownian motion permits the cost minimization problem to be solved explicitly. The size and timing of devaluations are jointly determined outcomes of optimizing behavior. The framework yields insights into how changes in the stochastic environment affect both the size and timing of devaluation. These insights provide guidance about the determinants of devaluation episodes even when Brownian motion is not the relevant stochastic process for real exchange rates. Using cross-sectional data on 80 peg episodes from seventeen Latin American countries over the 1957-1990 period, we find empirical support for the model's main predictions.
Handle: RePEc:nbr:nberwo:4957
Template-Type: ReDIF-Paper 1.0
Title: Hedging Options in a GARCH Environment: Testing the Term Structure of Stochastic Volatility Models
Author-Name: Robert F. Engle
Author-Name: Joshua Rosenberg
Author-Person: pro389
Note: AP
Number: 4958
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4958
File-URL: http://www.nber.org/papers/w4958.pdf
File-Format: application/pdf
Publication-Status: Published as "Bayesian Analysis of Stochastic Volatility Models: Comment", JBES, Vol. 12, no. 4 (1994): 395-396.
Abstract: This paper develops a methodology for testing the term structure of volatility forecasts derived from stochastic volatility models, and implements it to analyze models of S&P 500 index volatility. Volatility models are compared by their ability to hedge options positions sensitive to the term structure of volatility. Overall, the most effective hedge is a Black-Scholes (BS) delta-gamma hedge, while the BS delta-vega hedge is the least effective. The most successful volatility hedge is GARCH components delta-gamma, suggesting that the GARCH components estimate of the term structure of volatility is most accurate. The success of the BS delta-gamma hedge may be due to mispricing in the options market over the sample period.
Handle: RePEc:nbr:nberwo:4958
Template-Type: ReDIF-Paper 1.0
Title: Cross-Country Evidence on the Link Between Volatility and Growth
Classification-JEL: E32; C42
Author-Name: Garey Ramey
Author-Person: pra338
Author-Name: Valerie A. Ramey
Author-Person: pra154
Note: EFG IFM EFG
Number: 4959
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4959
File-URL: http://www.nber.org/papers/w4959.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 85 (December 1995): 1138-1151
Abstract: This paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations. In a sample of 92 countries as well as a sample of OECD countries, we find that countries with higher volatility have lower growth. The addition of standard control variables strengthens the negative relationship. We also find that government spending-induced volatility is negatively associated with growth even after controlling for both time- and country-fixed effects.
Handle: RePEc:nbr:nberwo:4959
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Unemployment Insurance Taxes and Benefits on Layoffs Using Firm and Individual Data
Classification-JEL: J65
Author-Name: Patricia M. Anderson
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS PE
Number: 4960
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4960
File-URL: http://www.nber.org/papers/w4960.pdf
File-Format: application/pdf
Abstract: We examine the effects of unemployment insurance (UI) experience rating on layoffs using high quality firm and individual data. Our preferred estimates imply that incomplete experience rating is responsible for over twenty percent of temporary layoffs. The results are more mixed regarding the predictions of the alternative models of UI as a firm adjustment cost or a component of the worker compensation package. While the evidence favors the adjustment cost model, some of the predictions of each of these models are rejected by at least one of our specifications. Using our new data, we also confirm the correlation between experience rating proxies and layoffs found in past studies. However, the differences between these proxies and state average firm tax costs and the anomalous instrumental variables estimates that we find suggest that it may be inappropriate to causally interpret this correlation.
Handle: RePEc:nbr:nberwo:4960
Template-Type: ReDIF-Paper 1.0
Title: A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism
Classification-JEL: H21
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 4961
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4961
File-URL: http://www.nber.org/papers/w4961.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, vol. 48, no. 4, pp. 497-514, (1995).
Abstract: Anti-utilitarian norms often are used in assessing tax systems. Two motivations support this practice. First, many believe utilitarianism to be insufficiently egalitarian. Second, utilitarianism does not give independent weight to other equitable principles, notably concerns that reforms may violate horizontal equity or result in rank reversals in the income distribution. This investigation suggests that a policy maker who believes in the Pareto principle -- that any reform preferred by everyone should be adopted - - cannot consistently adhere to any of these anti-utilitarian sentiments. Moreover, the affirmative case for utilitarian tax policy assessment is stronger than is generally appreciated.
Handle: RePEc:nbr:nberwo:4961
Template-Type: ReDIF-Paper 1.0
Title: International Rules and Institutions for Trade Policy
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 4962
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4962
File-URL: http://www.nber.org/papers/w4962.pdf
File-Format: application/pdf
Publication-Status: published as The Handbook of International Economics, Vol. 3, North Holland, 1995.
Publication-Status: published as in G.M. Grossman and K. Rogoff, eds. Hanbook of International Economics, Vol. 3, 1995.
Abstract: What are the potential benefits from establishing international rules for the conduct of trade policy and how should these rules be designed? These questions are of central importance to the evolution of national trade policies in the post-war era, a period in which an elaborate system of international rules has evolved to facilitate the process of reciprocal trade liberalization. Yet the theory of trade policy has traditionally had little to say about these rules and the issues that underlie them. Below I review and synthesize several of the currents of a growing literature that is concerned with these questions. I attempt to accomplish three objectives: To describe the basic structure of international trade agreements as they exist in practice; to explore theoretically the normative consequences of actual and alternative trade agreements; and to offer some theoretically-based explanation for the structure of trade agreements that we observe. I attempt to achieve the first objective by describing the important features of the General Agreement on Tariffs and Trade. I attempt to achieve the latter two objectives by reviewing a body of literature and drawing out its implications as they relate to these issues.
Handle: RePEc:nbr:nberwo:4962
Template-Type: ReDIF-Paper 1.0
Title: A Retrospective on the Debt Crisis
Classification-JEL: F34
Author-Name: Michael P. Dooley
Author-Person: pdo13
Note: IFM
Number: 4963
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4963
File-URL: http://www.nber.org/papers/w4963.pdf
File-Format: application/pdf
Publication-Status: published as Understanding Interdependence: The Macroeconomics of the Open Economy, Peter B. Kenen, ed., pp. 262-288 (Princeton: Princeton University Press: 1995).
Abstract: In this paper I argue that the international debt crisis of 1982 can best be understood as a prolonged negotiation between commercial banks and their own governments over who would bear the economic losses generated by loans made to developing countries. This interpretation of the debt crisis is contrasted with the more familiar approach that emphasizes conflict between debtor countries and their creditors. The main conclusion is that the failure of governments of industrial countries to resolve this conflict with their banks transformed an unremarkable financial crisis into a decade-long economic crisis for debtor countries. The analysis also suggests that recent capital inflows to developing countries are less likely to generate the same economic costs for debtor countries even if changes in the economic environment generate similar losses for investors.
Handle: RePEc:nbr:nberwo:4963
Template-Type: ReDIF-Paper 1.0
Title: Getting Interventions Right: How South Korea and Taiwan Grew Rich
Classification-JEL: 011; 040
Author-Name: Dani Rodrik
Author-Person: pro60
Note: EFG ITI IFM
Number: 4964
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4964
File-URL: http://www.nber.org/papers/w4964.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, No. 20, 1995.
Abstract: Most explanations of Korea's and Taiwan's economic growth since the early 1960s place heavy emphasis on export orientation. However, it is difficult to see how export orientation could have played a significant causal role in these countries' growth. The measured increase in the relative profitability of exports during the 1960s is too insignificant to account for the phenomenal export boom that ensued. Moreover, exports were initially too small to have a significant effect on aggregate economic performance. A more plausible story focuses on the investment boom that took place in both countries. In the early 1960s both economies had an extremely well- educated labor force relative to their physical capital stock, rendering the latent return to capital quite high. By subsidizing and coordinating investment decisions, government policy managed to engineer a significant increase in the private return to capital. An exceptional degree of equality in income and wealth helped by rendering government intervention effective and keeping it free of rent seeking. The outward orientation of the economy was the result of the increase in demand for imported capital goods.
Handle: RePEc:nbr:nberwo:4964
Template-Type: ReDIF-Paper 1.0
Title: Market Underreaction to Open Market Share Repurchases
Author-Name: David Ikenberry
Author-Name: Josef Lakonishok
Author-Name: Theo Vermaelen
Author-Person: pve70
Note: CF
Number: 4965
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4965
File-URL: http://www.nber.org/papers/w4965.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Oct-Nov 1995, vol 39, no 2 and 3, pp 181-20 8.
Abstract: We examine long-run firm performance following open market share repurchase announcements which occurred during the period 1980 to 1990. We find that the average abnormal four-year buy-and-hold return measured after the initial announcement is 12.1 percent. For `value' stocks, companies more likely to be repurchasing shares because of undervaluation, the average abnormal return is 45.3 percent. For repurchases announced by `glamour' stocks where undervaluation is less likely to be an important motive, no positive drift in abnormal returns is observed. Thus, at least with respect to value stocks, the market errs in its initial response and appears to ignore much of the information conveyed through repurchase announcements.
Handle: RePEc:nbr:nberwo:4965
Template-Type: ReDIF-Paper 1.0
Title: Forecasting Transaction Rates: The Autoregressive Conditional Duration Model
Author-Name: Robert F. Engle
Author-Name: Jeffrey R. Russell
Note: AP
Number: 4966
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4966
File-URL: http://www.nber.org/papers/w4966.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Autoregressive Conditional Duration: A New Model for Irregularly Spaced Tranaction Rates") Econometrica, Vol. 66 (1998): 1127-1162.
Abstract: This paper will propose a new statistical model for the analysis of data that does not arrive in equal time intervals such as financial transactions data, telephone calls, or sales data on commodities that are tracked electronically. In contrast to fixed interval analysis, the model treats the time between observation arrivals as a stochastic time varying process and therefore is in the spirit of the models of time deformation initially proposed by Tauchen and Pitts (1983), Clark (1973) and more recently discussed by Stock (1988), Lamoureux and Lastrapes (1992), Muller et al. (1990) and Ghysels and Jasiak (1994) but does not require auxiliary data or assumptions on the causes of time flow. Strong evidence is provided for duration clustering beyond a deterministic component for the financial transactions data analyzed. We will show that a very simple version of the model can successfully account for the significant autocorrelations in the observed durations between trades of IBM stock on the consolidated market. A simple transformation of the duration data allows us to include volume in the model.
Handle: RePEc:nbr:nberwo:4966
Template-Type: ReDIF-Paper 1.0
Title: Spillovers, Foreign Investment, and Export Behavior
Classification-JEL: F13; F23
Author-Name: Brian Aitken
Author-Name: Gordon H. Hanson
Author-Person: pha80
Author-Name: Ann E. Harrison
Author-Person: pha441
Note: ITI
Number: 4967
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4967
File-URL: http://www.nber.org/papers/w4967.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 43 (1997): 103-132.
Abstract: Case studies of export behavior suggest that firms who penetrate foreign markets reduce entry costs for other potential exporters, either through learning by doing or through establishing buyer- supplier linkages. We pursue the idea that spillovers associated with one firm's export activity reduce the cost of foreign market access for other firms. We identify two potential sources of spillovers: export activity in general and the specific activities of multinational enterprises. We use a simple model of export behavior to derive a logit specification for the probability a firm exports. Using panel data on Mexican manufacturing plants, we find evidence consistent with spillovers from the export activity of multinational enterprises but not with general export activity.
Handle: RePEc:nbr:nberwo:4967
Template-Type: ReDIF-Paper 1.0
Title: The Dynamics of Dual-Job Holding and Job Mobility
Classification-JEL: J22; J63
Author-Name: Christina H. Paxson
Author-Person: ppa335
Author-Name: Nachum Sicherman
Note: LS
Number: 4968
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4968
File-URL: http://www.nber.org/papers/w4968.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol.14, no.3, pp.357-393, 1996.
Abstract: This article concerns the incidence and dynamics of dual-job holding, and its link to job mobility. The first section presents evidence on patterns of dual-job holding, hours changes, and job mobility in the United States, using data from the Panel Study of Income Dynamics and the Current Population Survey. The results indicate that most workers experience dual-job holding sometime during their working lives, and there is a great deal of movement into and out of dual-job holding. Mobility into and out of second jobs is associated with large changes in weekly and annual hours, and there is evidence that dual-job holding is prompted by hours constraints on the main job. The second section of the article turns to theories of dual-job holding. Much of the empirical literature on second jobs is motivated by a simple model of labor supply in which workers face upper constraints on main-job hours: a worker who would like to work more on his main job, but cannot, will take a second job provided the second-job wage is high enough. These models do not account for the fact that workers may also avoid hours constraints by finding new main jobs with higher hours. We develop a stochastic dynamic model of dual-job holding and job mobility in which decisions to take second jobs and/or change main jobs are made simultaneously. This model is consistent with our findings and provides new insights into the economics of dual-job holding and labor mobility.
Handle: RePEc:nbr:nberwo:4968
Template-Type: ReDIF-Paper 1.0
Title: Indicator Properties of the Paper-Bill Spread: Lessons from Recent Experiences
Classification-JEL: E52; E32
Author-Name: Benjamin M. Friedman
Author-Name: Kenneth N. Kuttner
Author-Person: pku75
Note: ME
Number: 4969
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4969
File-URL: http://www.nber.org/papers/w4969.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 80 (February 1998): 34-44.
Abstract: A feature of U.S. post-war business cycle experience that is by now widely documented is the tendency of the spread between the respective interest rates on commercial paper and Treasury bills to widen shortly before the onset of recessions. By contrast, the paper- bill spread did not anticipate the 1990-91 recession. Empirical work presented in this paper supports two (not mutually exclusive) explanations for this departure from past experience. First, at least part of the paper-bill spread's predictive content with respect to business cycle fluctuations stems from its role as an indicator of monetary policy, but the 1990-91 recession was unusual in post-war U.S. experience in not being immediately precipitated by tight monetary policy. Second, movements of the spread during the few years just prior to the 1990-91 recession were strongly influenced by changes in the relative quantities of commercial paper, bank CDs and Treasury bills that occurred for reasons unrelated to the business cycle. This latter finding in particular sheds light on the important role of imperfect substitutability of different short-term debt instruments in investors portfolios, and highlights the burdens associated with using relative interest rate relationships as business cycle indicators.
Handle: RePEc:nbr:nberwo:4969
Template-Type: ReDIF-Paper 1.0
Title: Valuation of New Goods under Perfect and Imperfect Competition
Classification-JEL: D43; C43
Author-Name: Jerry A. Hausman
Author-Person: pha893
Note: PR
Number: 4970
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4970
File-URL: http://www.nber.org/papers/w4970.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 209, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Valuation of New Goods under Perfect and Imperfect Competition, Jerry A. Hausman. in The Economics of New Goods, Bresnahan and Gordon. 1997
Abstract: The Consumer Price Index (CPI) attempts to answer the question of how much more (or less) income does a consumer require to be as well off in period 1 as in period 0 given changes in prices, changes in the quality of goods, and the introduction of new goods (or the disappearance of existing goods). In this paper I explain the theory of cost-of-living indices and demonstrate how new goods should be included using the classical theory of Hicks and Rothbarth. The correct price to use for the good in the pre-intro- duction period is a `virtual' price which sets demand to zero. Estimation of this virtual price requires estimation of a demand function which in turn provides the expenditure function which allows exact calucation of the cost of living index. The data requirements and need to specify and estimate a demand function for a new brand among many existing brands requires extensive data and some new econometric methods which may have proven obstacles to the inclusion of new goods in the CPI up to this point. As an example I use the introduction of a new cereal brand by General Mills in 1989-Apple Cinnamon Cheerios. I find the virtual price is about 2 times the actual price of Apple Cinnamon Cheerios and that increase in consumer surplus is substantial. Based on some simplifying approximations, I find that CPI may be overstated for cereal by about 25% because of its neglect of the effect of new brands. When I take imperfect competition into account I find that the increase in consumer welfare is only 85% as high with perfect competition so CPI for cereal would still be 20% too high
Handle: RePEc:nbr:nberwo:4970
Template-Type: ReDIF-Paper 1.0
Title: The Operation and Collapse of Fixed Exchange Rate Regimes
Classification-JEL: F31; F33
Author-Name: Peter M. Garber
Author-Person: pga124
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM
Number: 4971
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4971
File-URL: http://www.nber.org/papers/w4971.pdf
File-Format: application/pdf
Publication-Status: published as Garber, Peter M. & Svensson, Lars E.O., 1995. "The operation and collapse of fixed exchange rate regimes," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 36, pages 1865-1911 Elsevier.
Publication-Status: published as Handbook of International Economics, G. Grossman and K. Rogoff, eds. Vol. III, North Holland, Amsterdam,(1995) pp. 1865-1911.
Abstract: The paper reviews the recent literature on exchange rate target zones and on speculative attacks on fixed exchange rates. The influential Krugman model of exchange rate target zones has two main results, namely that credible target zones stabilize exchange rates more than fundamentals (the `honeymoon effect') and that exchange rates depend on fundamentals according to a nonlinear `S-curve' with `smooth pasting.' Almost all the model's empirical implications have been overwhelmingly rejected. Later research has reconciled the theory with empirical results by allowing for imperfectly credible exchange rates and for intra-marginal central bank interventions. That research has also shown that non-linearities and smooth pasting are probably empirically insignificant and that a linear managed-float model is a good approximation to exchange rate target zones. The speculative attack literature has developed models built on the principles of no anticipated price discontinuities, endogenous timing of the speculative attack, and the attack occurring when a finite amount of foreign exchange reserves remain. These models have been extended to include random timing of attacks and alternative post attack regimes. Some empirical tests have been undertaken. In contrast to target zone models, speculative attack models have been influenced by empirical results only to a small extent.
Handle: RePEc:nbr:nberwo:4971
Template-Type: ReDIF-Paper 1.0
Title: Competition Policy and International Trade
Classification-JEL: F10
Author-Name: James Levinsohn
Author-Person: ple386
Note: ITI
Number: 4972
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4972
File-URL: http://www.nber.org/papers/w4972.pdf
File-Format: application/pdf
Publication-Status: published as Fair Trade and Harmonization, Bhagwali,J. and R. Hidec, eds., Cambridge: MIT Press, 1996.
Abstract: This paper presents a non-technical discussion of economic issues that arise due to links between competition (or anti-trust) policy and international trade. While recent advances in international trade theory have borrowed heavily from the industrial organization literature, this work has a schizophrenic quality to it. One of the insights that motivated the new trade theory was the observation that many markets were not perfectly competitive. For the case of purely domestic markets, the industrial organization literature provided a foundation for policy advice and most countries have well established public policy regarding competition between firms. While trade theorists have borrowed heavily from the theory of industrial organization, they seem to have ignored the existence of competition policy when investigating trade policy. The two interact in important ways, and pretending that trade policy in imperfectly competitive markets takes place in the absence of any competition policy may lead to inadvertent policy outcomes.
Handle: RePEc:nbr:nberwo:4972
Template-Type: ReDIF-Paper 1.0
Title: Bureaucracy, Infrastructure, and Economic Growth: Evidence from U.S. Cities During the Progressive Era
Classification-JEL: D73; H54
Author-Name: James E. Rauch
Author-Person: pra166
Note: EFG PE
Number: 4973
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4973
File-URL: http://www.nber.org/papers/w4973.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 85 (September 1995): 968-979.
Abstract: Recent work in the sociology of economic development has emphasized the establishment of a professional bureaucracy in place of political appointees as an important component of the institutional environment in which private enterprise can flourish. I hypothesize that establishment of such a bureaucracy will lengthen the period that public decision makers are willing to wait to realize the benefits of expenditures, leading to allocation of a greater proportion of government resources to long-gestation period projects such as infrastructure. This hypothesis can be tested using data generated by a `natural experiment' in the early part of this century, when a wave of municipal reform transformed the governments of many U.S. cities. Controlling for city and time effects, adoption of Civil Service is found to increase the share of total municipal expenditure allocated to road and sewer investment. Other estimates imply that this increased share raises the growth rate of city manufacturing employment by one-half percent per year.
Handle: RePEc:nbr:nberwo:4973
Template-Type: ReDIF-Paper 1.0
Title: High Tech R&D Subsidies: Estimating the Effects of Sematech
Classification-JEL: O3; L63
Author-Name: Douglas A. Irwin
Author-Person: pir25
Author-Name: Peter J. Klenow
Note: ITI
Number: 4974
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4974
File-URL: http://www.nber.org/papers/w4974.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 40, no. 3/4, May 1996, pp. 323-344
Abstract: Sparked by concerns about their shrinking market share, 14 leading U.S. semiconductor producers, with the financial assistance of the U.S. government in the form of $100 million in annual subsidies, formed a joint R&D consortium -- Sematech -- in 1987. Using Compustat data on all U.S. semiconductor firms, we estimate the effects of Sematech on members' R&D spending, profitability, investment, and productivity. In so doing we test two hypotheses: the `commitment' hypothesis that Sematech obligates member firms to spend more on high- spillover R&D, and the `sharing' hypothesis that Sematech reduces duplication of member R&D spending. Whereas the commitment hypothesis provides a rationale for the government subsidies, the sharing hypothesis does not. We find that Sematech induced members to cut their overall R&D spending on the order of $300 million per year, providing support for the sharing hypothesis.
Handle: RePEc:nbr:nberwo:4974
Template-Type: ReDIF-Paper 1.0
Title: Business Cycles and the Asset Structure of Foreign Trade
Classification-JEL: F11; F30
Author-Name: Marianne Baxter
Author-Person: pba102
Author-Name: Mario J. Crucini
Author-Person: pcr3
Note: IFM
Number: 4975
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4975
File-URL: http://www.nber.org/papers/w4975.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Nov 1995
Abstract: International financial market linkages are widely believed to be important for the international transmission of business cycles, since these govern the extent to which individuals can smooth consumption in the presence of country-specific shocks to income. This paper develops a two-country, general equilibrium model with restricted asset trade and provides a detailed analysis of the channels through which these financial linkages affect international business cycles. Our central finding is that the absence of complete financial integration may not be important if the shocks to national economies are of low persistence, or are transmitted rapidly across countries over time. However, if shocks are highly persistent or are not transmitted internationally, the extent of financial integration is central to the international transmission of business cycles.
Handle: RePEc:nbr:nberwo:4975
Template-Type: ReDIF-Paper 1.0
Title: CEO Pay and Firm Performance: Dynamics, Asymmetries, and Alternative Performance Measures
Classification-JEL: G3; J3
Author-Name: Paul L. Joskow
Author-Person: pjo110
Author-Name: Nancy L. Rose
Author-Person: pro786
Note: IO
Number: 4976
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4976
File-URL: http://www.nber.org/papers/w4976.pdf
File-Format: application/pdf
Abstract: This study explores the dynamic structure of the pay-for- performance relationship in CEO compensation and quantifies the effect of introducing a more complex model of firm financial performance on the estimated performance sensitivity of executive pay. The results suggest that current compensation responds to past performance outcomes, but that the effect decays considerably within two years. This contrasts sharply with models of infinitely persistent performance effects implicitly assumed in much of the empirical compensation literature. We find that both accounting and market performance measures influence compensation and that the salary and bonus component of pay as well as total compensation have become more sensitive to firm financial performance over the past two decades. There is no evidence that boards fail to penalize CEOs for poor financial performance or reward them disproportionately well for good performance. Finally, the data suggest that boards may discount extreme performance outcomes -both high and low - relative to performance that lies within some `normal' band in setting compensation.
Handle: RePEc:nbr:nberwo:4976
Template-Type: ReDIF-Paper 1.0
Title: Is There a `Credit Channel' for Monetary Policy?
Classification-JEL: E4; E5
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: ME
Number: 4977
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4977
File-URL: http://www.nber.org/papers/w4977.pdf
File-Format: application/pdf
Publication-Status: published as Federal Reserve Bank of St. Louis Review, vol. 77, no. 3, pp. 63-77,(May/June 1995)/
Abstract: This paper argues that the terms `money view' and `credit view' are not always well defined in theoretical and empirical debates over the transmission mechanism of monetary policy. Recent models of information and incentive problems in financial markets suggest the usefulness of decomposing the transmission mechanism into two parts: one related to effects of policy-induced changes on the overall level of real costs of funds, and one related to `financial accelerator' effects stemming from impacts of policy actions on the financial positions of borrowers or intermediaries. The results presented here support the idea that the spending decisions of a significant group of borrowers are influenced by their balance sheet condition. Whether a bank-lending channel is operative is less clear, however. More micro evidence at the level of individual borrower-lender transactions is needed to resolve this question.
Handle: RePEc:nbr:nberwo:4977
Template-Type: ReDIF-Paper 1.0
Title: Do Private Schools Provide Competition for Public Schools?
Author-Name: Caroline Minter Hoxby
Author-Person: pho46
Note: PE
Number: 4978
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4978
File-URL: http://www.nber.org/papers/w4978.pdf
File-Format: application/pdf
Abstract: Arguments in favor of school choice depend on the idea that competition between schools improves the quality of education. However, we have almost no empirical evidence on whether competition actually affects school quality. In this study, I examine the effects of inter-school competition on public schools by using exogenous variation in the availability and costs of private school alternatives to public schools. Because low public school quality raises the demand for private schools as substitutes for public schools, we cannot simply compare public school students' outcomes in areas with and without substantial private school enrollment. Such simple comparisons confound the effect of greater private school competitiveness with the increased demand for private schools where the public schools are poor in quality. I derive instruments for private school competition from the fact that it is less expensive and difficult to set up religious schools, which accounts for 9 out of 10 private school students in the U.S., in areas densely populated by members of the affiliated religion. I find that greater private school competitiveness significantly raises the quality of public schools, as measured by the educational attainment, wages, and high school graduation rates of public school students. In addition, I find some evidence that public schools react to greater competitiveness of private schools by paying higher teacher salaries.
Handle: RePEc:nbr:nberwo:4978
Template-Type: ReDIF-Paper 1.0
Title: Does Competition Among Public Schools Benefit Students and Taxpayers?
Author-Name: Caroline Minter Hoxby
Author-Person: pho46
Note: PE
Number: 4979
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4979
File-URL: http://www.nber.org/papers/w4979.pdf
File-Format: application/pdf
Publication-Status: published as Hoxby, C. M. "Does Competition Among Public Shools Benefit Students And Taxpayers," American Economic Review, 2000, v90(5,Dec), 1209-1238.
Abstract: Many school choice proposals would enable parents to choose among public school districts in their area, though not among private schools. Theory predicts three reactions to easier choice among public schools: increased sorting of students and parents among schools; easier choice will encourage competition among schools, forcing them into higher productivity (better student performance per input); easier choice among public schools will give parents less incentive to send their children to private schools. I examine easing choice among public schools using exogenous variation in the concentration of public school districts in metropolitan areas measured by a Herfindahl index on enrollment shares. The exogenous variation is generated by topography: I derive instruments for concentration from natural boundaries (rivers) that partially determine district size. I find evidence that easier choice leads to greater productivity. Areas with greater opportunities for choice among public schools have lower per-pupil spending, lower teacher salaries, and larger classes. The same areas have better average student performance, as measured by students' educational attainment, wages, and test scores. Performance improvements are concentrated among white non-Hispanics, males, and students who have a parent with at least a high school degree. However, student performance is not worse among Hispanics,African-Americans, females, or students who do not have a parent with a high school degree.Also, student performance improves at both ends of the educational attainment distribution and test score distribution.
Handle: RePEc:nbr:nberwo:4979
Template-Type: ReDIF-Paper 1.0
Title: Political Constraints on Executive Compensation: Evidence from the Electric Utility Industry
Classification-JEL: L5; L2
Author-Name: Paul L. Joskow
Author-Person: pjo110
Author-Name: Nancy L. Rose
Author-Person: pro786
Author-Name: Catherin D. Wolfram
Note: IO
Number: 4980
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4980
File-URL: http://www.nber.org/papers/w4980.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, Spring 1996, 27(1):165-182.
Abstract: This study explores the effect of regulatory and political constraints on the level of CEO compensation for 87 state-regulated electric utilities during 1978-1990. The results suggest that political pressures may constrain top executive pay levels in this industry. First, CEOs of firms operating in regulatory environments characterized by investment banks as relatively `pro-consumer' receive lower compensation than do CEOs of firms in environments ranked as more friendly to investors. Second, CEO pay is lower for utilities with relatively high or rising rates, or a higher proportion of industrial sales, consistent with earlier research that describes political pressures on electricity rates. Finally, attributes of the commission appointment and tenure rules affect CEO compensation in ways consistent with the political constraint hypothesis: for example, pay is lower in states with elected commissioners than in states where commissioners are appointed by the governor, all else equal. Despite apparently effective pressure to constrain pay levels in this sector, however, we find no evidence of related intra-industry variation in the sensitivity of pay to firm financial performance.
Handle: RePEc:nbr:nberwo:4980
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Post-Patent Prescription Pharmaceuticals
Classification-JEL: I11
Author-Name: Judith K. Hellerstein
Author-Person: phe270
Note: EH PR
Number: 4981
Creation-Date: 1994-12
Order-URL: http://www.nber.org/papers/w4981
File-URL: http://www.nber.org/papers/w4981.pdf
File-Format: application/pdf
Abstract: This paper examines why physicians continue to prescribe trade- name drugs when less expensive generic substitutes are available. I utilize a data set on physicians, their patients, and the multi-source drugs prescribed to study the prescription habits of physicians in prescribing generic and trade-name drugs. The results indicate that almost all physicians prescribe both types of drugs to their patients. There is, however, persistence in the prescription behavior of physicians, so that some physicians are more likely to prescribe trade-name drugs, while others more often prescribe generics. While much of this persistence cannot be explained by observable characteristics of the physician or the physician's patients, patients who are treated by physicians with large numbers of HMO or pre-paid patients are more likely to be prescribed generics, and there is wide regional variation in the propensity of physicians to prescribe generic drugs. The results are most consistent with an explanation of physicians' prescription behavior based on habit persistence.
Handle: RePEc:nbr:nberwo:4981