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Template-Type: ReDIF-Paper 1.0
Title: Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns
Classification-JEL: F02
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Akiko Tamura
Note: ITI
Number: 4758
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w4758
File-URL: http://www.nber.org/papers/w4758.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, vol. 8, no. 4, December 1994, pp. 478-510.
Abstract: We apply a modified 'gravity model' incorporating measures of factor endowments to analyze Japanese and U.S. bilateral trade flows and direct foreign investment positions with a sample of around 100 countries for the period 1985-1990. Country features that our analysis takes into account are population, income, the land-labor ratio, the average level of education, and region. We find that features of a country associated with more trade with either Japan or the United States also tend to be associated with more DFI from Japan or the United States. U.S. economic relations with Japan and Western Europe provide an important exception. Despite U.S. concern about its trade deficit with Japan, we find Japan to be much more open to the United States, not only as a source of imports, but also as a destination for U.S. exports than most countries in Western Europe. Taking other factors into account, however, Western Europe is more open to U.S. direct foreign investment. We also find that a country's level of education tends to increase significantly U.S. interaction of all types with that country, even after correcting for per capita income. Education does not play a significant role in Japanese trade patterns. As factor endowments theory would predict, the United States tends to trade more with densely-populated countries, while Japan tends to import more from sparsely-populated countries. There is a substantial degree of 'bilateralism' in Japanese and U.S. economic relationships in that the residual correlation among exports, imports, and outward direct foreign investment is much larger than would be the case if these magnitudes were independent across countries.
Handle: RePEc:nbr:nberwo:4758
Template-Type: ReDIF-Paper 1.0
Title: Explaining Forward Exchange Bias..Intraday
Classification-JEL: G15; F31
Author-Name: Richard K. Lyons
Author-Person: ply9
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 4982
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4982
File-URL: http://www.nber.org/papers/w4982.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol. 50, no. 4, pp. 1321-1329, September 1995
Abstract: Intraday interest rates are zero. Consequently, a foreign exchange dealer can short a vulnerable currency in the morning, close this position in the afternoon, and never face an interest cost. This tactic might seem especially attractive in times of crisis, since it suggests an immunity to the central bank's interest rate defense. In equilibrium, however, buyers of the vulnerable currency must be compensated on average with an intraday capital gain as long as no devaluation occurs. That is, currencies under attack should typically appreciate intraday. Using data on intraday exchange rate changes within the EMS, we find this prediction is borne out.
Handle: RePEc:nbr:nberwo:4982
Template-Type: ReDIF-Paper 1.0
Title: Implementing Free Trade Areas: Rules of Origin and Hidden Protection
Classification-JEL: F13
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Anne Krueger
Note: ITI
Number: 4983
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4983
File-URL: http://www.nber.org/papers/w4983.pdf
File-Format: application/pdf
Publication-Status: published as New Directions in Trade Theory, J. Levinsohn, A. Deardorff and R. Sterneds., (Ann Arbor: University of Michigan Press, 1995).
Abstract: This paper focuses on the effects of rules of origin in Free Trade Areas. We first point out that even rules of origin which are not restrictive, namely those which do not raise costs of production, have very pronounced effects on trade and investment flows. We then look at some different ways of specifying rules of origin (ROOs) under perfect competition. We compare price and cost based ROOs and show that even if they are equivalent in the 'long run', they are not equivalent in the short run where capacity constraints can exist. We also show that some kinds of ROOs can be ranked in terms of their implications for producer profits. We also show that welfare is likely to be non monotonic in the restrictiveness of the ROO, so that making a ROO more stringent could raise welfare. Finally, we show that in the presence of imperfect competition, ROOs may raise output and reduce prices as they become more stringent.
Handle: RePEc:nbr:nberwo:4983
Template-Type: ReDIF-Paper 1.0
Title: Foreign Exchange Volume: Sound and Fury Signifying Nothing?
Classification-JEL: G15; F31
Author-Name: Richard K. Lyons
Author-Person: ply9
Note: IFM
Number: 4984
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4984
File-URL: http://www.nber.org/papers/w4984.pdf
File-Format: application/pdf
Publication-Status: published as Jeffrey Frankel, Giampaolo Galli and Alberto Giovannini, eds. The Microstructure of Foreign Exchange Markets University of Chicago Press, 1996, pp. 183-201
Publication-Status: published as Foreign Exchange Volume: Sound and Fury Signifying Nothing?, Richard K. Lyons. in The Microstructure of Foreign Exchange Markets, Frankel, Galli, and Giovannini. 1996
Abstract: This paper examines whether currency trading volume is informative, and under what circumstances. Specifically, we use transactions data to test whether trades occurring when trading intensity is high are more informative - dollar for dollar - than trades occurring when intensity is low. Theory admits both possibilities, depending primarily on the posited information structure. We present what we call a hot-potato model of currency trading, which explains why low-intensity trades might be more informative. In the model, the wave of inventory-management trading among dealers following innovations in order flow generates an inverse relationship between intensity and information content. Empirically, low-intensity trades are more informative, supporting the hot-potato hypothesis."
Handle: RePEc:nbr:nberwo:4984
Template-Type: ReDIF-Paper 1.0
Title: The Swedish Experience of an Inflation Target
Classification-JEL: E52; F33
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM ME
Number: 4985
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4985
File-URL: http://www.nber.org/papers/w4985.pdf
File-Format: application/pdf
Publication-Status: published as Inflation Targets, Leonardo Leiderman and Lars E.O. Svensson, editors. London: CEPR, 1995. pp 69-89
Abstract: The paper gives a brief account of the Swedish experience of an inflation target in a floating exchange rate regime; identifies, documents and discusses the current problems in Swedish monetary policy and their origins; considers what can be done to remedy the problems; and draws some general conclusions. The two main current problems are the lack of credibility of the target and the significant risk that the target will be missed. The reasons for the lack of credibility include the fiscal situation, the institutional setup of monetary policy, the political division about monetary policy, and the insufficient transparency of and commitment to the current inflation- targeting policy.
Handle: RePEc:nbr:nberwo:4985
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Uncertainty on Investment: Some Stylized Facts
Classification-JEL: E2
Author-Name: John V. Leahy
Author-Person: ple189
Author-Name: Toni M. Whited
Author-Person: pwh6
Note: EFG
Number: 4986
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4986
File-URL: http://www.nber.org/papers/w4986.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money Credit and Banking, Vol. 28, no. 1, (February 1996), pp. 64-83.
Abstract: The theoretical relationship between investment and uncertainty is ambiguous. This paper briefly surveys the insights that theory has to offer and then runs a series of simple tests aimed at evaluating the empirical significance of various theoretical effects. Our results from a panel of U.S. manufacturing firms indicate a negative effect of uncertainty on investment consistent with theories of irreversible investment. We find no evidence for a positive effect via the channel of the convexity of the marginal product of capital, and we find no evidence for the presence of a CAPM-based effect of risk.
Handle: RePEc:nbr:nberwo:4986
Template-Type: ReDIF-Paper 1.0
Title: The Incentive Effects of Property Taxes on Local Governments
Classification-JEL: H21; R50
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Note: EFG PE
Number: 4987
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4987
File-URL: http://www.nber.org/papers/w4987.pdf
File-Format: application/pdf
Publication-Status: published as Public Choice, Vol. 89, nos. 1/2 (October 1996): pp. 93-111.
Abstract: This paper applies the ideas of Brennan and Buchanan (1977, 1978, 1980) to local property taxes. When local governments maximize their revenues, property taxes provide incentives for adequate amenity provision. Local amenity provision determines property values which then determine local tax revenues. As long as the demand for housing is inelastic, property-taxes will provide stronger incentives for local governments than lump-sum taxes. As current property values reflect expectations about future amenity levels, property taxes create incentives for even the most myopic government to invest for the future. Local property taxes can also act to limit the incentives of localities to tax; there are cases where higher levels of local property taxes lead to lower overall tax burdens. These ideas are applied to the tax reform in the late 1970s; one reason that tax reform may have been so successful is that in a period where land prices are driven by many forces other than government amenities, property taxes lose their value as incentive devices.
Handle: RePEc:nbr:nberwo:4987
Template-Type: ReDIF-Paper 1.0
Title: A Dynamic Structural Model for Stock Return Volatility and Trading Volume
Author-Name: William A. Brock
Author-Person: pbr142
Author-Name: Blake D. LeBaron
Author-Person: ple1
Note: AP
Number: 4988
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4988
File-URL: http://www.nber.org/papers/w4988.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 94-110
Abstract: This paper seeks to develop a structural model that lets data on asset returns and trading volume speak to whether volatility autocorrelation comes from the fundamental that the trading process is pricing or, is caused by the trading process itself. Returns and volume data argue, in the context of our model, that persistent volatility is caused by traders experimenting with different beliefs based upon past profit experience and their estimates of future profit experience. A major theme of our paper is to introduce adaptive agents in the spirit of Sargent (1993) but have them adapt their strategies on a time scale that is slower than the time scale on which the trading process takes place. This will lead to positive autocorrelation in volatility and volume on the time scale of the trading process which generates returns and volume data. Positive autocorrelation of volatility and volume is caused by persistence of strategy patterns that are associated with high volatility and high volume. Thee following features seen in the data: (i) The autocorrelation function of a measure of volatility such as squared returns or absolute value of returns is positive with a slowly decaying tail. (ii) The autocorrelation function of a measure of trading activity such as volume or turnover is positive with a slowly decaying tail. (iii) The cross correlation function of a measure of volatility such as squared returns is about zero for squared returns with past and future volumes and is positive for squared returns with current volumes. (iv) Abrupt changes in prices and returns occur which are hard to attach to 'news.' The last feature is obtained by a version of the model where the Law of Large Numbers fails in the large economy limit.
Handle: RePEc:nbr:nberwo:4988
Template-Type: ReDIF-Paper 1.0
Title: The Causes and Effects of Liability Reform: Some Empirical Evidence
Author-Name: Thomas J. Campbell
Author-Name: Daniel P. Kessler
Author-Name: George B. Shepherd
Note: LE
Number: 4989
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4989
File-URL: http://www.nber.org/papers/w4989.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies (2000), forthcoming.
Abstract: We provide empirical evidence both on the causes and the effects of liability reforms. Using a newly collected data set of state tort laws and a panel data set containing industry-level data by state for the years 1969-1990, we (1) identify the characteristics of states that are associated with liability reforms and (2) examine whether liability reforms influence productivity and employment. We present two central findings. First, reductions in liability levels are associated with increases in measured productivity and employment in most industries that we studied. Second, liability reforms that reduce legal liability are generally positively correlated with measures of political conservatism.
Handle: RePEc:nbr:nberwo:4989
Template-Type: ReDIF-Paper 1.0
Title: Diversification, Integration and Emerging Market Closed-End Funds
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Michael S. Urias
Note: AP
Number: 4990
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4990
File-URL: http://www.nber.org/papers/w4990.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 51, no. 3 (July 1996): 835-869.
Abstract: Using an extensive new data set on U.S. and U.K.-traded closed- end funds, we examine the diversification benefits from emerging equity markets and the extent of their integration with global capital markets. To measure diversification benefits, we exploit the duality between Hansen-Jagannathan bounds [1991] and mean-standard deviation frontiers. We find significant diversification benefits for the U.K. country funds, but not for the U.S. funds. The difference appears to relate to differences in portfolio holdings. To investigate global market integration, we compute the reduction in expected returns an investor would be willing to accept to avoid investment barriers in six countries. We find evidence of investment restrictions for Indonesia, Taiwan and Thailand, but not for Korea, the Philippines or Turkey.
Handle: RePEc:nbr:nberwo:4990
Template-Type: ReDIF-Paper 1.0
Title: Using Electoral Cycles in Police Hiring to Estimate the Effect of Policeon Crime
Classification-JEL: K42; H72
Author-Name: Steven D. Levitt
Author-Person: ple59
Note: PE
Number: 4991
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4991
File-URL: http://www.nber.org/papers/w4991.pdf
File-Format: application/pdf
Publication-Status: published as Levitt, Steven D. "Using Electoral Cycles In Police Hiring To Estimate The Effects Of Police On Crime: Reply," American Economic Review, 2002, v92(4,Sep), 1244-1250.
Abstract: Previous empirical studies have typically uncovered little evidence that police reduce crime. One problem with those studies is a failure to adequately deal with the simultaneity between police and crime: while police may or may not reduce crime, there is little doubt that expenditures on police forces are an increasing function of the crime rate. In this study, the timing of mayoral and gubernatorial elections is used to identify the effect of police on crime. This paper first demonstrates that increases in the size of police forces disproportionately occur in mayoral and gubernatorial election years, a relationship that had previously gone undocumented. After controlling for changes in government spending on other social programs, there is little reason to think that elections will be otherwise correlated with crime, making elections ideal instruments. Using a panel of large U.S. cities from 1970-1992, police are shown to reduce crime for six of the seven crime categories examined. Each additional police officer is estimated to eliminate eight to ten serious crimes. Existing estimates of the costs of crime suggest that the social benefit of reduced crime is approximately $100,000 per officer per year, implying that the current number of police is below the optimal level.
Handle: RePEc:nbr:nberwo:4991
Template-Type: ReDIF-Paper 1.0
Title: Economic Risk and Political Risk in Fiscal Unions
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Roberto Perotti
Author-Person: ppe66
Note: IFM PE
Number: 4992
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4992
File-URL: http://www.nber.org/papers/w4992.pdf
File-Format: application/pdf
Publication-Status: published as Alesina, A. and R. Perotti. "Economic Risk And Political Risk In Fiscal Unions," Economic Journal, 1998, v108(449,Jul), 989-1008.
Abstract: A fiscal program that redistributes income from rich to poor individuals indirectly redistributes tax revenues from regions hit by a favorable shock to regions hit by an unfavorable one. Centralized fiscal redistribution has therefore been advocated as a way to insure individuals against region-specific shocks. In this paper, we argue that a centralized fiscal policy, while reducing the uncertainty on the tax base, creates uncertainty on the tax rate. This occurs because regions hit by different shocks have contrasting interests on the choice of the policy instrument. Using a simple model with two regions and linear taxes, we show that the higher uncertainty on the policy instrument might more than offset the lower uncertainty on the tax base, thus making a majority of agents in each region worse off in a centralized regime. The model is a special case of a more general idea. Heterogeneous entities can reap numerous advantages from integration: mutual insurance (on which we focus), economies of scale, more bargaining power are only a few of them. However, at the same time the same process of integration can increase the unpredictability of any endogenous policy, because more diverse entities participate in the decision-making process, and therefore the opportunities for disagreement increase. In principle, this second effect might offset the advantages of integration.
Handle: RePEc:nbr:nberwo:4992
Template-Type: ReDIF-Paper 1.0
Title: The Decline of Traditional Banking: Implications for Financial Stabilityand Regulatory Policy
Classification-JEL: G21; G1
Author-Name: Franklin R. Edwards
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 4993
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4993
File-URL: http://www.nber.org/papers/w4993.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy Review, vol. 1, no. 2, pp. 27-45 (July 1995).
Abstract: This paper outlines the fundamental economic forces that have led to the decline in traditional banking, that is the process of making loans and funding them by issuing short-dated deposits. The declining competitiveness of traditional banking may threaten financial stability by increasing bank failures and by increasing the incentives for banks to take on more risk, either by making more risky loans or by engaging in 'nontraditional' financial activities that promise higher returns but greater risk. This paper argues that most nontraditional activities, such as banks acting as derivatives dealers, expose banks to risks and moral hazard problems that are similar to those associated with banks' traditional activities, and that these activities can be regulated as effectively as can traditional activities. One regulatory approach to maintain financial stability and strengthen the banking system is to adopt a system of structured bank capital requirements with early corrective action by regulators. An important element in this approach is that market- value accounting principles would be applied to banks and there would be increased public disclosure by banks of the risks associated with their trading activities. With this regulatory structure in place, banks could be permitted greater freedom to expand into nontraditional activities.
Handle: RePEc:nbr:nberwo:4993
Template-Type: ReDIF-Paper 1.0
Title: Pollution Abatement Costs, Regulation, and Plant-Level Productivity
Classification-JEL: D24; Q28
Author-Name: Wayne B. Gray
Author-Person: pgr111
Author-Name: Ronald J. Shadbegian
Author-Person: psh911
Note: PR
Number: 4994
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4994
File-URL: http://www.nber.org/papers/w4994.pdf
File-Format: application/pdf
Publication-Status: published as Gray, Wayne B. (ed.) Economic costs and consequences of environmental regulation, International Library of Environmental Economics and Policy. Aldershot, U.K. and Burlington, VT: Ashgate, Dartmouth, 2002.
Abstract: We analyze the connection between productivity, pollution abatement expenditures, and other measures of environmental regulation for plants in three industries (paper, oil, and steel). We examine data from 1979 to 1990, considering both total factor productivity levels and growth rates. Plants with higher abatement cost levels have significantly lower productivity levels. The magnitude of the impact is somewhat larger than expected: $1 greater abatement costs appears to be associated with the equivalent of $1.74 in lower productivity for paper mills, $1.35 for oil refineries, and $3.28 for steel mills. However, these results apply only to variation across plants in productivity levels. Estimates looking at productivity variation within plants over time, or estimates using productivity growth rates show a smaller (and insignificant) relationship between abatement costs and productivity. Other measures of environmental regulation faced by the plants (compliance status, enforcement activity, and emissions) are not significantly related to productivity.
Handle: RePEc:nbr:nberwo:4994
Template-Type: ReDIF-Paper 1.0
Title: By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: John H. Cochrane
Author-Person: pco57
Note: AP EFG
Number: 4995
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4995
File-URL: http://www.nber.org/papers/w4995.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol.107 (April 1999): 205-251.
Abstract: We present a consumption-based model that explains the procyclical variation of stock prices, the long-horizon predictability of excess stock returns, and the countercyclical variation of stock market volatility. Our model has an i.i.d. consumption growth driving process, and adds a slow-moving external habit to the standard power utility function. The latter feature produces cyclical variation in risk aversion, and hence in the prices of risky assets. Our model also predicts many of the difficulties that beset the standard power utility model, including Euler equation rejections, no correlation between mean consumption growth and interest rates, very high estimates of risk aversion, and pricing errors that are larger than those of the static CAPM. Our model captures much of the history of stock prices, given only consumption data. Since our model captures the equity premium, it implies that fluctuations have important welfare costs. Unlike many habit-persistence models, our model does not necessarily produce cyclical variation in the risk free interest rate, nor does it produce an extremely skewed distribution or negative realizations of the marginal rate of substitution.
Handle: RePEc:nbr:nberwo:4995
Template-Type: ReDIF-Paper 1.0
Title: Income and Wealth of Older American Households: Modeling Issues for Public Policy Analysis
Classification-JEL: D31; H5
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: F. Thomas Juster
Note: AG LS
Number: 4996
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4996
File-URL: http://www.nber.org/papers/w4996.pdf
File-Format: application/pdf
Publication-Status: published as in Eric Hanushek and Nancy L. Maritato, eds., Assessing Knowledge of Retirement Behavior, National Academy Press, Washington, DC 1996, pp.11-60
Abstract: This paper evaluates the extent to which current knowledge of retirement, savings, pension and related behavior is sufficient for determining the effects of major policy initiatives on the incomes and wealth of the aged population of the United States. Data are presented from two new surveys, the Health and Retirement Study and the Asset and Health Dynamics Among the Oldest Old Survey, describing the distributions of the major components of income and wealth to be explained by these behavioral models. The data suggest that the amount of wealth held by the older population has been severely understated in earlier surveys. Disagreements and inconsistencies in models of savings indicate that there is no agreed upon behavioral model upon which to base policy analysis. Similar problems characterize the pension literature. Most strikingly, central features of these three major branches of behavioral analysis are mutually inconsistent. Although there are important linkages among the behaviors determining retirement, savings and pension outcomes, research in each area ignores or misspecifies the related behavior from other areas. Consequently, significant advances are required before we can confidently predict the effects of contemplated changes in policies on income and wealth in retirement.
Handle: RePEc:nbr:nberwo:4996
Template-Type: ReDIF-Paper 1.0
Title: On the Predictability of Stock Returns: An Asset-Allocation Perspective
Classification-JEL: G11; G12
Author-Name: Shmuel Kandel
Author-Name: Robert F. Stambaugh
Author-Person: pst282
Note: AP
Number: 4997
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4997
File-URL: http://www.nber.org/papers/w4997.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance 51 (1996):385-424.
Abstract: The predictability of monthly stock returns is investigated from the perspective of a risk-averse investor who uses the data to update initially vague beliefs about the conditional distribution of returns. The optimal stocks-versus-cash allocation of the investor can depend importantly on the current value of a predictive variable, such as dividend yield, even though a null hypothesis of no predictability might not be rejected at conventional significance levels. When viewed in this economic context, the empirical evidence indicates a strong degree of predictability in monthly stock returns.
Handle: RePEc:nbr:nberwo:4997
Template-Type: ReDIF-Paper 1.0
Title: Antitrust and Higher Education: Was There a Conspiracy to Restrict Financial Aid?
Author-Name: Dennis W. Carlton
Author-Person: pca14
Author-Name: Gustavo E. Bamberger
Author-Name: Roy J. Epstein
Note: IO
Number: 4998
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4998
File-URL: http://www.nber.org/papers/w4998.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, 26, Spring 1995, pp. 131-147.
Abstract: In 1991, the Antitrust Division sued MIT and the eight schools in the Ivy League under Section 1 of the Sherman Act for engaging in a conspiracy to fix the prices that students pay. The Antitrust Division claimed that the schools conspired on financial aid policies in an effort to reduce aid and raise their revenues. The schools justified their cooperative behavior by explaining that it enabled them to concentrate aid on only those in need and thereby helped the schools to achieve their goals of need-blind admission coupled with financial aid to all needy admittees. This paper analyzes the empirical determinants of tuition and finds that the schools' agreement had no effect on average tuition paid. The paper also analyzes the appropriate application of the antitrust laws to not-for-profit institutions. The Court of Appeals found that it is appropriate for the courts to consider non-profit institutions' justifications for collective action (in this case, to enable the poor to attend school) under a Rule of Reason. The Court of Appeals overturned the District Court's opinion against MIT, citing the failure of the District Court to properly apply the Rule of Reason.
Handle: RePEc:nbr:nberwo:4998
Template-Type: ReDIF-Paper 1.0
Title: The Adding Up Problem: A Targeting Approach
Classification-JEL: F13
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI
Number: 4999
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w4999
File-URL: http://www.nber.org/papers/w4999.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Trade and Economic Development, Vol.7, no.2(June 1998): 151-174.
Abstract: This paper looks at the problem of making multiple lending decisions which affect the supply of the product when the consequences of these lending decisions are interrelated via the effect on the world price of the product. This is termed the 'adding up problem'. It is argued that thinking of this problem from the point of view of the targeting literature helps to clarify the nature of optimal policies. In order to do so, three factors need to be specified. First, the objective function of the lender (the Bank) as compared to those of the borrowers (the countries) must be clear. Second, the extent of the lenders' ability to influence total investment in the product, and the instruments available to it, must be understood. Third, distortions present in the environment must be identified. The lender is thought of as trying to implement policies that maximize its objective function. There are distortions in the system which prevent this objective function from being maximized automatically. These distortions could arise because (1) the objectives of the lender do not match those of the borrowers, (2) due to misconceptions of the borrowers on how the system works, (3) because of lack of access to funds on the part of the borrowers relative to the lender, among a host of other distortions not focused on here. The environment and policies available to the lender limit its ability to influence the outcome. In this context, targeting models can be used to help guide policy. The basic rule is to correct the distortions where they occur using the correct instrument to do so. If instruments are limited, the available instruments are used to target multiple distortions, and the first best need not be attainable.
Handle: RePEc:nbr:nberwo:4999
Template-Type: ReDIF-Paper 1.0
Title: Behavioral Responses to Tax Rates: Evidence from TRA86
Classification-JEL: H2; H31
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 5000
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w5000
File-URL: http://www.nber.org/papers/w5000.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, AEA Papers and Proceedings, Vol.85, No.2, May 1995.
Abstract: This paper uses the experience after the Tax Reform Act of 1986 to examine how taxes affect three aspects of individual taxpayer behavior: labor supply, total taxable income, and capital gains. The substantial sensitivity of married women's labor supply implies that the efficiency of the tax system could be increased significantly by reducing the marginal tax rates of these women relative to their husbands' marginal tax rates. More generally, the sensitivity of taxable income to the net of tax share implies that lower marginal tax rates would involve much less revenue loss than is traditionally assumed and would bring a much more substantial reduction in the deadweight loss of the tax system. The sharp fall in the real value of realized capital gains since the 1986 rise in tax rates on capital gains confirms earlier research indicating the substantial sensitivity of capital gains realizations to tax rates. A comparison with projections by the Treasury and Congressional Budget Office made in 1988 shows that the current official model greatly understates the sensitivity of capital gains to tax rates.
Handle: RePEc:nbr:nberwo:5000
Template-Type: ReDIF-Paper 1.0
Title: Empirical Matching Functions: Estimation and Interpretation Using Disaggregate Data
Classification-JEL: J6
Author-Name: Patricia M. Anderson
Author-Name: Simon M. Burgess
Author-Person: pbu44
Note: LS
Number: 5001
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w5001
File-URL: http://www.nber.org/papers/w5001.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 82 (February 2000): 93-102.
Abstract: In this paper, we estimate matching functions using disaggregate data. We find strong support for the matching approach, with most specifications implying slightly increasing returns to scale. This finding does not appear to arise from our inclusion of additional controls or from the level of disaggregation, and so we conclude that earlier findings of constant returns in the US may be due to the various approximations needed to construct an aggregate time series. We also find evidence of endogenous job competition between the employed and nonemployed, so that the estimated parameters from a matching function cannot be interpreted as structural parameters.
Handle: RePEc:nbr:nberwo:5001
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Federal Spending on House Election Outcomes
Classification-JEL: H50
Author-Name: Steven D. Levitt
Author-Person: ple59
Author-Name: James M. Snyder, Jr.
Author-Person: psn39
Note: PE
Number: 5002
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w5002
File-URL: http://www.nber.org/papers/w5002.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, February 1997, 105, pp.30-53
Abstract: While it is widely believed by academics, politicians, and the popular press that incumbent congressmen are rewarded by the electorate for bringing federal dollars to their district, the empirical evidence supporting that claim is extremely weak. One explanation for the failure to uncover the expected relationship between federal spending and election outcomes is that incumbents who expect to have difficulty being reelected are likely to exert greater effort in obtaining federal outlays. Since it is generally impossible to adequately measure this effort, the estimated impact of spending is biased downward due to an omitted variable bias. We address this estimation problem using instrumental variables. For each House district, we use spending outside the district but inside the state containing the district, as an instrument for spending in the district. Federal spending is affected by a large number of actors (e.g. governors, senators, mayors, and other House members in the state delegation), leading to positive correlations in federal spending across the House districts within states. However, federal spending outside of a district is unlikely to be strongly correlated with the strength of that district's electoral challenge. Thus, spending in other districts is a plausible instrument. In contrast to previous studies, we find strong evidence that non-transfer federal spending benefits congressional incumbents: an additional $100 per capita in such spending is worth as much as two percent of the popular vote. Additional transfer spending, on the other hand, does not appear to have any electoral effects.
Handle: RePEc:nbr:nberwo:5002
Template-Type: ReDIF-Paper 1.0
Title: Public Employment, Taxes and the Welfare State in Sweden
Author-Name: Sherwin Rosen
Note: LS
Number: 5003
Creation-Date: 1995-01
Order-URL: http://www.nber.org/papers/w5003
File-URL: http://www.nber.org/papers/w5003.pdf
File-Format: application/pdf
Publication-Status: published as The Welfare State in Transition, Freeman, Richard, B. Swedenborg and R. Topel, eds., NBER, Chicago: University of Chicago Press, 1997.
Publication-Status: published as Public Employment, Taxes, and the Welfare State in Sweden, Sherwin Rosen. in The Welfare State in Transition: Reforming the Swedish Model, Freeman, Topel, and Swedenborg. 1997
Abstract: All employment growth in Sweden since the early 1960's is attributable to labor market entry of women, working in local public sector jobs that implement the Welfare State. Sweden has 'monetized' or 'nationalized' the family. Women are paid at public expense to provide household services for other families. Subsidizing purchased household services encourages labor force participation of women through substitution of market- for self-provided services. It also reduces the marginal cost prices of household goods and encourages substitution of household goods for material goods. A kind of social cross-hauling occurs: when subsidies are increased and taxes raised to finance them, production of material goods declines and production of household goods increases. Women enter the market and work more in each other's households and less in the material goods sector. Efficiency distortions of current child policies in Sweden may be as large as half of total expenditures on childcare. The current 90% subsidies to public childcare probably involve large deadweight losses. A one percent decline in the rate of subsidy accompanied by balanced budget tax decreases would reduce the deadweight losses of tax distortions by one percent, at current policy levels.
Handle: RePEc:nbr:nberwo:5003
Template-Type: ReDIF-Paper 1.0
Title: Spatial Productivity Spillovers from Public Infrastructure: Evidence from State Highways
Classification-JEL: H54; H72
Author-Name: Douglas Holtz-Eakin
Author-Name: Amy Ellen Schwartz
Author-Person: psc654
Note: PE
Number: 5004
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5004
File-URL: http://www.nber.org/papers/w5004.pdf
File-Format: application/pdf
Publication-Status: published as International Tax and Public Finance, vol. 2 (1995), pp. 459-468.
Abstract: Is public sector infrastructure a key determinant of productivity? Traditional, project-based analyses of benefits and costs typically do not find large rates of return. Proponents of infrastructure spending instead point to regression-based analyses of the links between private productivity and public infrastructure that imply large productivity effects from public spending. The disparity in estimated returns is often attributed to geographic spillovers in productivity benefits that are not captured by disaggregated analyses. We examine the degree to which state highways provide productivity benefits beyond the narrow confines of each state's borders. Despite the fact that state highways -- especially the interstate highway system -- are designed at least in part with interstate linkages in mind, we find no evidence of quantitatively important productivity spillovers.
Handle: RePEc:nbr:nberwo:5004
Template-Type: ReDIF-Paper 1.0
Title: Common Interests or Common Polities? Reinterpreting the Democratic Peace
Classification-JEL: F02
Author-Name: Henry S. Farber
Author-Name: Joanne Gowa
Note: LS
Number: 5005
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5005
File-URL: http://www.nber.org/papers/w5005.pdf
File-Format: application/pdf
Publication-Status: published as Henry S. Farber & Joanne Gowa, 1997. "Common Interests or Common Polities? Reinterpreting the Democratic Peace," The Journal of Politics, vol 59(02).
Abstract: The central claim of a rapidly growing literature in international relations is that members of pairs of democratic states are much less likely to engage each other in war or in serious disputes short of war than are members of other pairs of states. Our analysis does not support this claim. Instead, we find that the dispute rate between democracies is lower than is that of other country pairs only after World War II. Before 1914 and between the World Wars, there is no difference between the war rates of members of democratic pairs of states and those of members of other pairs of states. We also find that there is a higher incidence of serious disputes short of war between democracies than between nondemocracies before 1914. We attribute this cross-temporal variation in dispute rates to changes in patterns of common and conflicting interests across time. We use alliances as an indicator of common interests to show that cross-temporal variation in dispute rates conforms to variations in interest patterns for two of the three time periods in our sample.
Handle: RePEc:nbr:nberwo:5005
Template-Type: ReDIF-Paper 1.0
Title: A Panel Project on Purchasing Power Parity: Mean Reversion Within and Between Countries
Classification-JEL: F30
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 5006
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5006
File-URL: http://www.nber.org/papers/w5006.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Feb.1996, vol.40, no.1-2, pp.209-224.
Abstract: Previous time-series studies have shown evidence of mean- reversion in real exchange rates. Deviations from purchasing power parity (PPP) appear to have half-lives of approximately four years. However, the long samples required for statistical significance are unavailable for most currencies, and may be inappropriate because of regime changes. In this study, we re-examine deviations from PPP using a panel of 150 countries and 45 annual observations. Our panel shows strong evidence of mean-reversion that is similar to that from long time-series. PPP deviations are eroded at a rate of approximately 15% annually, i.e., their half-life is around four years. Such findings can be masked in time-series data, but are relatively easy to find in cross-sections.
Handle: RePEc:nbr:nberwo:5006
Template-Type: ReDIF-Paper 1.0
Title: Holdups, Standard Breach Remedies, and Optimal Investment
Classification-JEL: K12; L22; C7; D8
Author-Name: Aaron S. Edlin
Author-Person: ped12
Author-Name: Stefan Reichelstein
Author-Person: pre61
Note: LE
Number: 5007
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5007
File-URL: http://www.nber.org/papers/w5007.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 86, no. 3, pp. 478-501, June 1996.
Abstract: We consider a bilateral trading problem in which one or both parties makes relationship-specific investments before trade. Without adequate contractual protection, the prospect of later holdups discourages investment. We postulate that the parties can sign noncontingent contracts prior to investing, and can freely renegotiate them after uncertainty about the desirability of trade is resolved. We find that such contracts can induce one party to invest efficiently when either a breach remedy of specific performance or expectation damages is applied. Specific performance can also induce both parties to invest efficiently, provided a separability condition holds. In contrast, expectation damages is poorly suited to solve bilateral investment problems.
Handle: RePEc:nbr:nberwo:5007
Template-Type: ReDIF-Paper 1.0
Title: Regional Cost-of-Living Adjustments in Tax-Transfer Schemes
Classification-JEL: H24; H53
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 5008
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5008
File-URL: http://www.nber.org/papers/w5008.pdf
File-Format: application/pdf
Publication-Status: published as Tax Law Review, Vol. 51 (1996): 175-198.
Abstract: The federal income tax and major welfare programs do not take into account significant cost-of-living variations among regions. This article considers what adjustments might be appropriate in light of the distributive purposes of tax and welfare systems and concerns about the efficiency of the interregional allocation of resources. Price index problems, differences in amenities, and heterogeneity of individuals' locational preferences are considered.
Handle: RePEc:nbr:nberwo:5008
Template-Type: ReDIF-Paper 1.0
Title: Tax Projections and the Budget: Lessons from the 1980s
Classification-JEL: H30; H61
Author-Name: Alan J. Auerbach
Author-Person: pau33
Note: PE
Number: 5009
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5009
File-URL: http://www.nber.org/papers/w5009.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 85, no, 2, pp. 165-169, (May 1995)
Abstract: Some economists have argued that the disincentive effects of marginal tax rate increases in the 1980s caused revenue to rise by less than had been anticipated. To evaluate the hypothesis, this paper considers OMB revenue forecasts and forecast errors for the period 1982-93. If the revenue gains from tax increases, and the revenue losses from tax cuts, were overstated because of inadequate allowance for behavioral responses, then the forecast errors should be negatively related to the initial revenue estimates of the impact of policy changes. For excise taxes and corporate income taxes, the results suggest that the systematic overprediction of revenues during the period can be explained in part by an underestimate of behavioral responses to taxation.
Handle: RePEc:nbr:nberwo:5009
Template-Type: ReDIF-Paper 1.0
Title: Differential Information and Dynamic Behavior of Stock Trading Volume
Author-Name: Hua He
Author-Name: Jiang Wang
Note: AP
Number: 5010
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5010
File-URL: http://www.nber.org/papers/w5010.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 8, no. 4 (Winter 1995): 919-972.
Abstract: This paper develops a multi-period rational expectations model of stock trading in which investors have differential information concerning the underlying value of the stock. Investors trade competitively in the stock market based on their private information and the information revealed by the market-clearing prices, as well as other public news. We examine how trading volume is related to the information flow in the market and how investors' trading reveals their private information.
Handle: RePEc:nbr:nberwo:5010
Template-Type: ReDIF-Paper 1.0
Title: Do Firms Smooth the Seasonal in Production in a Boom? Theory and Evidence
Classification-JEL: E32; C49
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Author-Name: Anil K. Kashyap
Author-Person: pka35
Author-Name: David W. Wilcox
Author-Person: pwi165
Note: EFG ME
Number: 5011
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5011
File-URL: http://www.nber.org/papers/w5011.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 87, no. 5 (December 1997): 884-892.
Abstract: Using disaggregated production data we show that the size of seasonal cycles changes significantly over the course of the business cycle. In particular, during periods of high economy-wide activity, some industries smooth seasonal fluctuations while others exaggerate them. We interpret this finding using a simple analytical model that describes the conditions under which seasonal and cyclical fluctuations can be separated. Our model implies that seasonal fluctuations can safely be disentangled from cyclical fluctuations only when the marginal cost of production is linear, and the variation in demand and cost satisfy certain (restrictive) conditions. The model also suggests that inventory movements can be used to isolate the role of demand shifts in generating any interaction between seasonal cycles and business cycles. Thus, the empirical analysis involves studying the variation in seasonally unadjusted patterns of production and inventory accumulation over different phases of the business cycle. Our finding that seasonals shrink during booms and that firms carry more inventories into high sales seasons during a boom leads us to conclude that for several industries, marginal cost slopes up at an increasing rate. Conversely, in a couple of industries we find that seasonal swings in production are exaggerated during booms and that inventories are drawn down prior to high sales seasons, suggesting that marginal costs curves flatten as production increases. Overall, we find considerable evidence that there are non-linear interactions between business cycles and seasonal cycles.
Handle: RePEc:nbr:nberwo:5011
Template-Type: ReDIF-Paper 1.0
Title: Price, Tobacco Control Policies and Smoking Among Young Adults
Classification-JEL: I1
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Henry Wechsler
Note: EH
Number: 5012
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5012
File-URL: http://www.nber.org/papers/w5012.pdf
File-Format: application/pdf
Publication-Status: published as Chaloupka, Frank J. and Henry Wechsler. "Price, Tobacco Control Policies And Smoking Among Young Adults," Journal of Health Economics, 1997, v16(3,Jun), 359-373.
Abstract: The effects of cigarette prices and tobacco control policies (including restrictions on smoking in public places and limits on the availability of tobacco products to youths) on cigarette smoking among youths and young adults are estimated using data from a nationally representative survey of students in U.S. colleges and universities. Smoking participation rates, the quantity of cigarettes smoked by smokers, and level of smoking equations are estimated using appropriate econometric methods. The estimates indicate that college students are quite sensitive to the price of cigarettes, with an average estimated price elasticity of smoking participation of -0.66 and an overall average estimated price elasticity of cigarette smoking of -1.43. In addition, relatively stringent restrictions on smoking in public places are found to reduce smoking participation rates among college students, while the quantity of cigarettes consumed by smokers is lowered by any restrictions on public smoking. Finally, limits on the availability of tobacco products to underage youths have no impact on college students, almost all of whom can legally purchase these products.
Handle: RePEc:nbr:nberwo:5012
Template-Type: ReDIF-Paper 1.0
Title: Economic Growth in a Cross-Section of Cities
Classification-JEL: O40; R11
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: Jose A. Scheinkman
Author-Person: psc26
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: EFG
Number: 5013
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5013
File-URL: http://www.nber.org/papers/w5013.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Volume 36, August 1995, pp. 117-144.
Abstract: We examine the relationship between urban characteristics in 1960 and urban growth (income and population) between 1960 and 1990. Our major findings are that income and population growth move together and both types of growth are (1) positively related to initial schooling, (2) negatively related to initial unemployment and (3) negatively related to the share of employment initially in manufacturing. These results are qualitatively unchanged if we examine cities (a smaller political unit) or SMSAs (a larger 'economic' unit). We also find that racial composition and segregation are basically uncorrelated with urban growth across all cities, but that in communities with large nonwhite communities segregation is positively correlated with white population growth. Government expenditures (except for sanitation) are uncorrelated with urban growth. Government debt is positively correlated with later growth.
Handle: RePEc:nbr:nberwo:5013
Template-Type: ReDIF-Paper 1.0
Title: Are Lifetime Jobs Disappearing? Job Duration in the United States: 1973-1993
Classification-JEL: J60
Author-Name: Henry S. Farber
Note: LS
Number: 5014
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5014
File-URL: http://www.nber.org/papers/w5014.pdf
File-Format: application/pdf
Publication-Status: published as Haltiwanger, John, Marilyn E. Manser, and Robert Topel (eds.) Labor Statistics Measurement Issues. Chicago: University of Chicago Press, 1998.
Abstract: The public believes that job security has deteriorated dramatically in the United States. In this study, I examine job durations from eight supplements to the Current Population Survey (CPS) administered between 1973 and 1993 in order to determine if, in fact, there has been a systematic change in the likelihood of long- term employment. In order to measure changes in the distribution of job durations, I examine changes in selected quantiles (the median and the 0.9 quantile) of the distribution of duration of jobs in progress. I also examine selected points in the cumulative distribution function including the fraction of workers who have been with their employer 1) less than one year, 2) more than ten years, and 3) more than twenty years. The central findings are clear. By the measures I examine, there has been no systematic change in the overall distribution of job duration over the last two decades, but the distribution of long-term jobs across the population has changed in two ways. First, individuals, particularly men, with little education (less than twelve years) are substantially less likely to be in long jobs today than they were twenty years ago. Second, women with at least a high-school education are substantially more likely to be in long jobs today than they were twenty years ago.
Handle: RePEc:nbr:nberwo:5014
Template-Type: ReDIF-Paper 1.0
Title: The Deficit Gamble
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: Douglas W. Elmendorf
Author-Person: pel79
Author-Name: N. Gregory Mankiw
Note: EFG
Number: 5015
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5015
File-URL: http://www.nber.org/papers/w5015.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 30 (November 1998): 699-720.
Abstract: The historical behavior of interest rates and growth rates in U.S. data suggests that the government can, with a high probability, run temporary budget deficits and then roll over the resulting government debt forever. The purpose of this paper is to document this finding and to examine its implications. Using a standard overlapping-generations model of capital accumulation, we show that whenever a perpetual rollover of debt succeeds, policy can make every generation better off. This conclusion does not imply that deficits are good policy, for an attempt to roll over debt forever might fail. But the adverse effects of deficits, rather than being inevitable, occur with only a small probability.
Handle: RePEc:nbr:nberwo:5015
Template-Type: ReDIF-Paper 1.0
Title: Measuring Aggregate Human Capital
Classification-JEL: C43; C83
Author-Name: Casey B. Mulligan
Author-Person: pmu64
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 5016
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5016
File-URL: http://www.nber.org/papers/w5016.pdf
File-Format: application/pdf
Publication-Status: published as Mulligan, Casey B & Sala-i-Martin, Xavier, 2000. " Measuring Aggregate Human Capital," Journal of Economic Growth, Springer, vol. 5(3), pages 215-52, September.
Abstract: In this paper we construct a set of human capital indexes for the states of the United States for each Census year starting in 1940. In order to do so, we propose a new methodology for the construction of index numbers in panel data sets. Our method is based on an optimal approach by which we choose the 'best' set index numbers by minimizing the expected estimation error subject to some search constraints. Some of the empirical findings are that the stock of human capital in the United States grew twice as rapidly as the average years of schooling and that human capital inequality across states went up during the 1980s (while the dispersion of schooling actually fell). We conclude that using the average years of schooling for the empirical study of existing growth models may be misleading.
Handle: RePEc:nbr:nberwo:5016
Template-Type: ReDIF-Paper 1.0
Title: The Illusion of Failure: Trends in the Self-Reported Health of the U.S. Elderly
Classification-JEL: I1
Author-Name: Timothy Waidmann
Author-Person: pwa241
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Michael Schoenbaum
Note: AG EH
Number: 5017
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5017
File-URL: http://www.nber.org/papers/w5017.pdf
File-Format: application/pdf
Publication-Status: published as Milbank Quarterly, 73 (2): 253-288. (1995)
Abstract: Data from the National Health Interview Survey and elsewhere showed a trend toward worsening self-reported health among American men and women in middle age and older during the 1970s. This evidence - combined with the significant declines in age-specific mortality observed since the 1960s - led some researchers to suggest that, on average, the health of the older population is declining. We examine recent trends in self-reported health and find that the health declines observed during the 1970s generally reversed during the 1980s. This shift would appear to belie the notion that lower adult mortality necessarily implies worse health. We argue further that the reversals observed during the 1980s also call into question whether trends in self-reported health during the 1970s reflected actual health declines. We suggest that changes in the social and economic forces influencing the options available for responding to health problems, combined with earlier diagnosis of pre-existing conditions, provide a more plausible explanation for these trends - an explanation that is consistent with data from both the 1970s and 1980s.
Handle: RePEc:nbr:nberwo:5017
Template-Type: ReDIF-Paper 1.0
Title: A Labor-Income-Based Measure of the Value of Human Capital: An Application to the States of the United States
Classification-JEL: C82; O49
Author-Name: Casey B. Mulligan
Author-Person: pmu64
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 5018
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5018
File-URL: http://www.nber.org/papers/w5018.pdf
File-Format: application/pdf
Publication-Status: published as Japan and the World Economy, Vol 9, no. 2 (May 1997): 159-191.
Abstract: We argue that a sensible measure of the aggregate value of human capital is the ratio of total labor income per capita to the wage of a person with zero years of schooling. The reason for that is that total labor income not only incorporates human capital, but also physical capital: given human capital, regions with higher physical capital will tend to have higher wages for all workers and, therefore, higher labor income. We find that one way to net out the effect of aggregate physical capital on labor income is to divide labor income by the wage of a zero-schooling worker. For the average U.S. state, our measure suggests that the value of human capital during the 1980s grew at a much larger rate than schooling. The reason has to do with movements in the relative productivities of the different workers: in some sense, some workers and some types of schooling became a lot more relevant in the 1980s and, as a result, measured human capital increased.
Handle: RePEc:nbr:nberwo:5018
Template-Type: ReDIF-Paper 1.0
Title: The International Diversification Puzzle is Worse Than You Think
Classification-JEL: F40; G11
Author-Name: Marianne Baxter
Author-Person: pba102
Author-Name: Urban J. Jermann
Author-Person: pje4
Note: IFM
Number: 5019
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5019
File-URL: http://www.nber.org/papers/w5019.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, march 1997.
Abstract: Although international financial markets are highly integrated across the more well-developed countries, investors nevertheless hold portfolios that consist nearly exclusively of domestic assets. This violation of the predictions of standard theories of portfolio choice is known as the 'international diversification puzzle.' In this paper, we show that the presence of nontraded risk associated with variations in the return to human capital has dramatic implications for the optimal fraction of domestic assets in an individual's portfolio. Our analysis suggests that the returns to human capital are highly correlated with the returns to domestic financial assets. Hedging the risk associated with nontraded human capital involves a short position in national equities in an amount approximately 1.5 times the value of the national stock market. Thus optimal and value- weighted portfolios very likely involve a short position in domestic marketable assets.
Handle: RePEc:nbr:nberwo:5019
Template-Type: ReDIF-Paper 1.0
Title: Strategic Trade Policy
Classification-JEL: F10
Author-Name: James A. Brander
Author-Person: pbr168
Note: ITI
Number: 5020
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5020
File-URL: http://www.nber.org/papers/w5020.pdf
File-Format: application/pdf
Publication-Status: published as Chapter 27 in Gene Grossman and Kenneth Rogoff (ed.) Handbook of International Economics, Vol. III (elsevier: Amsterdam). pp. 1395-1455, 1995.
Abstract: This paper reviews the literature on strategic trade policy. Strategic trade policy is defined as trade policy that conditions or alters a strategic relationship between firms, implying that strategic trade policy focuses primarily on trade policy in the presence of oligopoly. The key point is that strategic relationships between firms introduce additional motives for trade policy, over and above terms of trade and other effects that arise in all market structures. I demonstrate this general point using a simple game theoretic framework, then present the major results of strategic trade policy using two models: the 'third market' model, in which oligopolistic firms in two exporting nations export the good in question exclusively to a third country; and the 'reciprocal markets' model, in which firms in two countries compete in each others' markets. The paper makes the well-known point that slight differences in model structure can give rise to strikingly different trade policy implications, but also seeks to emphasize the robust general points that emerge from the literature.
Handle: RePEc:nbr:nberwo:5020
Template-Type: ReDIF-Paper 1.0
Title: International Trade and Open Access Renewable Resources: The Small Open Economy Case
Classification-JEL: F10; Q20
Author-Name: James A. Brander
Author-Person: pbr168
Author-Name: M. Scott Taylor
Author-Person: pta60
Note: ITI
Number: 5021
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5021
File-URL: http://www.nber.org/papers/w5021.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, Vol. 30, no. 3 (August 1997): 526-552.
Abstract: This paper develops a two-sector general equilibrium model of an economy with an open access renewable resource. We characterize the autarkic steady state, showing that autarky prices (and 'comparative advantage') are determined by the ratio of intrinsic resource growth to labor. Under free trade, steady state trade and production patterns for a small open economy are determined by whether the resource good's world price exceeds its autarky price. Strikingly, if the small country exports the resource good while remaining diversified, then steady-state utility is lower than in autarky, and increases in the world price of exports are welfare-reducing.
Handle: RePEc:nbr:nberwo:5021
Template-Type: ReDIF-Paper 1.0
Title: Measuring Business Cycles Approximate Band-Pass Filters for Economic Time Series
Classification-JEL: C82; E17
Author-Name: Marianne Baxter
Author-Person: pba102
Author-Name: Robert G. King
Author-Person: pki21
Note: EFG
Number: 5022
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5022
File-URL: http://www.nber.org/papers/w5022.pdf
File-Format: application/pdf
Publication-Status: published as Baxter, Marianne and Robert G. King. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," Review of Economics and Statistics, 1999, v81(4,Nov), 575-593.
Abstract: This paper develops a set of approximate band-pass filters designed for use in a wide range of economic applications. In particular, we design and implement a specific band-pass filter which isolates business-cycle fluctuations in macroeconomic time series. This filter was designed to isolate fluctuations in the data which persist for periods of two through eight years. This filter also 'detrends' the data, in the sense that it will render stationary time series that are integrated of order two or less, or that contain deterministic time trends. We apply our filter to several of the key macroeconomic time series, and describe the picture of the U.S. postwar business cycle that emerges from our analysis. We also provide detailed comparisons with several alternative detrending methods.
Handle: RePEc:nbr:nberwo:5022
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Labor Supply of Married Women: The Tax Reform Act of 1986 as a Natural Experiment
Classification-JEL: H24; H31
Author-Name: Nada Eissa
Note: PE
Number: 5023
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5023
File-URL: http://www.nber.org/papers/w5023.pdf
File-Format: application/pdf
Abstract: This paper uses the Tax Reform Act of 1986 as a natural experiment to identify the labor supply responsiveness of married women to changes in the tax rate. The Tax Reform Act of 1986 reduced the top marginal tax rate by 44 percent (from 50 percent to 28 percent), but changed less the marginal tax rate for those further down the income distribution. I analyze the response of married women at or above the 99th percentile of the income distribution, using as a control group women from the 75th percentile of the income distribution. I therefore identify the tax effect as the difference between the change in labor supply of women with large tax rate reductions and the change in labor supply of women with small tax rate reductions. I find evidence that the labor supply of high-income, married women increased due to the Tax Reform Act of 1986. The increase in total labor supply of married women at the top of the income distribution (relative to married women at the 75th percentile of the income distribution) implies an elasticity with respect to the after- tax wage of approximately 0.8. At least half of this elasticity is due to labor force participation. Use of a second control group supports the participation response but is inconclusive on the hours of work response.
Handle: RePEc:nbr:nberwo:5023
Template-Type: ReDIF-Paper 1.0
Title: Sex Discrimination in Restaurant Hiring: An Audit Study
Classification-JEL: J16; J24
Author-Name: David Neumark
Author-Person: pne16
Author-Name: Roy J. Bank
Author-Name: Kyle D. Van Nort
Note: LS
Number: 5024
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5024
File-URL: http://www.nber.org/papers/w5024.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 111, no. 3 (August 1996): 915-941.
Abstract: This paper reports on a small-scale audit study that investigates sex discrimination in restaurant hiring. Comparably matched pairs of men and women applied for jobs as waiters and waitresses at 65 restaurants in Philadelphia. The 130 applications led to 54 interviews and 39 job offers. The results provide statistically significant evidence of sex discrimination against women in high-price restaurants. In high-price restaurants, job applications from women had an estimated probability of receiving a job offer that was lower by about .5, and an estimated probability of receiving an interview that was lower by about .4. These hiring patterns appear to have implications for sex differences in earnings, as informal survey evidence indicates that earnings are higher in high-price restaurants.
Handle: RePEc:nbr:nberwo:5024
Template-Type: ReDIF-Paper 1.0
Title: International Trade and Business Cycles
Classification-JEL: F41; F32
Author-Name: Marianne Baxter
Author-Person: pba102
Note: IFM EFG
Number: 5025
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5025
File-URL: http://www.nber.org/papers/w5025.pdf
File-Format: application/pdf
Publication-Status: published as Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
Publication-Status: published as Handbook of International Economics, vol 3 (Dec 1995), North-Holland G. Grossman and K. Rogoff, editors.
Abstract: Virtually all economies experience recurrent fluctuations in economic activity that persist for periods of several quarters to several years. Further, there is a definite tendency for the business cycles of developed countries to move together--there is a world component to business cycles. This paper argues that capital accumulation and international capital flows are central to understanding world trade and business cycles. In particular, fluctuations in net exports and the current account are shown to be dominated by trade in capital goods. The paper develops a two country model of international trade within which capital accumulation and international investment flows play a central role. We explore the channels by which technology shocks and fiscal shocks are transmitted to the domestic and foreign economies, and discuss the extent to which these results are sensitive to individuals' opportunities for international trade in financial assets. Overall, we find that the models capture many of the salient features of international business cycles. However, it has proven consistently difficult to generate sufficient comovement across countries in labor input and investment. The paper concludes with a discussion of fruitful directions for future research.
Handle: RePEc:nbr:nberwo:5025
Template-Type: ReDIF-Paper 1.0
Title: Crime and Social Interactions
Classification-JEL: K42; D00
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: Bruce Sacerdote
Author-Name: Jose A. Scheinkman
Author-Person: psc26
Note: EFG LS
Number: 5026
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5026
File-URL: http://www.nber.org/papers/w5026.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 111, no. 2 (May 1996): 507-548.
Abstract: The high degree of variance of crime rates across space (and across time) is one of the oldest puzzles in the social sciences (see Quetelet (1835)). Our empirical work strongly suggests that this variance is not the result of observed or unobserved geographic attributes. This paper presents a model where social interactions create enough covariance across individuals to explain the high cross- city variance of crime rates. This model provides a natural index of social interactions which can compare the degree of social interaction across crimes, across geographic 1units and across time. Our index gives similar results for different data samples and suggests that the amount of social interactions are highest in petty crimes (such as larceny and auto theft), moderate in more serious crimes (assault, burglary and robbery) and almost negligible in murder and rape. The index of social interactions is also applied to non-criminal choices and we find that there is substantial interaction in schooling choice.
Handle: RePEc:nbr:nberwo:5026
Template-Type: ReDIF-Paper 1.0
Title: Maximizing Predictability in the Stock and Bond Markets
Classification-JEL: G12
Author-Name: Andrew W. Lo
Author-Person: plo171
Author-Name: A. Craig MacKinlay
Note: AP
Number: 5027
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5027
File-URL: http://www.nber.org/papers/w5027.pdf
File-Format: application/pdf
Publication-Status: published as Lo, Andrew W. & Mackinlay, A. Craig, 1997. "Maximizing Predictability In The Stock And Bond Markets," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 102-134, January.
Abstract: We construct portfolios of stocks and of bonds that are maximally predictable with respect to a set of ex ante observable economic variables, and show that these levels of predictability are statistically significant, even after controlling for data-snooping biases. We disaggregate the sources for predictability by using several asset groups, including industry-sorted portfolios, and find that the sources of maximal predictability shift considerably across asset classes and sectors as the return-horizon changes. Using three out-of-sample measures of predictability, we show that the predictability of the maximally predictable portfolio is genuine and economically significant.
Handle: RePEc:nbr:nberwo:5027
Template-Type: ReDIF-Paper 1.0
Title: Capital Income Taxation and Long Run Growth: New Perspectives
Classification-JEL: F2; H2
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Chi-Wa Yuen
Note: IFM PE
Number: 5028
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5028
File-URL: http://www.nber.org/papers/w5028.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 59, pp. 239-263, February 1996
Abstract: We study the effects of capital income taxation on long run growth in an endogenous growth framework with two distinguishing features: endogenous population and international capital mobility. Endogenizing population growth introduces a new channel for taxes to affect economic growth and enables us to discriminate the effects of taxes on total versus per capita income growth. Allowing for capital mobility in the open economy, we show how the effects of taxes on population growth and income growth across countries will vary in specific ways, depending on the international income tax regimes and the relative preference bias of people towards the 'quantity' and 'quality' of children. The numerical results based on our calibrated model for the G-7 also indicate that, although the effects of liberalizing capital flows on long run growth may not be very sizable, the growth effects of changes in capital income tax rates can be tremendously magnified by cross-border capital flows and cross-border spillovers of policy effects.
Handle: RePEc:nbr:nberwo:5028
Template-Type: ReDIF-Paper 1.0
Title: Exploring New Markets: Direct Investment, Contractual Relations and the Multinational Enterprise
Classification-JEL: F23
Author-Name: Ignatius J. Horstmann
Author-Person: pho167
Author-Name: James R. Markusen
Author-Person: pma528
Note: ITI
Number: 5029
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5029
File-URL: http://www.nber.org/papers/w5029.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, vol. 37, 1996, pp. 1-20.
Abstract: We consider the multinational firm's decision on whether to enter a new market immediately via direct investment or to contract initially with a local agent and (possibly) invest later. Use of a local agent allows the multinational to avoid costly mistakes by finding out if the market is large enough to support direct investment. However, the agent is able to extract information rents from the multinational due to being better informed about market characteristics. We find that direct investment is the desirable mode of entry when the market is on average large and there is little down- side risk in expected profits.
Handle: RePEc:nbr:nberwo:5029
Template-Type: ReDIF-Paper 1.0
Title: Is High School Employment Consumption or Investment?
Classification-JEL: I2; J2
Author-Name: Christopher J. Ruhm
Author-Person: pru7
Note: LS
Number: 5030
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5030
File-URL: http://www.nber.org/papers/w5030.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 113, no. 1 (February 1998): 285-317.
Abstract: Using data from the National Longitudinal Survey of Youth, this study examines whether employment by high school students improves or worsens economic attainment 6 to 9 years after the scheduled date of high school graduation. There is no indication that light to moderate job commitments ever have a detrimental impact and hours worked during the senior grade are positively correlated with future earnings, fringe benefits, and occupational status. These results are robust across a variety of specifications and suggest that employment increases net investments in human capital and facilitates the school- to-work transition, particularly towards the end of high school and for students not continuing on to college.
Handle: RePEc:nbr:nberwo:5030
Template-Type: ReDIF-Paper 1.0
Title: Some Lessons from the Yield Curve
Classification-JEL: E43; G12
Author-Name: John Y. Campbell
Author-Person: pca54
Note: AP ME
Number: 5031
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5031
File-URL: http://www.nber.org/papers/w5031.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, vol. 9, no. 3, 1995, pp. 129-152
Abstract: This paper reviews the literature on the relation between short- and long-term interest rates. It summarizes the mixed evidence on the expectations hypothesis of the term structure: when long rates are high relative to short rates, short rates tend to rise as implied by the expectations hypothesis, but long rates tend to fall which is contrary to the expectations hypothesis. The paper discusses the response of the U.S. bond market to shifts in monetary policy in the spring of 1994, and reviews the debate over the optimal maturity structure of the U.S. government debt.
Handle: RePEc:nbr:nberwo:5031
Template-Type: ReDIF-Paper 1.0
Title: Purchasing Power Disparity During the Floating Rate Period: Exchange Rate Volatility, Trade Barriers and Other Culprits
Classification-JEL: F21
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Author-Name: David C. Parsley
Author-Person: ppa30
Note: IFM
Number: 5032
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5032
File-URL: http://www.nber.org/papers/w5032.pdf
File-Format: application/pdf
Abstract: Using a panel of 12 tradable sectors in 91 OECD country pairs (14 countries), we study the deviations from the purchasing power parity during the recent floating exchange rate period. (1) We find some evidence that the deviations are positively related to exchange rate volatility as well as to transportation costs. (2) Once we have controlled for these two factors, free trade areas such as the EC and the EFTA do not seem to reduce significantly the deviations from PPP relative to other OECD countries. (3) Although only using the post- 1973 data, we are able to find strong evidence of mean reversion towards PPP. The estimated half lives of the deviation from PPP are about four years and three quarters for the non-EMS countries in the sample, and four years and one quarter for the EMS countries. (4) We find evidence of non-linearity in the rate of mean reversion: the convergence occurs faster for country pairs with larger initial deviations.
Handle: RePEc:nbr:nberwo:5032
Template-Type: ReDIF-Paper 1.0
Title: Is the Japanese Extended Family Altruistically Linked? A Test based on Engel Curves
Classification-JEL: D11; D12
Author-Name: Fumio Hayashi
Author-Person: pha83
Note: AG EFG
Number: 5033
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5033
File-URL: http://www.nber.org/papers/w5033.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, June 1995, vol. 103, no. 3, pp. 661-674
Abstract: Altruism has the well-known neutrality implication that the family's demand for commodities is invariant to the division of resources within the family. We test this by estimating Engel curves on a cross-section of Japanese extended families forming two- generation households. We find that the pattern of food expenditure is significantly affected by the division of resources. The food components whose budget share increases with the older generation's share of household income are precisely those favored by the old such as cereal, seafood, and vegetables.
Handle: RePEc:nbr:nberwo:5033
Template-Type: ReDIF-Paper 1.0
Title: To Comfort Always: The Prospects of Expanded Social Responsibility for Long-Term Care
Classification-JEL: 112; E
Author-Name: Alan M. Garber
Note: EH
Number: 5034
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5034
File-URL: http://www.nber.org/papers/w5034.pdf
File-Format: application/pdf
Publication-Status: published as Individual and Social Responsibility: Child Care, Education, Medical Care,and Long-Term Care in America, Victor R. Fuchs, ed., pp. 143-169, (Univer-sity of Chicago Press, 1996).
Publication-Status: published as To Comfort Always: The Prospects of Expanded Social Responsibility for Long-Term Care, Alan M. Garber . in Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, Fuchs. 1996
Abstract: Long-term care is an important means of providing basic and humanitarian care for elderly Americans who are severely disabled. The demand for long-term care is likely to increase dramatically as baby-boomers begin to reach advanced ages. Long-term care has been a focus of health care reform because its current financing--largely a combination of out-of-pocket payments and Medicaid--is viewed as inadequate. Only a small fraction of long-term care is financed by private insurance, which is expensive in part because moral hazard and adverse selection may create greater distortion in the utilization of long-term care than in use of hospital and physician services. Increased government financing does not appear to be a feasible option for the coming decades, since the ratio of retirees to working age adults will decline at the time that the demand for long-term care rises. Furthermore, there is little prospect that the costs of existing Federal entitlement programs can be reduced enough to finance a greatly expanded government role in long-term care. Although there are likely to be roles for private insurance, especially if it can be made more efficient, and publicly funded catastrophic coverage, Federal efforts to improve financing of long-term care are most likely to be successful if they promote private savings.
Handle: RePEc:nbr:nberwo:5034
Template-Type: ReDIF-Paper 1.0
Title: Quality-Adjusted Prices for the American Automobile Industry: 1906-1940
Classification-JEL: N6; O3
Author-Name: Daniel M.G. Raff
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 5035
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5035
File-URL: http://www.nber.org/papers/w5035.pdf
File-Format: application/pdf
Publication-Status: published as The Economics of New Goods, Timothy F. Bresnahan and Robert J. Gordon, eds. , pp. 71, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Quality-Adjusted Prices for the American Automobile Industry: 1906-1940, Daniel M. G. Raff, Manuel Trajtenberg. in The Economics of New Goods, Bresnahan and Gordon. 1997
Abstract: We push the span of hedonic price calculations for automobiles backwards towards the industry's birth. Most of the real change that occurred between 1906 and 1982 occurred between 1906 and 1940. During these years, hedonic prices fell at an average annual rate of 5%. The pace was brisker still during the first 8-12 years. Our measured declines can be decomposed into price and quality components. Our calculations suggest that 60% of the overall decline 1906-1940 was due to process innovation and only 40% to product innovation or quality change per se. Regressors representing mechanical systems matter in these calculations.
Handle: RePEc:nbr:nberwo:5035
Template-Type: ReDIF-Paper 1.0
Title: Multinational Firms and The New Trade Theory
Classification-JEL: F12; F23
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Anthony J. Venables
Author-Person: pve7
Note: ITI
Number: 5036
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5036
File-URL: http://www.nber.org/papers/w5036.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics 46 (1998), pp. 183-204.
Abstract: A model is constructed in which multinational firms may arise endogenously. Multinationals exist in equilibrium when transport and tariff costs are high, incomes are high, and firm-level scale economies are important relative to plant-level scale economies. Less obvious, multinationals are more important in total economic activity when countries are more similar in incomes, relative factor endowments, and technologies. The model may thus be useful in explaining several stylized facts, including (a) the growing importance of direct investment relative to trade among the developed countries over time and (b) the greater ratio of investment to trade among the developed countries relative to this ratio for 'north-south' or 'south-south' economic relationships. The model offers predictions about the volume of trade that contrast with those of the 'new trade theory', predicting that trade at first rises and then falls as countries converge in incomes, relative endowments, and technologies. Welfare is also considered, and it is shown that direct investment makes the smaller (or high cost) country better off, but may make the larger (or low cost) country worse off.
Handle: RePEc:nbr:nberwo:5036
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Trade and Foreign Direct Investment on Employment and Relative Wages
Classification-JEL: F10
Author-Name: Robert E. Baldwin
Note: ITI LS
Number: 5037
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5037
File-URL: http://www.nber.org/papers/w5037.pdf
File-Format: application/pdf
Publication-Status: published as OECD Economic Studies, Vol. 23 (Winter 1994): 7-54.
Abstract: This paper summarizes and assesses recent studies on the impact of current trends in trade and direct investment on employment and wages in OECD countries. The general conclusion is that such factors as changes in labour supplies, technology and demand are more important than changes in trading patterns in accounting for changes in employment and shifts in relative wages. However, further studies are needed to understand better the employment and wage impact of foreign direct investment.
Handle: RePEc:nbr:nberwo:5037
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Cocaine and Marijuana Use on Marriage and Marital Stability
Classification-JEL: J12
Author-Name: Robert Kaestner
Author-Person: pka42
Note: EH
Number: 5038
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5038
File-URL: http://www.nber.org/papers/w5038.pdf
File-Format: application/pdf
Publication-Status: published as Kaestner, Robert. "The Effects of Cocaine and Marijuana Use on Marriage and Marital Stability." Journal of Family Issues 18, 2 (1997): 145-173.
Abstract: This paper examines the relationship between illicit drug use and marital status. The paper starts with an overview of the relevant economic theory for this problem. Then, using data from the National Longitudinal Survey of Labor Market Experiences, the paper presents both cross sectional and longitudinal estimates of the effect of marijuana and cocaine use on marital status, time until first marriage, and duration of first marriage. The results indicate that in general, drug users are more likely to be unmarried due to a delay in the age at first marriage, and shorter marriage durations. The findings are not uniform, however, and differ according to the gender, race and age of the sample.
Handle: RePEc:nbr:nberwo:5038
Template-Type: ReDIF-Paper 1.0
Title: Economic Convergence and Economic Policies
Author-Name: Jeffrey D. Sachs
Author-Name: Andrew M. Warner
Note: IFM EFG
Number: 5039
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5039
File-URL: http://www.nber.org/papers/w5039.pdf
File-Format: application/pdf
Publication-Status: published as Brookings Papers on Economic Activity, ed. William Brainard and George Perry, 1:1995, 1-95, 108-118.
Abstract: Many of the crucial debates in development economics are encapsulated in the question of economic convergence. Is there a tendency for the poorer countries to grow more rapidly than the richer countries, and thereby to converge in living standards? Some recent research on endogenous growth has emphasized increasing returns as a possible reason not to expect convergence. Other research has suggested that convergence may be achieved only after poor countries attain a threshold level of income or human capital. This paper presents evidence that a sufficient condition for higher-than-average growth of poorer countries, and therefore convergence, is that poorer countries follow reasonably efficient economic policies, mainly open trade and protection of private property rights.
Handle: RePEc:nbr:nberwo:5039
Template-Type: ReDIF-Paper 1.0
Title: Quality Adjusted Cost Functions for Child Care Centers
Classification-JEL: J13; L30
Author-Name: H. Naci Mocan
Author-Person: pmo270
Note: EH LS
Number: 5040
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5040
File-URL: http://www.nber.org/papers/w5040.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 82, no. 2, pp. 409-412 (May 1995).
Abstract: Using a newly compiled data set, this paper estimates multi- product translog cost functions for 399 child care centers from California, Colorado, Connecticut, and North Carolina. Quality of child care is controlled by a quality index, which has been shown to be positively related to child outcomes by previous research. Nonprofit centers that receive public money, either from the state or federal government, (which is tied to higher standards), have total variable costs that are 18 percent higher than other centers, keeping quality of services constant. No statistically significant differences between general categories of for-profit and non-profit centers are detected. Furthermore, various types of nonprofits are not distinguishable from their for-profit counterparts. In agreement with previous studies, the data show that the average quality of center-based child care is between 'minimal' and 'good', and it costs 13 cents per hour per child to increase this average quality to the level considered developmentally appropriate by child care experts.
Handle: RePEc:nbr:nberwo:5040
Template-Type: ReDIF-Paper 1.0
Title: Investment in New Activities and the Welfare Cost of Uncertainty
Classification-JEL: F12; F15
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI
Number: 5041
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5041
File-URL: http://www.nber.org/papers/w5041.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 52 (April 1997): 259-277.
Abstract: Recent literature has highlighted the importance of new activities in development and growth. It was shown that trade distortions such as tariffs are associated with first-order costs stemming from the induced drop in the formation of new activities. This paper demonstrates that uncertainty may induce similar costs. This argument is illustrated in the context of Romer's model of a dependent economy, where foreign direct investment is needed to enable the importation of capital goods and intermediate products used in domestic production. The present paper shows that uncertainty acts as an implicit tax on new activities, whose incidence is (in a certain sense) worse than that of a tariff in Romer's framework. As with a tariff, uncertainty inhibits the formation of new activities. Unlike the tariff, however, uncertainty does not benefit the government with revenue. The welfare cost of uncertainty applies also for a closed economy. The paper shows that uncertainty-averse entrepreneurs discount using a 'hurdle rate' that exceeds the risk-free interest rate. The gap between the two rates increases with the uncertainty embodied in the investment, being determined by the vagueness of the information and by the range of possible outcomes. Hence, growth may be inhibited by business uncertainty, where the 'rules of the game' for new activities are vague.
Handle: RePEc:nbr:nberwo:5041
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Employment Dynamics: Building From Microeconomic Evidence
Classification-JEL: E24; E30
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Author-Name: John Haltiwanger
Author-Person: pha231
Note: EFG LS
Number: 5042
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5042
File-URL: http://www.nber.org/papers/w5042.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 87, no. 1 (March 1997): 115-137
Abstract: This paper studies quarterly employment flows of approximately 10,000 large U.S. manufacturing establishments during 1972:1-1980:4.After estimating the extent of short run microeconomic substitution between employment and hours per worker (hours-week), we construct measures of the path of the deviation between actual and desired employment based on the observed behavior of establishments' hours-week. These deviations are then used as the state variables upon which units decide their employment adjustments (microeconomic policy). Using this framework we find that: (i) Microeconomic employment adjustment policies are non-linear, with firms adjusting to large deviations proportionally more than to small ones; (ii) Employment adjustments are often either large or nil, suggesting the presence of non-convexities in the adjustment cost technologies; (iii) 60 to 90 % of aggregate employment fluctuations is due to changes in the cross sectional distribution of employment deviations, while the rest is due to microeconomic policy changes; (iv) Most of the net aggregate employment fluctuations from changes in the cross sectional distribution are accounted for by aggregate shocks, despite significant fluctuations in the distribution of idiosyncratic shocks and the marked countercyclical nature of their second moment(i.e. reallocation shocks) (v) Similarly, most of the net aggregate employment fluctuations due to microeconomic policy changes are accounted for by aggregate shocks; (vi) Aggregate shocks are also the dominant source of job destruction, but account for less than half of fluctuations in job creation; (vii) A simple parametric version of the aggregate model suggested by the microeconomic nonlinearities shown above has a mean square error 50% lower than its linear counterpart's.
Handle: RePEc:nbr:nberwo:5042
Template-Type: ReDIF-Paper 1.0
Title: The Rational Expectations Revolution: A Review Article of: Preston J. Miller, ed.:The Rational Expectations Revolution, Readings from the Front Line
Classification-JEL: E1
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 5043
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5043
File-URL: http://www.nber.org/papers/w5043.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International and Comparative Economics, 5, 1996. Forthcoming.
Abstract: This review article of Preston Miller's The Rational Expectations Revolution, Readings From the Front Line focuses on the impact of this research on macroeconomic policymaking. Although policymakers have generally not accepted the equilibrium business cycle models advocated in many of the articles in the Miller volume and even continue to use traditional Keynesian macroeconometric models for policy analysis, several of the lessons from the rational expectations revolution have become central in thinking about policymaking. Policymakers now recognize the importance of expectations and credibility to the outcomes of particular policies. This means that they are more cautious in their use of econometric models and are less likely to advocate discretionary activist stabilization policies. They are also more willing to design policymaking to avoid the time-inconsistency problem and take a long rather than a short-run view, thereby avoiding myopic policies that produce undesirable outcomes.
Handle: RePEc:nbr:nberwo:5043
Template-Type: ReDIF-Paper 1.0
Title: Relative Income Concerns and the Rise in Married Women's Employment
Classification-JEL: D1; J16
Author-Name: David Neumark
Author-Person: pne16
Author-Name: Andrew Postlewaite
Note: LS
Number: 5044
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5044
File-URL: http://www.nber.org/papers/w5044.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 70, no. 1 (October 1998): 157-183.
Abstract: We ask whether women's decisions to be in the labor force may be affected by the decisions of other women in ways not captured by standard models. We develop a model that augments the simple neoclassical framework by introducing relative income concerns into women's (or families') utility functions. In this model, the entry of some women into paid employment can spur the entry of other women, independently of wage and income effects. This mechanism may help to explain why, over some periods, women's employment appeared to rise faster than could be accounted for by the simple neoclassical model. We test the model by asking whether women's decisions to seek paid employment depend on the employment decisions of other women with whom relative income comparisons might be important. In particular, we look at the effects of sisters' employment on women's own employment. We find strong evidence that women's employment decisions are positively related to their sisters' employment decisions. We also take account of the possibility that this positive relationship arises from heterogeneity across families in unobserved variables affecting the employment decision. We conduct numerous empirical analyses to reduce or eliminate this heterogeneity bias. We also look at the relationship between husbands' relative income and wives' employment decisions. In our view, the evidence is largely supportive of the relative income hypothesis.
Handle: RePEc:nbr:nberwo:5044
Template-Type: ReDIF-Paper 1.0
Title: Are Banks Dead? Or Are the Reports Greatly Exaggerated?
Author-Name: John H. Boyd
Author-Name: Mark Gertler
Author-Person: pge11
Note: CF ME
Number: 5045
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5045
File-URL: http://www.nber.org/papers/w5045.pdf
File-Format: application/pdf
Publication-Status: published as Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 18, no. 3 (Summer 1994): 2-23.
Publication-Status: published as John H. Boyd & Mark Gertler, 1994. "Are banks dead? or, are the reports greatly exaggerated?," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 85-117.
Abstract: This paper reexamines the conventional wisdom that commercial banking is an industry in severe decline. We find that a careful reading of the evidence does not justify this conclusion. It is true that on-balance sheet assets held by commercial banks have declined as a share of total intermediary assets. But this measure overstates any drop in banking, for three reasons. First, it ignores the rapid growth in commercial banks' off-balance sheet activities. Second, it fails to take account of the substantial growth in off-shore C&I lending by foreign banks. Third, it ignores the fact that over the last several decades financial intermediation has grown rapidly relative to the rest of the economy. We find that after adjusting the measure of bank assets to account for these considerations there is no clear evidence of secular decline. To corroborate these findings, we also construct an alternative measure of the importance of banking, using data from the national income accounts. Again, we find no clear evidence of a sustained decline. At most the industry may have suffered a slight loss of market share over the last decade. But as we discuss, this loss may reflect a transitory response to a series of adverse shocks and the phasing in of new regulatory requirements, rather than the beginning of a permanent decline.
Handle: RePEc:nbr:nberwo:5045
Template-Type: ReDIF-Paper 1.0
Title: The Quantitative Analytics of the Basic Neomonetarist Model
Classification-JEL: E30; E50
Author-Name: Miles S. Kimball
Author-Person: pki97
Note: EFG ME
Number: 5046
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5046
File-URL: http://www.nber.org/papers/w5046.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, vol. 27, no. 4, part 2, pp. 1241-1289, November 1995
Publication-Status: published as Miles S. Kimball & Michael Woodford, 1994. "The quantitative analysis of the basic neomonetarist model," Proceedings, Federal Reserve Bank of Cleveland, pages 1241-1289.
Abstract: This paper constructs a dynamic macroeconomic model with less- than-perfect price flexibility which has a real side consistent with Real Business Cycle Theory, augmented by investment adjustment costs, increasing returns to scale, and a new, flexible formalization of imperfect competition. A new mode of approximation is developedþuseful for any model in which one state variable adjusts quickly, while another state variable adjusts slowly. Even with investment adjustment costs, monetary expansions are found to raise the real interest rate. The determinants of real rigidity and the macroeconomic rate of price adjustment are investigated.
Handle: RePEc:nbr:nberwo:5046
Template-Type: ReDIF-Paper 1.0
Title: Do Airlines in Chapter 11 Harm Their Rivals? Bankruptcy and Pricing Behavior in U.S. Airline Markets
Classification-JEL: L1; L93
Author-Name: Severin Borenstein
Author-Person: pbo78
Author-Name: Nancy L. Rose
Author-Person: pro786
Note: IO
Number: 5047
Creation-Date: 1995-02
Order-URL: http://www.nber.org/papers/w5047
File-URL: http://www.nber.org/papers/w5047.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 85(2): pp 397-402, May 1995
Abstract: The behavior of firms in financial distress has attracted considerable academic and policy interest in recent years. The turmoil in the U.S. airline industry has triggered much of the public policy discussion, as some observers have argued that airlines in financial distress, particularly those operating under Chapter 11 bankruptcy protection, reduce prices to the point of harming themselves and their competitors. This study investigates the pricing strategies of bankrupt airlines and their rivals. The data suggest that an airline's prices typically decline somewhat before it files for bankruptcy protection and remain slightly depressed over the subsequent two or three quarters. We find no evidence that competitors of the bankrupt airline lower their prices, however, nor that they lose passengers to their bankrupt rival. These results indicate that bankrupt carriers do not harm the financial health of their competitors.
Handle: RePEc:nbr:nberwo:5047
Template-Type: ReDIF-Paper 1.0
Title: North-South R&D Spillovers
Author-Name: David T. Coe
Author-Name: Elhanan Helpman
Author-Person: phe205
Author-Name: Alexander Hoffmaister
Author-Person: pho135
Note: ITI PR
Number: 5048
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5048
File-URL: http://www.nber.org/papers/w5048.pdf
File-Format: application/pdf
Publication-Status: published as Coe, David T & Helpman, Elhanan & Hoffmaister, Alexander W, 1997. "North-South R&D Spillovers," Economic Journal, Royal Economic Society, vol. 107(440), pages 134-49, January.
Abstract: We examine the extent to which developing countries that do little, if any research and development themselves benefit from R&D that is performed in the industrial countries. By trading with an industrial country that has large 'stocks of knowledge' from its cumulative R&D activities, a developing country can boost its productivity by importing a larger variety of intermediate products and capital equipment embodying foreign knowledge, and by acquiring useful information that would otherwise be costly to obtain. Our empirical results, which are based on observations over the 1971-90 period for 77 developing countries, suggest that R&D spillovers from the industrial countries in the North to the developing countries in the South are substantial.
Handle: RePEc:nbr:nberwo:5048
Template-Type: ReDIF-Paper 1.0
Title: Trade in Ideas: Patenting and Productivity in the OECD
Classification-JEL: F43; O14
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Samuel Kortum
Author-Person: pko74
Note: EFG ITI PR
Number: 5049
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5049
File-URL: http://www.nber.org/papers/w5049.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 40, no. 3/4, May 1996, pp. 251-278
Abstract: We develop and estimate a model of technological innovation and its contribution to growth at home and abroad. International patents indicate where innovations come from and where they are used. Countries grow at a common steady-state rate. A country's relative productivity depends upon its capacity to absorb technology. We estimate that, except for the United States, OECD countries derive almost all of their productivity growth from abroad.
Handle: RePEc:nbr:nberwo:5049
Template-Type: ReDIF-Paper 1.0
Title: On the Number and Size of Nations
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Enrico Spolaore
Author-Person: psp27
Note: ME
Number: 5050
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5050
File-URL: http://www.nber.org/papers/w5050.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 107, no. 4 (November 1997): 1027-1056.
Abstract: This paper studies the equilibrium determination of the number of political jurisdictions in different political regimes, democratic or not, and in different economic environments, with more or less economic integration. We focus on the trade off between the benefits of large jurisdictions in terms of economies of scale and the costs of heterogeneity of large and diverse populations. Our model implies that: i) democratization leads to secessions; ii) without an appropriate redistributive scheme (which we characterize) in equilibrium one observes an inefficiently large number of countries; iii) the equilibrium number of countries is increasing in the amount of economic integration. We also study the welfare effects of economic integration and free trade when the number of countries is endogenous.
Handle: RePEc:nbr:nberwo:5050
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Effects of Trade Policy
Classification-JEL: F12; F14
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ITI
Number: 5051
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5051
File-URL: http://www.nber.org/papers/w5051.pdf
File-Format: application/pdf
Publication-Status: published as Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595 Elsevier.
Abstract: This paper reviews empirical methods used to estimate the impact of trade policies under imperfect competition. We decompose the welfare effects of trade policy into four possible channels: (i) a deadweight loss from distorting consumption and production decisions; (ii) a possible gain from improving the terms of trade; (iii) a gain or loss due to changes in the scale of firms; and, (iv) a gain or loss from shifting profits between countries. For each channel, we discuss the appropriate empirical methods to determine the sign or magnitude of the effect, and illustrate the results using recent studies. Two other channels by which trade policy affects social or individual welfare - through changes in wages and changes in product variety - are discussed more briefly. Recent developments in the analysis of trade policies under perfect competition are also reviewed.
Handle: RePEc:nbr:nberwo:5051
Template-Type: ReDIF-Paper 1.0
Title: Health Insurance Eligibility, Utilization of Medical care, and Child Health
Classification-JEL: I18; H51
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: EH PE
Number: 5052
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5052
File-URL: http://www.nber.org/papers/w5052.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1996, 111(2), 431-466.
Abstract: The poor health status of children in the U.S. relative to other industrialized nations has motivated recent efforts to extend insurance coverage to underprivileged children. There is little past evidence that extending eligibility for public insurance to previously ineligible groups will increase health status or even utilization of medical resources. Using data from the Current Population Survey, the National Health Interview Survey, and state-level data on child mortality, we examine the utilization and health effects of eligibility for public insurance. Our models are identified by the recent expansions of the Medicaid program to low income children. We find that these expansions roughly doubled the fraction of children eligible for Medicaid between 1984 and 1992; by 1992, almost 1/3 of all children were eligible. But takeup of these expansions was much less than full even among otherwise uninsured children. Despite this takeup problem, we find that eligibility for Medicaid significantly increased the utilization of medical care along a number of dimensions. Medicaid eligibility was associated with large increases in care delivered in physician's offices, although there was some increase in care in hospital settings as well. While there was no effect of eligibility on parentally-assessed subjective health measures, we do find notable reductions in child mortality. Finally, we find that rising Medicaid eligibility is associated with reductions in racial disparities in the number of visits and in child disparities in the site at which care is delivered.
Handle: RePEc:nbr:nberwo:5052
Template-Type: ReDIF-Paper 1.0
Title: The Incidence of Payroll Taxation: Evidence from Chile
Classification-JEL: H22
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: LS PE
Number: 5053
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5053
File-URL: http://www.nber.org/papers/w5053.pdf
File-Format: application/pdf
Publication-Status: published as Gruber, Jonathan. "The Incidence Of Payroll Taxation: Evidence From Chile," Journal of Labor Economics, 1997, v15(3,Jul), Part 2, S72-S101.
Abstract: Despite the growing reliance on payroll taxation worldwide, there is limited evidence on the incidence of payroll taxes. I provide new evidence by examining the experience of Chile before and after the privatization of its Social Security system. This policy change led to a sharp exogenous reduction in the payroll tax burden on Chilean firms; the average payroll tax rate in my sample fell from 30% to 5% over this six year period. I use data from a census of manufacturing firms, which contains information on firm specific tax payments and average wages. I find strong evidence that the incidence of payroll taxation was fully on wages, with no effect on employment. A potential weakness with this approach is that some of the variation in firm-specific tax rates may be spurious, for example due to measurement error in wages. I attempt to surmount this problem by using a variety of different estimators, all of which yield consistent evidence of full shifting.
Handle: RePEc:nbr:nberwo:5053
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Saving: New Time Series Evidence
Classification-JEL: H55
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 5054
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5054
File-URL: http://www.nber.org/papers/w5054.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, 1996.
Abstract: This paper reexamines the results of my 1974 paper on Social Security and saving with the help of an additional twenty-one years of data. The estimates presented here reconfirm that each dollar of Social Security wealth (SSW) reduces private saving by between two and three cents. The parameter estimates for the postwar period and for the entire sample since 1930 are very similar. The correction of the error in the original SSW series between 1958 and 1971 therefore does not significantly affect the original results. The estimated effect of SSW is robust with respect to the addition of a variety of variables that have been suggested in previous critiques of the original study. In the aggregate, the parameter values imply that the Social Security program currently reduces overall private saving by nearly 60 percent.
Handle: RePEc:nbr:nberwo:5054
Template-Type: ReDIF-Paper 1.0
Title: Tax Avoidance and the Deadweight Loss of the Income Tax
Classification-JEL: H21
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 5055
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5055
File-URL: http://www.nber.org/papers/w5055.pdf
File-Format: application/pdf
Publication-Status: Published as "The Income Tax and Charitable Contributions: Part I - Aggregate and Distributional Effects," National Tax Journal, Vol. 28, no. 1 (1975): pp. 81-100.
Publication-Status: Published as "The Income Tax and Charitable Contributions," with Amy Taylor, Econometrica, Vol. 44, no. 6, (November 1976): pp. 1201-1222
Publication-Status: published as The Review of Economics and Statistics, Vol. 81, no. 4, (November 1999), pp. 674-680
Abstract: The traditional method of analyzing the distorting effects of the income tax greatly underestimates its total deadweight loss as well as the incremental deadweight loss of an increase in income tax rates. Deadweight losses are substantially greater than these conventional estimates because the traditional framework ignores the effect of higher income tax rates on tax avoidance through changes in the form of compensation (e.g., employer paid health insurance) and through changes in the patterns of consumption (e.g., owner occupied housing). The deadweight loss due to the increased use of exclusions and deductions is easily calculated. Because the relative prices of leisure, excludable income, and deductible consumption are fixed, all of these can be treated as a single Hicksian composite good. The compensated change in taxable income induced by changes in tax rates therefore provides all of the information that is needed to evaluate the deadweight loss of the income tax. These estimates using TAXSIM calibrated to 1994 imply that the deadweight loss per dollar of revenue of using the income tax rather than a lump sum tax is more than twelve times as large as Harberger's classic estimate. A marginal increase in tax revenue achieved by a proportional rise in all personal income tax rates involves a deadweight loss of nearly two dollars per incremental dollar of revenue. Repealing the 1993 increase in tax rates for high income taxpayers would reduce the deadweight loss of the tax system by $24 billion while actually increasing tax revenue.
Handle: RePEc:nbr:nberwo:5055
Template-Type: ReDIF-Paper 1.0
Title: Collusion over the Business Cycle
Classification-JEL: L1
Author-Name: Kyle Bagwell
Author-Person: pba409
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: EFG IO
Number: 5056
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5056
File-URL: http://www.nber.org/papers/w5056.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol. 28, no. 1, (Spring 1997), pp. 82-106.
Abstract: We present a theory of collusive pricing in markets subject to business cycle fluctuations. In the business cycle model that we adopt, market demand alternates stochastically between fast-growth (boom) and slow-growth (recession) phases. We provide a complete characterization of the most-collusive prices and show that: (1) the most-collusive prices may be procyclical (countercyclical) when demand growth rates are positively (negatively) correlated through time, and (2) the amplitude of the collusive pricing cycle is larger when the expected duration of boom phases decreases and when the expected duration of recession phases increases. We also offer a generalization of Rotemberg and Saloner's (1986) model, and interpret their findings in terms of transitory demand shocks that occur within broader business cycle phases.
Handle: RePEc:nbr:nberwo:5056
Template-Type: ReDIF-Paper 1.0
Title: How Does Foreign Direct Investment Affect Economic Growth?
Classification-JEL: F43; O19
Author-Name: Eduardo Borensztein
Author-Name: Jose De Gregorio
Author-Person: pde80
Author-Name: Jong-Wha Lee
Author-Person: ple164
Note: EFG ITI
Number: 5057
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5057
File-URL: http://www.nber.org/papers/w5057.pdf
File-Format: application/pdf
Publication-Status: published as Borensztein, E., J. De Gregorio and J. W. Lee. "How Does Foreign Direct Investment Affect Economic Growth?," Journal of International Economics, 1998, v45(1,Jun), 115-135.
Abstract: We test the effect of foreign direct investment (FDI) on economic growth in a cross-country regression framework, utilizing data on FDI flows from industrial countries to 69 developing countries over the last two decades. Our results suggest that FDI is an important vehicle for the transfer of technology, contributing relatively more to growth than domestic investment. However, the higher productivity of FDI holds only when the host country has a minimum threshold stock of human capital. In addition, FDI has the effect of increasing total investment in the economy more than one for one, which suggests the predominance of complementarity effects with domestic firms.
Handle: RePEc:nbr:nberwo:5057
Template-Type: ReDIF-Paper 1.0
Title: Is Workers' Compensation Covering Uninsured Medical Costs? Evidence fromthe `Monday Effect'
Classification-JEL: J28
Author-Name: David Card
Author-Person: pca271
Author-Name: Brian P. McCall
Author-Person: pmc15
Note: LS
Number: 5058
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5058
File-URL: http://www.nber.org/papers/w5058.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, July 1996, vol.49,no.4,
Abstract: Steady increases in the costs of medical care, coupled with a rise in the fraction of workers who lack medical care insurance, have led to a growing concern that the Workers' Compensation system is paying for off-the-job injuries. Many analysts have interpreted the high rate of Monday injuries -- especially for hard-to-monitor injuries like back sprains -- as evidence of this phenomenon. In this paper, we propose a test of the hypothesis that higher Monday injury rates are due to fraudulent claims. Specifically, we compare the daily injury patterns for workers who are more and less likely to have medical insurance coverage, and the corresponding differences in the fraction of injury claims that are disputed by employers. Contrary to expectations, we find that workers without medical coverage are no more likely to report a Monday injury than other workers. Similarly, employers are no more likely to challenge a Monday injury claim -- even for workers who lack medical insurance.
Handle: RePEc:nbr:nberwo:5058
Template-Type: ReDIF-Paper 1.0
Title: Public R&D Policies and Cost Behavior of the US Manufacturing Industries
Classification-JEL: O32; H25
Author-Name: Theofanis P. Mamuneas
Author-Person: pma43
Author-Name: M. Ishaq Nadiri
Note: EFG PR
Number: 5059
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5059
File-URL: http://www.nber.org/papers/w5059.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 63, no.1 (Dec 1996): 57-81.
Abstract: This paper estimates and evaluates the contributions of R&D tax incentives and publicly financed R&D investment policies in promoting growth of output and privately funded R&D investment in US manufacturing industries. Publicly financed R&D induces cost savings but crowds out privately-financed R&D investment while the incremental R&D tax credit and the immediate deductibility provision of R&D expenditures have a significant impact on privately financed R&D investment. The optimal mix of both instruments is an important element for sustaining a balanced growth in output and productivity in the manufacturing sector.
Handle: RePEc:nbr:nberwo:5059
Template-Type: ReDIF-Paper 1.0
Title: Government Interventions and Productivity Growth in Korean ManufacturingIndustries
Classification-JEL: 040; 053
Author-Name: Jong-Wha Lee
Author-Person: ple164
Note: EFG ITI
Number: 5060
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5060
File-URL: http://www.nber.org/papers/w5060.pdf
File-Format: application/pdf
Publication-Status: Published as "Government Interventions and Productivity Growth", JEG, Vol. 1, no. 3 (September 1996): 391-414.
Abstract: This paper investigates the impact of government industrial policy and trade protection of the manufacturing sector in Korea. Empirical results are provided, using 4-period panel data for the years 1963-83, for 38 Korean industries in which trade protection reduced growth rates of labor productivity and total factor productivity, while industrial policies, such as tax incentives and subsidized credit, were not correlated with total factor productivity growth in the promoted sectors. The evidence, thus, implies that less government intervention in trade is linked to higher productivity growth.
Handle: RePEc:nbr:nberwo:5060
Template-Type: ReDIF-Paper 1.0
Title: Exact Hedonic Price Indexes
Classification-JEL: C43
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: PR
Number: 5061
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5061
File-URL: http://www.nber.org/papers/w5061.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 77, no. 4 (November 1995): 634-653 .
Abstract: The purpose of this paper is to identify conditions under which hedonic price indexes provide an exact measure of consumer welfare. Our results provide a rationale for existing practices in the case where prices equal marginal costs. In that case, both the marginal value of characteristics and a fixed-weight price index can be estimated from a hedonic regression. Using the marginal value of characteristics, we show how to construct bounds on the exact hedonic price index. When prices are above marginal costs then our bounds still apply, but the value of characteristics cannot be measured so easily. Since the price-cost markups are an omitted variable in the hedonic regression, they will bias the coefficients obtained. For a special class of utility functions, we argue that a linear regression will still provide a measure of the marginal value of characteristics, but a log-linear regression will overstate these values.
Handle: RePEc:nbr:nberwo:5061
Template-Type: ReDIF-Paper 1.0
Title: Cumulation and ITC Decision-Making: The Sum of the Parts is Greater thanthe Whole
Classification-JEL: F0; K2
Author-Name: Wendy L. Hansen
Author-Name: Thomas J. Prusa
Author-Person: ppr249
Note: ITI
Number: 5062
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5062
File-URL: http://www.nber.org/papers/w5062.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, 34 (1996), pp.746-769.
Abstract: In 1984 Congress amended the antidumping (AD) and countervailing duty (CVD) laws, mandating that the International Trade Commission (ITC) 'cumulate' imports across countries when determining injury. Since 1984 the cumulation provision has been invoked in over 50 percent of the AD and CVD cases. We estimate that cumulation increases the probability of an affirmative injury determination by 20 to 30 percent and has changed the ITC's decision (from negative to affirmative) for about one-third of cumulated cases. We also show that the protective effect of cumulation increases as the number of countries involved increases, holding import market share constant. That is, cumulated imports have a super-additive effect on ITC decision-making.
Handle: RePEc:nbr:nberwo:5062
Template-Type: ReDIF-Paper 1.0
Title: Product Development and the Timing of Information Disclosure under U.S.and Japanese Patent Systems
Classification-JEL: F0; K2
Author-Name: Reiko Aoki
Author-Person: pao6
Author-Name: Thomas J. Prusa
Author-Person: ppr249
Note: ITI
Number: 5063
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5063
File-URL: http://www.nber.org/papers/w5063.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the Japanese and International Economies, 10(3), (September 1996), pp. 233-249.
Abstract: This paper examines the consequences of the differences in the timing of information disclosure between the U.S. and Japanese patent systems. Under the Japanese system it is possible for a firm to apply for a patent knowing the exact specifications of a rival's patent application. In contrast, in the U.S. the only way a firm learns about a rival's innovation is upon the actual granting of the rival's patent. We argue that this difference enables Japanese firms to coordinate their R&D efforts better than their U.S. counterparts and that this, in turn, leads to smaller quality improvements under the Japanese system. We show that the creation/diffusion tradeoff of patents can be influenced not only by the scope and length of patent protection but also by other features of the patenting process.
Handle: RePEc:nbr:nberwo:5063
Template-Type: ReDIF-Paper 1.0
Title: Modern Approaches to Central Banking
Author-Name: Stanley Fischer
Note: ME
Number: 5064
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5064
File-URL: http://www.nber.org/papers/w5064.pdf
File-Format: application/pdf
Abstract: Modern theory has delivered both the conservative central banker and the principal-agent approaches as rationales for the independence of the central bank. The principal-agent approach directs attention to the importance of both clearly defining the goals of the central bank and its command in order to meet the targets assigned to it. The empirical evidence shows not only that greater independence is associated with lower inflation, but also that the central bank's rights not to finance the government and to set interest rates independently increase its effectiveness. The role of inflation targeting and the distinction between price level and inflation targeting are also analyzed.
Handle: RePEc:nbr:nberwo:5064
Template-Type: ReDIF-Paper 1.0
Title: Parental Leave Policies in Europe and North America
Classification-JEL: I18; J38
Author-Name: Christopher J. Ruhm
Author-Person: pru7
Author-Name: Jackqueline L. Teague
Note: LS
Number: 5065
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5065
File-URL: http://www.nber.org/papers/w5065.pdf
File-Format: application/pdf
Publication-Status: published as Gender and the Family Issues in the Workplace, Blau, Francine D. and Ronald Ehrenberg, eds., New York: The Russell Sage Foundation Press, 1997, pp. 133-156.
Abstract: Despite widespread international implementation, limited information is currently available on the economic impact of mandated family leave policies. This paper increases our understanding of the nature and effects of parental leave entitlements in several ways. First, we provide a brief history of family leave legislation in Europe and North America and summarize arguments relating to the efficiency and incidence of mandated leave. Second, we have constructed a longitudinal data set detailing durations of job- protected leave in 17 countries, during the 1960-89 period, and use this information to examine recent trends in the regulations. The data indicate that family leave durations grew rapidly during the decade of the 1970s, with more modest increases since that time. Third, we provide an exploratory investigation of the relationship between mandated leave policies and macroeconomic outcomes. The econometric estimates provide little support for the view that moderate periods of parental leave reduce economic efficiency but rather hint at a modest beneficial impact, particularly when considering paid time off work.
Handle: RePEc:nbr:nberwo:5065
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Medicaid Abortion Funding Restrictions on Abortions, Pregnancies, and Births
Author-Name: Phillip B. Levine
Author-Person: ple553
Author-Name: Amy B. Trainor
Author-Name: David J. Zimmerman
Author-Person: pzi72
Note: LS EH
Number: 5066
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5066
File-URL: http://www.nber.org/papers/w5066.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 15 (1996): 555-578.
Abstract: This paper considers whether state Medicaid abortion funding restrictions affect the likelihood of getting pregnant, having an abortion, and bearing a child. Aggregate, state-level data and microdata from the National Longitudinal Survey of Youth (NLSY) are applied in the empirical work. Changes in laws resulting from Supreme Court decisions create a natural experiment which is utilized to examine fertility behavior. Multivariate models controlling for state and, in the NLSY, personal characteristics are also estimated using alternative fixed effect specifications. We find that Medicaid funding restrictions are associated with a reduction in both the number of abortions and pregnancies, resulting in either no change or a reduction in births.
Handle: RePEc:nbr:nberwo:5066
Template-Type: ReDIF-Paper 1.0
Title: Production Functions: The Search for Identification
Classification-JEL: B23; C33
Author-Name: Zvi Griliches
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 5067
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5067
File-URL: http://www.nber.org/papers/w5067.pdf
File-Format: application/pdf
Publication-Status: published as Strom, Steinar (ed.) Econometrics and economic theory in the twentieth century: The Ragnar Frisch Centennial Symposium. Cambridge; New York and Melbourne: Cambridge University Press, 1998.
Abstract: Some aspects of the econometric estimation of production functions are discussed, focussing primarily on the issue of simultaneity and reviewing the stream of criticisms of Douglas' work and the response to it. We look in particular at the work that uses panel data on micro data for plants or firms and at some more recent multi-equation extensions of it. We find that researchers, in trying to evade the simultaneity problem, have shifted to the use of thinner and thinner slices of data, exacerbating thereby other problems and misspecifications. We describe the need for better data, especially on product prices at the individual observation level and on relevant cost and demand shifters, and for better behavioral theories which would encompass the large amount of heterogeneity observed at the micro level.
Handle: RePEc:nbr:nberwo:5067
Template-Type: ReDIF-Paper 1.0
Title: Universities as a Source of Commercial Technology: A Detailed Analysis of University Patenting 1965-1988
Classification-JEL: 031; 034
Author-Name: Rebecca Henderson
Author-Name: Adam Jaffe
Author-Person: pja49
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 5068
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5068
File-URL: http://www.nber.org/papers/w5068.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. 80, no. 1, pp. 119-127, February 1998.
Abstract: This paper explores changes in university patenting behavior between 1965 and 1988. We show that university patents have increased 15-fold while real university research spending almost tripled. The causes of this increase are unclear, but may include increased focus on commercially relevant technologies, increased industry funding of university research, a 1980 change in federal law that facilitated patenting of results from federally funded research, and the widespread creation of formal technology licensing offices at universities. Up until approximately the mid-1980s, university patents were more highly cited, and were cited by more technologically diverse patents, than a random sample of all patents. This difference is consistent with the notion that university inventions are more important and more basic than the average invention. The differences between the two groups disappeared, however, in the middle part of the 1980s, partly due to a decline in the citation rates for all universities, and partly due to an increasing share of patents going to smaller institutions, whose patents are less highly cited throughout this period. Moreover at both large and small institutions there was a large increase in the fraction of university patents receiving zero citations. Our results suggest that the rate of increase of important patents from universities is much less than the overall rate of increase of university patenting in the period covered by our data.
Handle: RePEc:nbr:nberwo:5068
Template-Type: ReDIF-Paper 1.0
Title: Debt Usage and Mortgage Choice: Sensitivity to Default Insurance Costs
Classification-JEL: G11; R20
Author-Name: Patric H. Hendershott
Author-Name: William C. LaFayette
Note: PE
Number: 5069
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5069
File-URL: http://www.nber.org/papers/w5069.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, Vol. 41 (1997): 202-217.
Abstract: Purchase of a house requires three interrelated household financial decisions: what level of debt to obtain, whether to select an adjustable or fixed rate mortgage (ARM or FRM) and whether to choose an FHA or a conventional loan. While some have analyzed the mortgage debt decision and the ARM/FRM choice, virtually no one has studied the FHA/conventional mortgage choice or the interrelation among the mortgage debt and instrument decisions. In our sample of 819 young home purchasers, debt and mortgage choice is driven by a need to finesse the downpayment and payment constraint ratios and to lower mortgage insurance costs.
Handle: RePEc:nbr:nberwo:5069
Template-Type: ReDIF-Paper 1.0
Title: Wealth Accumulation and Housing Choices of Young Households: An Exploratory Investigation
Classification-JEL: D91; R20
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Susan M. Wachter
Author-Name: Patric H. Hendershott
Note: PE
Number: 5070
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5070
File-URL: http://www.nber.org/papers/w5070.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Housing Research, vol. 7, no. 1, 1996, pp. 33-57
Abstract: This paper describes the wealth accumulation of American youth and relates this behavior to their eventual housing choices. We develop a data set that links wealth profiles of youth with constant- quality house prices and tenure choice. A panel data set is compiled for youth age 20-33 for the years 1985 through 1990. We construct wealth profiles for each household over the six year period and indicate how wealth varies with labor supply, marriage, fertility, gender, education, race/ethnicity, and tenure choice. We find renters' wealth accumulates rapidly in the year before and year of first homeownership. The factors related to this increase are marriage, increased labor supply by married women, and gifts/inheritances. Of particular interest is the finding of an inverse U-shaped relationship between the local real price of housing and middle and upper income renters' wealth and married female labor supply. Also, youth in high housing cost localities tend to live in groups at a greater rate compared to those in low cost areas.
Handle: RePEc:nbr:nberwo:5070
Template-Type: ReDIF-Paper 1.0
Title: Selling Price and Selling Time: The Impact of Seller Motivation
Classification-JEL: R21; D83
Author-Name: Michel Glower
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Patric H. Hendershott
Note: PE
Number: 5071
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5071
File-URL: http://www.nber.org/papers/w5071.pdf
File-Format: application/pdf
Publication-Status: published as Real Estate Economics, Vol. 26 (1998): 719-740.
Abstract: This study considers the role that seller motivation plays in determining sales price and selling time. We find that sale prices are directly related to the estimated value of the property and to the amount of over-pricing, which is directly related to the seller's level of motivation. Further, a seller who has a planned date to move will over-price less (set lower list prices relative to market value) and sell more quickly than a seller with no definite move date. A seller who is willing to move later will over-price more and sell more slowly than a seller who wants to move sooner.
Handle: RePEc:nbr:nberwo:5071
Template-Type: ReDIF-Paper 1.0
Title: The Effects of School and Family Characteristics on the Return to Education
Classification-JEL: I20; J24
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Thomas A. Dunn
Note: LS
Number: 5072
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5072
File-URL: http://www.nber.org/papers/w5072.pdf
File-Format: application/pdf
Publication-Status: Published as "The Demand For and Return to Education When Education Outcomes are Uncertain", Journal of Labor Economics, Vol. 11, no. 1 (1993): 48-83.
Publication-Status: Published as "The Effects of High School Curriculum on Education and Labor Market Outcomes", JHR, Vol. 30, no. 3 (1995): 409-438.
Publication-Status: Published as "Effects of Personal and School Characteristics on Estimates of the Return to Education", Economic Perspectives, Federal Reserve Bank of Chicago. Vol. 22, no. 1, First Quarter (1998): 65-79.
Abstract: We measure the effects of parental education on the education profile of wages. The analysis uses sibling pairs from the Panel Study of Income Dynamics and the National Longitudinal Surveys of Labor Market Experience of Young Men and Young Women. We also use the variance across siblings in school characteristics to estimate the effects of school inputs on wages holding family background constant. We obtained mixed evidence on whether parental education raises the return to education. We find that teacher's salary, expenditures per pupil, and a composite index of school quality measures have a substantial positive effect on the wages of high school graduates.
Handle: RePEc:nbr:nberwo:5072
Template-Type: ReDIF-Paper 1.0
Title: Are Apparent Productive Spillovers a Figment of Specification Error?
Classification-JEL: C43; D24
Author-Name: Susanto Basu
Author-Person: pba274
Author-Name: John G. Fernald
Author-Person: pfe43
Note: EFG
Number: 5073
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5073
File-URL: http://www.nber.org/papers/w5073.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, vol. 36, pp. 165-188, 1995
Abstract: Using data on gross output for two-digit manufacturing industries, we find that an increase in the output of one manufacturing sector has little or no significant effect on the productivity of other sectors. Using value-added data, however, we confirm the results of previous studies which find that output spillovers instead appear large. We provide an explanation for these differences, showing why, with imperfect competition, the use of value-added data leads to a spurious finding of large apparent external effects.
Handle: RePEc:nbr:nberwo:5073
Template-Type: ReDIF-Paper 1.0
Title: Endogenous Mortgage Choice, Borrowing Constraints and the Tenure Decision
Classification-JEL: R20; G11
Author-Name: William C. LaFayette
Author-Name: Donald R. Haurin
Author-Person: pha178
Author-Name: Patric H. Hendershott
Note: PE
Number: 5074
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5074
File-URL: http://www.nber.org/papers/w5074.pdf
File-Format: application/pdf
Abstract: Earlier research has shown that lender income and wealth constraint ratios discourage homeownership. This empirical research has been based on home purchasers using an 80 percent loan-to-value (LTV) fixed-rate conventional loan. Employing the same assumption, we find that the constraints lowered the ownership rate of our 1919 young home purchasers by about 20 percentage points. However, households are not restricted to putting 20 percent down and choosing a fixed- rate loan. When we allow households to select the optimal LTV and mortgage type (adjustable or fixed-rate with Federal Housing Administration (FHA) or conventional insurance), the percentage of our sample that is credit constrained declines from 71 to 49. Moreover, the measured impact on the homeownership rate of the constraints falls to only 4 percentage points. Further, FHA loans are estimated to increase homeownership by only 0.1 to 0.2 percentage points.
Handle: RePEc:nbr:nberwo:5074
Template-Type: ReDIF-Paper 1.0
Title: Two Fallacies Concerning Central Bank Independence
Classification-JEL: E58; E31
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 5075
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5075
File-URL: http://www.nber.org/papers/w5075.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review Papers and Proceedings, vol. 85, no. 2, pp. 207- 211 (May 1995).
Abstract: This paper takes issue with two basic conclusions prevalent in the literature on central bank behavior. First, the paper argues that it is inappropriate to presume that central banks will, in the absence of any precommitment technology, necessarily behave in a 'discretionary' fashion that implies an inflationary bias. Since there is no functional connection between average rates of money creation (or inflation) and policy responsiveness to cyclical disturbances, it is entirely feasible for the bias to be avoided. In other words, there is no necessary tradeoff between 'flexibility and commitment.' Second, to the extent that the absence of any absolute precommitment technology is nevertheless a problem, it will apply to a consolidated central bank plus government entity as well as to the central bank alone. Thus contracts between governments and central banks do not overcome the motivation for dynamic inconsistency, they merely relocate it.
Handle: RePEc:nbr:nberwo:5075
Template-Type: ReDIF-Paper 1.0
Title: The Growing Importance of Cognitive Skills in Wage Determination
Classification-JEL: J3
Author-Name: Richard J. Murnane
Author-Person: pmu87
Author-Name: John B. Willett
Author-Name: Frank Levy
Author-Person: ple351
Note: LS
Number: 5076
Creation-Date: 1995-03
Order-URL: http://www.nber.org/papers/w5076
File-URL: http://www.nber.org/papers/w5076.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. lxxvii, no. 2, may 1995, pp. 251- 266.
Abstract: Using data from two longitudinal surveys of American high school seniors, we show that basic cognitive skills had a larger impact on wages for 24-year-old men and women in 1986 than in 1978. For women, the increase in the return to cognitive skills between 1978 and 1986 accounts for all of the increase in the wage premium associated with post-secondary education. We also show that high school seniors' mastery of basic cognitive skills had a much smaller impact on wages two years after graduation than on wages six years after graduation.
Handle: RePEc:nbr:nberwo:5076
Template-Type: ReDIF-Paper 1.0
Title: Product Quality and Worker Quality
Classification-JEL: J30; L15
Author-Name: John M. Abowd
Author-Person: pab175
Author-Name: Francis Kramarz
Author-Person: pkr29
Author-Name: Antoine Moreau
Note: LS
Number: 5077
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5077
File-URL: http://www.nber.org/papers/w5077.pdf
File-Format: application/pdf
Publication-Status: published as John M. Abowd & Françis Kramarz & Antoine Moreau, 1996. "Product Quality and Worker Quality," Annales d'Economie et de Statistique, ADRES, issue 41-42, pages 14, Janvier-J.
Abstract: We study the relation between product quality and worker quality using an economic model that, under certain conditions, provides a direct link between product price, product quality and work force quality. Our measures of product quality are the evolution in the detailed product price relative to its product group and the level of the product price relative to this group. Our worker quality measures are the firm's average person effect and personal characteristics effect from individual wage rates. We find a very weak, generally positive, relation between worker quality and product quality using detailed firm-level data from the French Producer Price Index surveys.
Handle: RePEc:nbr:nberwo:5077
Template-Type: ReDIF-Paper 1.0
Title: Mortgage Default Risk and Real Estate Prices: The Use of Index-Based Futures and Options in Real Estate
Classification-JEL: G21
Author-Name: Karl E. Case
Author-Person: pca484
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Allan N. Weiss
Note: AP
Number: 5078
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5078
File-URL: http://www.nber.org/papers/w5078.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Housing Research, vol. 7, no. 2: 243-258 (1996).
Abstract: Evidence is shown, using US foreclosure data by state 1975-93, that periods of high default rates on home mortgages strongly tend to follow real estate price declines or interruptions in real estate price increase. The relation between price decline and foreclosure rates is modelled using a distributed lag. Using this model, holders of residential mortgage portfolios could hedge some of the risk of default by taking positions in futures or options markets for residential real estate prices, were such markets to be established.
Handle: RePEc:nbr:nberwo:5078
Template-Type: ReDIF-Paper 1.0
Title: Benefits of Control, Managerial Ownership, and the Stock Returns of Acquiring Firms
Classification-JEL: G3
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Darius Palia
Note: CF
Number: 5079
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5079
File-URL: http://www.nber.org/papers/w5079.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, 26, (Winter 1995), pp. 782-792.
Abstract: This paper examines the effect of the benefits of corporate control to managers on the relationship between managerial ownership and the stock returns of acquiring firms in corporate control transactions. At low levels of managerial ownership, agency costs of equity (such as perquisite consumption) reduce the returns earned by acquirers. As the managerial stake in the acquiring firm increases, the interests of managers are more closely aligned with those of shareholders, reducing the acquisition premium. At sufficiently high levels of managerial ownership, managers value a reduction in the risk of their nondiversified financial portfolio. However, managers enjoy nonassignable private benefits of control at high levels of ownership which they are not willing to lose by selling their stake in the financial markets. These benefits of control are increasing in the managerial ownership stake and can lead to managers 'overpaying' even when they own a substantial fraction of the firm. Examining mergers that occurred during 1985 to 1991, we find evidence of such a nonmonotonic relationship between the stock returns earned by acquirers and their managerial ownership level. Further, we find that acquiring firms with high levels of managerial ownership tend to diversify more than acquiring firms with low levels of managerial ownership.
Handle: RePEc:nbr:nberwo:5079
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Examination of the Fisher Effect in Australia
Classification-JEL: E4; G0
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Author-Name: John Simon
Author-Person: psi44
Note: EFG ME
Number: 5080
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5080
File-URL: http://www.nber.org/papers/w5080.pdf
File-Format: application/pdf
Publication-Status: published as Economic Record, 71, September1995, pp.227-239.
Abstract: This paper analyzes the Fisher effect in Australia. Initial testing indicates that both interest rates and inflation contain unit roots. Furthermore, there are indications that the variables have non-standard error processes. To overcome problems associated with this and derive the correct small sample distributions of test statistics we make use of Monte Carlo simulations. These tests indicate that while a long-run Fisher effect seems to exist there is no evidence of a short-run Fisher effect. This suggests that, while short-run changes in interest rates reflect changes in monetary policy, longer-run levels indicate inflationary expectations. Thus, the longer-run level of interest rates should not be used to characterize the stance of monetary policy.
Handle: RePEc:nbr:nberwo:5080
Template-Type: ReDIF-Paper 1.0
Title: Is There a Tradeoff between Unemployment and Productivity Growth?
Classification-JEL: D24; E24
Author-Name: Robert J. Gordon
Author-Person: pgo50
Note: EFG IFM LS PR
Number: 5081
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5081
File-URL: http://www.nber.org/papers/w5081.pdf
File-Format: application/pdf
Publication-Status: published as Unemployment Policy: Government Options for the Labour Market, Dennis Snower and Guillermo de la Dehesa eds., Cambridge UK: Cambridge University Press, 1997.
Abstract: This paper shows how misleading is the facile contrast of Europe following a path of high productivity growth, high unemployment, and relatively greater income equality, in contrast to the opposite path being pursued by the United States. While structural shocks may initially create a positive tradeoff between productivity and unemployment, they set in motion a dynamic path of adjustment involving capital accumulation or decumulation that in principle can eliminate the tradeoff. The main theoretical contributions of this paper are to show how a productivity-unemployment tradeoff might emerge and how it might subsequently disappear as this dynamic adjustment path is set in motion. Its empirical work develops a new data base for levels and growth rates of output per hour, capital per hour, and multifactor productivity in the G-7 nations both for the aggregate economy and for nine sub-sectors. It provides regression estimates that decompose observed differences in productivity growth across sectors. It finds that much of the productivity growth advantage of the four large European countries over the United States is explained by convergence and by more rapid capital accumulation, and that the only significant effect of higher unemployment is to cause capital accumulation to decelerate, thus reducing the growth rate of output per hour relative to multi-factor productivity.
Handle: RePEc:nbr:nberwo:5081
Template-Type: ReDIF-Paper 1.0
Title: Does Public Insurance Crowd Out Private Insurance?
Classification-JEL: H42
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: EH PE
Number: 5082
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5082
File-URL: http://www.nber.org/papers/w5082.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1996, 111(2), pp.391-430
Abstract: One popular option for health care reform in the U.S. is to make particular groups, such as children, eligible for public health insurance coverage. A key question in assessing the cost of this option is the extent to which public eligibility will crowd out the private insurance coverage of these groups. We estimate the extent of crowdout arising from the dramatic expansions of the Medicaid program during the 1987-1992 period. Over this time period, Medicaid eligibility for children increased by 50 percent and eligibility for pregnant women doubled. We estimate that between 50 percent and 75 percent of the increase in Medicaid coverage was associated with a reduction in private insurance coverage. This occurred largely because employees took up employer-based insurance less frequently, although employers may have encouraged them to do so by contributing less for insurance. There is some evidence that workers dropped coverage for their family and switched into individual policies.
Handle: RePEc:nbr:nberwo:5082
Template-Type: ReDIF-Paper 1.0
Title: Credit Cycles
Classification-JEL: E32; E44
Author-Name: Nobuhiro Kiyotaki
Author-Name: John Moore
Author-Person: pmo265
Note: EFG
Number: 5083
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5083
File-URL: http://www.nber.org/papers/w5083.pdf
File-Format: application/pdf
Publication-Status: published as Kiyotaki, Nobuhiro and John Moore. "Credit Cycles," Journal of Political Economy, 1997, v105(2,Apr), 211-248.
Abstract: This paper is a theoretical study into how credit constraints interact with aggregate economic activity over the business cycle. We construct a model of a dynamic economy in which lenders cannot force borrowers to repay their debts unless the debts are secured. In such an economy, durable assets such as land, buildings and machinery play a dual role: they are not only factors of production, but they also serve as collateral for loans. Borrowers' credit limits are affected by the prices of the collateralized assets. And at the same time, these prices are affected by the size of the credit limits. The dynamic interaction between credit limits and asset prices turns out to be a powerful transmission mechanism by which the effects of shocks persist, amplify, and spill over to other sectors. We show that small, temporary shocks to technology or income distribution can generate large, persistent fluctuations in output and asset prices.
Handle: RePEc:nbr:nberwo:5083
Template-Type: ReDIF-Paper 1.0
Title: Free Trade Agreements versus Customs Unions
Author-Name: Anne O. Krueger
Note: IFM ITI
Number: 5084
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5084
File-URL: http://www.nber.org/papers/w5084.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 54, no. 1 (October 1997): 169-187.
Abstract: Until NAFTA, analyses of preferential trading arrangements began by assuming a customs union with a common external tariff, and the differences between customs unions and free trade agreements (FTAs) have been little analyzed. This paper points to some of the differences between FTAs and customs unions, and shows that on welfare grounds a customs union is always Pareto-superior to an FTA. Moreover, the political economy of FTAs will lead to more opposition to further multilateral trade liberalization than will customs unions.
Handle: RePEc:nbr:nberwo:5084
Template-Type: ReDIF-Paper 1.0
Title: Settling for Coupons: Discount Contracts as Compensation and Punishment in Antitrust Lawsuits
Classification-JEL: L40; K41
Author-Name: Severin Borenstein
Author-Person: pbo78
Note: IO
Number: 5085
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5085
File-URL: http://www.nber.org/papers/w5085.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, October 1996, vol.39, no.2, pp.379-404.
Abstract: A number of recent antitrust lawsuits have been settled with discount contracts in which the defendants agree in the future to sell to the plaintiffs at a discount off of the price they offer to other buyers. Economists often object to such settlements, arguing that the sellers will partially or fully offset these discounts by increasing the baseline price from which the discount is calculated. This paper shows that poorly structured discount contracts will indeed result in price increases for other buyers and that other buyers, not the sellers, are likely to bear most of the cost imposed by the settlement. Carefully formulated discount settlements, however, can avoid giving the sellers an incentive to raise prices to buyers not covered by the settlement. In such cases, the defendant bears the full cost of the settlement. I suggest that poorly structured settlements still take place because their costs are borne primarily by consumers who are not parties to these cases.
Handle: RePEc:nbr:nberwo:5085
Template-Type: ReDIF-Paper 1.0
Title: Supply-Side Economics in a Global Economy
Classification-JEL: E62; F41
Author-Name: Enrique G. Mendoza
Author-Person: pme30
Author-Name: Linda L. Tesar
Author-Person: pte111
Note: IFM PE
Number: 5086
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5086
File-URL: http://www.nber.org/papers/w5086.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "International Ramifications of Tax Reforms") American Economic Review, Vol. 88, no. 1 (March 1998): 226-245.
Abstract: Recent quantitative studies predict large welfare gains from reducing tax distortions in a closed economy, despite costly transitional dynamics to more efficient tax systems. This paper examines transitional dynamics and gains of tax reforms for countries in a global economy, and provides numerical solutions for international tax competition games. Tax reforms in a global economy cause cross-country externalities through capital flows in response to consumption-smoothing and debt-servicing effects, with taxes on world payments affecting the distribution of welfare gains. Within the class of time-invariant tax rates, the gains of replacing income taxes with consumption taxes are large and, in the absence of taxes on foreign assets, the monopoly distortion separating cooperative and noncooperative equilibria is negligible. The analysis starts from a benchmark reflecting current G-7 fiscal policies, and considers the effects of tax reforms on real exchange rates and interest differentials. Tax-distorted equilibrium dynamics are computed using a modified version of the King-Plosser-Rebelo algorithm augmented with shooting routines.
Handle: RePEc:nbr:nberwo:5086
Template-Type: ReDIF-Paper 1.0
Title: Generational Accounts, Aggregate Saving and Intergenerational Distribution
Classification-JEL: E62; E44
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: PE
Number: 5087
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5087
File-URL: http://www.nber.org/papers/w5087.pdf
File-Format: application/pdf
Publication-Status: published as Economica, Vol.64 (1997), pp. 605-626.
Abstract: Are generational accounts informative about the effect of the budget on the intergenerational distribution of resources and (when augmented with generation-specific propensities to consume out of life-time resources) on aggregate consumption and saving? The paper makes three points. First, the usefulness of generational accounts lives or dies with the strict life-cycle model of household consumption. Voluntary intergenerational gifts or liquidity constraints may therefore adversely affect or even destroy their informativeness. Second, even when the life-cycle model holds, generational accounts only measure the effect of the budget on the lifetime consumption of private goods and services. They ignore the intergenerational (re-)distribution associated with the government's provision of public goods and services. Third, generational accounting ignores the effect of the budget on before-tax and before-transfer quantities and prices, including before-tax and -transfer distribution of life-time resources across generations and intertemporal relative prices. That is, it does not handle incidence or general equilibrium repercussions very well. Although useful, generational accounts should therefore carry the label 'handle with great care.'
Handle: RePEc:nbr:nberwo:5087
Template-Type: ReDIF-Paper 1.0
Title: The Distributional Effects of the Tax Treatment of Child Care Expenses
Author-Name: William M. Gentry
Author-Name: Alison P. Hagy
Note: PE
Number: 5088
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5088
File-URL: http://www.nber.org/papers/w5088.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Foundations of Household Taxation, Martin Feldstein and James M. Poterba, eds., University of Chicago Press, 1996, pp. 99-128
Publication-Status: published as The Distributional Effects of the Tax Treatment of Child Care Expenses, William M. Gentry, Alison P. Hagy. in Empirical Foundations of Household Taxation, Feldstein and Poterba. 1996
Abstract: Tax relief for child care expenses, encompassing the Child Care Tax Credit and Dependent Care Assistance Plans, is the largest federal government program in the United States aimed at helping families with child care. We examine the distributional effects of these policies among families with children using both the National Child Care Survey and tax return data. Among families that use tax relief, the benefits average 1.24 percent of family income. Benefits as a percentage of income vary systematically over the income distribution. Despite being regressive at low income levels (mainly due to the credit being non-refundable), tax relief is progressively distributed over most of the income distribution with the ratio of benefits to income falling above the bottom quintile of the income distribution. The benefits of tax relief also vary among families with the same income depending on a family's structure and its labor market and child care choices.
Handle: RePEc:nbr:nberwo:5088
Template-Type: ReDIF-Paper 1.0
Title: The Annuitization of Americans' Resources: A Cohort Analysis
Classification-JEL: E20
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Jagadeesh Gokhale
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: John Sabelhaus
Author-Name: David N. Weil
Author-Person: pwe24
Note: PE
Number: 5089
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5089
File-URL: http://www.nber.org/papers/w5089.pdf
File-Format: application/pdf
Publication-Status: published as Kotlikoff, Laurence J. (ed.) Essays on Saving, Bequests, Altruism, and Life-Cycle Planning. 2001.
Abstract: This paper constructs a unique cohort data set to study the changes since 1960 in the share of Americans' resources that are annuitized. Understanding these changes is important because the larger this share, the more cohorts are likely to consume and the less they are likely to bequeath. Hence, the degree of annuitization affects national saving as well as the transmission of inequality over time. Our findings are striking. Although the annuitized share of resources of younger Americans declined slightly between 1960 and 1990, it increased dramatically for older Americans. It doubled for older men and quadrupled for older women. Since the elderly have much higher mortality probabilities than do the young, their degree of annuitization is much more important for aggregate bequests and saving. According to our estimates, aggregate U.S. bequests would now be 66 percent larger had the post-1960 increase in annuitization not occurred. In addition, U.S. national saving would likely be substantially larger than is currently the case.
Handle: RePEc:nbr:nberwo:5089
Template-Type: ReDIF-Paper 1.0
Title: Generational Accounting in General Equilibrium
Classification-JEL: H22
Author-Name: Hans Fehr
Author-Person: pfe183
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 5090
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5090
File-URL: http://www.nber.org/papers/w5090.pdf
File-Format: application/pdf
Publication-Status: published as Finanzarchiv, Neue Folge, Band 53, pp. 1-27, (1996/97) Heft 1. (published by Mohr Siebeck Verlag, 1996).
Publication-Status: published as Generational Accounting Around the World. Auerbach, Alan J., Laurence J. Kotlikoff, and Willi Leibfritz, eds., Chicago: The University of Chicago Press, 1999, pp. 43-71
Publication-Status: published as Generational Accounting in General Equilibrium, Hans Fehr, Laurence J. Kotlikoff, Willi Leibfritz. in Generational Accounting around the World, Auerbach, Kotlikoff, and Leibfritz. 1999
Abstract: This paper shows how changes in generational accounts relate to the generational incidence of fiscal policy. To illustrate the relationship, it uses the Auerbach-Kotlikoff Dynamic Life-Cycle Simulation Model to compare policy-induced changes in generational accounts with actual changes in generations' utilities. The paper considers a wide range of policies in closed and small open economies as well as economies with and without capital adjustment costs. In general, changes in generational accounts appear to provide fairly good approximations to generations' actual changes in utilities. The approximations are better for living generations. They are worse for policies that involve significant changes in the degree of tax progressivity and for economies with sizable capital- adjustment costs. Finally, generational accounting needs to be adjusted in the case of small open economies to take into account the fact that the incidence of corporate taxation is on labor. The method of adjustment is simply to allocate changes in corporate tax revenues to generations in proportion to their changes in labor supply.
Handle: RePEc:nbr:nberwo:5090
Template-Type: ReDIF-Paper 1.0
Title: Optimal Investment with Costly Reversibility
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Janice C. Eberly
Author-Person: peb3
Note: EFG
Number: 5091
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5091
File-URL: http://www.nber.org/papers/w5091.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, vol.63, no.4, pp.581-593, August 1996.
Abstract: Investment is characterized by costly reversibility when a firm can purchase capital at a given price and sell capital at a lower price. We derive an explicit analytic solution for optimal investment by a firm facing costly reversibility. In addition, we derive a local approximation to the solution which highlights the effects of the parameters of the problem on the triggers for investment. More generally, we extend the Jorgensonian concept of the user cost of capital to the case of uncertainty and define cU and cL as the user costs of capital associated with the purchase and sale of capital, respectively. Optimality requires the" firm to purchase and sell capital as needed to keep the marginal revenue product of capital in" the closed interval [cU,cL]. This prescription encompasses the case of irreversible investment as well as the standard" neoclassical case of costlessly reversible investment. Finally, quantitative analysis suggests" that even when the difference between the purchase and sale prices of capital is small user costs associated with purchasing and selling capital are closer to those applicable under" complete irreversibility than to those applicable under costless reversibility."
Handle: RePEc:nbr:nberwo:5091
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Minimum Wages on Teenage Employment and Enrollment: Evidence from Matched CPS Surveys
Classification-JEL: J31; J15
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 5092
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5092
File-URL: http://www.nber.org/papers/w5092.pdf
File-Format: application/pdf
Publication-Status: published as With Rosella Gardecki, published as "Order from Chaos? The Effects of Early Labor Market Experiences on Adult Labor Market Outcomes", Industrial and Labor Relations Review, Vol. 51, no. 2 (January 1998): 299-322.
Abstract: The recent debate over minimum wages raises two questions. First, should policy makers no longer believe that minimum wages entail negative consequences for teenagers? Second, should economists discard the competitive labor market model? Our evidence for teenagers, using matched CPS surveys, suggests that the answer to both of these questions is no. We find that although increases in minimum wages have small net effects on overall teen employment rates, such increases raise the probability that more-skilled teenagers leave school and displace lower-skilled workers from their jobs. These findings are consistent with the predictions of a competitive labor market model that recognizes skill differences among workers. In addition, we find that the displaced lower-skilled workers are more likely to end up non-enrolled and non-employed. Thus, despite the small net disemployment effects for teenagers as a group, there are significant enrollment and employment shifts associated with minimum wage changes that should be of concern to policy makers.
Handle: RePEc:nbr:nberwo:5092
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach
Classification-JEL: C14; J31
Author-Name: John DiNardo
Author-Person: pdi178
Author-Name: Nicole M. Fortin
Author-Person: pfo101
Author-Name: Thomas Lemieux
Author-Person: ple92
Note: LS
Number: 5093
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5093
File-URL: http://www.nber.org/papers/w5093.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, vol.64, no.5, pp.1001-1044, September 1996.
Abstract: This paper presents a semiparametric procedure to analyze the effects of institutional and labor market factors on recent changes in the U.S. distribution of wages. The effects of these factors are estimated by applying kernel density methods to appropriately 'reweighted' samples. The procedure provides a visually clear representation of where in the density of wages these various factors exert the greatest impact. Using data from the Current Population Survey, we find, as in previous research, that de-unionization and supply and demand shocks were important factors in explaining the rise in wage inequality from 1979 to 1988. We find also compelling visual and quantitative evidence that the decline in the real value of the minimum wage explains a substantial proportion of this increase in wage inequality, particularly for women. We conclude that labor market institutions are as important as supply and demand considerations in explaining changes in the U.S. distribution of wages from 1979 to 1988.
Handle: RePEc:nbr:nberwo:5093
Template-Type: ReDIF-Paper 1.0
Title: Sectoral Growth Across U.S. States: Factor Content, Linkages, and Trade
Classification-JEL: F1; R1
Author-Name: J. David Richardson
Author-Name: Pamela J. Smith
Note: ITI
Number: 5094
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5094
File-URL: http://www.nber.org/papers/w5094.pdf
File-Format: application/pdf
Abstract: Employing a 'factor-content' model that relates sectoral growth to regional factor endowments, we find that 1) U.S. state factor endowments are reasonably strong correlates of cross-state sectoral growth in value-added, with patterns that accord well with intuition; 2) that inter-sectoral differences in productivity change are marked -- estimates range from negative to annual rates over 10 percent; 3) little evidence of unusual growth linkages either from sector to sector or state to state, such as might be expected from recent discussions of externalities,... 4) ...nor of correlation between unusually strong sectoral growth and unusual levels of export dependence, another putative channel of externalities. Our principle data set is a 1987-89 panel of: sector-by-sector, state-by-state value added and international exports, as well as state endowments of patents, structural capital, and as many as six types of labor. 'Unusual' growth and exports are defined as the residual growth and international exports left unexplained by endowments.
Handle: RePEc:nbr:nberwo:5094
Template-Type: ReDIF-Paper 1.0
Title: World Income Components: Measuring and Exploiting International Risk Sharing Opportunities
Classification-JEL: G1
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Stefano Athanasoulis
Note: AP
Number: 5095
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5095
File-URL: http://www.nber.org/papers/w5095.pdf
File-Format: application/pdf
Publication-Status: published as Stefano G. Athanasoulis & Robert J. Shiller, 2001. "World Income Components: Measuring and Exploiting Risk-Sharing Opportunities," American Economic Review, American Economic Association, vol. 91(4), pages 1031-1054, September.
Abstract: We provide methods of decomposing the variance of world national incomes into components in such a way as to indicate the most important risk-sharing opportunities, and, therefore, the most important missing international risk markets to establish. One method uses a total variance reduction criterion, and identifies risk-sharing opportunities in terms of eigenvectors of a variance matrix of residuals produced when country incomes are regressed on world income. Another method uses a mean-variance utility-maximizing criterion and identifies risk-sharing opportunities in terms of eigenvectors of a variance matrix of deviations of country incomes from their respective contract-year shares of world income. The two methods are applied using Summers-Heston (1991) data on national incomes for large countries 1950-1990, each using two different methods of estimating variances. While these data are not sufficient to provide accurate estimates of the requisite variance matrices of (transformed) national incomes, the results are suggestive of important new markets that could actually be created, and show that there may be large welfare gains to creating some of these markets.
Handle: RePEc:nbr:nberwo:5095
Template-Type: ReDIF-Paper 1.0
Title: Financial Innovation and the Management and Regulation of Financial Institutions
Author-Name: Robert C. Merton
Author-Person: pme203
Note: AP CF IFM ME
Number: 5096
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5096
File-URL: http://www.nber.org/papers/w5096.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Banking and Finance, Vol. 19, nos. 3/4 (1995): 461-481.
Abstract: New security designs, improvements in computer telecommunications technology and advances in the theory of finance have led to revolutionary changes in the structure of financial markets and institutions. This paper provides a functional perspective on the dynamics of institutional change and uses a series of examples to illustrate the breadth and depth of institutional change that is likely to occur. These examples emphasize the role of hedging versus equity capital in managing risk, the need for risk accounting and changes in methods for implementing both regulatory and stabilization public policy.
Handle: RePEc:nbr:nberwo:5096
Template-Type: ReDIF-Paper 1.0
Title: Why are Saving Rates so Different Across Countries?: An International Comparative Analysis
Classification-JEL: E2; F4
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: IFM ITI
Number: 5097
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5097
File-URL: http://www.nber.org/papers/w5097.pdf
File-Format: application/pdf
Publication-Status: Published as "Why are Latin America's Savings Rates So Low? An International Comparative Analysis", Journal of Development Economics, Vol. 51, no. 1(October 1996): 5-44.
Abstract: This paper analyzes the determinants of savings in the world economy, and discusses why saving ratios have been so uneven across countries. A distinction is made between private and government savings, using panel data for 36 countries, from 1970 to 1992. In particular, it is assumed that government savings are not completely exogenous, and respond to both economic and political (strategic) determinants, along the lines of the recent literature on the political economy of macroeconomic policy. Using instrumental variables estimation methods it is found that per capita growth is one of the most important determinants of both private and public savings. The results indicate that government-run social security systems affect private savings negatively. In addition, the results provide some support for the political economy perspective to government finances, which evidences a different underlying process determining public savings. Public savings tend to be lower in countries with higher political instability. Higher government savings crowd out private savings, but in a less than proportional fashion. Higher levels of foreign savings - i.e. reductions in the current account balance - are associated with lower domestic (both private and public) saving rates, although the degree of offset is also less than proportional. The degree of financial development turns out to be another important determinant of private savings. The results are mixed regarding the role of borrowing constraints - a topic deserving additional research attention.
Handle: RePEc:nbr:nberwo:5097
Template-Type: ReDIF-Paper 1.0
Title: Globalization and the Inequality of Nations
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Anthony J. Venables
Author-Person: pve7
Note: ITI IFM
Number: 5098
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5098
File-URL: http://www.nber.org/papers/w5098.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 110, no. 4 (1995): 857-880.
Abstract: A monopolistically competitive manufacturing sector produces goods used for final consumption and as intermediates. Intermediate usage creates cost and demand linkages between firms and a tendency for manufacturing agglomeration. How does globalization affect the location of manufacturing and gains from trade? At high transport costs all countries have some manufacturing, but when transport costs fall below a critical value a core-periphery pattern spontaneously forms, and nations that find themselves in the periphery suffer a decline in real income. At still lower transport costs there is convergence of real incomes, in which peripheral nations gain and core nations may lose.
Handle: RePEc:nbr:nberwo:5098
Template-Type: ReDIF-Paper 1.0
Title: Transfer Behavior within the Family: Results from the Asset and Health Dynamics Survey
Classification-JEL: D1
Author-Name: Kathleen McGarry
Author-Person: pmc264
Author-Name: Robert F. Schoeni
Author-Person: psc101
Note: AG
Number: 5099
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5099
File-URL: http://www.nber.org/papers/w5099.pdf
File-Format: application/pdf
Publication-Status: published as K. McGarry & R. F. Schoeni, 1997. "Transfer Behavior Within the Family: Results From the Asset and Health Dynamics Study," The Journals of Gerontology Series B: Psychological Sciences and Social Sciences, vol 52B(Special), pages 82-92.
Abstract: If an individual falls on hard times, can he rely on his family for financial support? In view of proposed reductions in public assistance programs, it is important to understand the mechanisms through which families provide support for their members. In this paper we provide evidence that intra-family transfers are compensatory, directed disproportionally to less well-off members. These results hold both for the incidence of transfers and for the amounts. Within a given year, adult children in the lowest income category are 6 percentage points more likely to receive a financial transfer from their parents, and on average they receive over $300 more than siblings in the highest income category. The data used in this study, the new Asset and Health Dynamics Survey (AHEAD), contain information on all children in the family. Thus we are able to estimate models which control for unobserved differences across families. Our results are robust to these specifications. Additionally, we do not find evidence that parents provide financial assistance to their children in exchange for caregiving.
Handle: RePEc:nbr:nberwo:5099
Template-Type: ReDIF-Paper 1.0
Title: Banks and Derivatives
Classification-JEL: G13; G21
Author-Name: Gary Gorton
Author-Person: pgo458
Author-Name: Richard Rosen
Note: AP CF
Number: 5100
Creation-Date: 1995-04
Order-URL: http://www.nber.org/papers/w5100
File-URL: http://www.nber.org/papers/w5100.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1995. Cambridge: MIT Press, 1995.
Publication-Status: published as Banks and Derivatives, Gary Gorton, Richard Rosen. in NBER Macroeconomics Annual 1995, Volume 10, Bernanke and Rotemberg. 1995
Abstract: In the last ten to fifteen years financial derivative securities have become an important, and controversial, product for commercial banks. The controversy concerns whether the size, complexity, and risks associated with these securities, the difficulties with accurately reporting timely information concerning the value of firms' derivative positions, and the concentration of activity in a small number of firms, has substantially increased the risk of collapse of the world banking system. Despite the widespread attention to derivatives, there has been little systematic analysis. We estimate market values and interest-rate sensitivities of interest rate swap positions of U.S. commercial banks to empirically address the question of whether swap contracts have increased or decreased systematic risk in the U.S. banking system. We find that the banking system as a whole faces little net interest-rate risk from swap portfolios.
Handle: RePEc:nbr:nberwo:5100
Template-Type: ReDIF-Paper 1.0
Title: Internal Capital Markets and the Competition for Corporate Resources
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: CF
Number: 5101
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5101
File-URL: http://www.nber.org/papers/w5101.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, vol.52, no.1, March 1997, pp.111-133.
Abstract: This paper examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market. Unlike a bank lender, headquarters has control rights that give it both the authority and the incentive to engage in 'winner-picking' -- the practice of actively shifting funds from one project to another. By doing a good job in the winner-picking dimension, headquarters can create value even when its own relationship with the outside capital market is fraught with agency problems and it therefore cannot help at all to relax overall firm- wide credit constraints. One implication of the model developed here is that internal capital markets may function more efficiently when companies choose relatively focused strategies.
Handle: RePEc:nbr:nberwo:5101
Template-Type: ReDIF-Paper 1.0
Title: Wages and Foreign Ownership: A Comparative Study of Mexico, Venezuela and the United States
Classification-JEL: F23; J31
Author-Name: Brian Aitken
Author-Name: Ann Harrison
Author-Person: pha441
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI
Number: 5102
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5102
File-URL: http://www.nber.org/papers/w5102.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, vol. 40. no. 3/4, May 1996, pp. 345-371
Abstract: This paper explores the relationship between wages and foreign investment in Mexico, Venezuela, and the United States. Despite very different economic conditions and levels of development, we find one fact which is robust across all three countries: higher levels of foreign investment are associated with higher wages. In Mexico and Venezuela, foreign investment was associated with higher wages only for foreign-owned firms -- there is no evidence of wage spillovers leading to higher wages for domestic firms. In the United States there is evidence of wage spillovers. The lack of spillovers in Mexico and Venezuela is consistent with significant wage differentials between foreign and domestic enterprises. In the United States, wage differentials are smaller.
Handle: RePEc:nbr:nberwo:5102
Template-Type: ReDIF-Paper 1.0
Title: Price and Volume Measures in the System of National Accounts
Classification-JEL: C43; E31
Author-Name: W. Erwin Diewert
Author-Person: pdi117
Note: PR
Number: 5103
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5103
File-URL: http://www.nber.org/papers/w5103.pdf
File-Format: application/pdf
Publication-Status: published as Kendrick, John W. (ed.) The new system of national accounts, Recent Economic Thought Series. Boston; Dordrecht and London: Kluwer Academic, 1996.
Abstract: The paper is an extensive review of chapter 16 in the System of National Accounts, 1993 written by Peter Hill. The basic principles for measuring price and quantity change in the National Accounts are explained. The paper also presents some new material on the consistency of superlative indexes with indexes which are additive in their components. Some new material on the treatment of quality change is also presented which indicates that traditional Statistical Agency treatments of this issue will lead to upward bias in price indexes. The literature on sources of bias in consumer price indexes is also reviewed.
Handle: RePEc:nbr:nberwo:5103
Template-Type: ReDIF-Paper 1.0
Title: Axiomatic and Economic Approaches to Elementary Price Indexes
Classification-JEL: C43; C81
Author-Name: W. Erwin Diewert
Author-Person: pdi117
Note: PR
Number: 5104
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5104
File-URL: http://www.nber.org/papers/w5104.pdf
File-Format: application/pdf
Publication-Status: published as W. Erwin Diewert, 1999. "Axiomatic and Economic Approaches to International Comparisons," NBER Chapters, in: International and Interarea Comparisons of Income, Output, and Prices, pages 13-107 National Bureau of Economic Research, Inc.
Abstract: In a 1993 paper, Marshall Reinsdorf finds that the CPI components for food and gas were biased upward by about 2% and 1% per year respectively during the 1980s. He attributes this result to outlet substitution bias. The more recent paper by Reinsdorf and Moulton [1994] presents an alternative explanation for Reinsdorf's earlier results: when the BLS moved to probability sampling of prices in 1978, the micro price quotations were aggregated together using an index number formula that generates an upward bias. This paper further explores the central theoretical issue raised by the Reinsdorf-Moulton paper: the choice of an index number formula to aggregate prices at the finest level of disaggregation. This issue is examined from both axiomatic and economic perspectives. This paper also reviews the empirical literature on alternative elementary price indexes, and the recent literature on sources of bias in consumer price indexes. The findings of this paper in conjunction with the empirical work of Reinsdorf and Moulton yield a number of recommendations for Statistical Agencies which are outlined in the final section.
Handle: RePEc:nbr:nberwo:5104
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Collective Bargaining Legislation on Strikes and Wages
Classification-JEL: J52
Author-Name: Peter C. Cramton
Author-Name: Morley Gunderson
Author-Person: pgu122
Author-Name: Joseph S. Tracy
Author-Person: ptr23
Note: LS
Number: 5105
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5105
File-URL: http://www.nber.org/papers/w5105.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 81, no.3 (August 1999),pp.475-487.
Abstract: Using Canadian data on large, private-sector contract negotiations from January 1967 to March 1993, we find that wages and strikes are substantially influenced by labor policy. In particular, we find that prohibiting the use of replacement workers during strikes is associated with significantly higher wages, and more frequent and longer strikes. This is consistent with private information theories of bargaining. We estimate the welfare consequences of a ban on replacement workers, as well as other labor policies. Despite the higher dispute costs, union workers are better off with a ban on replacement workers. The higher wage more than compensates for the more frequent and longer strikes.
Handle: RePEc:nbr:nberwo:5105
Template-Type: ReDIF-Paper 1.0
Title: The Use of Replacement Workers in Union Contract Negotiations: The U.S. Experience, 1980-1989
Classification-JEL: J52
Author-Name: Peter C. Cramton
Author-Name: Joseph S. Tracy
Author-Person: ptr23
Note: LS
Number: 5106
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5106
File-URL: http://www.nber.org/papers/w5106.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol.16, no.4 (October 1998), pp. 667-701.
Abstract: It is argued in many circles that a structural change occurred in U.S. collective bargaining in the 1980s. We investigate the extent to which the hiring of replacement workers can account for this change. For a sample of over 300 major strikes since 1980, we estimate the likelihood of replacements being hired. We find that the risk of replacement declines during tight labor markets, and is lower for bargaining units with more experienced workers. We use the predicted replacement risk as an explanatory variable in a model of the union's choice between the strike and holdout threat. We find that strike usage decreases significantly as the predicted replacement risk increases. We estimate that a ban on the use of replacement workers would have increased strike incidence from 1982-1989 by 3 percentage points, a 30 percent increase.
Handle: RePEc:nbr:nberwo:5106
Template-Type: ReDIF-Paper 1.0
Title: Technological Change and the Skill Acquisition of Young Workers
Classification-JEL: J24; 033
Author-Name: Ann P. Bartel
Author-Name: Nachum Sicherman
Note: LS
Number: 5107
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5107
File-URL: http://www.nber.org/papers/w5107.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol. 16, no. 4, pp. 718-755, 1998.
Abstract: Using the National Longitudinal Survey of Youth (NLSY) and six proxies for industry rates of technological change, we study the impact of technological change on skill accumulation among young male workers in the manufacturing sector during the time period 1987 through 1992. Production workers in manufacturing industries with higher rates of technological change are more likely to receive formal company training, but not other types of training. An important finding is that, while more educated workers are more likely to receive formal company training, the training gap between the highly educated and the less educated narrows, on average, as the rate of technological change increases. The positive effect of technological change on hours of training is due largely to an increase in the incidence of training, not in the number of hours per training spell.
Handle: RePEc:nbr:nberwo:5107
Template-Type: ReDIF-Paper 1.0
Title: Fixed versus Flexible Exchange Rates: Which Provides More Fiscal Discipline?
Classification-JEL: F31
Author-Name: Aaron Tornell
Author-Person: pto157
Author-Name: Andres Velasco
Note: IFM
Number: 5108
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5108
File-URL: http://www.nber.org/papers/w5108.pdf
File-Format: application/pdf
Publication-Status: published as Tornell, Aaron and Andres Velasco. "Fixed Versus Flexible Exchange Rates: Which Provides More Fiscal Discipline?," Journal of Monetary Economics, 2000, v45(2,Apr), 399-436.
Abstract: In recent years the conventional wisdom has held that fixed rates provide more fiscal discipline than do flexible rates. In this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority. The claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg. Hence, under fixed rates bad behavior today leads to punishment tomorrow. Under flexible rates bad behavior has costs as well. The difference is in the intertemporal distribution of these costs: flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate. Hence, bad behavior today leads to punishment today. If fiscal authorities are impatient, flexible rates - by forcing the costs to be paid up-front - provide more fiscal discipline and higher welfare for the representative private agent. The recent experience of Sub- Saharan countries supplies some preliminary evidence that matches the predictions of the model.
Handle: RePEc:nbr:nberwo:5108
Template-Type: ReDIF-Paper 1.0
Title: American Fiscal Policy in the 1990's
Classification-JEL: H62; H63
Author-Name: Herschel I. Grossman
Note: EFG ME
Number: 5109
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5109
File-URL: http://www.nber.org/papers/w5109.pdf
File-Format: application/pdf
Publication-Status: published as Economic Notes, vol.24, 1995, no.2, pp.231-238.
Abstract: This essay analyzes current fiscal policy in the United States within an historical context. The objective is to clarify why recent developments in the United States are troubling, but also to understand why the United States, in contrast to other countries such as Italy, has so far avoided the path to fiscal disaster. The discussion suggests that perhaps the American public understands, at least implicitly, that unless fiscal policy limits the growth of the public debt, the government's credit is sure to run out at some unpredictable future time, as has happened in Italy, with the consequent need for drastic and painful fiscal adjustments.
Handle: RePEc:nbr:nberwo:5109
Template-Type: ReDIF-Paper 1.0
Title: Trade, Technology, and Wage Inequality
Classification-JEL: F14; F15
Author-Name: Gordon H. Hanson
Author-Person: pha80
Author-Name: Ann Harrison
Author-Person: pha441
Note: ITI
Number: 5110
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5110
File-URL: http://www.nber.org/papers/w5110.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Vol. 52 (1999): 271-288.
Abstract: In Mexico during the 1980s, the wages of more-educated, more- experienced workers rose relative to those of less-educated, less- experienced workers. We assess the extent to which the increase in the skilled-unskilled wage gap was associated with Mexico's recent trade reform. In particular, we examine whether trade reform has shifted employment towards industries that are relatively intensive in the use of skilled labor (Stolper-Samuelson-type effects). The results suggest that the rising wage gap is associated with changes internal to industries and even internal to plants that cannot be explained by Stolper-Samuelson-type effects. We also find that other characteristics associated with globalization -- such as foreign investment and export orientation -- matter. Exporting firms and joint ventures pay higher wages to skilled workers and demand more skilled labor than other firms.
Handle: RePEc:nbr:nberwo:5110
Template-Type: ReDIF-Paper 1.0
Title: What is the Value-Added for Large U.S. Banks in Offering Mutual Funds?
Author-Name: Edward J. Kane
Author-Person: pka853
Note: CF
Number: 5111
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5111
File-URL: http://www.nber.org/papers/w5111.pdf
File-Format: application/pdf
Publication-Status: published as The Financier: Analyses of Capital and Money Market Transactions, vol.2 May 1995, pp. 43-49
Abstract: This paper argues that an implicit deposit-insurance credit enhancement is extended to any nondeposit savings vehicle offered by a very large bank. This unpriced credit enhancement helps to explain the preference revealed by very large U.S. banks for gearing up to offer mutual funds instead of developing index-linked deposit products. It also explains why large banks have been more eager than small banks to offer mutual funds and why bank mutual funds could be priced to grow at a time when bank deposits were being priced to shrink.
Handle: RePEc:nbr:nberwo:5111
Template-Type: ReDIF-Paper 1.0
Title: Open Economy Forces and Late 19th Century Scandinavian Catch-Up
Author-Name: Kevin O'Rourke
Author-Person: por7
Author-Name: Jeffrey G. Williamson
Author-Person: pwi169
Note: DAE
Number: 5112
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5112
File-URL: http://www.nber.org/papers/w5112.pdf
File-Format: application/pdf
Publication-Status: published as "Open Economy Forces and Late 19th Century Swedish Catch-Up: A Quantitative Accounting," Scandinavian Economic History Review, vol. XLIII no. 2 (1995):pp. 171-203.
Abstract: Scandinavia recorded very high growth rates between 1870 and 1914, catching up with the leaders. This paper estimates that about two-thirds of the Scandinavian catching up on Britain was due to the open economy forces of global factor and commodity market integration. All of the Scandinavian catching up on America was due to the same open economy forces. The question for the economist is: Why does the new growth theory spend so little time dealing with these open economy forces? The question for the economic historian is: Can the breakdown of global factor and commodity markets after 1914 explain a large share of the cessation of convergence up to 1950? Can the spectacular OECD convergence achieved after 1950 be explained by the resumption of the pre-1914 open economy conditions that contributed so much to Scandinavian catch-up?
Handle: RePEc:nbr:nberwo:5112
Template-Type: ReDIF-Paper 1.0
Title: Privatization in the United States
Author-Name: Florencio Lopez-de-Silane
Author-Person: plo137
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: CF PE
Number: 5113
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5113
File-URL: http://www.nber.org/papers/w5113.pdf
File-Format: application/pdf
Publication-Status: published as Rand Journal of Economics, Vol. 28, no. 3 (1997): 447-471.
Abstract: In the United States, the two principal modes of producing local government services are inhouse provision by government employees and contracting out to private suppliers, also known as privatization. We examine empirically how United States counties choose their mode of providing services. The evidence indicates that state clean- government laws and state laws restricting county spending encourage privatization, whereas strong public unions discourage it. The evidence is inconsistent with the view that efficiency considerations alone govern the provision mode, and points to the important roles played by political patronage and taxpayer resistance to government spending in the privatization decision.
Handle: RePEc:nbr:nberwo:5113
Template-Type: ReDIF-Paper 1.0
Title: A Heckscher-Ohlin View of Sweden Competing in the Global Market
Author-Name: Edward E. Leamer
Author-Person: ple440
Author-Name: Per Lundborg
Note: ITI
Number: 5114
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5114
File-URL: http://www.nber.org/papers/w5114.pdf
File-Format: application/pdf
Publication-Status: published as The Welfare State in Transition, Freeman, Richard B., Robert Topel, and Birgitta Swedenborg, eds., Chicago: The University of Chicago Press, 1997.
Publication-Status: published as A Heckscher-Ohlin View of Sweden Competing in the Global Marketplace, Edward E. Learner, Per Lundborg. in The Welfare State in Transition: Reforming the Swedish Model, Freeman, Topel, and Swedenborg. 1997
Abstract: In this paper we explore the hypothesis that the Swedish malaise comes from the interaction of the Swedish welfare state with changes in the global marketplace. External commerce can expose Swedish workers in exporting and import-competing industries to competition from low-wage foreign workers that is incompatible with an extensive welfare system. The Heckscher-Ohlin theory that is the foundation of this paper allows a high-wage equilibrium without government intervention even though there is increasing competition from low-wage suppliers, if capital is abundant and if production is concentrated on the most capital intensive products. Then the unskilled workers can be employed at high wages either in the tradables or nontradables sector. However, Swedish investment rates have not been high enough to maintain the position that it had two decades ago. This we express in the form of the Heckscher-Ohlin Crowding Hypothesis: Swedish difficulties in its interactions with the global marketplace come from an eroding lead in capital abundance. Though losing its distinctiveness in capital abundance, Sweden remains well supplied with soft-wood forests. Although contributing substantially to GDP forest resources can also imply lower wages for unskilled workers and greater income inequality. A country with abundant forest resources and produce capital intensive products as well as pulp and paper, but a country with more moderate supplies of capital can find much of its capital deployed in pulp and paper and end up with a mix of tradables including relatively labor-intensive products. This product mix may dictate relatively low wages for unskilled workers since the marginal unskilled worker may be employed in sectors which globally award low wages.
Handle: RePEc:nbr:nberwo:5114
Template-Type: ReDIF-Paper 1.0
Title: A Provincial View of Capital Mobility
Classification-JEL: F32
Author-Name: Tamim Bayoumi
Author-Person: pba366
Author-Name: Michael W. Klein
Author-Person: pkl9
Note: IFM
Number: 5115
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5115
File-URL: http://www.nber.org/papers/w5115.pdf
File-Format: application/pdf
Publication-Status: published as International Monetary Fund Staff Papers, Vol. 44, no. 4 (December 1997): 534-556.
Abstract: This paper develops a method of testing for zones of financial integration based upon intertemporal considerations and applies it to data on Canadian provincial trade. In a financially-integrated region individuals smooth consumption with respect to movements in aggregate income. Consumption in that region follows income in that region if individuals use only regional capital markets while consumption follows movements in income in broader regions (e.g. national income or world income) if individuals have access to and use capital markets in those broader regions (e.g. the national or global capital markets, respectively). We derive a specification which measures the impact of differential levels of access to capital markets--different zones of capital mobility--on the relationship between the regional trade balance and regional, national and global income. This empirical specification is tested using data on trade balances across Canadian provinces. The results indicate full capital mobility within Canada but only partial capital mobility between Canada and the rest of the world.
Handle: RePEc:nbr:nberwo:5115
Template-Type: ReDIF-Paper 1.0
Title: Economics of the Generation and Management of Municipal Solid Waste
Classification-JEL: Q
Author-Name: David N. Beede
Author-Name: David E. Bloom
Author-Person: pbl79
Note: EH
Number: 5116
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5116
File-URL: http://www.nber.org/papers/w5116.pdf
File-Format: application/pdf
Publication-Status: published as Beede, David and David E. Bloom. "Economics of Municipal Solid Waste." World Bank Research Observer (August 1995): 113–150.
Abstract: This paper examines the generation and management of solid waste (MSW) through the lens of economics. We estimate that the global burden of MSW amounted to 1.3 billion metric tons in 1990, or 0.67 kilograms of waste per person per day. Industrial countries account for a disproportionate share of world MSW relative to their share of world population, while developing countries account for a disproportionate share of the world's MSW relative to their share of world income. Cross-country and time-series analyses reveal that MSW generation is positively associated but inelastic with respect to per capita income, and positively associated and unit elastic with respect to population size. Practices for collecting, processing, and disposing of MSW vary widely across countries in accord with the nature of the waste stream and key features of the environmental and economic context. However the least efficient practices tend to be found in developing countries, where MSW poses serious environmental quality and public health threats. Although considerable evidence indicates that the generation and management of MSW is sensitive to income and price variables, natural incentives to overuse common property and the presence of intergenerational externalities both suggest that private economic behavior will not yield socially optimal outcomes in this area. Community intervention may thereby promote the social good, with evidence accumulating that favors arrangements involving the of private firms. The cost of MSW management is likely to grow faster than the pace of urbanization if urbanization outpaces the development of transportation infrastructures. Our calculations also suggest that improvements in the handling of hazardous MSW will be far less expensive in discounted terms than undoing in the future the damage being caused by current practices.
Handle: RePEc:nbr:nberwo:5116
Template-Type: ReDIF-Paper 1.0
Title: Costs of Environmentally Motivated Taxes in the Presence of Other Taxes:General Equilibrium Analyses
Classification-JEL: E62; H21
Author-Name: A. Lans Bovenberg
Author-Person: pbo45
Author-Name: Lawrence H. Goulder
Note: PE
Number: 5117
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5117
File-URL: http://www.nber.org/papers/w5117.pdf
File-Format: application/pdf
Publication-Status: published as NTJ, Vol. 50, no. 1 (March 1997).
Abstract: There has been keen interest in recent years in environmentally motivated or 'green' tax reforms. This paper employs analytical and numerical general equilibrium models to investigate the costs of such reforms, concentrating on the question of whether these costs can be eliminated when revenues from new environmental taxes are devoted to cuts in marginal income tax rates. A distinguishing feature of the analytical model is its attention to the role of pre-existing inefficiencies in the tax treatment of labor and capital and the associated role of tax-shifting. This model indicates how the prospects for a zero- or negative-cost environmental tax reform are enhanced to the extent that environmental tax reforms shift the tax burden toward the less efficient (undertaxed) factor. Results from the numerical model are interpreted in light of the analytical model's findings. These results indicate that the revenue- neutral substitution of Btu or gasoline taxes for typical income taxes usually entails positive gross costs to the economy. In the case of the gasoline tax, a significant tax shifting effect serves to lower the policy's gross costs. This accounts for the lower gross cost of the gasoline tax compared with the Btu tax. Under neither policy is tax-shifting substantial enough to eliminate the overall gross costs.
Handle: RePEc:nbr:nberwo:5117
Template-Type: ReDIF-Paper 1.0
Title: Effects of Air Quality Regulation
Classification-JEL: H00; Q28
Author-Name: Vernon Henderson
Author-Person: phe30
Note: PE
Number: 5118
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5118
File-URL: http://www.nber.org/papers/w5118.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, 1996, 86, pp.789-813.
Abstract: This paper investigates the effects of local regulatory effort on ground level ozone air quality and on industrial location. Local regulatory effort varies by annual air quality attainment status and by state attitudes towards the environment. A switch from attainment to non-attainment status induces greater regulatory effort in a county, leading to an improvement in air quality. Air quality readings for ground level ozone improve by 3-8% depending on the exact air quality measure, following a switch to non-attainment status. Pro-environment states, which ceteris paribus, spend relatively more on pollution abatement also have cleaner air. A 1% increase in typical annual state pollution abatement expenditures leads to about a .04% improvement in local ozone readings. Heavily polluting industries show a tendency to move to counties with a record of clean air, where they are less likely to be hassled. A county switching to having a three-year record of attainment experiences a 7-9% growth in the number of heavily polluting establishments. This implies polluting industries are spreading out geographically moving from non- attainment (polluted) areas to attainment (initially less polluted) areas. Finally, for ozone, localities may improve the annual hourly extreme value reading used to measure officially local air quality, without improving measures (mean, medians, medians of daily maximum) of more typical ozone conditions. This occurs by spreading out economic activity over the day to dampen peaks of ozone inducing activity and subsequent daily ozone peaks.
Handle: RePEc:nbr:nberwo:5118
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Prison Population Size on Crime Rates: Evidence From Prison Overcrowding Litigation
Classification-JEL: K42; H72
Author-Name: Steven D. Levitt
Author-Person: ple59
Note: PE
Number: 5119
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5119
File-URL: http://www.nber.org/papers/w5119.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, May 1996, vol.111, pp.319-352.
Abstract: Previous studies of the impact of changes in prisoner populations on crime rates have failed to adequately control for the simultaneity between those two variables. While increases in the number of prisoners are likely to reduce crime, rising crime rates also translate into larger prison populations. To break that simultaneity, this paper uses the status of prison overcrowding litigation in a state as an instrument for changes in the prison population. Overcrowding litigation is demonstrated to have a negative impact on prison populations, but is unlikely to be related to fluctuations in the crime rate, except through its effect on prison populations. Instrumenting results in estimates of the elasticity of crime with respect to the number of prisoners that are two to three times greater than previous studies. The results are robust across all of the crime categories examined. For each one-prisoner reduction induced by prison overcrowding litigation, the total number of crimes committed increases by approximately 15 per year. The social benefit from eliminating those 15 crimes is approximately $45,000; the annual per prisoner costs of incarceration are roughly $30,000.
Handle: RePEc:nbr:nberwo:5119
Template-Type: ReDIF-Paper 1.0
Title: Capital Mobility, Fiscal Policy and Growth under Self-Financing of Human Capital Formation
Classification-JEL: F21; E62
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Kenneth M. Kletzer
Note: IFM
Number: 5120
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5120
File-URL: http://www.nber.org/papers/w5120.pdf
File-Format: application/pdf
Publication-Status: published as Willem H. Buiter & Kenneth M. Kletzer, 1995. "Capital Mobility, Fiscal Policy, and Growth under Self-Financing of Human Capital Formation," Canadian Journal of Economics, Canadian Economics Association, vol. 28(s1), pages 163-94, November.
Abstract: This paper considers the effects of fiscal and financial policy on economic growth in open and closed economies, when human capital formation by young households is constrained by the illiquidity of human wealth. Both endogenous and exogenous growth versions of the basic OLG model are analyzed. We find that intergenerational redistribution policies that discourage physical capital formation may encourage human capital formation. Despite common technologies and perfect international mobility of financial capital, the non- tradedness of human capital and the illiquidity of human wealth make for persistent differences in productivity growth rates (in the endogenous growth version of the model) or in their levels (in the exogenous growth version). We also consider the productivity growth (or level) effects of public spending on education and of the distortionary taxation of financial asset income.
Handle: RePEc:nbr:nberwo:5120
Template-Type: ReDIF-Paper 1.0
Title: Foreign Investment, Outsourcing and Relative Wages
Classification-JEL: F14; F21
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: ITI
Number: 5121
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5121
File-URL: http://www.nber.org/papers/w5121.pdf
File-Format: application/pdf
Publication-Status: published as Political Economy of Trade Policy: Essays in Honor of Jagdish Bhagwati, MIT Press. 1996, pp.89-128.
Publication-Status: published as Feenstra, Robert C. and Gordon H. Hanson. "Foreign Direct Investment And Relative Wages: Evidence From Mexico's Maquiladoras," Journal of International Economics, 1997, v42(3/4), 371-393.
Abstract: In this paper we examine the reduction in the relative employment and wages of unskilled workers in the U.S. during the 1980's. We argue that a contributing factor to this decline was rising imports reflecting the outsourcing of production activities. In a theoretical model, we show that any increase in the Southern capital stock relative to that of the North, or neutral technological progress in the South, will increase the relative wage of skilled workers in both countries due to a shift in production activities to the South. Corresponding to this change in the relative wage is an increase in the price index of Northern activities within each industry, relative to that of the South. We confirm that this change in relative prices occurred for the U.S. and other industrialized countries relative to their trading partners. We also estimate that 15-33% of the increase in the relative wage of nonproduction (or skilled) workers in the U.S. during the 1980's is explained by rising imports.
Handle: RePEc:nbr:nberwo:5121
Template-Type: ReDIF-Paper 1.0
Title: Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras
Classification-JEL: F14; F21
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: EFG ITI
Number: 5122
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5122
File-URL: http://www.nber.org/papers/w5122.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 42 (1997): 371-394.
Abstract: In this paper, we examine the increase in the relative wages of skilled workers in Mexico during the 1980s. We argue that rising wage inequality in Mexico is linked to capital inflows from abroad. The effect of these capital inflows, which correspond to an increase in outsourcing by multinationals from the United States and other Northern countries, is to shift production in Mexico towards relatively skill-intensive goods thereby increasing the relative demand for skilled labor. We study the impact of foreign direct investment (FDI) on the share of skilled labor in total wages in Mexico using state-level data on two-digit industries from the Industrial Census for the period 1975 to 1988. We measure the state- level growth in FDI using data on the regional activities of foreign- owned assembly plants. We find that growth in FDI is positively correlated with the relative demand for skilled labor. In the regions where FDI has been most concentrated, growth in FDI can account for over 50 percent of the increase in the skilled labor share of total wages that occurred during the late 1980s.
Handle: RePEc:nbr:nberwo:5122
Template-Type: ReDIF-Paper 1.0
Title: Employment, Unemployment, and Problem Drinking
Author-Name: John Mullahy
Author-Name: Jody L. Sindelar
Note: EH
Number: 5123
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5123
File-URL: http://www.nber.org/papers/w5123.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 15 (1996): 409-434.
Abstract: The misuse of alcoholic beverages ('problem drinking') has been demonstrated to result in enormous economic costs; most of these costs have been shown to be reduced productivity in the labor market. The purpose of this paper is to present sound structural estimates of the relationship between various measures of problem drinking and of employment and unemployment. The sample of approximately 15,000 observations is drawn from the 1988 Alcohol Survey of the National Health Interview Survey, the first dataset that enables nationally- representative estimates of alcohol abuse and dependence consistent with generally accepted medical criteria. The structural estimates of the effects of problem drinking on employment and labor market participation are obtained using methods proposed by Amemiya and by Heckman and MaCurdy. For our sample of males ages 25 to 59, we find that using the instrumental variable approach suggests that the negative impact of problem drinking on employment is even greater than that estimated using the OLS approach. Interestingly, the IV estimates on the samples of females change the sign from a positive impact of problem drinking on employment to a negative impact. Thus although the conclusions drawn from raw data comparisons and OLS regressions differ by gender, the IV estimates are very similar for men and women. For women, the unobserved heterogeneity masks the negative impact of problem drinking on employment when using OLS estimation methods.
Handle: RePEc:nbr:nberwo:5123
Template-Type: ReDIF-Paper 1.0
Title: The Role of Pre-Market Factors in Black-White Wage Differences
Classification-JEL: J31; J71
Author-Name: Derek A. Neal
Author-Name: William R. Johnson
Note: LS
Number: 5124
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5124
File-URL: http://www.nber.org/papers/w5124.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, October, 1996, vol.104, no.5, pp.869-895.
Abstract: Many attempts to measure the wage effects of current labor market discrimination against minorities include controls for worker productivity that (1) could themselves be affected by market discrimination and (2) are very imprecise measures of worker skill. The resulting estimates of residual wage gaps may be biased. Our approach is a parsimoniously specified wage equation which controls for skill with the score of a test administered as teenagers prepared to leave high school and embark on work careers or post-secondary education. Independent evidence shows that this test score is a racially unbiased measure of the skills and abilities these teenagers were about to bring to the labor market. We find that this one test score explains all of the black-white wage gap for young women and much of the gap for young men. For today's young adults, the black-white wage gap primarily reflects a skill gap, which in turn can be traced, at least in part, to observable differences in the family backgrounds and school environments of black and white children. While our results do provide some evidence of current labor market discrimination, skill gaps play such a large role that we believe future research should focus on the obstacles black children face in acquiring productive skills.
Handle: RePEc:nbr:nberwo:5124
Template-Type: ReDIF-Paper 1.0
Title: Capital Utilization and Returns to Scale
Classification-JEL: E32
Author-Name: Craig Burnside
Author-Person: pbu20
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Sergio Rebelo
Note: EFG
Number: 5125
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5125
File-URL: http://www.nber.org/papers/w5125.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1995. Cambridge: MIT Press, 1995.
Publication-Status: published as Capital Utilization and Returns to Scale, Craig Burnside, Martin Eichenbaum, Sergio Rebelo. in NBER Macroeconomics Annual 1995, Volume 10, Bernanke and Rotemberg. 1995
Abstract: This paper studies the implications of procyclical capital utilization rates for inference regarding cyclical movements in labor productivity and the degree of returns to scale. We organize our investigation around five questions that we study using a measure of capital services based on electricity consumption: (1) Is the phenomenon of near or actual short run increasing returns to labor (SRIRL) an artifact of the failure to accurately measure capital utilization rates? (2) Can we find a significant role for capital services in aggregate and industry level production technologies? (3) Is there evidence against the hypothesis of constant returns to scale? (4) Can we reject the notion that the residuals in our estimated production functions represent technology shocks? (5) How does correcting for cyclical variations in capital services affect the statistical properties of estimated aggregate technology shocks? The answer to the first two questions is: yes. The answer to the third and fourth questions is: no. The answer to the fifth question is: a lot.
Handle: RePEc:nbr:nberwo:5125
Template-Type: ReDIF-Paper 1.0
Title: Differential Mortality and Wealth Accumulation
Classification-JEL: D1; E2
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Author-Name: Hilary W. Hoynes
Author-Person: pho278
Note: AG EFG PE
Number: 5126
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5126
File-URL: http://www.nber.org/papers/w5126.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Volume 35, Number 1 (Winter) 2000, 1-29.
Abstract: The issue of asset accumulation and decumulation is central to the life cycle theory of consumer behavior and to many policy questions. One of the main implications of the life cycle model is that assets are decumulated in the last part of life. Most empirical studies in this area use cross-sectional data of estimate mean or median wealth-age profiles. The use of cross-sections to estimate the age profile of assets is full of pitfalls. For example, if wealth and mortality are related, in that poorer individuals die younger, one overestimates the last part of the wealth-age profile when using cross-sectional data because means (or other measures of location) are taken over a population which becomes 'richer' as it ages. This paper examines the effect of differential mortality on cross-sectional estimates of wealth-age profiles. Our approach is to quantify the dependence of mortality rates on wealth and use these estimates to 'correct' wealth-age profiles for sample selection due to differential mortality. We estimate mortality rates as a function of wealth and age for a sample of married couples drawn from the Survey of Income and Program Participation (SIPP). Our results show that accounting for differential mortality produces wealth profiles with significantly more dissaving among the elderly.
Handle: RePEc:nbr:nberwo:5126
Template-Type: ReDIF-Paper 1.0
Title: Are Lots of College Graduates Taking High School Jobs? A Reconsiderationof the Evidence
Classification-JEL: J
Author-Name: John Tyler
Author-Person: pty2
Author-Name: Richard J. Murnane
Author-Person: pmu87
Author-Name: Frank Levy
Author-Person: ple351
Note: LS
Number: 5127
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5127
File-URL: http://www.nber.org/papers/w5127.pdf
File-Format: application/pdf
Publication-Status: published as new title: "Are more college graduates really taking 'high schoo;' jobs? Areconsideration of data is neede to separate anecdotes and misinterpretations from the facts," in Monthly Labor Review, vol.118, no. 12, December 1995pp. 18-27
Abstract: Several recent published papers have asserted that a growing proportion of workers with college degrees are either unemployed or employed in jobs requiring only high school skills. Using data from the 1980 and 1990 Censuses of Population and Housing, we show that this assertion does not accurately reflect labor market trends for young (25-34 year old) male or female college graduates or for older (45-54 year old) female college graduates. For all these groups, real earnings increased during the 1980s and the percentage in 'high school jobs' declined. The assertion is valid only for older male college graduates. Young college graduates improved their labor market position during the 1980s by increasingly obtaining degrees in occupations which had high earnings at the beginning of the decade and which had the highest earnings growth over the decade.
Handle: RePEc:nbr:nberwo:5127
Template-Type: ReDIF-Paper 1.0
Title: GARCH Gamma
Author-Name: Robert F. Engle
Author-Name: Joshua V. Rosenberg
Author-Person: pro389
Note: AP
Number: 5128
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5128
File-URL: http://www.nber.org/papers/w5128.pdf
File-Format: application/pdf
Publication-Status: published as Robert F . Engle Joshua V . Rosenberg. "GARCH Gamma" Journal of Derivatives, Summer 1995, Vol. 2, No. 4: pp. 47-59
Abstract: This paper addresses the issue of hedging option positions when the underlying asset exhibits stochastic volatility. By parameterizing the volatility process as GARCH, and utilizing risk- neutral valuation, we estimate hedging parameters (delta and gamma) using Monte-Carlo simulation. We estimate hedging parameters for options on the Standard and Poor's 500 index, a bond futures index, a weighted foreign exchange rate index, and an oil futures index. We find that Black-Scholes and GARCH deltas are similar for all the options considered, while GARCH gammas are significantly higher than BS gammas for all options. For near the money options, GARCH gamma hedge ratios are higher than BS hedge ratios when hedging a long term option with a short term option. Away from the money, GARCH gamma hedge ratios are lower than BS.
Handle: RePEc:nbr:nberwo:5128
Template-Type: ReDIF-Paper 1.0
Title: Testing Option Pricing Models
Classification-JEL: G13
Author-Name: David S. Bates
Note: AP
Number: 5129
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5129
File-URL: http://www.nber.org/papers/w5129.pdf
File-Format: application/pdf
Publication-Status: published as in G.S. Maddale and C.R. Rao, editers, Handbook of Statistics: Statistical Methods in Finance, Vol. 14, 1996, pp. 567-611.
Abstract: This paper discusses the commonly used methods for testing option pricing models, including the Black-Scholes, constant elasticity of variance, stochastic volatility, and jump-diffusion models. Since options are derivative assets, the central empirical issue is whether the distributions implicit in option prices are consistent with the time series properties of the underlying asset prices. Three relevant aspects of consistency are discussed, corresponding to whether time series-based inferences and option prices agree with respect to volatility, changes in volatility, and higher moments. The paper surveys the extensive empirical literature on stock options, options on stock indexes and stock index futures, and options on currencies and currency futures.
Handle: RePEc:nbr:nberwo:5129
Template-Type: ReDIF-Paper 1.0
Title: Financial Intermediation and The Great Depression: A Multiple Equilibrium Interpretation
Classification-JEL: E32; E44
Author-Name: Russell Cooper
Author-Name: Joao Ejarque
Author-Person: pej1
Note: EFG
Number: 5130
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5130
File-URL: http://www.nber.org/papers/w5130.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol 43 (1995), pp. 285-323.
Abstract: This paper explores the behavior of the U.S. economy during the interwar period from the perspective of a model in which the existence of non-convexities in the intermediation process gives rise to a multiplicity of equilibria. The resulting indeterminancy is resolved through a sunspot process which leads to endogenous fluctuations in aggregate economic activity. From this perspective, the Depression period is represented as a regime shift associated with a financial crisis. Our model economy has properties which are broadly consistent with observations over the interwar period. Contrary to observation, the model predicts a negative correlation of consumption and investment as well as a highly volatile capital stock. Our model of financial crisis reproduces many aspects of the Great Depression though the model predicts a much sharper fall in investment than is observed in the data. Modifications to our model (adding durable goods and a capacity utilization choice) do not overcome these deficiencies.
Handle: RePEc:nbr:nberwo:5130
Template-Type: ReDIF-Paper 1.0
Title: Sovereign Debt
Classification-JEL: F34
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Raquel Fernandez
Author-Person: pfe17
Note: ITI IFM
Number: 5131
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5131
File-URL: http://www.nber.org/papers/w5131.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of International Economics, vol. 3, G. Grossman and K. Rogoff,eds., (Amsterdam: North-Holland, 1995), pp. 2032-2077
Publication-Status: published as Eaton, Jonathan, 1996. "Sovereign Debt, Reputation and Credit Terms," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 1(1), pages 25-35, January.
Abstract: We review the literature on sovereign debt. We organize our survey around three central questions: (1) Why do sovereign debtors ever repay their debts? (2) What burdens, in the form of distortions and inefficiencies, does sovereign debt impose? and (3) How might debt be restructured to reduce these burdens? In grappling with the first question the literature has pointed to, and argued about, the roles of reputation, punishments, rewards and renegotiation. In addressing the second the literature has asked whether sovereign debtors tend to borrow too much or too little, and how debt can distort the domestic economy. Answers to the third question include measures by creditors, by debtors, and by public institutions to reduce debt burdens.
Handle: RePEc:nbr:nberwo:5131
Template-Type: ReDIF-Paper 1.0
Title: The Law of One Price Over 700 Years
Classification-JEL: F30
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Michael Kim
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: ITI IFM
Number: 5132
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5132
File-URL: http://www.nber.org/papers/w5132.pdf
File-Format: application/pdf
Publication-Status: published as Kenneth A. Froot & Michael Kim & Kenneth Rogoff, 2019. "The Law of One Price Over 700 Years," Annals of Economics and Finance, Society for AEF, vol. 20(1), pages 1-35, May.
Abstract: This paper examines annual commodity price data from England and Holland over a span of seven centuries. Our data set incorporates transactions prices on 8 commodities: barley, butter, cheese, eggs, oats, peas, silver, wheat as well as pound/shilling nominal exchange rates going back, in some cases, to 1273. We find that the volatility and persistence of deviations from the law of one price have been remarkably stable over time. LOP deviations are highly correlated across commodities (especially at annual horizons) and, for most pairwise comparisons in most centuries, at least as volatile as relative prices across different goods within the same country. Our analysis challenges the conventional view that the modern floating exchange rate experience is exceptional in terms of the behavior of relative (exchange-rate adjusted) prices across countries.
Handle: RePEc:nbr:nberwo:5132
Template-Type: ReDIF-Paper 1.0
Title: Measuring Gross Worker and Job Flows
Classification-JEL: J63; L81
Author-Name: Steven J. Davis
Author-Person: pda15
Author-Name: John Haltiwanger
Author-Person: pha231
Note: LS
Number: 5133
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5133
File-URL: http://www.nber.org/papers/w5133.pdf
File-Format: application/pdf
Publication-Status: published as Measuring Gross Worker and Job Flows, Steven J. Davis, John Haltiwanger. in Labor Statistics Measurement Issues, Haltiwanger, Manser, and Topel. 1998
Abstract: We combine information from several different studies and data sets to assemble a fuller, more accurate picture of job flows and worker flows in U.S. labor markets. Our picture characterizes the magnitudes of job and worker flows, the connections between them, their cyclical behavior, differences among identifiable groups of workers and employers, the spatial concentration of job flows, and other aspects of labor market dynamics. We also assess the relative strengths and weaknesses of the U.S. data sets that are currently available for measuring labor market flows, and we clarify the relationships among various measures of labor market flow activity that appear in the literature. Finally, we discuss prospects for using administrative records maintained by U.S. government agencies to develop new longitudinal data sets that would permit timely, detailed and comprehensive measures of gross job and worker flows.
Handle: RePEc:nbr:nberwo:5133
Template-Type: ReDIF-Paper 1.0
Title: The Relationship between State and Federal Tax Audits
Author-Name: James Alm
Author-Name: Brian Erard
Author-Name: Jonathan S. Feinstein
Author-Person: pfe36
Note: PE
Number: 5134
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5134
File-URL: http://www.nber.org/papers/w5134.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Foundations of Household Taxation, Martin Feldstein and James M. Poterba, eds., University of Chicago Press, 1996, pp. 235-273
Publication-Status: published as The Relationship between State and Federal Tax Audits, James Alm, Brian Erard, Jonathan S. Feinstein. in Empirical Foundations of Household Taxation, Feldstein and Poterba. 1996
Abstract: In this paper we present an econometric analysis of state and federal tax audits. We first present results from a survey of state tax administrators. The survey results indicate that most state tax audit programs are small and rely extensively on information provided by the IRS, although some programs are large and sophisticated. We then present results from a detailed econometric analysis of Oregon state and federal tax returns and tax audits for tax year 1987. Our analysis generates three main conclusions. First, Oregon state and IRS selection criteria are similar, but not identical, suggesting that both tax agencies might benefit from greater sharing of information, especially in some audit classes. Second, Oregon state and IRS audit assessments are strongly positively correlated, as expected. Third, we estimate the shadow values associated with providing additional audit resources to the Oregon Department of Revenue and the IRS in various audit classes, and find that for the IRS the shadow values range from two to five dollars, while for Oregon the values range from one to three dollars.
Handle: RePEc:nbr:nberwo:5134
Template-Type: ReDIF-Paper 1.0
Title: Factor Mobility and Income Growth: Two Convergence Hypotheses
Classification-JEL: F0
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Chi-Wa Yuen
Note: EFG IFM
Number: 5135
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5135
File-URL: http://www.nber.org/papers/w5135.pdf
File-Format: application/pdf
Publication-Status: published as Review of Development Economics, vol.1, no.1, March 1997.
Abstract: While technologies and policy fundamentals are presumably different internationally, inducing differences in growth rates, capital mobility is shown to be a powerful force in achieving complete growth rate equalization across countries. We provide evidence in support of this effect, showing that restrictions on capital flows tend to make individual country growth rates more divergent. In the context of regional growth, however, labor mobility is shown to be capable of generating income level equalization across regions in the presence of knowledge spillovers. Some supporting evidence is found for this effect, showing that restrictions on labor flows tend to make individual region/country per capita income more divergent.
Handle: RePEc:nbr:nberwo:5135
Template-Type: ReDIF-Paper 1.0
Title: How Does Privatization Work? Evidence from the Russian Shops
Author-Name: Nicholas Barberis
Author-Name: Maxim Boycko
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Natalia Tsukanova
Note: CF LS PE
Number: 5136
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5136
File-URL: http://www.nber.org/papers/w5136.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, vol.104, no.4, 1996.
Abstract: We use a survey of 452 Russian shops, most of which were privatized between 1992 and 1993, to measure the importance of alternative channels through which privatization promotes restructuring. Restructuring is measured as capital renovation, change in suppliers, increase in hours that stores stay open, and layoffs. There is strong evidence that the presence of new owners and new managers raises the likelihood of restructuring. In contrast, there is no evidence that equity incentives of old managers promote restructuring. The evidence points to the critical role that new human capital plays in economic transformation.
Handle: RePEc:nbr:nberwo:5136
Template-Type: ReDIF-Paper 1.0
Title: Do Labor Rents Justify Strategic Trade and Industrial Policy?
Classification-JEL: H21; J41
Author-Name: William T. Dickens
Note: ITI LS
Number: 5137
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5137
File-URL: http://www.nber.org/papers/w5137.pdf
File-Format: application/pdf
Abstract: Several efficiency wage theories of wage determination have the property that identical workers are more productive in high wage industries and that the promotion of employment in high wage industries can increase GDP (and some measures of welfare). I argue that while policies to favor high wage industries may increase productivity, the effects in developed economies are likely to be very small. This is mainly because the workers who fill the high wage vacancies will come from fairly high wage jobs.
Handle: RePEc:nbr:nberwo:5137
Template-Type: ReDIF-Paper 1.0
Title: How Much Better is Bigger, Faster & Cheaper? Buyer Benefits from Innovation in Mainframe Computers in the 1980s
Classification-JEL: H57; L63
Author-Name: Kenneth H. Brown
Author-Name: Shane M. Greenstein
Author-Person: pgr134
Note: PR
Number: 5138
Creation-Date: 1995-05
Order-URL: http://www.nber.org/papers/w5138
File-URL: http://www.nber.org/papers/w5138.pdf
File-Format: application/pdf
Abstract: This paper develops and estimates cost-of-living indexes (e.g., Fisher and Griliches [1995]) for measuring buyer benefits from technical change in the commercial mainframe computer industry in the 1980s. For this purpose we use a micro-econometric model of demand for product characteristics embodied in a computer system. The model highlights buyers' benefits from technical change when innovation decreases the price of characteristics or increases the range of available characteristics. This exercise follows in the spirit of Trajtenberg [1989]. Our main finding is that our utility-based cost-of-living index declines rapidly (approximately 10-15 percent per year). By historical standards for innovation, this rate is quite fast. Second, our estimates contrast with the rate of change in quality adjusted prices in mainframe computers (approximately 25-30 percent per year). Third, while large price declines induced increases in purchasing, most buyers began the 1980s with a 'small' mainframe system and still bought a small system at the end of the decade, even with rapidly declining mainframe prices and large extensions in computing capacity. The experience of the majority outweighs the benefits received by a few (with elastic demand), who took advantage of lower prices and extensions in the product space.
Handle: RePEc:nbr:nberwo:5138
Template-Type: ReDIF-Paper 1.0
Title: Investment, Pass-Through and Exchange Rates: A Cross-Country Comparison
Author-Name: Jose Campa
Author-Person: pca393
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Note: ITI IFM
Number: 5139
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5139
File-URL: http://www.nber.org/papers/w5139.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol.40, no.2 (May 1999): 287-314.
Abstract: Although large changes in real exchange rates have occurred during the past decades, the real implications of these movements remain an empirical question. Using detailed data from the United States, Canada, the United Kingdom, and Japan we examine the implications of exchange rates for time series of sectoral investment. Both theoretically and empirically we show that investment responsiveness to exchange rates varies over time, positively in relation to sectoral reliance on export share and negatively with respect to imported inputs into production. The quantitative importance of each of these channels of exposure is a function of a set of exchange rate pass-through and demand elasticities. There exist important differences in investment endogeneity across high and low markup sectors, with investment in low markup sectors significantly more responsive to exchange rates. Unlike pass-through elasticities, which are viewed as industry-specific, investment endogeneity to exchange rates is a country-specific phenomenon.
Handle: RePEc:nbr:nberwo:5139
Template-Type: ReDIF-Paper 1.0
Title: A Center-Periphery Model of Monetary Coordination and Exchange Rate Crises
Classification-JEL: F31; F33
Author-Name: Willem H. Buiter
Author-Person: pbu137
Author-Name: Giancarlo Corsetti
Author-Name: Paolo A. Pesenti
Author-Person: ppe152
Note: IFM ME
Number: 5140
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5140
File-URL: http://www.nber.org/papers/w5140.pdf
File-Format: application/pdf
Publication-Status: published as Financial Markets and European Monetary Cooperation: The Lessons of the 92-93 ERM Crisis, Cambridge University Press, 1998.
Abstract: The paper analyzes the modalities and consequences of a breakdown of cooperation between the monetary authorities of inflation-prone Periphery Countries that use an exchange rate peg as an anti- inflationary device, when the Center is hit by an aggregate demand shock. Cooperation in the Periphery is constrained to be symmetric: costs and benefits must be equal for all. Our model suggests that there are at least two ways in which a generalized crisis of the exchange rate system may emerge. The first is when the constrained cooperative response of the Periphery is a moderate common devaluation while the non-cooperative equilibrium has large devaluations by a few countries. An exchange rate crisis emerges if Periphery countries give in to their individual incentives to renege on the cooperative agreement. In the second case, the Center shock is not large enough to trigger a general devaluation in the constrained cooperative equilibrium; yet some of the Periphery countries would devalue in the Nash equilibrium, making the monetary stance in the system more expansionary. In this case, reversion to Nash is collectively rational. We offer this model as a useful parable for interpreting the collapse of the EMR in 1992-93.
Handle: RePEc:nbr:nberwo:5140
Template-Type: ReDIF-Paper 1.0
Title: Economic Implications of Changing Share Ownership
Classification-JEL: G1
Author-Name: Benjamin M. Friedman
Note: AP ME
Number: 5141
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5141
File-URL: http://www.nber.org/papers/w5141.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Portfolio Management, vol. 2, no. 3, pp. 59-70, Spring 1996.
Abstract: Institutional investors, including especially pension funds and mutual funds, are steadily replacing individuals as owners of equity shares in the United States. Forty years ago individual investors owned 90% of all equity shares outstanding. Today the individually owned share is just 50%. The arguments and evidence surveyed in this paper suggest four ways in which this shift in share ownership could affect the functioning of the equity market: (1) Increasing institutional ownership could either enhance or impair the market's ability to provide equity financing for emerging growth companies. (2) Increasing institutional ownership, especially in the form of open-end mutual funds, has probably increased the market's volatility in the context of occasional large price movements. (3) The increasing prevalence of defined contribution (as opposed to defined benefit) pension plans, and especially of 401-k plans, has probably resulted in an increased market price of risk. (4) Increasing institutional ownership has facilitated a greater role for shareholders in the governance of U.S. corporate business, and correspondingly reduced the independence of corporate managements.
Handle: RePEc:nbr:nberwo:5141
Template-Type: ReDIF-Paper 1.0
Title: The Collapse of the Mexican Peso: What Have We Learned?
Author-Name: Jeffrey Sachs
Author-Name: Aaron Tornell
Author-Person: pto157
Author-Name: Andres Velasco
Note: IFM
Number: 5142
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5142
File-URL: http://www.nber.org/papers/w5142.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, no. 22 (April 1996).
Abstract: In the first quarter of 1995 Mexico found itself in the grip of an intense financial panic. Foreign investors fled Mexico despite very high interest rates on Mexican securities, an undervalued currency, and financial indicators that pointed to long-term solvency. The fundamental conditions of the Mexican economy cannot account for the entire crisis. The crisis was due to unexpected shocks that occurred in 1994, and the inadequate policy response to those shocks. In the aftermath of the March assassination the exchange rate experienced a nominal devaluation of around 10 percent and interest rates increased by around 7 percentage points. However, the capital outflow continued. The policy response to this was to maintain the exchange rate rule, and to prevent further increases in interest rates by expanding domestic credit and by converting short-term peso- denominated government liabilities (Cetes) falling due into dollar- denominated bonds (Tesobonos). A fall in international reserves and an increase in short-term dollar-denominated debt resulted. The government simply ended up illiquid, and therefore financially vulnerable. Illiquidity exposed Mexico to a self-fulfilling panic.
Handle: RePEc:nbr:nberwo:5142
Template-Type: ReDIF-Paper 1.0
Title: The Paradox of Liquidity
Classification-JEL: G20; G32
Author-Name: Stewart C. Myers
Author-Name: Raghuram G. Rajan
Author-Person: pra149
Note: CF
Number: 5143
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5143
File-URL: http://www.nber.org/papers/w5143.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol 113, no. 3 (August 1998): 733-771.
Abstract: The more liquid a company's assets, the greater their value in a short-notice liquidation. Liquid assets are generally viewed as increasing debt capacity, other things being equal. This paper focusses on the dark side of liquidity: greater liquidity reduces the ability of borrowers to commit to a specific course of action. It examines the effects of differences in asset liquidity on debt capacity. It suggests an alternative theory of financial intermediation and disintermediation.
Handle: RePEc:nbr:nberwo:5143
Template-Type: ReDIF-Paper 1.0
Title: Intraschool Variation in Class Size: Patterns and Implications
Classification-JEL: J0
Author-Name: Michael Boozer
Author-Name: Cecilia Rouse
Note: LS
Number: 5144
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5144
File-URL: http://www.nber.org/papers/w5144.pdf
File-Format: application/pdf
Publication-Status: published as Boozer, Michael and Cecilia Rouse. "Intraschool Variation In Class Size: Patterns And Implications," Journal of Urban Economics, 2001, v50(1,Jul), 163-189.
Abstract: Economists attempting to explain the widening of the black-white wage gap in the late 1970's by differences in school quality have been faced with the problem that recent data reveal virtually no gap in the quality of schools attended by blacks and whites using a variety of measures. In this paper, we reexamine racial differences in school quality by considering the effects of using the pupil-teacher ratio, rather than the school's average class size,in an education production function since the pupil-teacher ratio is a rough proxy, at best. We find that while the pupil-teacher ratio and average class size are correlated, the pupil-teacher ratio is systematically less than or equal to the average class size. Part of the difference is due to intraschool allocation of teachers to classes. While the pupil-teacher ratio shows no black-white differences in class size, measures of the school's average class size suggest blacks are in larger classes. Also, the two measures lead to differing estimates of the role of class size in an education production function. We also conclude that school level measures may obscure important within-school variation in class size due to the small class sizes for compensatory education and a kind of aggregation bias results. Not only are blacks in schools with larger average class sizes but they are also in larger classes within schools, conditional on class type. The intraschool class size patterns suggest that using within-school variation in education production functions is not a good solution to aggregation problems due to non-random assignment of students to different sized classes. But once the selection problem has been addressed,smaller classes at the 8th grade lead to larger test score gains from 8th to 10th grade and differences in class size can explain approximately 15% of the black-white gap in educational achievement.
Handle: RePEc:nbr:nberwo:5144
Template-Type: ReDIF-Paper 1.0
Title: Measuring Monetary Policy
Classification-JEL: E52
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Author-Name: Ilian Mihov
Author-Person: pmi131
Note: ME
Number: 5145
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5145
File-URL: http://www.nber.org/papers/w5145.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 108, no. 3 (1998): 869-902.
Abstract: Extending the approach of Bernanke and Blinder (1992), Strongin (1992), and Christiano, Eichenbaum, and Evans (1994a, 1994b), we develop and apply a VAR-based methodology for measuring the stance of monetary policy. More specifically, we develop a 'semi-structural' VAR approach, which extracts information about monetary policy from data on bank reserves and the federal funds rate but leaves the relationships among the macroeconomic variables in the system unrestricted. The methodology nests earlier VAR-based measures and can be used to compare and evaluate these indicators. It can also be used to construct measures of the stance of policy that optimally incorporate estimates of the Fed's operating procedure for any given period. Among existing approaches, we find that innovations to the federal funds rate (Bernanke-Blinder) are a good measure of policy innovations during the periods 1965-79 and 1988-94; for the period 1979-94 as a whole, innovations to the component of nonborrowed reserves that is orthogonal to total reserves (Strongin) seems to be the best choice. We develop a new measure of policy stance that conforms well to qualitative indicators of policy such as the Boschen- Mills (1991) index. Innovations to our measure lead to reasonable and precisely estimated dynamic responses by variables such as real GDP and the GDP deflator.
Handle: RePEc:nbr:nberwo:5145
Template-Type: ReDIF-Paper 1.0
Title: Inside the Black Box: The Credit Channel of Monetary Policy Transmission
Classification-JEL: E44; E51
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Author-Name: Mark Gertler
Author-Person: pge11
Note: EFG ME
Number: 5146
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5146
File-URL: http://www.nber.org/papers/w5146.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Fall 1995, vol. 9, no. 4, pp. 27-48.
Abstract: The 'credit channel' theory of monetary policy transmission holds that informational frictions in credit markets worsen during tight- money periods. The resulting increase in the external finance premium--the difference in cost between internal and external funds-- enhances the effects of monetary policy on the real economy. We document the responses of GDP and its components to monetary policy shocks and describe how the credit channel helps explain the facts. We discuss two main components of this mechanism, the balance-sheet channel and the bank lending channel. We argue that forecasting exercises using credit aggregates are not valid tests of this theory.
Handle: RePEc:nbr:nberwo:5146
Template-Type: ReDIF-Paper 1.0
Title: Tax Subsidies to Employer-Provided Health Insurance
Classification-JEL: H24; H51
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: James Poterba
Author-Person: ppo19
Note: AG EH PE
Number: 5147
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5147
File-URL: http://www.nber.org/papers/w5147.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Foundation of Household Taxation, Martin Felstein and James Poterba, editors, (Chicago: University of Chicago Press, 1996), pp. 135-164.
Publication-Status: published as Tax Subsidies to Employer-Provided Health Insurance, Jonathan Gruber, James M. Poterba. in Empirical Foundations of Household Taxation, Feldstein and Poterba. 1996
Abstract: This paper investigates the current tax subsidy to employer- provided health insurance, and presents new evidence on the economic effects of various tax reforms. It argues that previous analyses have overstated the tax subsidy to employer-provided insurance by neglecting the substantial and growing importance of after-tax employee payments for employer-provided insurance, as well as the tax subsidy for extreme medical expenses, which discourages insurance purchase. Even after considering these factors, however, the net tax subsidy to employer-provided insurance is substantial, with tax factors generating an average reduction of approximately thirty percent in the price of this insurance. Reducing the tax subsidy, either by capping the value of employer-provided health insurance that could be excluded from taxation, or eliminating the exclusion entirely, would have substantial effects on the level of employer- provided insurance and on tax revenues.
Handle: RePEc:nbr:nberwo:5147
Template-Type: ReDIF-Paper 1.0
Title: Does the AIDS Epidemic Really Threaten Economic Growth?
Classification-JEL: I1; O1
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Ajay S. Mahal
Note: EH LS
Number: 5148
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5148
File-URL: http://www.nber.org/papers/w5148.pdf
File-Format: application/pdf
Publication-Status: published as Bloom, David E. & Mahal, Ajay S., 1997. "Does the AIDS epidemic threaten economic growth?," Journal of Econometrics, Elsevier, vol. 77(1), pages 105-124, March.
Abstract: This study examines the claim that the AIDS epidemic will slow the pace of economic growth. We do this by examining the association, across fifty-one developing and industrial countries for which we were able to assemble data, between changes in the prevalence of AIDS and the rate of growth of GDP per capita. Our analysis uses well- established empirical growth models to control for a variety of factors possibly correlated with AIDS prevalence that might also influence growth. We also account for possible simultaneity in the relationship between AIDS and economic growth. Our main finding is that the AIDS epidemic has had an insignificant effect on the growth rate of per capita income, with no evidence of reverse causality. We also find evidence that the insignificant effect of AIDS on income per capita is qualitatively similar to an insignificant effect on wages of the Black Death in England and France during the Middle Ages and an insignificant effect on output per capita of influenza in India during 1918-19.
Handle: RePEc:nbr:nberwo:5148
Template-Type: ReDIF-Paper 1.0
Title: Does Welfare Play Any Role in Female Headship Decisions?
Author-Name: Hilary Williamson Hoynes
Author-Person: pho278
Note: PE
Number: 5149
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5149
File-URL: http://www.nber.org/papers/w5149.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 65, no. 2 (August 1997): 89-117.
Abstract: During the 30 years, the composition of white and black families in the US has changed dramatically. In 1960, less than 10% of families with children were headed by a single mother, while in 1990 more than 20% of families with children were headed by females. A large body of research has focused on the role of the U.S. welfare system and particularly of the Aid to Families with Dependent Children (AFDC) program, in contributing to these changes in family structure. Most studies use cross-sectional data and identify the effect of welfare on female headship through interstate variation in the AFDC program. Recent research finds that controlling for state effects has a large impact on the estimated welfare effect. This paper examines why state effects matter for estimating the role of welfare in female headship decisions by examining the of individual effects and policy endogeneity. An explanation for why state effects matter is that the composition of the population across the states differs, and the composition is related to the generosity of the state's welfare program. If that is true, then controlling for individual effects should have the same result as controlling for state effects. We also examine the endogeneity of AFDC policy by including controls representing the determinants of state welfare generosity. The results show that after controlling for individual effects, there is no evidence that welfare contributes to increasing propensities to form female headed households for either whites or blacks. Further, the results suggest that welfare-induced migration among blacks leads to an upward bias in the estimated welfare effect in previous studies.
Handle: RePEc:nbr:nberwo:5149
Template-Type: ReDIF-Paper 1.0
Title: Would Reducing Tenure Probabilities Increase Faculty Salaries?
Classification-JEL: J44
Author-Name: Ronald G. Ehrenberg
Author-Person: peh2
Author-Name: Paul J. Pieper
Author-Person: ppi135
Author-Name: Rachel A. Willis
Note: LS
Number: 5150
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5150
File-URL: http://www.nber.org/papers/w5150.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Do Economics Departments with Lower Tenure Probabilities Pay Higher Faculty Salaries?") Review of Economics and Statistics, Vol. 80(November 1998): 503-512.
Abstract: The simplest competitive labor market model asserts that if tenure is a desirable job characteristic for professors, they should be willing to pay for it by accepting lower salaries. Conversely, if an institution unilaterally reduces the probability that its assistant professors receive tenure, it will have to pay higher salaries to attract new faculty. Our paper tests this theory using data on salary offers accepted by new assistant professors at economics departments in the United States during the 1974-75 to 1980-81 period, along with data on the proportion of new Ph.Ds hired by each department between 1970 and 1980 that ultimately received tenure in the department or at a comparable or higher quality department. We find evidence that a tradeoff did exist. Equally important, departments that offer low tenure probabilities to assistant professors also paid higher salaries to their tenured faculty. We attribute this to their need to pay higher salaries to attract tenured faculty from the external market.
Handle: RePEc:nbr:nberwo:5150
Template-Type: ReDIF-Paper 1.0
Title: Technological Diffusion, Convergence, and Growth
Classification-JEL: 040; 014
Author-Name: Robert J. Barro
Author-Person: pba251
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG
Number: 5151
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5151
File-URL: http://www.nber.org/papers/w5151.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 2, no. 1 (March 1997): 1-26.
Abstract: We construct a model that combines elements of endogenous growth with the convergence implications of the neoclassical growth model. In the long run, the world growth rate is driven by discoveries in the technologically leading economies. Followers converge toward the leaders because copying is cheaper than innovation over some range. A tendency for copying costs to increase reduces followers' growth rate and thereby generates a pattern of conditional convergence. We discuss how countries are selected to be technological leaders, and we assess welfare implications. Poorly defined intellectual property rights imply that leaders have insufficient incentive to invent and followers have excessive incentive to copy.
Handle: RePEc:nbr:nberwo:5151
Template-Type: ReDIF-Paper 1.0
Title: Habit and Heterogeneity in the Youthful Demand for Alcohol
Classification-JEL: D12; I12
Author-Name: Michael J. Moore
Author-Person: pmo284
Author-Name: Philip J. Cook
Author-Person: pco30
Note: EH
Number: 5152
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5152
File-URL: http://www.nber.org/papers/w5152.pdf
File-Format: application/pdf
Abstract: Observed patterns of youthful drinking indicate substantial persistence. This paper analyzes how much of that persistence reflects the actual development of a habit, and how much is due to unobserved aspects of the individual and the environment. The role of restrictions on alcohol availability, both in the current period and in adolescence, is also explored. We find that much of the observed persistence represents habit formation, and not unobserved characteristics. Consequently, restrictions on availability, particularly at an early age, alter subsequent patterns of alcohol consumption and abuse.
Handle: RePEc:nbr:nberwo:5152
Template-Type: ReDIF-Paper 1.0
Title: Death and Tobacco Taxes
Classification-JEL: H23; I12
Author-Name: Michael J. Moore
Author-Person: pmo284
Note: EH
Number: 5153
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5153
File-URL: http://www.nber.org/papers/w5153.pdf
File-Format: application/pdf
Publication-Status: published as Moore, Michael J. "Death And Tobacco Taxes," Rand Journal of Economics, 1996, v27(2,Summer), 415-428.
Abstract: This study analyzes the effects of tobacco excise tax changes on mortality due to heart disease, cancer, and asthma. Reduced form regressions of mortality rates on tax data for the years 1954-1988, with controls for state, year, income, and unobserved persistence, indicate that tax increases lead to statistically significant decreases in mortality. A 10% increase in the tax is projected to save approximately 5200 lives a year.
Handle: RePEc:nbr:nberwo:5153
Template-Type: ReDIF-Paper 1.0
Title: What do the VARs Mean?: Measuring the Output Effects of Monetary Policy
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG ME
Number: 5154
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5154
File-URL: http://www.nber.org/papers/w5154.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 41, no. 2 (April 1998): 277-300.
Abstract: What are the relative effects of anticipated vs. unanticipated monetary policy? I examine the effect of this identifying assumption on VAR estimates of the output response to money, assuming that anticipated monetary policy can have some effect on output results in much shorter and smaller output response estimatesþestimates closer to the predictions of most monetary models.
Handle: RePEc:nbr:nberwo:5154
Template-Type: ReDIF-Paper 1.0
Title: The Taxation of Two Earner Families
Classification-JEL: H24; H21
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Daniel Feenberg
Author-Person: pfe56
Note: PE
Number: 5155
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5155
File-URL: http://www.nber.org/papers/w5155.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Foundations of Household Taxation, edited by Martin Feldstein and James Poterba, University of Chicago Press, 1996, pp. 39-73.
Publication-Status: published as The Taxation of Two-Earner Families, Martin Feldstein, Daniel R. Feenberg. in Empirical Foundations of Household Taxation, Feldstein and Poterba. 1996
Abstract: The present paper examines the efficiency and revenue effects of several alternative tax treatments of two earner families using estimates of the compensated elasticities of the labor supply of married women based on the experience with the 1986 tax rate reductions. The analysis of alternatives is based on the NBER TAXSIM model which has been modified to incorporate separate estimates of the earnings of spouses. The marginal tax rates explicitly incorporate the Social Security payroll taxes net of the present actuarial value of future retirement benefits. Three general conclusions emerge in this paper. First, the existing high marginal tax rates on married women cause big eadweight losses that can be reduced by alternative tax rules that lower marginal tax rates. Second, the behavioral responses to the lower marginal tax rates induce additional tax payments that offset large fractions of the 'static' revenue losses. Third, there are substantial differences in cost- effectiveness among these options, i.e. in the revenue cost per dollar of reduced deadweight loss. Several of the options are sufficiently cost- effective that they could probably be combined with other ways of raising revenue to produce a net reduction in the deadweight loss of the tax system as a whole. We are aware, however, that the current framework is very restrictive in three ways. It ignores the response of the primary earner to any change in tax rates on spousal income. It defines the labor supply response narrowly in terms of participation and hours, excluding other dimensions of labor supply. Taxes affect not only the labor supply of men and women but also change taxable income through changes in excluded income and deductions. These changes in taxable income are the key variable for influencing tax revenue and the deadweight loss of alternative tax rules.
Handle: RePEc:nbr:nberwo:5155
Template-Type: ReDIF-Paper 1.0
Title: Liberalized Portfolio Capital Inflows in Emerging Capital Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Author-Name: Chudozie Okongwu
Note: IFM ME
Number: 5156
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5156
File-URL: http://www.nber.org/papers/w5156.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance and Economics, December 1995, Volume 1, no . 1, pp. 1-24
Abstract: The paper examines interest rates in nine Latin American and East Asian countries during the period 1987-1994. The goal is to discover why interest rates have remained high, failing to converge to U.S. levels, despite capital market liberalization and a resurgence of portfolio capital inflows during the second half of this sample period. Related questions are whether portfolio capital flows are strong enough to equalize expected returns between these 'emerging markets' and the U.S., and whether there is any scope left for the authorities to sterilize inflows. The conclusion of the study is that the largest single component of the gap in interest rates is expectations of depreciation of the local currencies against the dollar. Key to the analysis is the use of survey data on exchange rate forecasts by market participants. Indicative of integrated financial markets, we also find a big effect of U.S. interest rates on local interest rates and a highly significant degree of capital flow offset to monetary policy.
Handle: RePEc:nbr:nberwo:5156
Template-Type: ReDIF-Paper 1.0
Title: Consumer Product Safety Regulation in the United States and the United Kingdom: The Case of Bicycles
Classification-JEL: I18; K23
Author-Name: Wesley A. Magat
Author-Name: Michael J. Moore
Author-Person: pmo284
Note: EH IO
Number: 5157
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5157
File-URL: http://www.nber.org/papers/w5157.pdf
File-Format: application/pdf
Publication-Status: published as Magat, Wesley A. and Michael J. Moore. "Consumer Product Safety Regulation In The United States And The United Kingdom: The Case Of Bicycles," Rand Journal of Economics, 1996, v27(1,Spring), 148-164.
Abstract: We study the effects of bicycle safety regulations in both the United States and the United Kingdom on bicycle accident rates for various population age groups. We find small, statistically significant decreases in the accident rates as the stock of bicycles increases its compliance with the regulations. This result is independent of country, season, and trend effects and holds across a range of age groups. The results run counter to those in similar studies. This appears to reflect our focus on a specific standard, rather than on broad enabling legislation, and the longer time series available.
Handle: RePEc:nbr:nberwo:5157
Template-Type: ReDIF-Paper 1.0
Title: Labor Supply Response to the Earned Income Tax Credit
Classification-JEL: H2; I3
Author-Name: Nada Eissa
Author-Name: Jeffrey B. Liebman
Author-Person: pli184
Note: PE
Number: 5158
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5158
File-URL: http://www.nber.org/papers/w5158.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics (May 1996).
Abstract: In a series of major expansions starting in 1987, the earned income tax credit (EITC) has become a central part of the federal government's anti-poverty strategy. In this paper, we examine the impact of the Tax Reform Act of 1986 (TRA86), which included an expansion of the EITC, on labor force participation and hours of work. The expansion of the credit affected an easily identifiable group, single women with children, but is predicted to have had no effect on another group, single women without children. Other features of TRA86, such as the increase in the value of dependent exemptions and the large increase in the standard deduction for head of household filers, are predicted by economic theory to have reinforced the impact of the EITC on the relative labor supply outcomes of single women with and without children. We therefore compare the change in labor supply of single women with children to the change in labor supply of single women without children. We find that between 1984-1986 and 1988-1989 single women with children increased their labor force participation by 1.4 percentage points (from a base of 73.1 percent) relative to single women without children. We explore a number of possible explanations for this finding and conclude that the 1987 expansion of the EITC and the other provisions of TRA86 are the most likely explanations. We find no effect of the EITC expansion on the hours of work of single women with children who were already in the labor force. Compared to other elements of the welfare system, the EITC appears to produce little distortion of work incentives.
Handle: RePEc:nbr:nberwo:5158
Template-Type: ReDIF-Paper 1.0
Title: Race and Education Differences in Disability Status and Labor Force Attachment
Classification-JEL: J26; J14
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Michael Schoenbaum
Author-Name: Timothy Waidmann
Author-Person: pwa241
Note: AG LS
Number: 5159
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5159
File-URL: http://www.nber.org/papers/w5159.pdf
File-Format: application/pdf
Publication-Status: published as "Disability Status and Racial Differences in Labor Force Attachment," Journal of Human Resources, Volume 30, Number 5, 1995. pp. 5227-5267.
Abstract: The labor force participation rates of older, working-aged black men and men with lower levels of education have historically been significantly lower than those of white men and men with more education, respectively. This paper uses data from the alpha release of the new Health and Retirement Survey (HRS) to examine the extent to which variation in health and job characteristics can account for these differences. Our analysis suggests that race and education differences in health status of middle-aged men can explain a substantial fraction of black/white differences in labor force attachment and essentially all of the gap between men with different levels of education.
Handle: RePEc:nbr:nberwo:5159
Template-Type: ReDIF-Paper 1.0
Title: Why is there Multilateral Lending?
Classification-JEL: F21; F34
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI IFM
Number: 5160
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5160
File-URL: http://www.nber.org/papers/w5160.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings of the World Bank Annual Conference in Development Economics 19 95, World Bank, 1996.
Abstract: Why should multilateral lending exist in a world where private capital markets are well developed and governments have their own bilateral aid programs? If lending by the World Bank, IMF, and regional development banks has an independent rationale, it must rest on advantages generated by the multilateral nature of these institutions. There are in principle two such advantages. First, since information on the quality of investment environments in different countries is in many ways a collective good, multilateral agencies are in a better position to internalize the externalities that may arise. This creates a rationale for multilateral lending in terms of information provision, particularly in terms of monitoring of government policies in recipient countries. Second, as long as multilateral agencies retain some degree of autonomy from the governments that own them, their interaction with recipient countries, while official in nature, can remain less politicized than inter- governmental links. This in turn endows multilateral agencies with an advantage in the exercise of conditionality, (that is, in lending that is conditional on changes in government policies). Neither of these two potential advantages of multilateral lending has much to do with lending per se. However, multilateral lending may be required to make these agencies' tasks incentive compatible. The empirical analysis reveals little evidence that multilateral lending has acted as a catalyst for private capital flows.
Handle: RePEc:nbr:nberwo:5160
Template-Type: ReDIF-Paper 1.0
Title: Inflation Indicators and Inflation Policy
Classification-JEL: E31; E37
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 5161
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5161
File-URL: http://www.nber.org/papers/w5161.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1995. Cambridge: MIT Press, 1995.
Publication-Status: published as Inflation Indicators and Inflation Policy, Stephen G. Cecchetti. in NBER Macroeconomics Annual 1995, Volume 10, Bernanke and Rotemberg. 1995
Abstract: In recent years, central bankers throughout the world have advocated that monetary policy shift toward inflation targeting. Recent actions in the U.S. serve to highlight the desire of the Federal Reserve to keep inflation both low and stable, while downplaying the likely output and employment consequences. But control of inflation requires both that one be able to forecast the future path of the price level and that one have estimates of what impact policy changes have on that path. Unfortunately, inflation is very difficult to forecast at even very near horizons. This is true because the relationship of candidate inflation indicators to inflation is neither very strong nor very stable. Beyond this, the relationship between monetary policy instruments, such as the Federal Funds Rate, and inflation also varies substantially over time and cannot be estimated precisely. Construction of policy rules can take these difficulties into account. Several rules are examined, and they have the following interesting properties. First, since prices take time to respond to all types of impulses, the object of price stability implies raising the Federal Funds Rate immediately following a shock, rather than waiting for prices to rise before acting. Finally, comparison of the results of price level targeting with nominal income targeting suggests that the difficulties inherent in forecasting and controlling the former provide an argument for focusing on the latter.
Handle: RePEc:nbr:nberwo:5161
Template-Type: ReDIF-Paper 1.0
Title: Cyclical versus Secular Movements in Employment Creation and Destruction
Classification-JEL: J63; E24
Author-Name: Randall W. Eberts
Author-Name: Edward Montgomery
Note: LS
Number: 5162
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5162
File-URL: http://www.nber.org/papers/w5162.pdf
File-Format: application/pdf
Publication-Status: published as FRBCL, Vol. 30, no. 3 (1994): 14-26.
Abstract: This paper offers an analysis of cyclical and secular patterns in job turnover using establishment-level data. We provide evidence from multiple data sets that show that the job turnover process is markedly different over time and across regions. Over time, we find that employment fluctuations are associated primarily with job destruction. Across regions, employment differences are associated more with job creation. Differences were found between the cyclical (within) and secular (across state) responses in job creation and destruction to output shocks. Movements in job creation and destruction were also found to be related to the types of human capital externalities or technological spillovers used to explain long-run differences in regional or national growth rates.
Handle: RePEc:nbr:nberwo:5162
Template-Type: ReDIF-Paper 1.0
Title: Are Ghettos Good or Bad?
Classification-JEL: H70; I30
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Note: PE EFG
Number: 5163
Creation-Date: 1995-06
Order-URL: http://www.nber.org/papers/w5163
File-URL: http://www.nber.org/papers/w5163.pdf
File-Format: application/pdf
Publication-Status: published as Cutler, David M. and Edward L. Glaeser. "Are Ghettos Good Or Bad?," Quarterly Journal of Economics, 1997, v112(3,Aug), 827-872.
Abstract: Theory suggests that spatial separation of racial and ethnic groups can have both positive and negative effects on the economic performance of minorities. Racial segregation may be damaging because it curtails informational connections with the larger community or because concentrations of poverty deter human capital accumulation and encourage crime. Alternatively racial segregation might ensure that minorities have middle-class role models and thus promote good outcomes. We examine the effects of segregation on African-American outcomes in schooling, employment and single parenthood and find that African-Americans in more segregated areas do significantly worse, particularly if they live in central cities. We control for the endogeneity of location choice using instruments based on political factors, topographical features of cities, and residence before adulthood. Some, but never more than 40% of this effect, stems from lack of role models and large commuting times.
Handle: RePEc:nbr:nberwo:5163
Template-Type: ReDIF-Paper 1.0
Title: Rising Public College Tuition and College Entry: How Well Do Public Subsidies Promote Access to College?
Classification-JEL: I20; I28
Author-Name: Thomas J. Kane
Note: LS ED
Number: 5164
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5164
File-URL: http://www.nber.org/papers/w5164.pdf
File-Format: application/pdf
Abstract: Though economists have spent the past decade analyzing the rising payoff to schooling, we know much less about the responses of youth or the effectiveness of policies aimed at influencing those decisions. States and the federal government currently spend more than $53 billion annually, hoping to promote greater access to college. This paper evaluates the price sensitivity of youth, using several sources of non-experimental variation in costs. The bulk of the evidence points to large enrollment impacts, particularly for low-income students and for those attending two-year colleges. The states have chosen to promote college enrollment by keeping tuition low through across-the-board subsidies rather than using more targeted, means-tested aid. As public enrollments increase, this has become an expensive strategy. Means-tested aid may be better targeted. However, the evidence of enrollment responses to such targeted aid is much weaker. After a federal means-tested grant program was established in 1973, there was no disproportionate increase in enrollment by low-income youth. Given the number of public dollars at stake, the two sets of results should be reconciled.
Handle: RePEc:nbr:nberwo:5164
Template-Type: ReDIF-Paper 1.0
Title: Leverage, Investment, and Firm Growth
Author-Name: Larry Lang
Author-Name: Eli Ofek
Author-Name: Rene M. Stulz
Note: AP CF
Number: 5165
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5165
File-URL: http://www.nber.org/papers/w5165.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 40, 1996, p. 3-30.
Abstract: We show that there is a negative relation between leverage and future growth at the firm level and, for diversified firms, at the segment level. Further, this negative relation between leverage and growth holds for firms with low Tobin's q, but not for high-q firms or firms in high-q industries. Therefore, leverage does not reduce growth for firms known to have good investment opportunities, but is negatively related to growth for firms whose growth opportunities are either not recognized by the capital markets or are not sufficiently valuable to overcome the effects of their debt overhang.
Handle: RePEc:nbr:nberwo:5165
Template-Type: ReDIF-Paper 1.0
Title: Why Is There a Home Bias? An Analysis of Foreign Portfolio Equity Ownership in Japan
Author-Name: Jun-Koo Kang
Author-Name: Rene M. Stulz
Note: AP CF
Number: 5166
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5166
File-URL: http://www.nber.org/papers/w5166.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 46, no. 1 (October 1997): 3-28.
Abstract: This paper uses data on foreign stock ownership in Japan from 1975 to 1991 to examine the determinants of the home bias in portfolio holdings. Existing models of international portfolio choice predicting that foreign investors hold national market portfolios or portfolios tilted towards high expected return stocks are inconsistent with the evidence provided in this paper. We document that foreign investors overweight shares of firms in manufacturing industries, large firms, firms with good accounting performance, firms with low unsystematic risk, and firms with low leverage. Controlling for size, there is evidence that small firms that export more have greater foreign ownership. Foreign investors do not perform significantly worse than if they held the Japanese market portfolio, however. After controlling for firm size, there is no evidence that foreign ownership is related to expected returns of shares. We show that a model with size-based informational asymmetries and deadweight costs can yield asset allocations consistent with our evidence.
Handle: RePEc:nbr:nberwo:5166
Template-Type: ReDIF-Paper 1.0
Title: The Limits of Arbitrage
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert W. Vishny
Author-Person: pvi218
Note: AP
Number: 5167
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5167
File-URL: http://www.nber.org/papers/w5167.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 52, no. 1 (1997): 35-55.
Abstract: In traditional models, arbitrage in a given security is performed by a large number of diversified investors taking small positions against its mispricing. In reality, however, arbitrage is conducted by a relatively small number of highly specialized investors who take large positions using other people's money. Such professional arbitrage has a number of interesting implications for security pricing, including the possibility that arbitrage becomes ineffective in extreme circumstances, when prices diverge far from fundamental values. The model also suggests where anomalies in financial markets are likely to appear, and why arbitrage fails to eliminate them.
Handle: RePEc:nbr:nberwo:5167
Template-Type: ReDIF-Paper 1.0
Title: Protection and the Business Cycle
Classification-JEL: F13
Author-Name: Kyle Bagwell
Author-Person: pba409
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 5168
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5168
File-URL: http://www.nber.org/papers/w5168.pdf
File-Format: application/pdf
Publication-Status: published as B.E. Journal of Economic Analysis and Policy, Vol. 3, issue 1, article 3
Abstract: Empirical studies have repeatedly documented the countercyclical nature of trade barriers. In this paper, we propose a simple theoretical framework that is consistent with this and other empirical regularities in the relationship between protection and the business cycle. We examine the ability of countries to maintain efficiency- enhancing reciprocal trade agreements that control their temptation to resort to beggar-thy-neighbor policies, under the requirement that such agreements are self-enforcing. We find theoretical support for countercyclical movements in protection levels, as the fast growth in trade volume that is associated with a boom phase facilitates the maintenance of more liberal trade policies that can be sustained during a recession phase in which growth is slow. However, we also find that acyclical increases in the level of trade volume give rise to protection, implying that whether rising imports are met with greater liberalization or increased protection depends on whether they are part of a cyclic upward trend in trade volume or an acyclical increase in import levels.
Handle: RePEc:nbr:nberwo:5168
Template-Type: ReDIF-Paper 1.0
Title: Worker Adaptation and Employer Accommodation Following the Onset of a Health Impairment
Classification-JEL: J14; J26
Author-Name: Mary C. Daly
Author-Name: John Bound
Author-Person: pbo406
Note: AG LS
Number: 5169
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5169
File-URL: http://www.nber.org/papers/w5169.pdf
File-Format: application/pdf
Publication-Status: published as M. C. Daly & J. Bound, 1996. "Worker Adaptation and Employer Accommodation following the Onset of a Health Impairment," The Journals of Gerontology Series B: Psychological Sciences and Social Sciences, vol 51B(2), pages S53-S60.
Abstract: The responses of workers and their employers to the onset of work-limiting health impairments were investigated using data from the new Health and Retirement Survey. The results indicate that many workers who suffer from health limitations are directly accommodated by their employers, and that those who do not receive direct accommodation frequently adapt to their limitations by altering their job demands or by changing jobs. These findings point to the potential for adjustments on both sides of the market: by employers-- in the form of job accommodation--and by employees--in the form of job change.
Handle: RePEc:nbr:nberwo:5169
Template-Type: ReDIF-Paper 1.0
Title: Industry or Class Cleavages over Trade Policy? Evidence from the BritishGeneral Election of 1923
Author-Name: Douglas A. Irwin
Author-Person: pir25
Note: ITI
Number: 5170
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5170
File-URL: http://www.nber.org/papers/w5170.pdf
File-Format: application/pdf
Publication-Status: published as Political Economy of Trade Policy: Essays in Honor of Jagdeesh Bhagwati, Robert Feenstra, Gene Grossman and Douglas Irwin eds., (MIT Press, 1996).
Abstract: Economists and political scientists have frequently attempted to determine whether trade policy-related political action takes place along factor-lines (such as capital versus labor, as implied by the Stolper-Samuelson theorem) or along industry-lines (as implied by models with imperfect factor mobility). This paper examines voting patterns in the British general election of 1923, an election that hinged on free trade versus protection. The election provides an opportunity to distinguish between the two hypotheses because either an industry or a factor alignment among voters is plausible: rigidities in the interwar labor market have often been discussed, and electoral politics has often been viewed as having a class basis. This paper exploits data from the British census of 1921, which divides the population into categories of occupation (by industry) and categories of economic class (by income and/or skill level), and relates these data to cross-country variation in voting for the contending political parties. The results indicate that county differences in the occupational structure of the electorate account for the election outcome better than differences in class structure.
Handle: RePEc:nbr:nberwo:5170
Template-Type: ReDIF-Paper 1.0
Title: Tax Shelters and Passive Losses After the Tax Reform Act of 1986
Classification-JEL: H24; E62
Author-Name: Andrew A. Samwick
Author-Person: psa395
Note: PE
Number: 5171
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5171
File-URL: http://www.nber.org/papers/w5171.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Foundations of Household Taxation, Ed. by Feldstein and Poterba, University of Chicago Press, 1996, pp. 193-226.
Publication-Status: published as Tax Shelters and Passive Losses after the Tax Reform Act of 1986, Andrew A. Samwick. in Empirical Foundations of Household Taxation, Feldstein and Poterba. 1996
Abstract: The precipitous decline in tax sheltered investments after the Tax Reform Act of 1986 (TRA) is widely attributed to the passive loss rules. These rules disallowed losses from activities in which the taxpayer did not materially participate as a current deduction against all sources of income except for other passive activities. This paper demonstrates instead that the role of the passive loss limitations was secondary to that of other reforms enacted by TRA, most importantly the repeal of the investment tax credit and the long-term capital gain exclusion. These other reforms not only lowered after-tax rates of return on tax sheltered investments but also eliminated the positive correlation between the investor's marginal tax rate and the investment's after-tax rate of return. As a result, high income taxpayers ceased to be the natural clientele for legitimate tax shelters after TRA. The passive loss rules were more effective in curtailing the use of 'abusive' tax shelters; however, it is shown that a more narrowly focused restriction on seller financing of tax sheltered investments could have accomplished the same goal with much less scope for discouraging productive economic investments.
Handle: RePEc:nbr:nberwo:5171
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Interest Rates in a Pure Exchange Economy with Heterogeneous Investors
Author-Name: Jiang Wang
Note: AP
Number: 5172
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5172
File-URL: http://www.nber.org/papers/w5172.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 41, no. 1 (May 1996): 75-110.
Abstract: This paper presents an equilibrium model of the term structure of interest rates when investors have heterogeneous preferences. The basic model considers a pure exchange economy of two classes of investors with different (but constant) relative risk-aversion and gives closed-form solutions to bond prices. We use the model to examine the effect of preference heterogeneity on the behavior of bond yields. Extensions to cases of more than two investors are also considered.
Handle: RePEc:nbr:nberwo:5172
Template-Type: ReDIF-Paper 1.0
Title: The Seasonality of Consumer Prices
Classification-JEL: C43; C31
Author-Name: Michael F. Bryan
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Note: ME
Number: 5173
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5173
File-URL: http://www.nber.org/papers/w5173.pdf
File-Format: application/pdf
Publication-Status: published as "The Seasonality of Inflation" Economic Review of the Federal Reserve Bank of Cleveland, (1995 Quarter 2), pp. 12-23.
Abstract: In this paper, we reevaluate the evidence of seasonality in prices which we find to be substantially greater than previous research has indicated. That is, seasonal price movements have become more prominent in the relatively stable inflation environment that has prevailed since 1982. One main conclusion is drawn from this analysis: The amount of seasonality in prices differs greatly by item, making it difficult to generalize about seasonal price movements. A casual reading fails to reveal an easily identifiable origin of the seasonal variation of prices. That is, seasonality in consumer prices is predominantly idiosyncratic in nature, a result that contrasts with studies demonstrating a common seasonal cycle in real economic variables. This finding has an important practical implication: Given the selective, disaggregated approach taken by the Bureau of Labor Statistics to adjust data seasonally, the existence of idiosyncratic seasonality increases the likelihood of allowing noise in the aggregate CPI at a seasonal frequency. This argues in favor of seasonally adjusting the index after aggregation.
Handle: RePEc:nbr:nberwo:5173
Template-Type: ReDIF-Paper 1.0
Title: Is an Integrated Regional Labor Market Emergin in East and Southeast Asia?
Author-Name: David E. Bloom
Author-Person: pbl79
Author-Name: Waseen Noor
Note: ITI LS
Number: 5174
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5174
File-URL: http://www.nber.org/papers/w5174.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, Duncan, Aurelio Parisotto, Anil Verma, and Asma Lateef (eds.) Regionalization and Labour Market Interdependence in East and Southeast Asia. New York: St. Martin’s Press, 1997.
Abstract: We examine labor market integration in east and southeast Asia (ESEA) during the 1980s, focusing on intraregional labor mobility and on the two other main channels of integration: capital mobility and trade. We find evidence that labor market integration increased sharply among ESEA countries in the 1980s, with 9 percent of ESEA's labor force participating either directly via labor mobility or indirectly via capital mobility or trade in cross-national labor market transactions in 1991, up from just 5.2 percent in 1980. We also find that trade is the dominant mechanism through which regional labor market integration occurred in the 1980s, with labor migration contributing only modestly to the process.
Handle: RePEc:nbr:nberwo:5174
Template-Type: ReDIF-Paper 1.0
Title: Nontraded Goods, Nontraded Factors, and International Non-Diversification
Author-Name: Marianne Baxter
Author-Person: pba102
Author-Name: Urban J. Jermann
Author-Person: pje4
Author-Name: Robert G. King
Author-Person: pki21
Note: IFM
Number: 5175
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5175
File-URL: http://www.nber.org/papers/w5175.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 44, no. 2 (April 1998): 211-229.
Abstract: Can the presence of nontraded consumption goods explain the high degree of 'home bias' displayed by investor portfolios? We find that the answer is no, so long as individuals have access to free international trade in financial assets. In particular, it is never optimal to exhibit home bias with respect to domestic traded-good equities. By contrast, an optimal portfolio may exhibit substantial home bias with respect to nontraded-good equities, although this result requires a very low degree of substitution between traded and nontraded goods in the utility function. Further, our analysis uncovers a second puzzle: the composition of investors' portfolios appears to be strongly at variance with the predictions of the model that incorporates nontraded goods.
Handle: RePEc:nbr:nberwo:5175
Template-Type: ReDIF-Paper 1.0
Title: Should the Stagnant Homeownership Rate be a Source of Concern?
Author-Name: Richard K. Green
Number: 5176
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5176
File-URL: http://www.nber.org/papers/w5176.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, vol. 26, no. 3-4, pp. 337-368, June 1996
Abstract: The homeownership rate in the United States was essentially stagnant during the 1980's. This stagnation should be a source of concern if the rate reflects stagnant economic conditions and ownership opportunities, not if it simply reflects changing demographic conditions or preferences. Using a series of affordability measures, we find that homeownership opportunities improved almost everywhere during the 1980's, suggesting that the cause of the stagnant rate was something other than economic conditions. In fact, we find that both demographics and changes in preferences led to an increase in the proportion of households headed by single people; all else being equal, this would tend to push the owner-occupancy rate downward. We also found that while homeownership opportunities improved during the 1980's, the ex ante use cost of owning a home increased almost everywhere, reducing the financial attractiveness of owning a home. The combination of improving affordability conditions and worsening financial appeal had an overall neutral effect on the aggregate ownership rate.
Handle: RePEc:nbr:nberwo:5176
Template-Type: ReDIF-Paper 1.0
Title: In Search of Empirical Evidence that Links Rent and User Cost
Classification-JEL: R21
Author-Name: Dixie M. Blackley
Author-Name: James R. Follain
Number: 5177
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5177
File-URL: http://www.nber.org/papers/w5177.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, vol. 26, no. 3-4, pp. 409-431, June 1996
Abstract: Most models of the rental housing market assume a close linkage between the level of residential rents and the after-tax user cost of rental housing capital. However, little empirical evidence exists to establish the strength of this linkage or the speed with which rents adjust to changes in user cost or tax policy. This paper develops and estimates an econometric model of the rental housing market in order to shed light on both of these issues. United States annual data for 1964 through 1993 are used to generate two-stage least squares estimates of a four equation structural model. Although the results are generally consistent with expectations and reveal several interesting relationships among the system variables, the estimates fail to identify a strong relationship between rent and user cost. About half of an increase in user cost is ultimately passed along as higher rent. The adjustment process also takes a long time, with only about a third of the long-run effect realized within ten years of a user cost shock. The fundamental reason for this result is that our estimate of the user cost series, based upon widely accepted procedures, is much more volatile than the residential rent series.
Handle: RePEc:nbr:nberwo:5177
Template-Type: ReDIF-Paper 1.0
Title: Risk-Based Capital Standards and the Riskiness of Bank Portfolios: Credit and Factor Risks
Author-Name: Steven R. Grenadier
Author-Name: Brian J. Hall
Number: 5178
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5178
File-URL: http://www.nber.org/papers/w5178.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, vol. 26, no. 3-4, pp. 433-464, June 1996
Abstract: Bank risk-based capital (RBC) standards require banks to hold differing amounts of capital for different classes of assets, based almost entirely on a credit risk criterion. The paper provides both a theoretical and empirical framework for evaluating such standards. A model outlining a pricing methodology for loans subject to default risk is presented. The model shows that the returns on such loans are affected by the complicated interaction of the likelihood of default, the consequences of default, term structure variables, and the pricing of factor risks in the economy. When we examine whether the risk weights accurately reflect bank asset risk, we find that the weights fail even in their limited goal of correctly quantifying credit risk. For example, our findings indicate that the RBC weights overpenalize home mortgages, which have an average credit loss of 13 basis points, relative to commercial and consumer loans. The RBC rules also contain a significant bias against direct mortgages relative to mortgage- backed securities. In addition, we find large differences in the credit riskiness of loans within the 100 percent weight class and potentially large benefits to loan diversification, neither of which are considered in the RBC regulations. We also examine other types of bank risk by estimating a simple factor model that decomposes loan risk into term structure, default, and market risk. One implication of our findings is that although banks have reallocated their portfolios in ways intended by the RBC standards, they may have merely substituted one type of risk (term structure risk) for others (default and market risk), of which the net effect is unknown.
Handle: RePEc:nbr:nberwo:5178
Template-Type: ReDIF-Paper 1.0
Title: Expectations, Efficiency, and Euphoria in the Housing Market
Classification-JEL: R21; G14
Author-Name: Dennis R. Capozza
Author-Name: Paul J. Seguin
Number: 5179
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5179
File-URL: http://www.nber.org/papers/w5179.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 369-386, June 1996
Abstract: This paper studies expectations of capital appreciation in the housing market. We show that expectations impounded in the rent/price ratio at the beginning of the decade successfully predict appreciation rates, but only if we first control for cross-sectional differences in the quality of rental versus owner-occupied housing. We also demonstrate that observed rent/price ratios contain a disequilibrium component that also has power to forecast subsequent appreciation rates. Finally, we provide evidence consistent with euphoria: participants in housing markets appear to overreact to income growth.
Handle: RePEc:nbr:nberwo:5179
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Income and Collateral Constraints on Residential Mortgage Terminations
Classification-JEL: G12
Author-Name: Wayne Archer
Author-Name: David C. Ling
Author-Person: pli857
Author-Name: Gary A. McGill
Number: 5180
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5180
File-URL: http://www.nber.org/papers/w5180.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, vol. 26, no. 3-4, pp. 235-261, June 1996
Abstract: The prepayment behavior of home mortgage borrowers has been widely observed to be inconsistent with behavior implied by classical option theory. A substantial literature has emerged examining the problem, focusing on the characteristics of the mortgage and on the historic path of interest rates in attempting to explain the anomaly. This paper offers contributions to the literature in three respects. First, it explores the influence of household level characteristics upon prepayment behavior, using both householder characteristics and collateral (house) value. Second, it empirically recognizes important interactions between the status of the prepayment option and the influence of income and collateral constraints upon prepayment behavior. Third, it uses a major source of data that has not previously been used in examining the prepayment anomaly: the American Housing Survey. Among the findings are the following: when the household is either collateral constrained or income constrained, or the option is likely to be out of the money, the influence of the option value upon prepayment behavior is less by half. When the status of the option and the influence of potential household constraints are more appropriately recognized, these factors account for nearly all explanatory power otherwise attributable to household demographic characteristics.
Handle: RePEc:nbr:nberwo:5180
Template-Type: ReDIF-Paper 1.0
Title: Residential Mobility and Mortgages
Classification-JEL: J60; G12
Author-Name: Sewin Chan
Number: 5181
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5181
File-URL: http://www.nber.org/papers/w5181.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 287-311, June 1996
Abstract: Mortgage applications are a detailed and accurate source of household information that is verified by underwriters, making it a more accurate data source than self-reported survey answers. This paper discusses how mortgage data can be applied to areas of economics outside mortgage finance. As a supplement to variables from the application form, the self-selection of mortgage points is used to infer expected mobility. A duration model of housing spells is estimated, and the points indicator is shown to be highly significant in predicting mobility for low loan-to-value borrowers. The findings demonstrate the potential fruitfulness of using this new data source.
Handle: RePEc:nbr:nberwo:5181
Template-Type: ReDIF-Paper 1.0
Title: Housing Price Dynamics Within a Metropolitan Area
Classification-JEL: R12; R21
Author-Name: Karl E. Case
Author-Person: pca484
Author-Name: Christopher J. Mayer
Author-Person: pma212
Number: 5182
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5182
File-URL: http://www.nber.org/papers/w5182.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 387-407, June 1996
Abstract: This paper analyzes the pattern of cross-sectional house price appreciation in the Boston metropolitan area from 1982 to 1994. The empirical results are consistent with many of the predictions of a standard urban model in which towns have a fixed set of locational attributes and amenities. In particular, the evidence suggests that house prices in towns with a large share of residents working in the manufacturing sector in 1980 grew less quickly in the ensuing years when aggregate manufacturing employment fell. As baby boomers moved into middle age, house values appreciated faster in towns with a larger initial percentage of middle-aged residents. Housing values rose more slowly in towns that allowed additional construction, and values rose faster in towns closer to Boston. Finally, as fewer families had children who attended public schools statewide, the price premium associated with housing in towns with good schools fell. All of these findings support the view that town amenities and public services are not easily replicated or quickly adaptable to shifts in demand, even within a metropolitan area.
Handle: RePEc:nbr:nberwo:5182
Template-Type: ReDIF-Paper 1.0
Title: House Prices and Home Owner Saving Behavior
Classification-JEL: E21; R31
Author-Name: Gary V. Engelhardt
Number: 5183
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5183
File-URL: http://www.nber.org/papers/w5183.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 313-336, June 1996
Abstract: This paper examines the empirical link between house price appreciation and the savings behavior of home owners during the 1980s. The analysis uses household asset and debt data for a sample of under age sixty-five home owning households from the 1984 and 1989 waves of the PSID to construct changes in real household wealth as a measure of household saving behavior. Cross-time and cross-regional variation in housing market conditions are used to identify behavior savings effects. The empirical analysis suggests that the estimated marginal propensity to consume out of real housing capital gains is 0.03 for the median saver household. However, there is an asymmetry in the saving response to both total and unanticipated real housing capital gains. All of the savings offset comes from households that experience real housing capital losses. Households that experience real gains do not change their saving behavior. The existence of this asymmetry casts doubt on the power of changes in house prices to explain the time series path of saving in the U.S.
Handle: RePEc:nbr:nberwo:5183
Template-Type: ReDIF-Paper 1.0
Title: Mortgage Default and Low Downpayment Loans: The Costs of Public Subsidy
Classification-JEL: H29; G12
Author-Name: Yongheng Deng
Author-Person: pde836
Author-Name: John M. Quigley
Author-Person: pqu1
Author-Name: Robert Van Order
Author-Person: pva397
Number: 5184
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5184
File-URL: http://www.nber.org/papers/w5184.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science & Urban Economics, vol. 26, no. 3-4, pp. 263-285, June 1996
Abstract: This paper presents a unified model of the default and prepayment behavior of homeowners in a proportional hazard framework. The model uses the option-based approach to analyze default and prepayment and considers these two interdependent hazards as competing risks. The results indicate the sensitivity of default to the initial loan-to-value ratio of the loan and the course of housing equity. The latter is a measure of the extent to which the default option is in the money. The results also indicate the importance of trigger events, namely unemployment and divorce, in affecting prepayment and default behavior. The empirical results are used to analyze the costs of a current policy proposal -- stimulating homeownership by offering low downpayment loans. We simulate default probabilities and costs on zero-downpayment loans and compare them to conventional loans with conventional underwriting standards. The results indicate that if zero-downpayment loans were priced as if they were mortgages with ten percent downpayments, then the additional program costs would be two to four percent of funds made available -- when housing prices increase steadily. If housing prices remained constant, the costs of the program would be much larger indeed. Our estimates suggest that additional program costs could be between $74,000 and $87,000 per million dollars of lending. If the expected losses from such a program were not priced at all, the losses from default alone could exceed ten percent of the funds made available for loans.
Handle: RePEc:nbr:nberwo:5184
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Imigration on American Labor Markets Prior to the Quotas
Author-Name: Timothy J. Hutton
Author-Person: pha305
Author-Name: Jeffrey G. Williamson
Author-Person: pwi169
Note: DAE LS
Number: 5185
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5185
File-URL: http://www.nber.org/papers/w5185.pdf
File-Format: application/pdf
Publication-Status: published as "Education, Globalization and Catch-Up: Scandinavia in the Swedish Mirror," Scandinavian Economic History Review, vol. XL111, no. 3 (1996): 287-309
Abstract: Current debate on the impact and assimilation of immigrants into the American labor market sounds remarkably like the debate which eventually triggered the imposition of the quotas in the 1920s. Then as now observers failed to agree on exactly what the impact of the mass migration was on labor markets. Despite its relevance to current discussion, there has been almost no quantitative effort to assess late nineteenth century impact, while instead analysis has been obsessed with assimilation issues. This paper redresses this imbalance by confronting three macro-impact questions that are just as relevant today as they were almost a century ago: Did late nineteenth century American immigrants act as a flexible (guestworker) labor supply? Did they flow into occupations where job creation was fast, or did they displace natives in occupations where job creation was slow? Did immigrants reduce the growth of wages and living standards for natives while increasing their unemployment? We use econometrics and computable general equilibrium models to get surprising and unambiguous answers.
Handle: RePEc:nbr:nberwo:5185
Template-Type: ReDIF-Paper 1.0
Title: Improving the Accessibility of the NBER's Historical Data
Classification-JEL: C82; E32
Author-Name: Daniel Feenberg
Author-Person: pfe56
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Note: EFG IFM ME
Number: 5186
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5186
File-URL: http://www.nber.org/papers/w5186.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business and Economic Statistics, Vol. 15, no. 3 (July 1997): 293-299.
Abstract: During the early years of its existence, the National Bureau of Economic Research (NBER) assembled an extensive data set on all aspects of the pre-WWII macroeconomy. Until 1978, this data set existed only on the handwritten sheets to which the early NBER researchers copied the data from original sources. In 1978, the Inter-University Consortium for Political and Social Research (ICPSR) transferred the data to magnetic tape. A number of researchers have used the ICPSR tape, but two key problems discourage many from taking advantage of this unique data set. The first is that modern econometric software does not have the ability to read the obsolete ICPSR format. The second is that the process of transferring the data from the NBER's handwritten sheets to the ICPSR tape introduced a number of mistakes. We have eliminated these two impediments to the use of the NBER data set by converting the ICPSR tape to a portable format and by verifying the accuracy of the data using the NBER's original handwritten sheets. The data set is now available on the Internet and can be accessed using standard gopher or web-browser software.
Handle: RePEc:nbr:nberwo:5186
Template-Type: ReDIF-Paper 1.0
Title: Strategic Trading in a Two-Sided Foreign Exchange Auction
Author-Name: Linda Goldberg
Author-Person: pgo256
Author-Name: Rafael Tenorio
Note: IFM
Number: 5187
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5187
File-URL: http://www.nber.org/papers/w5187.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, 1997, vol.42/3-4.
Abstract: The market microstructure chosen for foreign exchange markets can influence trading volumes and equilibrium exchange rates. With emerging markets and developing countries increasingly utilizing two- sided auctions, we show that the choice of the discrete 'tƒtonnement' auction creates incentives for strategic behavior among market participants. We provide theoretical predictions on strategic under- revelation of demand or supply positions that are supported empirically using detailed data from a rare example of a tƒtonnement market, the Moscow Interbank Currency Exchange. Our results also are consistent with findings from experimental work on auctions: new entrants altered strategic behavior mainly on the market's demand side, without comparable implications for the supply side. We also show that bids and offers were influenced by fundamentals and specific policy measures.
Handle: RePEc:nbr:nberwo:5187
Template-Type: ReDIF-Paper 1.0
Title: Career and Family: College Women Look to the Past
Classification-JEL: J1; J2
Author-Name: Claudia Goldin
Author-Person: pgo601
Note: DAE LS
Number: 5188
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5188
File-URL: http://www.nber.org/papers/w5188.pdf
File-Format: application/pdf
Publication-Status: published as Gender and Family Issues in the Workplace, Francince Blau and Ronald Ehrenberg, Russell Sage Press, 1997
Abstract: Recent college graduate women express frustration regarding the obstacles they will face in combining career and family. Tracing the demographic and labor force experiences of four cohorts of college women across the past century allows us to observe the choices each made and how the constraints facing college women loosened over time. No cohort of college graduate women in the past had a high success rate in combining family and career. Cohort I (graduating c. 1910) had a 50% rate of childlessness. Whereas cohort III (graduating c. 1955) had a high rate of childbearing, it had initially low labor force participation. Cohort IV (graduating c. 1972) provides the most immediate guide for today's college women and is close to the end of its fertility history. It is also a cohort that can be studied using the N.L.S. Young Women. In 1991, when the group was 37 to 47 years old, 28% of the sample's college graduate (white) women had yet to have a first birth. The estimates for career vary from 24% to 33% for all college graduate women in the sample. Thus only 13% to 17% of the group achieved 'family and career' by the time it was about 40 years old. Among those who attained career, 50% were childless. Cohort IV contains a small group of women who have combined family with career, but for most the goal remains elusive.
Handle: RePEc:nbr:nberwo:5188
Template-Type: ReDIF-Paper 1.0
Title: Taxation and Corporate Investment: The Impact of the 1991 Swedish Tax Reform
Classification-JEL: H32; E62
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Kevin Hassett
Author-Person: pha378
Author-Name: Jan Sodersten
Author-Person: psd2
Note: PE
Number: 5189
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5189
File-URL: http://www.nber.org/papers/w5189.pdf
File-Format: application/pdf
Publication-Status: published as Swedish Economic Policy Review, vol. 2, no. 2, pp. 361-383, Autumn 1995.
Abstract: In 1990, the government of Sweden introduced a major tax reform to take effect in 1991. The Swedish system prior to the legislation was so complex that the size and magnitude of the likely effects of the reform on incentives to invest were unknown. In this paper, we draw on Södersten (1989) and Auerbach and Hassett (1992) and derive an expression for the user cost of capital that captures the essential features of the Swedish tax code both before and after the reform. We estimate the model for investment in equipment and find that the responsiveness of Swedish firms to the user cost is quite similar to that found for the U.S. Finally, we employ our model and estimates to assess the effects of the 1991 reform. We find that the impact of the reform on investment is likely to have been minor and had little to do with the contemporaneous sharp drop in investment.
Handle: RePEc:nbr:nberwo:5189
Template-Type: ReDIF-Paper 1.0
Title: Why are Retirement Rates So High at Age 65?
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
Number: 5190
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5190
File-URL: http://www.nber.org/papers/w5190.pdf
File-Format: application/pdf
Publication-Status: published as Advances in the Economics of Aging, ed. David Wise, University of Chicago Press, 1996, pp. 61-82
Publication-Status: published as Why Are Retirement Rates So High at Age 65?, Robin L. Lumsdaine, James H. Stock, David A. Wise. in Advances in the Economics of Aging, Wise. 1996
Abstract: In most data sets of labor force participation of the elderly, an empirical regularity that emerges is that retirement rates are particularly high at age 65. While there are numerous economic reasons why individuals may choose to retire at 65, empirical models that have attempted to explain the age-65 spike have met with limited success. Interpreted another way, while many models would predict a jump in the hazard rate at age 65, the magnitude of the spike indicates excessive response given the economic considerations that retirees typically face. This paper considers the puzzle of why retirement rates are so high at age 65 and explores a variety of explanations.
Handle: RePEc:nbr:nberwo:5190
Template-Type: ReDIF-Paper 1.0
Title: The Mirage of Fixed Exchange Rates
Classification-JEL: F31; E42
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: IFM ME
Number: 5191
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5191
File-URL: http://www.nber.org/papers/w5191.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Fall 1995, Volume 9, #4, pp. 73-96
Abstract: This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises and the 1994-95 Mexican collapse. We also discuss the small number of successful fixers.
Handle: RePEc:nbr:nberwo:5191
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Labor Market Impact of Voluntary Military Service Using Social Security Data on Military Applicants
Classification-JEL: J31
Author-Name: Joshua D. Angrist
Author-Person: pan29
Note: LS
Number: 5192
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5192
File-URL: http://www.nber.org/papers/w5192.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica (March 1998).
Abstract: This study uses Social Security data on the earnings of military applicants to the all-volunteer forces to compare the earnings of Armed Forces veterans with the earnings of military applicants who did not enlist. Matching, regression, and Instrumental Variables (IV) estimates are presented. The matching and regression estimates control for most of the characteristics used by the military to select qualified applicants from the military applicant pool. The IV estimates exploit an error in the scoring of exams used by the military to screen applicants between 1976 and 1980. All the estimates suggest that soldiers who served in the early 1980s were paid considerably more than comparable civilians while in the military. Military service also appears to have led to a modest (less than 10 percent) increase in the civilian earnings of nonwhite veterans while actually reducing the civilian earnings of white veterans. Most of the positive effects of military service on civilian earnings appear to be attributable to improved employment prospects for veterans.
Handle: RePEc:nbr:nberwo:5192
Template-Type: ReDIF-Paper 1.0
Title: The Nature of Precautionary Wealth
Classification-JEL: D91; E21
Author-Name: Christopher D. Carroll
Author-Person: pca45
Author-Name: Andrew A. Samwick
Author-Person: psa395
Note: AG EFG PE
Number: 5193
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5193
File-URL: http://www.nber.org/papers/w5193.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 40, no. 1 (September 1997): 41-72.
Abstract: This paper uses the Panel Study of Income Dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with greater income uncertainty. However, the apparent pattern of precautionary saving is not consistent with a standard parameterization of the life cycle model in which consumers are patient enough to begin saving for retirement early in life: wealth is estimated to be less sensitive to uncertainty in permanent income than implied by that model. Instead, our results suggest that over most of their working lifetime, consumers behave in accordance with the 'buffer-stock' models of saving described in Carroll (1992) or Deaton (1991), in which consumers hold wealth principally to insulate consumption against near term fluctuations in income.
Handle: RePEc:nbr:nberwo:5193
Template-Type: ReDIF-Paper 1.0
Title: How Important is Precautionary Saving?
Classification-JEL: D91; E21
Author-Name: Christopher D. Carroll
Author-Person: pca45
Author-Name: Andrew A. Samwick
Author-Person: psa395
Note: AG EFG PE
Number: 5194
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5194
File-URL: http://www.nber.org/papers/w5194.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 80, no. 3 (1998): 410-419.
Abstract: We estimate the fraction of the wealth of a sample of PSID respondents that is held because some households face greater income uncertainty than others. We first derive an equation characterizing the theoretical relationship between wealth and uncertainty in a buffer-stock model of saving. Next, we estimate that equation using PSID data; we find strong evidence that households engage in precautionary saving. Finally, we simulate the wealth distribution that would prevail if all households had the same uncertainty as the lowest-uncertainty group. We find that between 39 and 46 percent of wealth in our sample is attributable to uncertainty differentials across groups.
Handle: RePEc:nbr:nberwo:5194
Template-Type: ReDIF-Paper 1.0
Title: Alcohol Policies and Highway Vehicle Fatalities
Classification-JEL: I18
Author-Name: Christopher J. Ruhm
Author-Person: pru7
Note: EH
Number: 5195
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5195
File-URL: http://www.nber.org/papers/w5195.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 15, No. 4, August 1996, pp.435-454.
Abstract: This study investigates the impact of beer taxes and a variety of alcohol-control policies on motor vehicle fatality rates, using fixed- effect models with data for the 48 contiguous states over the 1982 through 1988 time period. The econometric findings highlight the fragility of the parameter estimates to reasonable changes in model specifications. Special attention is paid to omitted variables biases resulting from failing to adequately control for grassroots efforts to reduce drunk driving, the enactment of other laws which simultaneously operate to reduce highway fatalities, and the economic conditions existing at the time of the legislation. In the preferred specifications, most of the regulations have little or no impact on traffic mortality. By contrast, higher beer taxes are associated with reductions in crash deaths and this result is relatively robust across specifications. These findings suggest the limited ability of further regulatory action to reduce drunk-driving but point to a potentially significant role for higher alcohol taxes.
Handle: RePEc:nbr:nberwo:5195
Template-Type: ReDIF-Paper 1.0
Title: Choosing a Dictator: Bureaucracy and Welfare in Less Developed Polities
Classification-JEL: D73
Author-Name: James E. Rauch
Author-Person: pra166
Note: ITI
Number: 5196
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5196
File-URL: http://www.nber.org/papers/w5196.pdf
File-Format: application/pdf
Publication-Status: published as "Leadership Selection, Internal Promotion, and Bureaucratic Corruption in Less Developed Polities," Canadian Journal of Economics, Vol. 34 (February 2001), pp. 240-258.
Abstract: Recent work in the sociology of economic development has emphasized the establishment of a professional government bureaucracy in place of political appointees as an important component of the institutional environment in which private enterprise can flourish. I focus on the role that internal promotion can play in bringing to power individuals who highly value (relative to income) imposition of their preferences over collective goods on the public. Such individuals restrain the corruption of their subordinates as a byproduct of their efforts to implement their preferences using tax revenue. Within this hierarchical framework I investigate the effects of varying subordinate compensation levels and of recruiting them meritocratically.
Handle: RePEc:nbr:nberwo:5196
Template-Type: ReDIF-Paper 1.0
Title: Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories
Classification-JEL: F41
Author-Name: Sergio Rebelo
Author-Name: Carlos A. Vegh
Author-Person: pve34
Note: EFG IFM
Number: 5197
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5197
File-URL: http://www.nber.org/papers/w5197.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1995. Cambridge: MIT Press, 1995.
Publication-Status: published as Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories, Sergio Rebelo, Carlos A. Végh. in NBER Macroeconomics Annual 1995, Volume 10, Bernanke and Rotemberg. 1995
Abstract: This paper uses a unified analytical framework to assess, both qualitatively and quantitatively, the relevance of the different hypotheses that have been proposed to explain the real effects of exchange rate-based stabilizations. The four major hypotheses analyzed are: (i) the supply-side effects associated with an inflation decline; (ii) the perception that the exchange rate peg is temporary; (iii) the fiscal adjustments that tend to accompany the peg; and (iv) the existence of nominal rigidities in wages or prices.
Handle: RePEc:nbr:nberwo:5197
Template-Type: ReDIF-Paper 1.0
Title: On the Ills of Adjustment
Classification-JEL: E10; F00
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Mohamad L. Hammour
Note: EFG
Number: 5198
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5198
File-URL: http://www.nber.org/papers/w5198.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, vol. 51, no. 1, October 1996 pp. 161
Abstract: We analyze market impediments to the process of structural adjustment. We focus on incomplete-contract inefficiencies in the transactions between workers and firms that render the quasi-rents from 'specific' investment appropriable. During adjustment, the result is a depressed rate of creation of the new productive structure and excessive destruction of the old one, leading to an employment crisis. Moreover, appropriability weakens the incentives for extensive restructuring and results in a 'sclerotic' productive structure. An adequate managed- adjustment program combines vigorous creation incentives in the expanding sector with measures to support employment in the contracting one. In contrast, the common prescription of gradualism does not act as an effective 'synchronizer' of creation and destruction, for it can only reduce destruction by also reducing an already depressed creation rate.
Handle: RePEc:nbr:nberwo:5198
Template-Type: ReDIF-Paper 1.0
Title: Collaboration Structure and Information Dilemmas in Biotechnology: Organizational Boundaries as Trust Production
Classification-JEL: 031
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Author-Name: Marilynn B. Brewer
Author-Name: Yusheng Peng
Note: PR
Number: 5199
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5199
File-URL: http://www.nber.org/papers/w5199.pdf
File-Format: application/pdf
Publication-Status: published as Kramer, Roderick M. and Tom R. Tyler (eds.) Trust in Organizations. Thousand Oaks, CA: Sage, 1996.
Abstract: Scientists who make breakthrough discoveries can receive above- normal returns to their intellectual capital, with returns depending on the degree of natural excludability - that is, whether necessary techniques can be learned through written reports or instead require hands-on experience with the discovering scientists or those trained by them in their laboratory. Privatizing discoveries, then, only requires selecting trusted others as collaborators, most often scientists working in the same organization. Within organizational boundaries, incentives become aligned based on repeat and future exchange, coupled with third-party monitoring and enforcement. We find that high value intellectual capital paradoxically predicts both a larger number of collaborators and more of that network contained within the same organization. Specifically, same-organization collaboration pairs are more likely when the value of the intellectual capital is high: both are highly productive 'star' scientists, both are located in top quality bioscience university departments, or both are located in a firm (higher ability to capture returns). Collaboration across organization boundaries, in contrast, is negatively related to the value of intellectual capital and positively related to the number of times the star scientist has moved. Organizational boundaries act as information envelopes: The more valuable the information produced, the more its dissemination is limited. In geographic areas where a higher proportion of coauthor pairs come from the same organization, diffusion to new collaborators is retarded.
Handle: RePEc:nbr:nberwo:5199
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels
Classification-JEL: J10
Author-Name: Michael Grossman
Author-Person: pgr107
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Ismail Sirtalan
Note: EH
Number: 5200
Creation-Date: 1995-07
Order-URL: http://www.nber.org/papers/w5200
File-URL: http://www.nber.org/papers/w5200.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, Vol. 36, no. 1 (July 1998): 39-46.
Abstract: This paper aims to refine and enrich the empirical literature dealing with the sensitivity of alcohol consumption and excessive consumption to differences in the prices of alcoholic beverages. The main refinement pertains to the incorporation of insights provided by a model of rational addictive behavior which emphasizes the interdependency of past, current, and future consumption of an addictive good. The data employed in this study consist of a U.S. panel whose members range in age from seventeen through twenty-seven. Since the prevalence of alcohol dependence and abuse is highest in this age range, addictive models of alcohol consumption may be more relevant to this sample than to a representative sample of the population of all ages. We find that alcohol consumption by young adults is addictive in the sense that increases in past or future consumption cause current consumption to rise. The positive and significant future consumption effect is consistent with the hypothesis of rational addiction and inconsistent with the hypothesis of myopic addiction. The long-run elasticity of consumption with respect to the price of beer is approximately 60 percent larger than the short-run price elasticity and twice as large as the elasticity that ignores addiction.
Handle: RePEc:nbr:nberwo:5200
Template-Type: ReDIF-Paper 1.0
Title: The Incidence of a Firm-Varying Payroll Tax: The Case of Unemployment Insurance
Classification-JEL: H22; J65
Author-Name: Patricia M. Anderson
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS PE
Number: 5201
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5201
File-URL: http://www.nber.org/papers/w5201.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics as "The effects of firm-specifictaxes and government mandates with an application to the u.s. unemploymentinsurance program", Vol. 65 (August 1997): 119-145.
Abstract: In this paper we theoretically and empirically examine the common, but previously unexamined, case of a firm-varying tax which is used to finance a fringe benefit. While we use data from the experience-rated unemployment insurance (UI) system, it is important to realize that differential treatment of firms (such as special considerations for small business) under mandated benefits laws leads to costs which vary across firms and are analogous to experience-rated taxes. We present a theoretical model which highlights the importance of considering this variation in taxes or costs both within and across markets. We examine annual changes in either firm average earnings and employment or individual worker earnings at the same firm. This method removes unmeasured firm and worker characteristics, and thus avoids the omitted variable bias that has plagued past work on incidence and compensating differentials. Our results suggest that most of the market level tax is borne by the worker. However, this does not imply that there are no employment effects of the tax. Rather, we find that individual firms can only pass on a small share of the within market differences in the tax they face, leading to substantial employment reallocation across firms.
Handle: RePEc:nbr:nberwo:5201
Template-Type: ReDIF-Paper 1.0
Title: The Decline of Non-Competing Groups: Changes in the Premium to Education, 1890 to 1940
Classification-JEL: J0; N0
Author-Name: Claudia Goldin
Author-Person: pgo601
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: DAE LS
Number: 5202
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5202
File-URL: http://www.nber.org/papers/w5202.pdf
File-Format: application/pdf
Abstract: Between 1890 and the late 1920s the premium to high school education declined substantially for both men and women. In 1890 ordinary office workers, whose positions generally required a high school diploma, earned almost twice what production workers did. But by the late 1920s they earned about one and one-half times as much. The premium earned by female office workers, male office workers, and male office workers plus supervisors fell by about 30%. Several factors operated in tandem to narrow differentials to education. The supply of high school graduates relative to those without high school degrees increased by 16% from 1890 to 1910, but by 40% from 1910 to 1920 and by 50% from 1920 to 1930. Immigration restriction is another factor, but is dwarfed by the expansion of high schools; reduced immigrant flows explain just 1/8th of the relative supply increase of educated workers. The impact of rapidly increasing supplies of high school educated workers was reinforced by technological changes in the office that enabled the substitution of educated workers and machines for the exceptionally able. The premium to high school graduation, rather than declining further in the 1930s, levelled off as the demand for high school educated workers expanded in the manufacturing sector. We make comparisons between this historical period of narrowing wage differentials in the face of technological progress in the office and ours of widening differentials.
Handle: RePEc:nbr:nberwo:5202
Template-Type: ReDIF-Paper 1.0
Title: What Can Explain the Apparent Lack of International Consumption Risk Sharing?
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: IFM AP
Number: 5203
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5203
File-URL: http://www.nber.org/papers/w5203.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, April 1996, vol.104, pp.267-297.
Abstract: Recent research in international business cycles based upon complete markets has found that international consumption correlations are lower than predicted by the standard risk-sharing implications of these models. In this paper, I use regression tests to ask whether two different types of explanations can help explain this result. First, I consider whether non-separabilities between tradeables and non-tradeable leisure or goods can explain the puzzle. Surprisingly, non-separabilities explain only a tiny fraction of the variation in tradeables consumption across countries. Furthermore, risk-sharing in tradeables is rejected. Second, I examine the effects of capital market restrictions on aggregate consumption risk-sharing by countries. While rejections of risk-sharing are stronger for countries facing more severe capital market restrictions, risk-sharing is still rejected for the unrestricted group of countries. Therefore, risk-sharing does not appear to be resolved by either explanation alone. However, when I allow for both non-separabilities and certain market restrictions, risk-sharing among unrestricted countries is not rejected. This evidence suggests that a combination of these two effects may be necessary to explain consumption risk-sharing across countries.
Handle: RePEc:nbr:nberwo:5203
Template-Type: ReDIF-Paper 1.0
Title: Price Level Determinacy Without Control of a Monetary Aggregate
Author-Name: Michael Woodford
Author-Person: pwo3
Note: EFG ME
Number: 5204
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5204
File-URL: http://www.nber.org/papers/w5204.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 43, (December 1995): pp. 1-46.
Abstract: It is shown that the price level remains determinate even in the case of two kinds of radical money supply endogeneity -- an interest rate peg by the central bank, and a 'free banking' regime -- that are commonly supposed to imply loss of control of the price level. Price level determination under such regimes can be understood in terms of a 'fiscal theory of the price level,' according to which the equilibrium price level is that level that makes the real value of nominally denominated government liabilities equal to the present value of expected future government budget surpluses. The application of the fiscal theory of the price level to exogenous-money regimes is sketched as well.
Handle: RePEc:nbr:nberwo:5204
Template-Type: ReDIF-Paper 1.0
Title: A Positive Model of Growth and Pollution Controls
Classification-JEL: E6; H1
Author-Name: Larry E. Jones
Author-Person: pjo88
Author-Name: Rodolfo E. Manuelli
Note: EFG
Number: 5205
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5205
File-URL: http://www.nber.org/papers/w5205.pdf
File-Format: application/pdf
Publication-Status: published as Larry E. Jones & Rodolfo E. Manuelli. "Endogenous Policy Choice: The Case of Pollution and Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 369-405, July 2001.
Abstract: The most recent addition to the economics of gloom concerns the interplay between income and environmental degradation. The main question raised is whether or not continued environmental degradation is a necessary part of the process of industrialization. Will pollution continue to increase without bound as more and more countries pass through the development phase or will it be controlled? Intuitively, if 'clean air' is a normal good, we would expect that societies might be 'self-regulating' in the sense that as income increases, pollution controls also increase. However, this intuition is somewhat misleading as the presence of external effects is an essential feature of environmental regulation. This paper describes a growth model in which pollutants are internal to a jurisdiction. To this end we develop a model of the joint determination of the rate of development of the economy through market interactions and the extent of pollution regulation through collective decision making. We show that depending on the collective decision making mechanism in place, the time path of pollution can display an inverted U shape, a 'sideways mirrored' S, or an increasing (but bounded) level over time. This paper contributes to the literature on both the large differences in income per capita across countries as well as the discrepancies in their growth rates. It shows that by relying on collective decision making mechanisms to choose policies, the dynamics of convex models can resemble those usually ascribed to models of multiple equilibria.
Handle: RePEc:nbr:nberwo:5205
Template-Type: ReDIF-Paper 1.0
Title: Property and Casualty Solvency Funds as a Tax and Social Insurance System
Classification-JEL: G22
Author-Name: James Bohn
Author-Name: Brian J. Hall
Note: PE
Number: 5206
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5206
File-URL: http://www.nber.org/papers/w5206.pdf
File-Format: application/pdf
Abstract: When a Property and Casualty (P&C) insurance company becomes insolvent, solvent insurance companies are forced to pay assessments (a form of taxation) to state guarantee funds ('solvency funds') in order to protect the policyholders of the failed companies. We produce estimates of the costs to the guarantee funds of resolving P&C insurance company insolvencies. We find that the total net costs (payments by the fund less recoveries by the fund) of resolving insolvencies are remarkably high. We estimate that the mean ratio of net costs to assets is approximately one, implying that insolvent companies have liabilities that are roughly twice as large as assets when they fail. Our cost estimate for resolving insurance company insolvencies is roughly three times higher than similar estimates for banks. We also find that the ratio of net costs to assets tends to be higher for small firms, poorly capitalized firms, firms writing significant premiums in long tail lines, and firms that fail because of disasters. Our findings also indicate that the resolution of insolvencies is typically quick. More than 60 percent of all costs to the fund for a given insolvency occur within two years, and more than three-quarters of total costs occur within three years. However, we find that firms with a high proportion of premiums in long tail lines take much longer to resolve.
Handle: RePEc:nbr:nberwo:5206
Template-Type: ReDIF-Paper 1.0
Title: Engines of Growth: Domestic and Foreign Sources of Innovation
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Samuel Kortum
Author-Person: pko74
Note: EFG ITI IFM PR
Number: 5207
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5207
File-URL: http://www.nber.org/papers/w5207.pdf
File-Format: application/pdf
Publication-Status: published as Japan and the World Economy, Vol. 9, no. 2 (1997): 235-259.
Abstract: We examine productivity growth since World War II in the five leading research economies: West Germany, France, the United Kingdom, Japan, and the United States. Available data on the capital-output ratio suggest that these countries grew as they did because of their ability to adopt more productive technologies, not because of capital deepening per se. We present a multicountry model of technological innovation and diffusion which has the implication that, for a wide range of parameter values, countries converge to a common growth rate, with relative productivities depending on the speed with which countries adopt technologies developed at home and abroad. Using parameter values that fit a cross section of data on productivity, research, and patenting, we simulate the growth of the five countries, given initial productivity levels in 1950 and research efforts in the subsequent four decades. Based on plausible assumptions about 'technology gaps' that existed among these countries in 1950 we can explain their growth experiences quite successfully. Specifically, the simulations capture the magnitude of the slowdown in German, French, and Japanese productivity growth and the relative constancy of U.K. and U.S. growth.
Handle: RePEc:nbr:nberwo:5207
Template-Type: ReDIF-Paper 1.0
Title: Who Works When? Evidence from the U.S. and Germany
Classification-JEL: J22
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 5208
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5208
File-URL: http://www.nber.org/papers/w5208.pdf
File-Format: application/pdf
Publication-Status: published as Konjunkturpolitik, Vol.42, No.1, pp.1-22, (1996).
Abstract: This study uses data for the U.S. from the May 1991 CPS and for Germany from the 1990 wave of the Socioeconomic Panel (GSOEP) to analyze when people work during the day and week. The evidence shows: 1) Work in the evenings or at night is quite common in both countries, with around 7 percent of workers on the job even at 3AM; 2) Such work is performed mostly by people who are not shift workers; 3) Work at these times is inferior, in that it is performed disproportionately by people with little human capital; 4) Minority workers in the U.S. and the foreign-born in Germany are especially likely to work at these undesirable times; 5) Evening and night work is least likely in large metropolitan areas; 6) Spouses tend to work at the same time of the day; but 7) Young children break down the joint timing of spouses' work, with the burden of evening and night work falling disproportionately on working mothers. The findings demonstrate the gains to basing the analysis of work and leisure on data describing instantaneous time use.
Handle: RePEc:nbr:nberwo:5208
Template-Type: ReDIF-Paper 1.0
Title: Inflation Crises and Long-Run Growth
Classification-JEL: 011; 040
Author-Name: Michael Bruno
Author-Name: William Easterly
Author-Person: pea1
Note: IFM
Number: 5209
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5209
File-URL: http://www.nber.org/papers/w5209.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 41, no. 1 (February 1998): 3-26.
Abstract: Recent literature suggests that long-run averages of growth and inflation are only weakly correlated and such correlation is not robust to exclusion of extreme inflation observations; inclusion of time series panel data has improved matters, but an aggregate parametric approach remains inconclusive. We propose a nonparametric definition of high inflation crises as periods when inflation is above 40 percent annually. Excluding countries with high inflation crises, we find no evidence of any consistent relationship between growth and inflation at any frequency. However, we find that growth falls sharply during discrete high inflation crises, then recovers surprisingly strongly after inflation falls. The fall in growth during crisis and recovery of growth after crisis tend to average out to close to zero (even slightly above zero), hence the lack of a robust cross-section correlation. Our findings could be consistent either with trend stationarity of output, in which inflation crises are purely cyclical phenomena, or with models in which crises have a favorable long-run purgative effect. Our findings do not support the view that reduction of high inflation carries heavy short-to-medium run output costs.
Handle: RePEc:nbr:nberwo:5209
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition among Small and Large Banks
Classification-JEL: G2; L5
Author-Name: Nicholas Economides
Author-Person: pec1
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Darius Palia
Note: CF ME
Number: 5210
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5210
File-URL: http://www.nber.org/papers/w5210.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, vol. XXXIX, no. 2, pp. 667-704, October 1996.
Abstract: This paper suggests that the introduction of bank branching restrictions and federal deposit insurance in the United States likely was motivated by political considerations. Specifically, we argue that these restrictions were instituted for the benefit of the small, unit banks that were unable to compete effectively with large, multi- unit banks. We analyze this 'political hypothesis' in two steps. First, we use a model of monopolistic competition between small and large banks to examine gains to the former group from the introduction of branching restrictions and government-sponsored deposit insurance. We then find strong evidence for the political hypothesis by examining the voting record of Congress.
Handle: RePEc:nbr:nberwo:5210
Template-Type: ReDIF-Paper 1.0
Title: Growth Without Scale Effects
Author-Name: Alwyn Young
Note: EFG
Number: 5211
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5211
File-URL: http://www.nber.org/papers/w5211.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol.106 (Feb.1998), no.1, pp.41-63.
Abstract: An increase in the size (scale) of an economy increases the total quantity of rents that can be captured by successful innovators which, in equilibrium, should lead to a rise in innovative activity. Conventional wisdom and the theoretical predictions of models of endogenous innovation suggest that this increased research effort should lead to more rapid growth. As noted by Jones [1993], this prediction is at odds with the postwar experience of the OECD, where the growth of the market has indeed led to an increased R&D effort which, however, has been translated into stagnant or declining growth rates. Drawing upon the remarkable insights of the museum curator S.C. Gilfillan [1935], this paper modifies models of endogenous innovation to allow for the possibility that a rise in the profitability of innovative activity could lead to an increased variety of differentiated solutions to similar problems. An increased variety of technologies (e.g. an increase in the number and types of contraceptives) will increase the level of utility of the average consumer. If, however, continued improvement of this increased variety of technologies requires increased research input, a rise in the scale of the market could raise the equilibrium quantity of R&D, without increasing the economy's growth rate. Furthermore, increased product variety, brought about by increases in market size, might reduce the returns to improving product quality, paradoxically lowering an economy's growth rate while increasing the total resources devoted to R&D.
Handle: RePEc:nbr:nberwo:5211
Template-Type: ReDIF-Paper 1.0
Title: Does Monetary Policy Affect Real Economic Activity?: Why Do We Still Ask This Question?
Classification-JEL: E50
Author-Name: Benjamin M. Friedman
Note: ME
Number: 5212
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5212
File-URL: http://www.nber.org/papers/w5212.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy in an Integrated World Economy, Horst Siebert, ed., pp. 3- 30, (Tubingen: J.C.B. Mohr (Paul Siebeck), 1996).
Abstract: The predominant weight of the existing evidence suggests that the effects of monetary policy on real economic activity are systematic, significant, and sizeable. Yet questions remain, both about individual empirical results and, more broadly, about the different methodological approaches that researchers have used to investigate these effects. This paper addresses the conceptual issues that account for our continuing to ask whether monetary policy has real effects even though, at a certain level, we do 'know' the answer. The paper's overview of theory and evidence suggests that much of the explanation for the continuing tug-of- war between research findings and subsequent questions in this area lies in two sets of limitations, one reflecting how economics conceptualizes behavioral processes and one reflecting how economics draws inferences from observed data.
Handle: RePEc:nbr:nberwo:5212
Template-Type: ReDIF-Paper 1.0
Title: Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey
Classification-JEL: D81; D91
Author-Name: Robert B. Barsky
Author-Person: pba670
Author-Name: Miles S. Kimball
Author-Person: pki97
Author-Name: F. Thomas Juster
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: AP EFG ME
Number: 5213
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5213
File-URL: http://www.nber.org/papers/w5213.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 112 (May 1997): 537-579.
Abstract: Individuals' preferences underlying most economic behavior are likely to display substantial heterogeneity. This paper reports on direct measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These experimental measures are based on survey respondents' choices in hypothetical situations. The questions are constructed with as little departure from the theorist's concept of the underlying parameter as possible. The individual measures of preference parameters display substantial heterogeneity. The majority of respondents fall into the least risk-tolerant group, but a substantial minority display higher risk tolerance. The individual measures of intertemporal substitution and time preference also display substantial heterogeneity. The mean risk tolerance is 0.25; the mean elasticity of intertemporal substitution is 0.2. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Because the risk tolerance measure is obtained as part of the main questionnaire of a large survey, it can be related to a number of economic behaviors. Measured risk tolerance is positively related to a number of risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. Although measured risk tolerance explains only a small fraction of the variation of the studied behaviors, these estimates provide evidence about the validity and usefulness of the measures of preference parameters.
Handle: RePEc:nbr:nberwo:5213
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Expansions and Fiscal Adjustments in OECD Countries
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Roberto Perotti
Author-Person: ppe66
Note: ME
Number: 5214
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5214
File-URL: http://www.nber.org/papers/w5214.pdf
File-Format: application/pdf
Publication-Status: Published as "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects", IMF, Vol. 44, no. 2 (June 1997): 210-248.
Abstract: This paper considers budget expansions and adjustments in OECD countries in the last three decades. Our main results are: i) on average fiscal expansions are the results of increases in expenditures, particularly of transfer programs, while contractions are typically due to tax increases; ii) however successful (i.e. long lasting), a minority of the total rely primarily on reduction of government wages and employment and cuts in transfer programs; iii) even major successful fiscal adjustments do not seem to have recessionary consequences, on average; iv) different types of governments show different degrees of success at implementing successful fiscal adjustment, with coalition governments showing the worst performance.
Handle: RePEc:nbr:nberwo:5214
Template-Type: ReDIF-Paper 1.0
Title: Do National Borders Matter for Quebec's Trade?
Classification-JEL: F14; F15
Author-Name: John F. Helliwell
Author-Person: phe368
Note: IFM ITI
Number: 5215
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5215
File-URL: http://www.nber.org/papers/w5215.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, vol. 29, no. 3, pp. 507-522, 1996.
Abstract: Extending McCallum's (1995) result, based on a gravity model of 1988 trade flows, that a typical Canadian province trades 22 times more with other provinces than with U.S. states of similar size and distance, this paper asks how Quebec trade patterns compare with those of other provinces. The results, based on revised data for 1988, 1989 and 1990, show that while the typical province trades more than 20 times as much with other provinces as with comparable U.S. states, for Quebec the multiple is even greater. Thus trade between Quebec and the United States appears to be an even less viable alternative to interprovincial trade for Quebec than it is for the rest of Canada. The implications of these results for international economics are considerable, as they show that trade linkages within a national economy are far greater than previously imagined. If these results are confirmed, they imply that the fabric of national economies is far tighter than that of the global trading system, even for countries operating without substantial trade barriers.
Handle: RePEc:nbr:nberwo:5215
Template-Type: ReDIF-Paper 1.0
Title: Disease Complementarities and the Evaluation of Public Health Interventions
Classification-JEL: I0; I1
Author-Name: William H. Dow
Author-Person: pdo236
Author-Name: Jessica Holmes
Author-Name: Tomas Philipson
Author-Person: pph37
Author-Name: Xavier Sala-i-Martin
Author-Person: psa510
Note: EFG EH
Number: 5216
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5216
File-URL: http://www.nber.org/papers/w5216.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 89, no. 5 (December 1999): 1357-1372.
Abstract: This paper provides a theoretical and empirical investigation of the positive complementarities between disease-specific policies introduced by competing risks of mortality. The incentive to invest in prevention against one cause of death depends positively on the level of survival from other causes. This means that a specific public health intervention has benefits other than the direct medical reduction in mortality: it affects the incentives to fight other diseases so the overall reduction in mortality will, in general, be larger than that predicted by the direct medical effects. We discuss evidence of these cross-disease effects by using data on neo-natal tetanus vaccination through the Expanded Programme on Immunization of the World Health Organization.
Handle: RePEc:nbr:nberwo:5216
Template-Type: ReDIF-Paper 1.0
Title: An Adverse Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: CF EFG ME
Number: 5217
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5217
File-URL: http://www.nber.org/papers/w5217.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, Vol. 29, no. 3 (Autumn 1998), pp. 466-486.
Abstract: This paper develops a model of bank asset and liability management, based on the idea that information problems make it difficult for banks to raise funds with instruments other than insured deposits. The model can be used to address the question of how monetary policy works. One effect it captures is that when the Fed reduces reserves, this tightens banks' financing constraints and thereby leads to a cutback in bank lending -- this is the 'bank lending channel' in action. However, in addition to providing a specific set of microfoundations for the lending channel, the model also yields a novel account of how monetary policy affects bond-market interest rates.
Handle: RePEc:nbr:nberwo:5217
Template-Type: ReDIF-Paper 1.0
Title: High-Income Families and the Tax Changes of the 1980s: The Anatomy of Behavioral Response
Classification-JEL: H2
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 5218
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5218
File-URL: http://www.nber.org/papers/w5218.pdf
File-Format: application/pdf
Publication-Status: published as Empirical Foundations of Household Taxation, Martin Feldstein and James M. Poterba, eds., University of Chicago Press, 1996, pp. 169-189.
Publication-Status: published as High-Income Families and the Tax Changes of the 1980s: The Anatomy of Behavioral Response, Joel Slemrod. in Empirical Foundations of Household Taxation, Feldstein and Poterba. 1996
Abstract: The relative income gains of the affluent after the passage of the Tax Reform Act of 1986 (TRA86), which sharply lowered tax rates at high income levels, are overstated by comparing cross-sectional slices using concurrent income definitions, but they are large nevertheless. Although an index of the demand-side factors affecting inequality throughout the income distribution can explain much of the increased high-income concentration until 1985, it cannot adequately explain the post-TRA86 spurt. Thus, TRA86 is likely to have been a principal cause of the large increase in the reported personal income of the affluent. A close look at the sources of the post-1986 increases in the reported individual income of high-income households suggests that much of it represents shifting of income -- for example, from the corporate tax base to the individual tax base -- and not income creation such as additional labor supply. This distinction is critical because knowing how much the reported individual income of a particular group of people changes in response to a tax change is not a sufficient statistic for evaluating adequately its revenue consequences, incidence, and efficiency.
Handle: RePEc:nbr:nberwo:5218
Template-Type: ReDIF-Paper 1.0
Title: After the Deluge: Do Fixed Exchange Rates Allow Inter-Temporal Volatility Tradeoffs?
Classification-JEL: F31; F33
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 5219
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5219
File-URL: http://www.nber.org/papers/w5219.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance and Economics, 1995
Abstract: This paper addresses the issue of whether regimes of fixed exchange rates are a mechanism for shifting volatility inter- temporally. Using a panel of data covering twenty industrialized countries from 1959 through 1993, I examine the volatilities of a host of real and monetary variables. Graphical and statistical examination of the periods around 33 flotations and 81 devaluations reveals little evidence of significant increases in volatility following these events.
Handle: RePEc:nbr:nberwo:5219
Template-Type: ReDIF-Paper 1.0
Title: The Seamless World: A Spatial Model of International Specialization
Classification-JEL: F1; F12
Author-Name: Paul Krugman
Author-Person: pkr10
Author-Name: Anthony J. Venables
Author-Person: pve7
Note: ITI IFM
Number: 5220
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5220
File-URL: http://www.nber.org/papers/w5220.pdf
File-Format: application/pdf
Abstract: This paper is an effort to do international trade theory without mentioning countries. Nearly all models of the international economy assume that trade takes place between nations or regions which are themselves dimensionless points. We develop a model in which economic space is instead assumed to be continuous, and in which this 'seamless world' spontaneously organizes itself into industrial and agricultural zones because of the tension between forces of agglomeration and disagglomeration. One might expect such a model to be analytically intractable, but we are able to gain considerable insight through a combination of simulations and an analytical approach originally suggested in a biological context by Alan Turing.
Handle: RePEc:nbr:nberwo:5220
Template-Type: ReDIF-Paper 1.0
Title: Openness and Growth: A Time-Series, Cross-Country Analysis for Developing Countries
Classification-JEL: F43; O47
Author-Name: Ann Harrison
Author-Person: pha441
Note: ITI
Number: 5221
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5221
File-URL: http://www.nber.org/papers/w5221.pdf
File-Format: application/pdf
Publication-Status: published as Harrison, Ann. "Openness And Growth: A Time-Series, Cross-Country Analysis For Developing Countries," Journal of Development Economics, 1996, v48(2,Mar), 419-447.
Abstract: This paper draws together a variety of openness measures to test the association between openness and growth. Although the correlation across different types of openness is not always strong, there is generally a positive association between growth and different measures of openness. The strength of the association depends on whether the specification uses cross-section or panel data (which combines cross- section and time series). For industrializing countries, which have exhibited significant fluctuations in trade regimes over time, long run averages may not serve as very meaningful indicators of policy.
Handle: RePEc:nbr:nberwo:5221
Template-Type: ReDIF-Paper 1.0
Title: The Language Ability of U.S. Immigrants: Assimilation and Cohort Effects
Classification-JEL: J14; J24
Author-Name: Geoffrey Carliner
Author-Person: pca858
Note: LS
Number: 5222
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5222
File-URL: http://www.nber.org/papers/w5222.pdf
File-Format: application/pdf
Publication-Status: published as Carliner, Geoffrey. "The Language Ability of U.S. Immigrants: Assimilation and Cohort Effects." International Migration Review 34, 1 (Spring 2000): 158-182.
Abstract: This paper uses data from the 1980 and 1990 U.S. Census of Population to examine the English language skills of natives and immigrants. The first main finding is that lack of fluency in spoken English is rare among native- born Americans. In 1990, 98.4 % of natives aged 18 to 64 reported to the U.S. in large numbers during the past 30 years, such as Hispanics and East Asians a substantial fraction were not fluent when they entered grade school, but at most 3-5% of teenagers and adults in these groups reported speaking English poorly or not at all. Second the vast majority of immigrants speak English well. In 1990, only 1/4 of immigrants reported speaking English poorly or not at all, though more than 1/2 of Mexicans and 1/3 of immigrants from other non- English speaking western hemisphere countries could not speak proper English. Although English skills improve with length of residence, after 30 or more years in the U.S. over 1/4 of Mexican immigrants spoke English poorly or not at all. Third, since the 1950s there has been a trend decrease in the probability of fluency (speaking only English or speaking it very well) among new immigrants of about 0.1 % per year, caused by the shift from European immigrants with strong English skills to Latin American and East Asian immigrants who arrive speaking less English. Overall, women are slightly more likely to be fluent than men, especially East Asian and European women. Even after controlling for differences in education,years since arrival and other factors, large differences in English skills by region of origin remain. These differences seem to be more associated with geographic distance from the U.S. than with the source country's per capita income or linguistic distance from English.
Handle: RePEc:nbr:nberwo:5222
Template-Type: ReDIF-Paper 1.0
Title: Factors Affecting Labor Supply Decisions and Retirement Income
Classification-JEL: J14; J26
Author-Name: Robin L. Lumsdaine
Note: AG
Number: 5223
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5223
File-URL: http://www.nber.org/papers/w5223.pdf
File-Format: application/pdf
Publication-Status: published as in Assessing Knowledge of Retirement Behavior, E. Hanushek and N. Maritato(eds.), Washington, DC: National Acedemy Press, 1996 pp. 61-122.
Abstract: Recent policy has focused on alleviating poverty among the elderly, with varying degrees of success. Gains to some subsets of the elderly population have come at the expense of others. A component of the policy debate has been identifying factors which might influence labor force participation decisions and the effects such decisions will have on retirement income and its adequacy for a growing elderly population. While models of retirement behavior are becoming increasingly sophisticated, most fail to capture key elements such as expectations and uncertainty. This is in part due to the reduced form nature of policy experiments; parameters are estimated under a current policy and used to predict effects of an alternative scenario. Such an approach implicitly assumes that the only difference in the alternative setting is the change in policy and does not adequately account for endogeneity of decisions and responses to these changes. This paper reviews factors affecting the labor supply decision, their interactions with and implications for subsequent retirement income, and identifies important methods and data requirements necessary to model complicated dynamic behavior more accurately.
Handle: RePEc:nbr:nberwo:5223
Template-Type: ReDIF-Paper 1.0
Title: The Effect of New Jersey's Minimum Wage Increase on Fast-Food Employment: A Re-Evaluation Using Payroll Records
Classification-JEL: J23; J38
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 5224
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5224
File-URL: http://www.nber.org/papers/w5224.pdf
File-Format: application/pdf
Publication-Status: published as David Neumark, William Wascher. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment" American Economic Review, 2000, vol. 90, issue 5, pages 1362-1396
Abstract: We re-evaluate the evidence from Card and Krueger's (1994) New Jersey-Pennsylvania minimum wage experiment, using new data based on actual payroll records from 230 Burger King, KFC, Wendy's, and Roy Rogers restaurants in New Jersey and Pennsylvania. We compare results using these payroll data to those using CK's data, which were collected by telephone surveys. We have two findings to report. First, the data collected by CK appear to indicate greater employment variation over the eight-month period between their surveys than do the payroll data. For example, in the full sample the standard deviation of employment change in CK's data is three times as large as that in the payroll data. Second, estimates of the employment effect of the New Jersey minimum wage increase from the payroll data lead to the opposite conclusion from that reached by CK. For comparable sets of restaurants, differences-in-differences estimates using CK's data imply that the New Jersey minimum wage increase (of 18.8 percent) resulted in an employment increase of 17.6 percent relative to the Pennsylvania control group, an elasticity of 0.93. In contrast, estimates based on the payroll data suggest that the New Jersey minimum wage increase led to a 4.6 percent decrease in employment in New Jersey relative to the Pennsylvania control group. This decrease is statistically significant at the five-percent level and implies an elasticity of employment with respect to the minimum wage of -0.24.
Handle: RePEc:nbr:nberwo:5224
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Trade Policy Reform: What Do We Really Know?
Author-Name: Ann Harrison
Author-Person: pha441
Author-Name: Ana Revenga
Note: ITI
Number: 5225
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5225
File-URL: http://www.nber.org/papers/w5225.pdf
File-Format: application/pdf
Abstract: The magnitude of existing research on the effects of trade reform is impressive. Yet economists have not reached a clear consensus on a number of important questions such as the labor market impact of trade reform, the linkages between trade and foreign direct investment, and the relationship between trade and growth. In this paper we attempt to clarify what we know about the relationship between trade reform, factor markets, and growth. Although many studies have shown a positive relationship between various measures of openness and growth, many nagging problems remain. Trade policy is almost never measured using the most obvious indicators -- such as tariffs. In addition, many studies are plagued by serious econometric problems. The evidence on labor markets and trade reform is less extensive. Based on the studies to date, it appears that the unemployment and wage effects of trade reforms have generally been small. In the paper, we discuss the possibility that small wage and employment responses are due to labor market regulations. The paper concludes with an analysis of the linkages between trade policies and foreign investment flows. Our evidence suggests that trade reform has been accompanied by significant increases in investment inflows.
Handle: RePEc:nbr:nberwo:5225
Template-Type: ReDIF-Paper 1.0
Title: Measuring the Intensity of Competition in Export Markets
Classification-JEL: F14; L13
Author-Name: Pinelopi K. Goldberg
Author-Person: pgo1
Author-Name: Michael M. Knetter
Note: ITI
Number: 5226
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5226
File-URL: http://www.nber.org/papers/w5226.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics (February 1999): 27-60.
Abstract: This paper develops an approach to measuring the intensity of competition in international markets. The method measures the degree of 'outside' competition faced by exporters located in one source country from firms located outside the source country. We use the elasticity of price and quantity to exchange rate shocks, which shift the relative costs of producers from a particular source country, to calculate our measure of outside competition. The measures are estimated using panel data on exports of U.S. linerboard and German beer to a variety of destination markets. The destination-specific panel data allow comparisons of outside competition across destination markets.
Handle: RePEc:nbr:nberwo:5226
Template-Type: ReDIF-Paper 1.0
Title: Options, the Value of Capital, and Investment
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Avinash K. Dixit
Author-Person: pdi79
Author-Name: Janice C. Eberly
Author-Person: peb3
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: AP EFG IO PR
Number: 5227
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5227
File-URL: http://www.nber.org/papers/w5227.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol. 111, no. 3, pp. 753-777, August 1996.
Abstract: Capital investment decisions must recognize the limitations on the firm's ability later to sell off or expand capacity. This paper shows how opportunities for future expansion or contraction can be valued as options, how this valuation relates to the q-theory of investment, and how these options affect the incentive to invest. Generally, the option to expand reduces the incentive to invest, while the option to disinvest raises it. We show how these options interact to determine the effect of uncertainty on investment, how these option values change in response to shifts of the distribution of future profitability, and how the q-theory and option pricing approaches to investment are related.
Handle: RePEc:nbr:nberwo:5227
Template-Type: ReDIF-Paper 1.0
Title: Non-Employment and Health Insurance Coverage
Classification-JEL: H51; J64
Author-Name: Jonathan Gruber
Author-Person: pgr20
Author-Name: Brigitte C. Madrian
Author-Person: pma384
Note: EH LS PE
Number: 5228
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5228
File-URL: http://www.nber.org/papers/w5228.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Employment Separation and Health Insurance Coverage") Journal of Public Economics, Vol. 66 (1997): 349-382.
Abstract: Low rates of health insurance coverage among the non-employed have motivated consideration of policies to subsidize the purchase of insurance for those who are without a job. But there is little evidence on the extent to which coverage differentials between the employed and the non-employed reflect the effects of job loss or merely different underlying tastes for insurance. If the latter, subsidies may not be successful in increasing the rate of insurance coverage among the non-employed. Furthermore, subsidies which lower the costs of non-employment may increase both the incidence and duration of joblessness. We provide new evidence on these issues by analyzing longitudinal data on 25-54 year-old men over the 1983-1989 period. We have four findings of interest. First, even after modelling differences in underlying tastes for insurance, the likelihood of insurance coverage drops by roughly 20 percentage points following job separation. Second, limited subsidization of the cost of insurance through state laws mandating continued access to employer-provided health insurance for the non-employed increases the likelihood of having insurance while without a job by 6.7 percent. Third, these mandates also increase the number of individuals with spells of non-employment and the total amount of time spent jobless. Finally, at least some of this increased non-employment appears to be spent in productive job search as the availability of continuation coverage is related to significant wage gains among those who separate from their jobs.
Handle: RePEc:nbr:nberwo:5228
Template-Type: ReDIF-Paper 1.0
Title: External Financing and Insurance Cycles
Author-Name: Anne Gron
Author-Name: Deborah Lucas
Author-Person: plu94
Note: CF
Number: 5229
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5229
File-URL: http://www.nber.org/papers/w5229.pdf
File-Format: application/pdf
Publication-Status: published as Gron, Anne and Deborah Lucas. "External Financing and Insurance Cycles". The Economics of Property-Casualty Insurance. Edited by David F. Bradford, Chicago: The University of Chicago Press, 1998, pp. 5-27.
Publication-Status: published as External Financing and Insurance Cycles, Anne Gron, Deborah J. Lucas. in The Economics of Property-Casualty Insurance, Bradford. 1998
Abstract: In this paper we explore the conjecture that the periodic episodes of high prices and constrained supply in the property- casualty industry are the result of temporary capital shortages. We do this by looking for increases in activities aimed at increasing capital at these times: dividend cuts, repurchase cuts, equity issues, and debt issues. We also look for evidence that the costs of raising external capital are unusually high relative to other industries by examining the market price response to security issues. We find that there is some evidence of payout policy changes in the expected direction, and also of an increased volume of debt and equity issues following low capacity periods. However, the total amount of capital obtained by security issues or reduced payouts appears to be small relative to the observed drops in net worth, suggesting that insurers rely primarily on future retained earnings to rebuild their capital position. When property-casualty insurers do go to the capital markets, we find no evidence that they receive an unusually poor reception. In fact, the market price reaction to equity issues appears to be considerably less negative than for industrial issuers but similar to that for banks and utilities.
Handle: RePEc:nbr:nberwo:5229
Template-Type: ReDIF-Paper 1.0
Title: A Reanalysis of The Bell Curve
Classification-JEL: I3; J1
Author-Name: Sanders Korenman
Author-Name: Christopher Winship
Note: LS
Number: 5230
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5230
File-URL: http://www.nber.org/papers/w5230.pdf
File-Format: application/pdf
Publication-Status: published as Arrow, Kenneth, Samuel Bowles, and Steven Durlauf (eds.) Meritocracy and economic inequality. Princeton, NJ: Princeton University Press, 2000.
Abstract: In The Bell Curve Herrnstein and Murray argue that a youth's intelligence (IQ) is a more important determinant of social and economic success in adulthood than is the socioeconomic status (SES) of his or her parents. Herrnstein and Murray base this conclusion on comparison of effects of IQ score (measured at ages 15 and 23) and the effects of an index of parents' SES from models of economic status, marriage, welfare use, involvement in crime, as well as several outcomes for young children. Reviewers of The Bell Curve have questioned whether Herrnstein and Murray's estimates of the effects of IQ are overstated by their use of a rather crude measure of parents' SES. Comparisons of siblings in the Herrnstein and Murray sample, a more complete and accurate way to control for family background, reveal little evidence that Herrnstein and Murray's estimates of the effects of IQ score are biased by omitted family background characteristics (with the possible exception of outcomes for young children). However, there is evidence of substantial bias due to measurement error in their estimates of the effects of parents' socioeconomic status. In addition, Herrnstein and Murray's measure of parental SES fails to capture the effects of important elements of family background (such as single-parent family structure at age 14). As a result, their analysis gives an exaggerated impression of the importance of IQ relative to parents' SES, and relative to family background more generally. Estimates based on a variety of methods, including analyses of siblings, suggest that parental family background is at least as important, and may be more important than IQ in determining socioeconomic success in adulthood.
Handle: RePEc:nbr:nberwo:5230
Template-Type: ReDIF-Paper 1.0
Title: Beyond the Incidence of Training: Evidence from a National Employers Survey
Classification-JEL: J24
Author-Name: Lisa M. Lynch
Author-Person: ply3
Author-Name: Sandra E. Black
Author-Person: pbl92
Note: LS
Number: 5231
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5231
File-URL: http://www.nber.org/papers/w5231.pdf
File-Format: application/pdf
Publication-Status: published as "Beyond the incidence of employer-provided training," Industrial and Labor Relations Review, Vol. 52, no.1 (Oct. 1998), pp. 64-81.
Publication-Status: published as Sandra Black and Lisa Lynch "Human-Capital Investments and Productivity" American Economic Review, 1996, vol. 86, issue 2, pages 263-67
Abstract: This paper seeks to provide new insight into how school and post school training investments are linked to employer workplace practices and outcomes using a unique nationally representative survey of establishments in the U.S., the Educational Quality of the Workforce National Employers Survey (EQW-NES). We go beyond simply measuring the incidence of formal or informal training to examine the determinants of the types employers invest in, the relationship between formal school and employer provided training, who is receiving training, the links between investments in physical and human capital, and the impact that human capital investments have on the productivity of establishments. We find that the smallest employers are much less likely to provide formal training programs than employers from larger establishments. Regardless of size, those employers who have adapted some of the practices associated with what have been called `high performance work systems' are more likely to have formal training programs. Employers who have made large investments in physical capital or who have hired workers with higher average education are also more likely to invest in formal training and to train a higher proportion of their workers, especially in the manufacturing sector. There are significant and positive effects on establishment productivity associated with investments in human capital. Those employers who hire better educated workers have appreciably higher productivity. The impact of employer provided training differs according to the nature, timing and location of the employer investments.
Handle: RePEc:nbr:nberwo:5231
Template-Type: ReDIF-Paper 1.0
Title: Tax Reforms and Investment: A Cross-Country Comparison
Classification-JEL: H3; E2
Author-Name: Jason G. Cummins
Author-Person: pcu10
Author-Name: Kevin A. Hassett
Author-Person: pha378
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: CF PE
Number: 5232
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5232
File-URL: http://www.nber.org/papers/w5232.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, vol. 62, no. 1-2, pp. 237-273, (1996).
Abstract: We use firm-level panel data to explore the extent to which fixed investment responds to tax reforms in 14 OECD countries. Previous studies have often found that investment does not respond to changes in the marginal cost of investment. We identify some of the factors responsible for this finding and employ an estimation procedure that sidesteps the most important of them. In so doing, we find evidence of statistically and economically significant investment responses to tax changes in 12 of the 14 countries.
Handle: RePEc:nbr:nberwo:5232
Template-Type: ReDIF-Paper 1.0
Title: Stock Market Efficiency and Economic Efficiency: Is There a Connection?
Classification-JEL: G14; G30
Author-Name: James Dow
Author-Person: pdo106
Author-Name: Gary Gorton
Author-Person: pgo458
Note: CF
Number: 5233
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5233
File-URL: http://www.nber.org/papers/w5233.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 52, no. 3 (July 1997): 1087-1129.
Abstract: In a capitalist economy prices serve to equilibrate supply and demand for goods and services, continually changing to reallocate resources to their most efficient uses. However, secondary stock market prices, often viewed as the most 'informationally efficient' prices in the economy, have no direct role in the allocation of equity capital since managers have discretion in determining the level of investment. What is the link between stock price informational efficiency and economic efficiency? We present a model of the stock market in which: (i) managers have discretion in making investments and must be given the right incentives; and (ii) stock market traders may have important information that managers do not have about the value of prospective investment opportunities. In equilibrium, information in stock prices will guide investment decisions because managers will be compensated based on informative stock prices in the future. The stock market indirectly guides investment by transferring two kinds of information: information about investment opportunities and information about managers' past decisions. The fact that stock prices only have an indirect role suggests that the stock market may not be a necessary institution for the efficient allocation of equity. We emphasize this by providing an example of a banking system that performs as well.
Handle: RePEc:nbr:nberwo:5233
Template-Type: ReDIF-Paper 1.0
Title: Risk Taking by Mutual Funds as a Response to Incentives
Author-Name: Judith A. Chevalier
Author-Person: pch151
Author-Name: Glenn D. Ellison
Author-Person: pel10
Note: CF IO
Number: 5234
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5234
File-URL: http://www.nber.org/papers/w5234.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 105, no.6 (1997): 1167-1200.
Abstract: This paper examines the agency conflict between mutual fund investors and mutual fund companies. Investors would like the fund company to use its judgement to maximize risk-adjusted fund returns. A fund company, however, in its desire to maximize its value as a concern has an incentive to take actions which increase the inflow of investment. We use a semiparametric model to estimate the shape of the flow-performance relationship for a sample of growth and growth and income funds observed over the 1982-1992 period. The shape of the flow-performance relationship creates incentives for fund managers to increase or decrease the riskiness of the fund which are dependent on the fund's year-to-date return. Using a new dataset of mutual fund portfolios which includes equity portfolio holdings for September and December of the same year, we show that mutual funds do alter their portfolio riskiness between September and December in a manner consistent with these risk incentives.
Handle: RePEc:nbr:nberwo:5234
Template-Type: ReDIF-Paper 1.0
Title: Voluntary Export Restraints on Automobiles: Evaluating a Strategic TradePolicy
Author-Name: Steven Berry
Author-Person: pbe18
Author-Name: James Levinsohn
Author-Person: ple386
Author-Name: Ariel Pakes
Author-Person: ppa20
Note: IO ITI PR
Number: 5235
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5235
File-URL: http://www.nber.org/papers/w5235.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol.89, no. 3 (1999): 400-430.
Abstract: In May, 1981, a voluntary export restraint (VER) was placed on exports of automobiles from Japan to the United States. As trade policies go, this one was important. At about the same time, though to much less fanfare, international trade theorists were obtaining (then) startling results from models of international trade in imperfectly competitive markets. These models suggested that in imperfectly competitive markets, an activist trade policy might enhance national welfare. In this paper, we provide some empirical evidence on whether these new theoretical possibilities might actually apply to the policy of VERs.
Handle: RePEc:nbr:nberwo:5235
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Rising Female Labor Supply on Male Wages
Classification-JEL: J31; J23
Author-Name: Chinhui Juhn
Author-Person: pju42
Author-Name: Dae Il Kim
Note: LS
Number: 5236
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5236
File-URL: http://www.nber.org/papers/w5236.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 17 (January 1999).
Abstract: This paper examines the extent to which rapid increases in female labor supply contributed to rising wage inequality and to declining real wages of less skilled males during the 1980s. We find that while the male wage declines are concentrated in the 1980s, female labor supply growth slowed in the 1980s relative to the 1970s. Women also increased the relative supply of skill in the economy in the 1980s. We find these findings to be inconsistent with a simple story in which supply shifts among women have played a major role. Instead, they further support the view that demand shifts, rather than supply shifts, have been the underlying cause of declining opportunities for less skilled males and rapid inequality growth in the 1980s. We also use state and SMSA-level data to estimate cross- substitution effects between men and women of different skill types. We find weak evidence that women may be substitutes for high school dropout men and that college educated women may have contributed to wage inequality growth by being better substitutes for high school dropout men than high school graduate men. We end with some suggestive evidence that unmeasured demand shifts which favored skilled female workers over less skilled male workers may be biasing our results towards finding substitution between these two groups.
Handle: RePEc:nbr:nberwo:5236
Template-Type: ReDIF-Paper 1.0
Title: Industrial Policy, Employer Size, and Economic Performance in Sweden
Classification-JEL: L52; J21
Author-Name: Steven J. Davis
Author-Person: pda15
Author-Name: Magnus Henrekson
Author-Person: phe60
Note: LS
Number: 5237
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5237
File-URL: http://www.nber.org/papers/w5237.pdf
File-Format: application/pdf
Publication-Status: published as Industrial Policy, Employer Size, and Economic Performance in Sweden, Steven J. Davis, Magnus Henrekson. in The Welfare State in Transition: Reforming the Swedish Model, Freeman, Topel, and Swedenborg. 1997
Abstract: The pre-1990 Swedish tax system strongly disfavored younger, smaller and less capital-intensive firms and sectors and discouraged entrepreneurship and family ownership of businesses in favor of institutional ownership. Credit market regulations, the national pension system, employment security laws and centralized wage setting in Sweden reinforced the distortionary impact of the tax system. We describe the relevant Swedish policies and institutional arrangements, and we explain why the attendant distortions are likely to have hampered the efficient allocation of resources, reduced productivity, and retarded economic growth and recovery. We also develop evidence on the consequences of these distortions for the size structure and industrial distribution of employment. Taking the U.S. industrial distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden's employment distribution is sharply tilted away from lower wage industries, less capital-intensive industries, and industries characterized by greater employment shares for smaller firms and establishments. Compared to other OECD economies, Sweden has the lowest rate of self employment, a dominant role for larger firms, and highly concentrated ownership and control of private-sector economic activity.
Handle: RePEc:nbr:nberwo:5237
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Illicit Drugs
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Frank Chaloupka
Author-Person: pch236
Note: EH
Number: 5238
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5238
File-URL: http://www.nber.org/papers/w5238.pdf
File-Format: application/pdf
Publication-Status: published as Economic Inquiry, Vol. 37, no. 3 (July 1999): pp. 401-411.
Abstract: The purpose of this paper is to estimate the effects of heroin prices, cocaine prices and marijuana decriminalization on the demand for these three drugs, respectively. There are few prior empirical studies in this area because data have been difficult to acquire. This paper makes use of newly available data on drug prices and is the first to link these data to a sample of 49,802 individuals from the National Household Survey of Drug Abuse. The new drug price data comes from the Drug Enforcement Agency. The results provide empirical evidence that drug use is more price responsive than has been previously thought. The results show that the participation price elasticity for heroin is about -.90 to -.80 and that the participation price elasticity for cocaine is about - .55 to -.36. Marijuana decriminalization was also found to increase the probability of marijuana participation by about 4 to 6 percent. The price elasticity for heroin is estimated at about -1.80 to -1.60 and for cocaine at about -1.10 to -.72. It is estimated that legalization would lead to about a 100 percent increase in the quantity of heroin consumed and about a 50 percent increase in the quantity of cocaine consumed.
Handle: RePEc:nbr:nberwo:5238
Template-Type: ReDIF-Paper 1.0
Title: Can Capital Controls Alter the Inflation-Unemployment Tradeoff?
Classification-JEL: F2
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Chi-Wa Yuen
Note: IFM
Number: 5239
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5239
File-URL: http://www.nber.org/papers/w5239.pdf
File-Format: application/pdf
Abstract: It is well-known that, in the Mundell-Fleming model, capital mobility creates a channel through which permanent (transitory) shocks to aggregate demand such as fiscal and trade shocks are completely (partially) neutralized by the response of the real exchange rate. An important policy implication of the model which went largely unnoticed is how the transmission of these shocks under different degrees of capital mobility may alter the inflation-unemployment tradeoff, i.e., the Phillips Curve. In the context of the stochastic Mundell-Fleming model, we show that capital controls reduce the output/employment variations at the expense of bigger variations in inflation rates. When the policy maker puts heavier weight on stable employment than on stable inflation, therefore, his/her objective can be attained more easily under capital controls.
Handle: RePEc:nbr:nberwo:5239
Template-Type: ReDIF-Paper 1.0
Title: Race, Children's Cognitive Achievement and The Bell Curve
Classification-JEL: I20; I30
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Duncan Thomas
Author-Person: pth20
Note: LS
Number: 5240
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5240
File-URL: http://www.nber.org/papers/w5240.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "The Inter-generational Transmission of "Intelligence": Downthe Slippery Slopes of The Bell Curve") Industrial Relations, Vol. 38, no. 3 (July 1999): 297-330.
Abstract: In The Bell Curve, Herrnstein and Murray demonstrate that a mother's score on the Armed Forces Qualification Test is a powerful predictor of her child's score on a cognitive achievement test. We replicate this finding. However, even after controlling for maternal scores, there are significant gaps in the scores of black and white children which suggests that maternal scores are not all that matter. In fact, both maternal education and income are important determinants of child test scores, conditional on maternal AFQT. We argue that racial gaps in test scores matter because even within families, children with higher scores are less likely to repeat grades. However, conditional on both child test scores and maternal AFQT, maternal education and income also affect a child's probability of grade repetition. We conclude that, even if one accepts test scores as valid measures of 'nature', both nature and nurture matter. Finally, we show that the effects on child test scores of maternal test scores, education, and income differ dramatically depending on the nature of the test, the age of the child, and race. The results suggest that understanding the relationships between different aspects of maternal achievement and child outcomes may help us unravel the complex process through which poverty is transmitted across generations.
Handle: RePEc:nbr:nberwo:5240
Template-Type: ReDIF-Paper 1.0
Title: Capital Markets Integration, Volatility and Persistence
Classification-JEL: F12; F21
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI
Number: 5241
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5241
File-URL: http://www.nber.org/papers/w5241.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Macroeconomics, Vol. 19 (1997): 217-236.
Abstract: This paper shows that volatility induces adverse first order welfare effects in countries excluded from the global capital market. This result is illustrated in a model characterized by gains from a greater division of activities, where shocks are persistent. We show that non-linearities attributed to financial autarky explain the adverse welfare effects of volatility. We identify the parameters determining the magnitude of the loss -- it is proportional to the autocorrelation of shocks, to volatility (as measured by the standard deviation of shocks), and to the degree of product differentiation (as measured by the substitutability among intermediate products).
Handle: RePEc:nbr:nberwo:5241
Template-Type: ReDIF-Paper 1.0
Title: Trade, Spatial Separation, and the Environment
Classification-JEL: F10; Q20
Author-Name: Brian R. Copeland
Author-Person: pco51
Author-Name: M. Scott Taylor
Author-Person: pta60
Note: ITI EEE
Number: 5242
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5242
File-URL: http://www.nber.org/papers/w5242.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 47 (February 1999): 137-168.
Abstract: We develop a simple two-sector dynamic model to examine the effects of international trade in the presence of pollution-created cross- sectoral production externalities. We assume that the production of 'Smokestack' manufactures generates pollution, which lowers the productivity of an environmentally sensitive sector ('Farming'). As a result, the long run production set is non-convex. Pollution provides a motive for trade, since trade can spatially separate incompatible industries. Two identical, unregulated countries will gain from trade if the share of world income spent on Smokestack is high. In contrast, when the share of world income spent on the dirty good is low, trade can usher in a negatively reinforcing process of environmental degradation and real income loss for the exporter of Smokestack.
Handle: RePEc:nbr:nberwo:5242
Template-Type: ReDIF-Paper 1.0
Title: Present at the Revolution: Transformation of Technical Identity for a Large Incumbent Pharmaceutical Firm After the Biotechnological Breakthrough
Classification-JEL: 031
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Note: PR
Number: 5243
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5243
File-URL: http://www.nber.org/papers/w5243.pdf
File-Format: application/pdf
Publication-Status: published as Research Policy 26 (1997) 429-446
Abstract: This paper is a case study of the transformation in research methods which occurred in a large U.S. pharmaceutical firm as a result of the biotech revolution. This transformation is inconsistent with the hypothesis that technological revolutions make existing firms obsolete and consistent with our wealth-maximization hypothesis that valuable assets (like delivery know-how) will not be wasted if technological change in part of the organization is necessary to remain competitiveness. While the transformation was achieved through a various methods, the primary route was hiring new personnel who had the new technology and incorporating them into the existing structure. While the technological transformation has been profound, biotechnology applications in this large incumbent firm are more likely to be combined with other techno- logies than in the new biotechnology firms (NBFs) which use biotechnology for both discovery and production of new therapeutic entities. This difference in emphasis may result in value-enhancing synergies because of the related knowledge which makes for more effective applications of the new technologies, but it could retard full adoption of biotechnology. It appears that this firm was somewhat slower than the dedicated biotech firms to adopt the new techno- ogy, but once the decision was made to transform the technological identity of the firm massive resources were provided to recruit the human capital required to make it happen. The incumbent firms were slow to adopt biotechnology, but made great strides in the 1980s in increasing their share of all commercial ties to the star scientists as well as their share of patents.
Handle: RePEc:nbr:nberwo:5243
Template-Type: ReDIF-Paper 1.0
Title: Bank Capital Regulation in General Equilibrium
Classification-JEL: G21
Author-Name: Gary Gorton
Author-Person: pgo458
Author-Name: Andrew Winton
Note: CF
Number: 5244
Creation-Date: 1995-08
Order-URL: http://www.nber.org/papers/w5244
File-URL: http://www.nber.org/papers/w5244.pdf
File-Format: application/pdf
Abstract: We study whether the socially optimal level of stability of the banking system can be implemented with regulatory capital requirements in a multi-period general equilibrium model of banking. We show that: (i) bank capital is costly because of the unique liquidity services provided by demand deposits, so a bank regulator may optimally choose to have a risky banking system; (ii) even if the regulator prefers more capital in the system, the regulator is constrained by the private cost of bank capital, which determines whether bank shareholders will agree to meet capital requirements rather than exit the industry.
Handle: RePEc:nbr:nberwo:5244
Template-Type: ReDIF-Paper 1.0
Title: The Causes and Consequences of Rate Regulation in the Auto Insurance Industry
Classification-JEL: G22; G28
Author-Name: Dwight Jaffee
Author-Name: Thomas Russell
Author-Person: pru44
Number: 5245
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5245
File-URL: http://www.nber.org/papers/w5245.pdf
File-Format: application/pdf
Publication-Status: published as Jaffe, Dwight and Thomas Russell. "The Causes and Consequences of Rate Regualtion in the Auto Insurance Industry". The Economics of Property-Casualty Insurance. Edited by David F. Bradford, Chicago: The University of Chicago Press, 1998, pp.81-112.
Publication-Status: published as The Causes and Consequences of Rate Regulation in the Auto Insurance Industry, Dwight Jaffee, Thomas Russell. in The Economics of Property-Casualty Insurance, Bradford. 1998
Abstract: This paper examines various explanations for the increase in the degree of regulation of the auto industry in the last ten years. Using cross section data for the State of California, the paper confirms earlier findings for the State of Massachusetts that the demand for auto insurance is highly price elastic. This implies that regulation induced price rollbacks (such as those mandated by California's popular initiative Proposition 103) have significant welfare effects. We explain the increase in regulation in two ways: a) As an attempt to lower rates to deal with the problem of the uninsured motorist. b) More fundamentally as a response to the perceived lack of fairness of the sharp increase in premiums in the 1980s. This perception of lack of fairness arises because, although auto insurance costs rose sharply in the 1980s, most buyers of auto insurance have no claims in any ten year period. Thus most buyers have only last year's premium as a reference point with which to judge the fairness of this year's premium. The hypothesis that the increase in regulation is driven by a perception of unfairness is tested by analyzing the cross county voting pattern on Proposition 103. Voting in favor of price regulation is positively correlated with the level of insurance premium. This result is consistent both with the view that voting behavior is based on self interest and with the view that the increased demand for regulation is driven by concerns that the large disparity in premiums across counties is unfair.
Handle: RePEc:nbr:nberwo:5245
Template-Type: ReDIF-Paper 1.0
Title: Organizational Form and Insurance Company Performance: Stocks versus Mutuals
Author-Name: Patricia Born
Author-Name: William M. Gentry
Author-Name: W. Kip Viscusi
Author-Person: pvi69
Author-Name: Richard J. Zeckhauser
Author-Person: pze7
Note: CF IO
Number: 5246
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5246
File-URL: http://www.nber.org/papers/w5246.pdf
File-Format: application/pdf
Publication-Status: published as Born, Patricia; William M. Gentry, W. Kip Viscusi, Richard J. Zeckhauser."Organizational Form and Insurance Company Performance: Stocks versus Mutuals". The Economics of Property-Casualty Insurance. Edited by David F. Bradford, Chicago: The University of Chicago Press, 1998,pp. 167-192
Publication-Status: published as Organizational Form and Insurance Company Performance: Stocks versus Mutuals, Patricia Born, William M. Gentry, W. Kip Viscusi, Richard J. Zeckhauser. in The Economics of Property-Casualty Insurance, Bradford. 1998
Abstract: One unusual feature of the U.S. property-casualty insurance industry is the coexistence of stock and mutual companies. This paper explores the performance of these forms in the industry through a dynamic assessment of how mutual and stock insurance companies respond to differences in their underwriting environment. Agency theories suggest that the stock company may be more 'opportunistic' and less obligated to their insureds than mutuals. This article assesses the responses by stock and mutual firms to changes in the underwriting environment from 1984 to 1991, using measures of individual firms' performance, by state and by line, in eight different lines of insurance. Stock companies are more likely than mutuals to reduce their business in unprofitable situations, and have higher losses than mutuals for a given amount of premiums.
Handle: RePEc:nbr:nberwo:5246
Template-Type: ReDIF-Paper 1.0
Title: Pricing Decisions in Franchised Chains: A Look at the Restaurant and Fast-Food Industry
Classification-JEL: L22; L42
Author-Name: Francine Lafontaine
Author-Person: pla92
Note: IO
Number: 5247
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5247
File-URL: http://www.nber.org/papers/w5247.pdf
File-Format: application/pdf
Abstract: This paper examines empirical issues of pricing and price dispersion within franchised restaurant and fast-food chains. Given the per se illegality of resale price maintenance (RPM) under current U.S. Antitrust laws, and the fact that franchised outlets are independent businesses under the law, franchisors must delegate the power to set prices to franchisees whereas corporate chains can control downstream prices directly. The issue I examine is whether it matters empirically who, between the franchisor or the franchisee, gets to choose downstream prices, and why. After discussing a number of reasons why prices chosen by franchisees may differ from those that a franchisor would pick, I show, using data from all restaurant chains in the metropolitan Pittsburgh and Detroit areas, that there is price dispersion in fast-food franchising. I then show that the amount of price dispersion relates to the amount of franchising in a way that suggests that 1) franchisors are not able to control franchisees' prices indirectly to the same extent that they control company-owned unit prices and 2) the prices in franchised and corporate units are systematically different. Finally, I show that prices are systematically lower in corporate restaurants. This suggests that the reason behind the price differentials is not franchisor opportunism, but more likely double marginalization or, potentially, the existence of positive horizontal externalities among restaurants in a chain.
Handle: RePEc:nbr:nberwo:5247
Template-Type: ReDIF-Paper 1.0
Title: Economic Issues in Vaccine Purchase Arrangements
Classification-JEL: I1
Author-Name: David S. Salkever
Author-Person: psa1313
Author-Name: Richard G. Frank
Note: EH
Number: 5248
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5248
File-URL: http://www.nber.org/papers/w5248.pdf
File-Format: application/pdf
Publication-Status: published as in Supplying Vaccine: An Economic Analysis of Critical Issues, Pauly,m. (ed .) IOS Press 1996.
Abstract: Federal purchases of major childhood vaccines account for roughly half of the total market for these vaccines. This paper examines Federal purchasing practices in the context of the recent literature on bidding and procurement, and compares these practices to UNICEF vaccine procurement arrangements. Federal contracts were awarded to a single winner and the firms eligible to bid were limited in number (since the number of U.S. licensed firms is small). Since production capacity cannot be expanded quickly, and the Federal share of purchases is large, it is hypothesized that firms' bid prices will be higher for larger contracts. The paper analyzes contracts over the period 1977 through 1992 to determine the contract size-price relationship, as well as effects on contract prices of 1) the National Vaccine Injury Compensation Program enacted in 1987 and 2) changes in numbers of firms in the market. Results provide equivocal support for a positive size-price relationship and evidence of a positive price effect of the injury compensation program.
Handle: RePEc:nbr:nberwo:5248
Template-Type: ReDIF-Paper 1.0
Title: Culture and Language
Classification-JEL: D3; J00
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 5249
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5249
File-URL: http://www.nber.org/papers/w5249.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 107, no. 6, part 2 (December 1999): S95-S126.
Abstract: Common culture and common language facilitate trade between people. Minorities have incentives to become assimilated and to learn the majority language so that they have a larger pool of potential trading partners. The value of assimilation is larger to someone from a small minority than to one from a large minority group. When a society has a very large majority of individuals from one culture, individuals from minority groups will be assimilated more quickly. Assimilation is less likely when an immigrant's native culture and language is broadly represented in his new country. Also, when governments protect minority interests directly, incentives to be assimilated into the majority culture are reduced. Both factors may explain the recent rise in multiculturalism. Individuals do not properly internalize the social value of assimilation and ignore the benefits others receive when they learn the majority language and become assimilated. In a pluralistic society, a government policy that encourages diverse cultural immigration over concentrated immigration is likely to increase the welfare of the population. In the absence of strong offsetting effects, policies which encourage multi- culturalism reduce the amount of trade and have adverse welfare consequences. Conversely, policies that subsidize assimilation and the acquisition of majority language skills can be socially beneficial. The theory is tested and confirmed by examining U.S. Census data, which reveals that the likelihood that an immigrant will learn English is inversely related to the proportion of the local population that speaks his or her native language.
Handle: RePEc:nbr:nberwo:5249
Template-Type: ReDIF-Paper 1.0
Title: Factors Determining Participation of the Elderly in SSI
Classification-JEL: I3
Author-Name: Kathleen McGarry
Author-Person: pmc264
Note: AG
Number: 5250
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5250
File-URL: http://www.nber.org/papers/w5250.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, 1996, vol. 31.
Abstract: The same low participation rates which plague many welfare programs have been observed among the elderly eligible for Supplemental Security Income (SSI). A number of hypotheses have been offered to explain the low enrollment, but none has attracted universal acceptance. In this paper I use the Survey of Income and Program Participation (SIPP) to examine the participation of the elderly in SSI. Because of the high quality of the data, I am able to determine eligibility more accurately than in most previous studies. In this sample, only 56 percent of those whom I determine to be eligible for SSI are presently receiving benefits. I model the decision to participate as a probit equation, but modify the likelihood function to account for measurement error in the expected benefit. The results indicate that participation is primarily determined by the financial situation of the eligible individuals. Although all those eligible for SSI are poor, those with little in the way of other resources are significantly more likely to participate. This finding differs from widespread beliefs that eligible individuals are discouraged by the difficulty of the application process, or that many are uninformed about the program.
Handle: RePEc:nbr:nberwo:5250
Template-Type: ReDIF-Paper 1.0
Title: Optimal Inflation Targets, `Conservative' Central Banks, and Linear Inflation Contracts
Classification-JEL: I20; I30
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: IFM ME
Number: 5251
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5251
File-URL: http://www.nber.org/papers/w5251.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review 87, pp. 98-114 (1997)
Abstract: Inflation target regimes (like those of New Zealand, Canada, U.K., Sweden and Finland) are interpreted as having explicit inflation targets and implicit output/unemployment targets. Without output-unemployment persistence delegation of monetary policy to a discretionary instrument-independent central bank with an optimal inflation target can eliminate the discretionary inflation bias, mimic the optimal linear inflation contract suggested by Walsh and extended by Persson and Tabellini, and achieve the equilibrium corresponding to an optimal rule with commitment. Thus an `inflation target- conservative' central bank with an inflation target equal to the socially best inflation rate less any inflation bias dominates a Rogoff weight-conservative central bank with increased weight on inflation stabilizatiojn, which suboptimally increases output/unemployment variability. With output/ unemployment persistence, a constant inflation target is equivalent to a constant linear inflation contract. They can both eliminate the average inflation bias but not the state-contingent part of the inflation bias. Inflation variability is too high, and output variability too low, compared to the equilibrium corresponding to an optimal rule. An optimal state- contingent inflation target can remove all inflation bias, but in contrast to an optimal state-contingent linear inflation contract it still leaves inflation variability too high. Delegation with an optimal state-contingent inflation target to a Rogoff `weight-conservative' central bank can then achieve the equilibrium corresponding to an optimal rule. Inflation targets may on average be exceeded, and they may have imperfect credibility, but they may usefully reduce inflation, and they appear much easier to implement.
Handle: RePEc:nbr:nberwo:5251
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Insurance and Precautionary Saving
Classification-JEL: J65; H53
Author-Name: Eric M. Engen
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: LS PE
Number: 5252
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5252
File-URL: http://www.nber.org/papers/w5252.pdf
File-Format: application/pdf
Publication-Status: published as Engen, Eric M. and Jonathan Gruber. "Unemployment Insurance And Precautionary Saving," Journal of Monetary Economics, 2001, v47(3,Jun), 545-579.
Abstract: We consider both theoretically and empirically the effect of unemployment insurance (UI) on precautionary savings behavior. Simulations of a stochastic life cycle model suggest that increasing the generosity of UI will substantially lower the asset holdings of the median worker, and that this effect will both rise with unemployment risk and fall with worker age. We test these implications by matching data on potential UI replacement rates to asset holdings in the Survey of Income and Program Participation (SIPP). Our empirical results are quite consistent with the predictions of the model. We find that raising the replacement rate for UI by 10 percentage points lowers financial asset holdings by 1.4 to 5.6%, so that UI crowds out up to one-half of private savings for the typical unemployment spell. We also find that this effect is stronger for those facing higher unemployment risk and weaker for older workers.
Handle: RePEc:nbr:nberwo:5252
Template-Type: ReDIF-Paper 1.0
Title: Multinational Corporations, Outsourcing, and American Wage Divergence
Classification-JEL: F21; J31
Author-Name: Matthew J. Slaughter
Note: ITI LS
Number: 5253
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5253
File-URL: http://www.nber.org/papers/w5253.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Production Transfer Within Multinational Enterprises and American Wages") Journal of International Economics (April 2000): 449-472.
Abstract: Many economists studying America's wage divergence in the 1980's have concluded that its primary cause was a within-industry shift in relative labor demand toward the more-skilled. Following the modeling framework and empirical methods developed in Slaughter (1993), in this paper I try to determine the extent to which outsourcing by multinational corporations contributed to this labor-demand shift. To do this, I use data from the Bureau of Economic Analysis (BEA) on U.S. manufacturing multinationals in the 1980's. My main finding is that the data are inconsistent with U.S. multinationals having outsourced heavily in the 1980's. First, I construct a set of stylized facts about the employment, investment, and production patterns of these firms. I find that most of these facts are inconsistent with widespread outsourcing. Second, to test more rigorously whether these firms substitute between U.S. and foreign production labor I estimate their factor-price elasticities of demand in a translog-cost-function specification. I find that home and foreign production labor at best seem to be weak price substitutes and in fact may be price complements. Taken together, these findings indicate that multinational outsourcing contributed very little to rising wage inequality.
Handle: RePEc:nbr:nberwo:5253
Template-Type: ReDIF-Paper 1.0
Title: Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management
Classification-JEL: J31
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Ryan Schneider
Note: EFG
Number: 5254
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5254
File-URL: http://www.nber.org/papers/w5254.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J & Schneider, Ryan, 1998. "Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management," Review of Income and Wealth, Blackwell Publishing, vol. 44(2), pages 163-82, June.
Abstract: Labor income indices are created for groupings of individuals, using data from the Panel Study of Income Dynamics. People are grouped by a clustering algorithm based on an estimated transition matrix between jobs, by education level, and by skill category. The groupings are defined so that relatively few people move between them. For each of the groupings, we generate a labor income index using a hedonic repeated-measures regression methodology. Similarities between pairs of indices and between indices and individual labor incomes are described. It is argued that indices like those presented here might someday be used in settlement formulae in contracts promoting income risk management.
Handle: RePEc:nbr:nberwo:5254
Template-Type: ReDIF-Paper 1.0
Title: Trade and Production Networks of U.S. MNCs and Exports by Their Asian Affiliates
Classification-JEL: F21; F23
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI
Number: 5255
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5255
File-URL: http://www.nber.org/papers/w5255.pdf
File-Format: application/pdf
Publication-Status: published as Globalization, Trade, and Foreign Direct Investment, Series in International Business and Economics, Dunning, John H., ed.: Elsevier Services, Ltd., 1998.
Abstract: Network connections within MNCs seem to improve export market shares for Asian affiliates of those MNCs. In particular, Asian affiliates of U.S. MNCs export more to markets where their parent firms' exports to affiliates are larger, and less to markets where their parent firms export more to non-affiliates. However, the latter effect is much smaller per dollar of parent exports. These relationships are fairly consistent across industries and markets, across markets within two industries, across industries for two affiliate home countries, and across exporters and industries for individual markets.
Handle: RePEc:nbr:nberwo:5255
Template-Type: ReDIF-Paper 1.0
Title: Organization Structure and Credibility: Evidence from Commercial Bank Securities Activities Before the Glass-Steagall Act
Author-Name: Randall S. Kroszner
Author-Name: Raghuram G. Rajan
Author-Person: pra149
Note: CF
Number: 5256
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5256
File-URL: http://www.nber.org/papers/w5256.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 39, no. 3 (1997): 475-516.
Abstract: This paper investigates how organizational structure can affect a firm's ability to compete. In particular, we examine the two ways in which U.S. commercial banks organized their investment banking operations before the 1933 Glass-Steagall Act forced the banks to leave the securities business: as an internal securities department within the bank and as a separately incorporated and capitalized securities affiliate. We document a strong movement toward the use of the affiliate structure during the 1920s, and regulation does not appear to explain this evolution. While departments underwrote seemingly higher quality firms and securities than did comparable affiliates, the departments obtained lower prices for the issues they underwrote. This evidence is consistent with the hypothesis that there was a perception of potential conflicts of interest when lending and underwriting were closely combined in the departmental structure. We find evidence that bank managers during this period were concerned about such perceptions. We then develop further tests to support the view that by distancing underwriting activities from lending operations, banks could more credibly certify the quality of the issues they underwrote, thereby obtaining higher prices for them. Our results suggest that internal organization may indeed affect the activities and effectiveness of a firm. They also suggest that bank regulators' interest in 'firewalls' between commercial and investment banking may be reasonable, but that the market may propel banks to adopt an internal structure that would address regulators' concerns.
Handle: RePEc:nbr:nberwo:5256
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Child Health and Family Inputs on Child Cognitive Develop-ment
Author-Name: Robert Kaestner
Author-Person: pka42
Author-Name: Hope Corman
Note: EH
Number: 5257
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5257
File-URL: http://www.nber.org/papers/w5257.pdf
File-Format: application/pdf
Publication-Status: Published as "The Impact of Malpractice Fears on Caesarean Section Rates", Journal of Health Economics, Vol. 18, no. 4 (August 1999): 491-522.
Abstract: In this paper we extensively analyze the impact of child health and other family characteristics on the cognitive achievement of children between the ages of five and nine. We estimate both cross sectional and fixed effects models using data from the National Longitudinal Survey of Youth. Several of our results challenge the conclusions found in the existing literature. First, we find only a weak relationship between several measures of child health and child cognitive development. Second, we find that additional maternal schooling does not improve child cognitive achievement. Finally, our estimates of the effect of mother's labor force participation suggest that working has a positive impact on child cognitive achievement.
Handle: RePEc:nbr:nberwo:5257
Template-Type: ReDIF-Paper 1.0
Title: What Have Macroeconomists Learned about Business Cycles from the Study of Seasonal Cycles?
Classification-JEL: E30; E32
Author-Name: Jeffrey A. Miron
Author-Person: pmi250
Author-Name: J. Joseph Beaulieu
Note: EFG ME
Number: 5258
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5258
File-URL: http://www.nber.org/papers/w5258.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol. LXXVIII, no. 1, February 1996, pp. 54-66
Abstract: This paper argues that analysis of seasonal fluctuations can shed light on the nature of business cycle fluctuations. The fundamental reason is that in many instances identifying restrictions about seasonal fluctuations are more believable than analogous restrictions about non-seasonal fluctuations. We show that seasonal fluctuations provide good examples of preference shifts and synergistic equilibria. We also find evidence against production smoothing and in favor of unmeasured variation in labor and capital utilization. In some industries capacity constraints appear to bind.
Handle: RePEc:nbr:nberwo:5258
Template-Type: ReDIF-Paper 1.0
Title: Globalization, Convergence and History
Author-Name: Jeffrey G. Williamson
Author-Person: pwi169
Note: DAE
Number: 5259
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5259
File-URL: http://www.nber.org/papers/w5259.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, vol. 56, no. 2 (June 1996): pp. 1-30
Abstract: There were three epochs of growth experience after the mid 19th century for what is now called the OECD 'club'; the late 19th century, the middle years between 1914 and 1950, and the late 20th century. The late 19th and the late 20th century epochs were ones of overall fast growth and convergence: poor countries tended to grow even faster than rich and the economic gap between rich and poor countries diminished. The middle years were ones of overall slow growth and divergence: poor countries tended to grow even slower than rich and the economic gap between rich and poor countries widened. Since the middle years were also ones of economic autarky and 'de-globalization', while the rest were ones of increasing globalization in world commodity and factor markets, history offers an unambiguous positive correlation between globalization and convergence. But is the correlation spurious? When the pre-World War I years are examined in detail, the correlation turns out to be causal: the globalization of commodity and factor markets served to play a critical, perhaps the critical, role in contributing to convergence. A century and a half of OECD club history also suggests that economists should pay more attention to who gains and who loses from convergence since the answers may help determine whether pro-globalization or anti- globalization policies will persist.
Handle: RePEc:nbr:nberwo:5259
Template-Type: ReDIF-Paper 1.0
Title: Machine Replacement and the Business Cycle: Lumps and Bumps
Author-Name: Russell Cooper
Author-Name: John Haltiwanger
Author-Person: pha231
Author-Name: Laura Power
Note: EFG
Number: 5260
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5260
File-URL: http://www.nber.org/papers/w5260.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 89, no. 5 (September 1999): 921-946.
Abstract: This paper explores cyclical fluctuations in investment due to discrete changes in the plant's stock of capital. To do so, we focus on a machine replacement problem in which a producer decides whether to replace its entire existing stock of capital with new machinery and equipment. This decision is undertaken in a stochastic, dynamic environment which allows us to characterize the relationship between lumpy investment and the state of the aggregate economy. Our theoretical results are supplemented by numerical and empirical analyses of the dynamics of lumpy investment at the plant level and the associated aggregate implications. The dynamics are surprisingly rich since they represent the interaction between a replacement cycle, the cross sectional distribution of the age of the capital stock and the state of the aggregate economy. The empirical analysis of these dynamics is based on plant level investment data for the Longitudinal Research Database (LRD) for the 1972-91 period. Overall, we find that the frequency of lumpy investment activity is higher during periods of high economic activity and more likely the older is the capital. These empirical results are consistent with the predictions of our theoretical model. Nonetheless, the predicted path of aggregate investment that neglects the interaction of the non-flat hazard and the cross sectional distribution of the age of the capital stock tracks actual aggregate investment quite well. However, ignoring the fluctuations in the cross sectional distribution can yield predictable nontrivial errors in forecasting changes in aggregate investment in periods following large swings in aggregate investment.
Handle: RePEc:nbr:nberwo:5260
Template-Type: ReDIF-Paper 1.0
Title: Demographic Dynamics, Labor Force Participation and Household Asset Accumulation: Case of Japan
Classification-JEL: D12; E21
Author-Name: Albert Ando
Author-Name: Andrea Moro
Author-Person: pmo78
Note: EFG
Number: 5261
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5261
File-URL: http://www.nber.org/papers/w5261.pdf
File-Format: application/pdf
Publication-Status: published as Ando, Albert & Moro, Andrea & Cordoba, Juan Pablo & Garland, Gonzalo, 1995. "Dynamics of demographic development and its impact on personal saving: case of Japan," Ricerche Economiche, Elsevier, vol. 49(3), pages 179-205, September.
Abstract: A dynamic model of the demographic structure of Japan is summarized. It is capable of tracing the dynamic development of the Japanese population, including the distribution of families by age, sex, and marital status of the head, as well as by the number and age of children and other dependents. This model is combined with a specification of the processes generating family income and consumption, and then used to generate the pattern of aggregate income, saving and asset accumulation for the period 1985-2090 under alternative fertility assumptions. The results suggest that the saving-income ratio for Japan will increase slightly in the immediate future as the number of children per family declines sharply, and then fall moderately as the proportion of older persons in the population increases. Quantitative results depend critically on the labor force participation rate of older persons and on the probability of older persons merging into younger households. However, unless some major changes in Japanese saving behavior take place, our analysis suggests that Japan will have an unusually high net worth-income ratio as its population stabilizes or begins to decline.
Handle: RePEc:nbr:nberwo:5261
Template-Type: ReDIF-Paper 1.0
Title: Asset Pricing Lessons for Modeling Business Cycles
Classification-JEL: 131; 023; E
Author-Name: Michele Boldrin
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Jonas D.M. Fisher
Author-Person: pfi4
Note: AP EFG
Number: 5262
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5262
File-URL: http://www.nber.org/papers/w5262.pdf
File-Format: application/pdf
Abstract: We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business cycle phenomena. With respect to the conventional measures of business cycle volatility and comovement with output, the model does roughly as well as the standard business cycle model. On two other dimensions, the model's business cycle implications are actually improved. Its enhanced internal propagation allows it to account for the fact that there is positive persistence in output growth, and the model also provides a resolution to the 'excess sensitivity puzzle' for consumption and income. Key features of the model are habit persistence preferences, and a multisector technology with limited intersectoral mobility of factors of production.
Handle: RePEc:nbr:nberwo:5262
Template-Type: ReDIF-Paper 1.0
Title: What Do Budget Deficits Do?
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: N. Gregory Mankiw
Note: EFG ME
Number: 5263
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5263
File-URL: http://www.nber.org/papers/w5263.pdf
File-Format: application/pdf
Publication-Status: published as Laurence Ball & N. Gregory Mankiw, 1995. "What do budget deficits do?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 95-119.
Abstract: This paper discusses the effects of budget deficits on the economy in four steps. First, it reviews standard theory about how budget deficits influence saving, investment, the trade balance, interest rates, exchange rates, and long-term growth. Second, it offers a rough estimate of the magnitude of some of the effects. Third, it discusses how budget deficits affect economic welfare. Finally, it considers the possibility that continuing budget deficits in a country could lead to a 'hard landing' in which the demand for the country's assets suddenly collapses.
Handle: RePEc:nbr:nberwo:5263
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Analysis of the Welfare Magnet Debate Using the NLSY
Author-Name: Phillip B. Levine
Author-Person: ple553
Author-Name: David J. Zimmerman
Author-Person: pzi72
Note: LS
Number: 5264
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5264
File-URL: http://www.nber.org/papers/w5264.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Population Economics, Vol. 12, no. 3 (1999): 391-409.
Abstract: This paper examines the extent to which differences in welfare generosity across states leads to interstate migration. Using microdata from the National Longitudinal Survey of Youth (NLSY) between 1979 and 1992, we employ a quasi-experimental design that utilizes the categorical eligibility of the welfare system. The pattern of cross-state moves among poor single women with children who are likely to be eligible for benefits is compared to the pattern among other poor households. We find little evidence indicating that welfare-induced migration is a widespread phenomenon.
Handle: RePEc:nbr:nberwo:5264
Template-Type: ReDIF-Paper 1.0
Title: Is There an Equity-Efficiency Trade-Off in School Finance? Tiebout and a Theory of the Local Public Goods Producer
Author-Name: Caroline M. Hoxby
Author-Person: pho46
Note: PE
Number: 5265
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5265
File-URL: http://www.nber.org/papers/w5265.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics (1999).
Abstract: New empirical work shows the degree of competition among public providers of local public goods or between public and private providers of local public goods matters. This evidence needs a theory of the local public goods producer. Tiebout's hypothesis spawned a literature that gives local public economics a useful theory of the consumer which can generate a theory of the local public goods producer. This potential has remained largely undeveloped apart from Tiebout's vision of the local public goods producer as an entrepreneur, which is unrealistic because local public goods are nonverifiable. The Tiebout mechanism does not operate in alternative models of the local public goods producer, such as bureaucracy and agenda models. None of these models is useful for predicting how local public goods producers react to policies that change the structure of local public finance. This paper builds a theory of the producer that draws upon Tiebout's mechanism and the theory of incentives for regulation. I find that Tiebout's mechanism generates information that can be used in regulatory schemes to achieve lower costs for any given provision of local public goods. Thus, we face a fundamental trade-off between promoting equitable consumption of the public good and promoting efficiency in production of the public good. This trade-off exists even when equity in consumption generates positive externalities, as is often suggested of the consumption of schooling. I present evidence that when the Tiebout mechanism for schools is weakened by state-level school funding, per-pupil costs rise and the growth of educational attainment falls. This implies that losses from inefficient production generally outweigh gains from equalized consumption.
Handle: RePEc:nbr:nberwo:5265
Template-Type: ReDIF-Paper 1.0
Title: Forbidden Payment: Foreign Bribery and American Business After 1977
Classification-JEL: F23; H87
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 5266
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5266
File-URL: http://www.nber.org/papers/w5266.pdf
File-Format: application/pdf
Abstract: The United States prohibits American individuals and corporations from bribing foreign government officials. Legislation enacted in 1976 and 1977 stipulates tax penalties, fines, and even prison terms for executives of American companies that pay illegal bribes. This paper examines the effect of US anti-bribery legislation on the operations of US firms in bribe-prone countries after 1977. Four separate indicators reveal that US business activities in these countries fell sharply after passage of the Foreign Corrupt Practices Act of 1977. These results suggest that this unilateral action by the United States served to weaken the competitive positions of American firms without significantly reducing the importance of bribery to foreign business transactions.
Handle: RePEc:nbr:nberwo:5266
Template-Type: ReDIF-Paper 1.0
Title: Do Financing Constraints Explain Why Investment is Correlated with Cash Flow?
Author-Name: Steven N. Kaplan
Author-Name: Luigi Zingales
Note: CF PE
Number: 5267
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5267
File-URL: http://www.nber.org/papers/w5267.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, feb.1997, 169-215.
Abstract: This paper investigates the sources of the correlation between corporate cash flow and investment by undertaking an in-depth analysis of the 49 low-dividend firms identified by Fazzari, Hubbard, and Petersen (1988) as having an unusually high investment-cash flow sensitivity. We find that in only 15% of firm-years is there some question as to a firm's ability to access internal or external funds to increase investment. Strikingly, those firms that appear less financially constrained exhibit a significantly greater investment- cash flow sensitivity than firms that appear more financially constrained. We find this pattern for the entire sample period, for sub-periods, and for individual years. The results indicate that a higher sensitivity cannot be interpreted as evidence that a firm is more financially constrained. We discuss reasons and provide evidence why the opposite may be true. These findings challenge much of the existing evidence on the effects of financial constraints.
Handle: RePEc:nbr:nberwo:5267
Template-Type: ReDIF-Paper 1.0
Title: Why Do Increased Arrest Rates Appear to Reduce Crime: Deterrence, Incapacitation, or Measurement Error?
Classification-JEL: K42
Author-Name: Steven D. Levitt
Author-Person: ple59
Note: PE
Number: 5268
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5268
File-URL: http://www.nber.org/papers/w5268.pdf
File-Format: application/pdf
Publication-Status: published as Levitt, Steven D. "Why Do Increased Arrest Rates Appear To Reduce Crime: Deterrence, Incapacitation, Or Measurement Error?," Economic Inquiry, 1998, v36(3,Jul), 353-372.
Abstract: A strong, negative empirical correlation exists between arrest rates and reported crime rates. While this relationship has often been interpreted as support for the deterrence hypothesis, it is equally consistent with incapacitation effects, and/or a spurious correlation that would be induced by measurement error in reported crime rates. This paper attempts to discriminate between deterrence, incapacitation, and measurement error as explanations for the empirical relationship between arrest rates and crime. Using a modified version of the techniques of Griliches and Hausman (1986) for dealing with measurement error in panel data, this paper first demonstrates that the presence of measurement error does not appear to explain the observed relationship between arrest rates and crime rates. To differentiate between deterrence and incapacitation, the impact of changes in the arrest rate for one crime on the rate of other crimes is examined. In contrast to the effect of increased arrests for one crime on the commission of that crime, where deterrence and incapacitation are indistinguishable, it is demonstrated that these two forces act in opposite directions when looking across crimes. Incapacitation suggests that an increase in the arrest rate for one crime will reduce all crime rates; deterrence predicts that an increase in the arrest rate for one crime will lead to a rise in other crimes as criminals substitute away from the first crime. Empirically, deterrence appears to be the more important factor, particularly for property crimes.
Handle: RePEc:nbr:nberwo:5268
Template-Type: ReDIF-Paper 1.0
Title: Inside Money, Outside Money and Short Term Interest Rates
Classification-JEL: E4; E5
Author-Name: V. V. Chari
Author-Person: pch40
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Note: EFG ME
Number: 5269
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5269
File-URL: http://www.nber.org/papers/w5269.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings, Federal Reserve Bank of Cleveland, 1994, pp. 1354-1401.
Publication-Status: published as Journal of Money, Credit and Banking, vol. 27, no. 4, part 2, (November 1995), pp. 1354-1386
Abstract: This paper presents a quantitative general equilibrium model with multiple monetary aggregates. The framework incorporates a banking sector and distinguishes between M1, the monetary base, currency and various measures of reserves: total, excess and non borrowed. We use a variant of the model to analyze two sets of empirical facts. The first set of facts is that different monetary aggregates covary differently with short term nominal interest rates. Broad monetary aggregates like M1 and the monetary base covary positively with current and future values of short term interest rates. In contrast, the non borrowed reserves of banks covary negatively with current and future interest rates. Observations like this `sign switch' lie at the core of recent debates about the effects of monetary policy actions on short term interest rates. According to our model, the sign switch occurs because movements in non borrowed reserves are dominated by exogenous shocks to monetary policy, while movements in the base and M1 are dominated by endogenous responses to non-policy shocks. The second set of facts that we consider is that broad monetary aggregates covary positively with output. We quantify the Friedman and Schwartz hypothesis that this covariation reflects the effects of exogenous shocks to monetary policy, and the hypothesis that they reflect the endogenous response of monetary aggregates to shocks in the private economy.
Handle: RePEc:nbr:nberwo:5269
Template-Type: ReDIF-Paper 1.0
Title: More Bad News for Smokers? The Effects of Cigarette Smoking on Labor Market Outcomes
Author-Name: Phillip B. Levine
Author-Person: ple553
Author-Name: Tara A. Gustafson
Author-Name: Ann D. Velenchik
Note: EH LS
Number: 5270
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5270
File-URL: http://www.nber.org/papers/w5270.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review (April 1997): 493-509.
Abstract: This paper uses data from the National Longitudinal Survey of Youth to examine the effect of smoking on wages and employment. The panel nature and household structure of these data enable us to implement methods to account for differences in observed and unobserved individual characteristics that may be correlated with both smoking and wages. Changes in wages associated with changes in smoking behavior and models that utilize sibling comparisons are estimated to address the potential heterogeneity problem. Estimates from alternative specifications all indicate that smoking reduces wages by roughly 4-8%. No robust, statistically significant effect on employment is observed.
Handle: RePEc:nbr:nberwo:5270
Template-Type: ReDIF-Paper 1.0
Title: State and Local Pension Plans
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Roderick Carr
Note: AG LS
Number: 5271
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5271
File-URL: http://www.nber.org/papers/w5271.pdf
File-Format: application/pdf
Publication-Status: published as In Handbook of Employee Benefits. Ed. by J. Rosenbloom. Chicago;ZL: Irwin,1996.
Abstract: This paper examines the role and function of pension plans covering state and local government employees in the United States. Covering about 16 million employees (including teachers, fire fighters, police, members of the judiciary, and many other state and local employees), these plans manage a substantial stock of financial assets -- close to $1 trillion -- and receive annual contributions from employees and government revenues totaling about $56 billion. Using data gathered from a variety of different sources, some of which have only recently become available, we describe the benefits, financing, and management of these plans, and identify some of the prominent challenges facing these pension plans in the next decade.
Handle: RePEc:nbr:nberwo:5271
Template-Type: ReDIF-Paper 1.0
Title: Open Regionalism in a World of Continental Trade Blocs
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Author-Name: Jeffrey A. Frankel
Author-Person: pfr12
Note: ITI
Number: 5272
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5272
File-URL: http://www.nber.org/papers/w5272.pdf
File-Format: application/pdf
Publication-Status: published as Shang-Jin Wei & Jeffrey A. Frankel, 1998. "Open Regionalism in a World of Continental Trade Blocs," Staff Papers - International Monetary Fund, vol 45(3).
Abstract: Continental trade blocs are emerging in many parts of the world almost in tandem. If trade blocs are required to satisfy the McMillan criterion of not lowering their trade volume with outside countries, they have to engage in a dramatic reduction of trade barriers against non-member countries. That may not be politically feasible. On the other hand, in a world of simultaneous continental trade blocs, an open regionalism in which trade blocs undertake relatively modest external liberalization can usually produce Pareto improvement. In the bilateral trade data for the period 1970-92, there are indeed regions that, while exhibiting an inward trade bias, nevertheless are consistent with this notion of open regionalism.
Handle: RePEc:nbr:nberwo:5272
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Low Birthweight and Other Medical Risk Factors on Resource Utilization in the Pre-School Years
Author-Name: Hope Corman
Note: EH
Number: 5273
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5273
File-URL: http://www.nber.org/papers/w5273.pdf
File-Format: application/pdf
Abstract: This study compares resource utilization of pre-school aged children who are at medical risk with their healthier pre-school aged peers. Medical risk is defined as having been born of low birthweight, having an activity limitation, having a chronic health condition, or having a handicapping condition. Resources include: child care, pre-school, kindergarten, Headstart programs, and medical resources. The study uses two distinct data sets. The first is the National Health Interview Survey's Child Health Supplement of 1988, with approximately 2,500 children aged 3 to 5. The second data set is the National Household Education Survey of 1991, which consisted of about 6,700 children who were aged 3 to 5. The study uses a multivariate analysis to explore differences between at-risk and healthier peers, holding constant a variety of social and economic factors. The study finds consistent results that at-risk pre-school aged children are more likely to become hospitalized and are less healthy than their healthier peers, holding constant social and economic factors. In addition, they are more likely to delay entry into kindergarten. There is no evidence for differences in amount or type of child care or in mother's labor force participation. There is some evidence that at-risk children consume more pre-school resources.
Handle: RePEc:nbr:nberwo:5273
Template-Type: ReDIF-Paper 1.0
Title: Does Measured School Quality Really Matter? An Examination of the Earnings-Quality Relationship
Author-Name: James Heckman
Author-Name: Anne Layne-Farrar
Author-Name: Petra Todd
Note: LS
Number: 5274
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5274
File-URL: http://www.nber.org/papers/w5274.pdf
File-Format: application/pdf
Publication-Status: published as Burtless, G. (ed.) Does Money Matter? The Effect of School Resources on Student Achievement and Success. Brookings, July 1996.
Abstract: This paper examines the economic and empirical foundations of the aggregate evidence on the effect of schooling quality on earnings. A common framework is presented which nests all previous studies as special cases. We discuss two crucial identifying assumptions and test them. The first assumption is the absence of region of birth - region of resident interactions in the return to schooling. This rules out patterns of migration on the basis of realized earnings in the destination state. Both parametric and nonparametric versions of this hypothesis are tested. Using 1970, 1980 and 1990 Census data, it is decisively rejected. A second assumption is that log earnings equations are linear - or nearly linear in schooling. This assumption is false. We find that estimated earnings-quality relationships are sensitive to specification of the earnings function. When false linearity assumptions are relaxed, the only effect of measured schooling quality is on the returns for college graduates. The evidence for an aggregate earnings-quality relationship is weak once false empirical restrictions are relaxed.
Handle: RePEc:nbr:nberwo:5274
Template-Type: ReDIF-Paper 1.0
Title: Rate Regulation and the Industrial Organization of Automobile Insurance
Classification-JEL: G22; L51
Author-Name: Susan J. Suponcic
Author-Name: Sharon Tennyson
Number: 5275
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5275
File-URL: http://www.nber.org/papers/w5275.pdf
File-Format: application/pdf
Publication-Status: published as Rate Regulation and the Industrial Organization of Automobile Insurance, Susan J. Suponcic, Sharon Tennyson. in The Economics of Property-Casualty Insurance, Bradford. 1998
Abstract: This paper analyzes the impact of rate regulation on the structure of insurance markets for private passenger automobile insurance. The paper argues that states' restrictions on automobile insurers' rates of return will distort the structure of the market by distorting insurers' entry and output decisions. Cross-sectional analysis of the numbers of firms and the relative market shares of firms of different organizational characteristics supports this argument, especially for those states which impose the most stringent regulation. The analysis suggests that increased regulatory stringency lowers the total number of firms selling in the market, and lowers the number of low cost and national firms in the market. The market shares of these latter two groups of firms are also significantly lowered by increased regulatory stringency. These findings hold even after controlling for other factors which may influence the relative prevalence of these firms in the market, and are robust to the assumption that regulatory stringency in a state is itself partially determined by the number and market shares of large, low cost producers.
Handle: RePEc:nbr:nberwo:5275
Template-Type: ReDIF-Paper 1.0
Title: Growth and Convergence in the Asia-Pacific Region: On the Role of Openness, Trade and Migration
Classification-JEL: E22; F43
Author-Name: Alan M. Taylor
Author-Person: pta46
Note: DAE
Number: 5276
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5276
File-URL: http://www.nber.org/papers/w5276.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and Migration in the APEC Region, ed. by P.J. Lloyd and L.S. Williams. Oxford Univ Press, 1997.
Publication-Status: published as Lee, Michael, et al, 1998. "Growth Convergence: Some Panel Data Evidence," Applied Economics, Taylor and Francis Journals, vol. 30(7), pages 907-12, July.
Abstract: This paper examines the relationship between openness, trade, and migration in the Asia-Pacific region during the post-1970 period. Conventional reduced-form empirical-growth specifications are augmented by an appeal to structural modelling, an extension that reveals a rich set of interactions between policy, distortions, factor accumulation and growth. A broad array of openness measures play a major role in the successful growth performance of the Asia-Pacific region, a key channel being the distortion-investment nexus. In contrast, the results suggest little role for migration as a quantitatively significant growth determinant, at least at the macro level, which is no surprise in this area of historically low net migration rates. However, I find that within-sample prediction for the Asia-Pacific region is harder to achieve -- 'good luck' as well as 'good policy' played a part.
Handle: RePEc:nbr:nberwo:5276
Template-Type: ReDIF-Paper 1.0
Title: Employee Ownership, Employee Attitudes, and Firm Performance
Author-Name: Douglas Kruse
Author-Person: pkr335
Author-Name: Joseph Blasi
Note: LS
Number: 5277
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5277
File-URL: http://www.nber.org/papers/w5277.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of Resource Management, Mitchell, Daniel J.B., David Lewin and Mahumdad Zaidi, eds., Greenwich, CT: JAI Press, 1997, pp. 113-151.
Abstract: Employee ownership in U.S. companies has grown substantially in the past 20 years. This paper reviews and provides some meta-analyses on the accumulated evidence concerning the prevalence, causes, and effects of employee ownership, covering 25 studies of employee attitudes and behaviors, and 27 studies of productivity and profitability (with both cross-sectional and pre/post comparisons). Attitudinal and behavioral studies tend to find higher employee commitment among employee-owners but mixed results on satisfaction, motivation, and other measures. Perceived participation in decisions is not in itself automatically increased through employee ownership, but may interact positively with employee ownership in affecting attitudes. While few studies individually find clear links between employee ownership and firm performance, meta-analyses favor an overall positive association with performance for ESOPs and for several cooperative features. The dispersed results among attitudinal and performance studies indicate the importance of firm-level employee relations, human resource policies, and other circumstances.
Handle: RePEc:nbr:nberwo:5277
Template-Type: ReDIF-Paper 1.0
Title: Supplier Relations and Adoption of New Technology: Results of Survey Research in the U.S. Auto Industry
Author-Name: Susan Helper
Author-Person: phe243
Note: PR
Number: 5278
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5278
File-URL: http://www.nber.org/papers/w5278.pdf
File-Format: application/pdf
Publication-Status: published as With David I. Levine, published as "Long-Term Supplier Relations and Product-Market Structure", Journal of Law, Economics and Organization, Vol. 8, no. 3 (1992): 561-581.
Abstract: Using an original data source, this paper investigates the circumstances under which firms adopt computer numerical control (CNC), an important type of flexible automation which can significantly increase productivity, product variety and quality. The paper shows that arms'-length supplier/customer relationships are a significant barrier to CNC adoption, even where CNC would improve efficiency. For firms where CNC would be efficient, but who currently receive little commitment from their customers, an increase in contract length of one year would increase the adoption rate by 30%. These results have theoretical implications in two areas. First, the paper integrates questions of appropriability into the technical change literature, by adding supplier relations as a determinant of technology adoption. Second, the paper extends transaction-cost analysis, by relaxing the assumption that agents' private maximizing behavior will always produce organizational forms that maximize social efficiency.
Handle: RePEc:nbr:nberwo:5278
Template-Type: ReDIF-Paper 1.0
Title: The Term Structure of Interest Rates and Its Role in Monetary Policy for The European Central Bank
Classification-JEL: 311; 132; E
Author-Name: Arturo Estrella
Author-Person: pes29
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: ME
Number: 5279
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5279
File-URL: http://www.nber.org/papers/w5279.pdf
File-Format: application/pdf
Publication-Status: published as as "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank", European Economic Review. Volume: 41 Issue: 7 (July 1997) Pages: 1375-1401
Abstract: This paper examines the relationship of the term structure of interest rates to monetary policy instruments and to subsequent real activity and inflation in both Europe and the United States. The results show that monetary policy is an important determinant of the term structure spread, but it unlikely to be the only determinant. In addition, there is significant predictive power for both real activity and inflation. The yield curve is thus a simple and accurate measure that should be viewed as one piece of useful information which, along with other information, can be used to help guide European monetary policy.
Handle: RePEc:nbr:nberwo:5279
Template-Type: ReDIF-Paper 1.0
Title: Asia-Pacific Capital Markets: Measurement of Integration and the Implications for Economic Activity
Classification-JEL: F36; F41
Author-Name: Menzie Chinn
Author-Person: pch129
Author-Name: Michael Dooley
Author-Person: pdo13
Note: IFM
Number: 5280
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5280
File-URL: http://www.nber.org/papers/w5280.pdf
File-Format: application/pdf
Publication-Status: published as Menzie D. Chinn & Michael P. Dooley, 1997. "Asia Pacific Capital Markets: Integration and Implications for Economic Activity," NBER Chapters, in: Ito and Krueger, eds. Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6, pages 169-202 National Bureau of Economic Research, Inc.
Abstract: The apparent success of several East Asian countries in sterilizing capital inflows seems to contradict findings of high capital mobility. This paper argues that empirical studies examining money market rates may be misleading, since most lending is mediated through domestic banking systems. In developing countries with repressed domestic financial markets bank deposit yields might be closely tied to international interest rates but bank loan rates might be more independent. A simple open-economy macro model incorporating bank credit is used to motivate alternative tests of financial market integration. Capital inflows are found to affect bank lending in cases where deposit and loan markets are integrated with world markets and hence sterilization is not effective. In cases where loan rates are more independent sterilization seems to be more effective. Next, we examine the effect of bank lending on economic activity. The data suggest that the link between bank credit and investment is important in countries with isolated bank loan markets.
Handle: RePEc:nbr:nberwo:5280
Template-Type: ReDIF-Paper 1.0
Title: Would Privatizing Social Security Raise Economic Welfare?
Classification-JEL: H55
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 5281
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5281
File-URL: http://www.nber.org/papers/w5281.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) Privatizing Social Security. Chicago: Chicago University Press, 1998.
Abstract: A funded social security retirement program would imply a larger capital stock and a higher level of real income than an unfunded program that provides the same level of benefits. The transition from an unfunded program to a funded program that does not reduce the benefits of existing retirees or the present value of the benefit entitlements of existing employees would, however, require substituting explicit government debt for the equally large implicit debt of the unfunded program. This paper shows that such a debt financed transition from an unfunded program to a funded program is not just a change of form without economic effects. Such a debt financed transition would raise economic welfare if three conditions are met: (1) the marginal product of capital exceeds the rate of economic growth; (2) the capital intensity of the economy is below the welfare maximizing level (i.e., the marginal product of capital exceeds the appropriate consumption discount rate); and (3) the rate of economic growth is positive. Illustrative calculations based on U.S. experience since 1960 suggest that the present value of the gain from a debt financed transition to a funded program would substantially exceed the current level of GDP. More explicitly, even with a relatively high real consumption discount rate of 4.4 percent, the present value gain would be about 1.5 dollars per dollar of current net social security wealth or about $17 trillion.
Handle: RePEc:nbr:nberwo:5281
Template-Type: ReDIF-Paper 1.0
Title: Consumer Durables and Inertial Behavior: Estimation and Aggregation of (S,s) Rules
Classification-JEL: C5; E2
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Note: EFG
Number: 5282
Creation-Date: 1995-09
Order-URL: http://www.nber.org/papers/w5282
File-URL: http://www.nber.org/papers/w5282.pdf
File-Format: application/pdf
Publication-Status: published as Attanasio, Orazio P. "Consumer Durables And Inertial Behaviour: Estimation And Aggregation Of (S,s) Rules For Automobile Purchases," Review of Economic Studies, 2000, v67(233,Oct), 659-697.
Abstract: This paper presents an (S,s) model for automobile consumption and estimates it using a data set of US households. The model allows for unobserved heterogeneity in both the target level and the band width, takes into account the possibility of a zero desired level, constrains the band to be non negative and allows asymmetric bands. The model is estimated on a novel data set which contains information on both stock values and automobile expenditure for a large number of households observed over a period of a year. The (S,s) rule is specified in terms of the ratio of car stock to non durables. The shortcuts usually employed in the empirical literature on (S,s) rules can be avoided thanks to the richness of the data set and the rigorous specification of the stochastic model. Having estimated the model and considered `goodness of fit' measures, aggregation issues are considered. First, the paper presents a number of negative results. Then, several simulations aimed at evaluating the effects induced by inertial behavior on aggregate dynamics are considered.
Handle: RePEc:nbr:nberwo:5282
Template-Type: ReDIF-Paper 1.0
Title: Is Regionalism Simply a Diversion? Evidence From the Evolution of the EC and EFTA
Classification-JEL: F0; F1
Author-Name: Tamim Bayoumi
Author-Person: pba366
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: ITI
Number: 5283
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5283
File-URL: http://www.nber.org/papers/w5283.pdf
File-Format: application/pdf
Publication-Status: published as Regionalism Versus Multilateral Trade Arrangements, Ito, Takatoshi and Anne Kruger, eds., Chicago: University of Chicago Press, 1998.
Publication-Status: published as Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA, Tamim Bayoumi, Barry Eichengreen. in Regionalism versus Multilateral Trade Arrangements, Ito and Krueger. 1997
Publication-Status: published as Tamim Bayoumi & Barry J. Eichengreen, 1995. "Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA," IMF Working Papers, vol 95(109).
Abstract: This paper considers the impact on trade of preferential arrangements in Europe since the 1950s. Using a first difference version of the gravity model, we find that the EC and EFTA altered the pattern of international trade. We also find evidence of trade diversion in several cases, notably that of the EC in the 1960s.
Handle: RePEc:nbr:nberwo:5283
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomics Forecasts and Microeconomic Forecasters
Classification-JEL: D82; E17
Author-Name: Owen Lamont
Note: ME
Number: 5284
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5284
File-URL: http://www.nber.org/papers/w5284.pdf
File-Format: application/pdf
Publication-Status: published as Lamont, Owen A. "Macroeconomic Forecasts And Microeconomic Forecasters," Journal of Economic Behavior and Organization, 2002, v48(3,Jul), 265-280.
Abstract: In the presence of principal-agent problems, published macroeconomic forecasts by professional economists may not measure expectations. Forecasters may use their forecasts in order to manipulate beliefs about their ability. I test a cross-sectional implication of models of reputation and information-revelation. I find that as forecasters become older and more established, they produce more radical forecasts. Since these more radical forecasts are in general less accurate, ex post forecast accuracy grows significantly worse as forecasters become older and more established. These findings indicate that reputational factors are at work in professional macroeconomic forecasts.
Handle: RePEc:nbr:nberwo:5284
Template-Type: ReDIF-Paper 1.0
Title: Models of Currency Crises with Self-Fulfilling Features
Classification-JEL: F33; E58
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: IFM ITI
Number: 5285
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5285
File-URL: http://www.nber.org/papers/w5285.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 40, pp. 1037-1047, 1996.
Abstract: The discomfort a government suffers from speculation against its currency determines the strategic incentives of speculators and the scope for multiple currency-market equilibria. After describing an illustrative model in which high unemployment may cause an exchange- rate crisis with self-fulfilling features, the paper reviews some other self-reinforcing mechanisms. Recent econometric evidence seems to support the practical importance of these mechanisms.
Handle: RePEc:nbr:nberwo:5285
Template-Type: ReDIF-Paper 1.0
Title: Sectoral Solow Residuals
Classification-JEL: D2; E3
Author-Name: Craig Burnside
Author-Person: pbu20
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Sergio Rebelo
Note: EFG
Number: 5286
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5286
File-URL: http://www.nber.org/papers/w5286.pdf
File-Format: application/pdf
Publication-Status: published as Burnside, A. Craig, Martin S. Eichenbaum and Sergio T. Rebelo. "Sectoral Solow Residuals," European Economic Review, 1996, v40(3-5,Apr), 861-869.
Abstract: This paper presents capital utilization corrected measures of technology shocks for aggregate and disaggregated (two digit Standard Industrial Classification code) industries. We correct for variations in capital utilization by employing industrial electrical use as a measure of capital services. In contrast, the standard measures of technology shocks used in the Real Business Cycle literature are based on economy wide data and assume that capital services are proportional to the stock of measured capital. To assess the impact of these differences, we contrast selected properties of the competing technology shock measures. We argue that the properties of technology shocks for the manufacturing sector are quite different than those used in the RBC literature. We also find that correcting for capital utilization has important implications for the properties of the Solow residual.
Handle: RePEc:nbr:nberwo:5286
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Special Saving Programs on Saving and Wealth
Classification-JEL: J14; J28
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG PE
Number: 5287
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5287
File-URL: http://www.nber.org/papers/w5287.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M., Steven F. Venti and David A. Wise. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, 1996, v10(4,Fall), 91-112.
Publication-Status: published as The Economic Effects of Aging in the United States and Japan, Michael D. Hurd and Naohiro Yashiro, eds., pp. 217-240, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as The Effects of Special Saving Programs on Saving and Wealth, James M. Poterba, Steven F. Venti, David A. Wise. in The Economic Effects of Aging in the United States and Japan, Hurd and Yashiro. 1996
Abstract: Individual saving through targeted retirement saving accountsþIRAs and 401(k)sþgrew rapidly in the United States during the 1980s. The microeconomic evidence presented in this paper suggests that most of the contributions to these programs represent new saving that would not otherwise have occurred. The micro evidence is compared with macro saving measured by National Income and Product Accounts and Flow of Funds data.
Handle: RePEc:nbr:nberwo:5287
Template-Type: ReDIF-Paper 1.0
Title: The Schooling Quality-Earnings Relationship: Using Economic Theory to Interpret Functional Forms Consistent with the Evidence
Classification-JEL: J31; I21
Author-Name: James Heckman
Author-Name: Anne Layne-Farrar
Author-Name: Petra Todd
Note: LS
Number: 5288
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5288
File-URL: http://www.nber.org/papers/w5288.pdf
File-Format: application/pdf
Abstract: This paper investigates the economic and empirical foundations of the evidence relating earnings to schooling quality. We replicate the Card-Krueger model for Census years 1970, 1980 and 1990 and find that it consistently produces a strong relationship between schooling quality and the rate of return to schooling. We test key identifying assumptions used by Card and Krueger and others. Several assumptions are rejected. When they are relaxed, the evidence for a strong effect of schooling quality on earning is greatly weakened. A crucial identifying assumption is the absence of selective migration on the basis of earnings. Nonparametric tests strongly reject this hypothesis. The conventional assumption of linearity of the earnings- schooling relationship widely used in the literature is also rejected. The only surviving evidence of any schooling quality effect is in the return to college education. We also test and reject conventional efficiency unit models of the pricing of labor services. The empirically concordant model of earnings is a model of heterogeneous human capital in which regional shocks affect the prices of less- skilled labor.
Handle: RePEc:nbr:nberwo:5288
Template-Type: ReDIF-Paper 1.0
Title: Stochastic Regime Switching and Stabilizing Policies within Regimes
Classification-JEL: F31; G12
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: AP IFM
Number: 5289
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5289
File-URL: http://www.nber.org/papers/w5289.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance and Economics, April 1996, vol.1, pp.71-86
Abstract: This paper describes a class of stochastic stabilizing policies within asset price regimes that can be easily incorporated into the framework of regime switching recently proposed by Froot and Obstfeld (1991). In contrast to previous treatments of market-driven fundamentals within the regime, authorities stochastically counteract movements in these fundamentals before asset prices reach boundary points. The paper describes how the stabilizing intra-regime intervention policies can be used to characterize the behavior of monetary authorities before fixing an exchange rate, as in the case studied by Flood and Garber (1983). An intervention policy within target zone bands consistent with empirical evidence is also a member of this class of policies. Furthermore, the stylized features of these intervention policies may be matched to actual data in a natural way.
Handle: RePEc:nbr:nberwo:5289
Template-Type: ReDIF-Paper 1.0
Title: Consumption Taxes: Some Fundamental Transition Issues
Classification-JEL: H25; H24
Author-Name: David F. Bradford
Note: PE
Number: 5290
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5290
File-URL: http://www.nber.org/papers/w5290.pdf
File-Format: application/pdf
Publication-Status: published as Frontiers of Tax Reform, Michael J. Boskin, ed., pp. 123-150, (Stanford, CA: Hoover Institution Press, 1996).
Abstract: A number of tax reform plans under discussion in the United States would replace the existing hybrid income-based system with a consumption-based system. In this paper I use uniform (single-rate) consumption and income taxes: (a) to explain how the problem of taxing 'old savings' or 'old capital' manifests itself in the shift from an income to a consumption base; (b) to indicate the tradeoffs that must be confronted in dealing with this phenomenon; (c) to show how price level changes that may or may not accompany a transition affect the distribution of gains and losses; (d) to sketch out how a transition might affect interest rates and asset prices (including owner-occupied housing); (e) to explore the case in equity for protecting the tax- free recovery of old savings; and (f) to emphasize the incentive problems that arise if savers and investors anticipate a change in the tax rate in a consumption-based system.
Handle: RePEc:nbr:nberwo:5290
Template-Type: ReDIF-Paper 1.0
Title: Discrete Choice with Social Interactions I: Theory
Classification-JEL: D6; J2
Author-Name: William A. Brock
Author-Person: pbr142
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Note: EFG
Number: 5291
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5291
File-URL: http://www.nber.org/papers/w5291.pdf
File-Format: application/pdf
Publication-Status: published as Brock, William A. and Steven N. Durlauf. "Discrete Choice With Social Interactions," Review of Economic Studies, 2001, v68(235,Apr), 235-260.
Abstract: This paper provides an analysis of aggregate behavioral outcomes when individual utility exhibits social interaction effects. We study generalized logistic models of individual choice which incorporate terms reflecting the desire of individuals to conform to the behavior of others in an environment of noncooperative decisionmaking. Laws of large numbers are generated in such environments. Multiplicity of equilibria in these models, which are equivalent to the existence of multiple self-consistent means for average choice behavior, will exist when the social interactions exceed a particular threshold. Local stability of these multiple equilibria is also studied. The properties of the noncooperative economy are contrasted with the properties of an economy in which a social planner determines the set of individual choices. The model is additionally shown to be well suited to explaining a number of empirical phenomena, such as threshold effects in individual behavior, ethnic group fixed effects of income equations, and large cross-group differences in binary choice behavior.
Handle: RePEc:nbr:nberwo:5291
Template-Type: ReDIF-Paper 1.0
Title: Tobin's q and Asset Returns: Implications for Business Cycle Analysis
Classification-JEL: 131; 023; E
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Jonas Fisher
Author-Person: pfi4
Note: EFG
Number: 5292
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5292
File-URL: http://www.nber.org/papers/w5292.pdf
File-Format: application/pdf
Abstract: The marginal cost of plant capacity, measured by the price of equity is significantly procyclical. Yet, the price of a major intermediate input into expanding plant capacity, investment goods, is coutercyclical. The ratio of these prices is Tobin's q. We interpret the fact that Tobin's q differs from unity at all reflects that there are diminishing returns to expanding plant capacity by installing investment goods (`adjustment costs'). Also, its numerator and denominator have such different cyclical properties. We find the sign switch in their covariation with output reflects interaction of our adjustment cost specification with the operation of two shocks: one which affects the demand for equity and another which shifts the technology for producing investment goods. The adjustment costs cause the two prices to respond differently to these two shocks which is why it is possible to choose the shock variances to reproduce the sign switch. These model features are incorporated into a modified version of a model analyzed in Boldrin, Christiano and Fisher (1995) which contains assumptions designed to account for the observed mean return on risk free and risky assets. We find various modifications not only account for the sign switch but also continue to account for the salient features of mean asset returns. We turn to business cycle implications of our model. The model does as well as standard models with respect to conventional business cycle measures of volatility and comovement with output, and on one dimension the model significantly dominates standard models. The factors that help it account for prices and rates of return on assets also help it account for the fact that employment across a broad range of sectors moves together over the cycle.
Handle: RePEc:nbr:nberwo:5292
Template-Type: ReDIF-Paper 1.0
Title: The Child Care Industry: Cost Functions, Efficiency, and Quality
Classification-JEL: D24; J13
Author-Name: H. Naci Mocan
Author-Person: pmo270
Note: EH
Number: 5293
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5293
File-URL: http://www.nber.org/papers/w5293.pdf
File-Format: application/pdf
Publication-Status: Published as "Cost Functions, Efficiency, and Quality in Day Care Centers," Journal of Human Resources, Vol. 32, no. 4 (Fall 1997): 861-891.
Abstract: Using a newly compiled data set, this paper provides insights into the characteristics of the child care industry. First, there is no difference in average quality of the services produced between nonprofit and for-profit centers. This indicates that nonprofit status cannot be taken as a signal of higher quality. Second, the hypothesis of relative inefficiency of nonprofit centers with respect to for-profits is unfounded. On the other hand, centers that receive public money, either from the state or federal government, that is tied to higher standards, have variable costs that are 19 percent higher than other centers. Child care workers with 13 to 15 years of education and workers with 16 and more years of education are substitutes. Both of these groups are complements to workers with 12 and less years of education. Centers have inelastic demand for workers. There are economies of scale in production. Controlling for the level of quality of services, a 10 percent increase in hours of children served brings about only an 8.5 percent increase in costs in the long-run. There is no evidence of economies of scope. Serving various age groups jointly is not more efficient than serving them separately, although the issue is less clear in the case of preschoolers and school aged children. The cost of increasing the quality of an average center from mediocre to good is between 12-16 cents per child-hour.
Handle: RePEc:nbr:nberwo:5293
Template-Type: ReDIF-Paper 1.0
Title: Where the Money Goes: Medical Expenditures in a Large Corporation
Classification-JEL: J14; I10
Author-Name: Mark B. McClellan
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG EH
Number: 5294
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5294
File-URL: http://www.nber.org/papers/w5294.pdf
File-Format: application/pdf
Publication-Status: published as Garber, Alan M. (eds.) Issues in Health and Aging in the United States and Japan. University of Chicago Press, 1995.
Abstract: We use a new data file of insurance claims under employer- provided health plans to describe the pattern of expenditures in a large corporation: who spends? on what? for how long? The description is illustrative of detail that can be distilled for other firms. There are three noticeable features of spending: (1) The differences in the provisions of the two FIRM plans seem to have substantial effects on health care expenditures. Inpatient expenditures are a much larger fraction of the total under a first-dollar coverage plan available to hourly employees. (2) Substance abuse and other mental health disorders account for a surprisingly large fraction of health care costs. (3) The components of health care cost differ substantially across individuals, demographic groups, and plans, suggesting that further analysis of the 'micro' details of medical expenditures may help to assess the probable implications of alternative insurance reforms. (4) There is substantial persistence in individual health care expenditures from year to year. Illustrative calculations suggest that this persistence may lead to considerable inequality in individual costs under demand-side insurance reforms such as those coupled with IHA saving plans, and thus may place important limitations on plans that might otherwise be attractive. The exploratory analysis contained in this paper suggests that firm data can provide important insights into the black box that erupts expenditures under private insurance plans. And, hence these data may provide greater understanding of how plan reforms may affect expenditures.
Handle: RePEc:nbr:nberwo:5294
Template-Type: ReDIF-Paper 1.0
Title: Scale Economies, Returns to Variety, and the Productivity of Public Infrastructure
Classification-JEL: H40; H73
Author-Name: Douglas Holtz-Eakin
Author-Name: Mary E. Lovely
Author-Person: plo347
Note: PE
Number: 5295
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5295
File-URL: http://www.nber.org/papers/w5295.pdf
File-Format: application/pdf
Publication-Status: published as Regional Science and Urban Economics, Vol. 26. 1996, pp. 105-123
Abstract: We examine the productivity of public infrastructure in a general equilibrium context. In our model, infrastructure lowers costs in a manufacturing sector characterized by both firm-level returns to scale and industry-level external returns to variety. Infrastructure alters factor prices, intermediate prices and the allocation of factors across sectors. The effect on manufacturing or aggregate output, however, is indeterminate. In particular, our theory suggests that the degree of monopoly power influences public capital's productivity effect. We test the model using state-level panel data. We confirm the absence of direct effects on output, but find suggestive evidence of a positive impact of public capital on manufacturing variety as measured by the number of manufacturing establishments. These results indicate the need for future research on potentially important indirect channels by which public capital affects manufacturing productivity.
Handle: RePEc:nbr:nberwo:5295
Template-Type: ReDIF-Paper 1.0
Title: Measuring Poverty Among the Elderly
Classification-JEL: J14; I32
Author-Name: Angus Deaton
Author-Person: pde30
Author-Name: Christina Paxson
Author-Person: ppa335
Note: AG
Number: 5296
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5296
File-URL: http://www.nber.org/papers/w5296.pdf
File-Format: application/pdf
Publication-Status: published as Inquiries in the Economics of Aging, Wise, David, ed., Chicago: Universityof Chicago Press, 1998, pp. 169-204.
Publication-Status: published as Measuring Poverty among the Elderly, Angus S. Deaton, Christina Paxson. in Inquiries in the Economics of Aging, Wise. 1998
Abstract: Poverty counts are counts of individuals in poverty but are calculated from household or family data on income or expenditure. The transition from one to the other requires assumptions about intrahousehold allocation, about differences in needs across different people, and about the extent of economies of scale. The number of elderly in poverty, or the number of children in poverty, is sensitive to these assumptions and to differences in living arrangements across age groups. We explore the sensitivity of poverty counts to variations in assumptions about child costs and economies of scale using data from the United States and from six large Indian states. Because living arrangements of the elderly are so different in the United States and India, the use of the latter forces us to think about household structure and poverty in the United States. We argue that the official poverty counts in the United States are compromised by unrealistically high costs of children and by unrealistically high economies of scale. We provide a discussion of how economies of scale and child costs can be estimated from the data, using identifying assumptions that label private goods and adult goods, and we make calculations based on the 1990 Consumer Expenditure Survey. We obtain plausible estimates of child costs, together with a number of interesting but hard-to-explain anomalies when we try to estimate economies of scale.
Handle: RePEc:nbr:nberwo:5296
Template-Type: ReDIF-Paper 1.0
Title: Evaluating Mental Health Capitation Treatment: Lessons from Panel Data
Author-Name: Debra Sabatini Dwyer
Author-Person: pdw3
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Author-Name: Robert Cole
Author-Name: Sylvia K. Reed
Note: EH
Number: 5297
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5297
File-URL: http://www.nber.org/papers/w5297.pdf
File-Format: application/pdf
Publication-Status: published as In Research in Labor Economics. Ed. Sol Polachek. Greenwich CT: Jai Press,1996
Abstract: The paper evaluates a capitation-financed system of mental health services delivery developed in Rochester, New York. Cost/benefit analysis of the treatment program is implemented on three years of data using program evaluation techniques. Patient outcomes are compared across randomly assigned study groups as well as across enrollment status. The analysis implements difference-in-difference econometric techniques recently developed in the labor economics literature to control for potentially non-random attrition as well as selective non-compliance. We find that patients enrolled in the capitation program do experience significantly lower costs without becoming sicker, even after controlling for attrition and sample selection.
Handle: RePEc:nbr:nberwo:5297
Template-Type: ReDIF-Paper 1.0
Title: Lump-Sum Distributions from Retirement Saving Plans: Receipt and Utilization
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Steven F. Venti
Author-Name: David A. Wise
Author-Person: pwi45
Note: AG PE
Number: 5298
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5298
File-URL: http://www.nber.org/papers/w5298.pdf
File-Format: application/pdf
Publication-Status: published as Wise, David (ed.) Inquiries in the Economics of Aging. Chicago: University of Chicago Press, 1998.
Publication-Status: published as Lump-Sum Distributions from Retirement Saving Plans: Receipt and Utilization, James M. Poterba, Steven F. Venti. in Inquiries in the Economics of Aging, Wise. 1998
Abstract: One of the central issues in evaluating the ongoing shift from defined benefit (DB) to defined contribution (DC) pension plans is the degree to which assets in DC plans will be withdrawn before plan participants reach retirement age. The annual flow of withdrawals from such plans, which are known as lump sum distributions and which are frequently but not always associated with employment changes, has exceeded $100 billion in recent years. This flow is substantially greater than the flow of new contributions to IRAs and other targeted retirement saving programs. This paper draws on data from the 1993 Current Population Survey and the Health and Retirement Survey to summarize the incidence and disposition of lump sum distributions. We find that while less than half of all lump sum distributions are rolled over into IRAs or other retirement saving plans, large distributions are substantially more likely to be saved than smaller ones are. Consequently, more than half of the dollars paid out as lump sum distributions are reinvested. We also explore the correlation between various individual characteristics and the probability of rolling over a lump sum distribution. This is a first step toward developing a model that can be used to evaluate the long- term effects of lump sum distributions, or policies that might affect them, on the financial status of elderly households.
Handle: RePEc:nbr:nberwo:5298
Template-Type: ReDIF-Paper 1.0
Title: The Underrepresentation of Women in Economics: A Study of Undergraduate Economics Students
Classification-JEL: A2
Author-Name: Karen E. Dynan
Author-Name: Cecilia Elena Rouse
Note: LS
Number: 5299
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5299
File-URL: http://www.nber.org/papers/w5299.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Economic Education, Vol. 28, no. 4 (Fall 1997): 350-368.
Abstract: Although women are underrepresented in the field of economics, many see little need for intervention, arguing that women are inherently less interested in economics, or are less willing or able to get the math skills skills needed to do well in the subject. At the same time, others support active efforts to increase the number of women in the field, citing other possible causes of their current underrepresentation. These people argue, for example, that women are deterred from entering the field because of a lack of female role models, or that women are discouraged by an unappealing classroom environment. This study assesses these hypotheses by examining factors that influence undergraduate students' decisions to become economics majors using a survey of students in the introductory economics course at Harvard University as well as data on an entire class of students from Harvard's registrar. We find that although women in the introductory economics course at Harvard tend to begin the course with a weaker math background than men, math background does not explain much of the gender difference in students' decisions about majoring in economics. The class environment and the presence or absence of role models also do not explain much of the gender gap. On the other hand, women do less well in economics relative to other courses than men do, and controlling for this difference in relative performance significantly diminishes the estimated gender gap. An economically large but statistically insignificant difference between sexes in the probability of majoring in economics remains, however, which may be due to differing tastes or information about the nature of economics.
Handle: RePEc:nbr:nberwo:5299
Template-Type: ReDIF-Paper 1.0
Title: Money-Based versus Exchange Rate-Based Stabilization with Endogenous Fiscal Policy
Author-Name: Aaron Tornell
Author-Person: pto157
Author-Name: Andres Velasco
Note: IFM
Number: 5300
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5300
File-URL: http://www.nber.org/papers/w5300.pdf
File-Format: application/pdf
Abstract: We present a standard intertemporal model in which fiscal policy is determined by an optimizing but non-benevolent fiscal authority. If the fiscal authority is impatient, a money-based stabilization provides more fiscal discipline and higher welfare for the representative agent than does an exchange rate-based stabilization. Data for Latin American stabilizations in the last quarter-century seem to confirm the notion that stabilizing by using money rather than the exchange rate helps induce politicians to reduce the fiscal deficit.
Handle: RePEc:nbr:nberwo:5300
Template-Type: ReDIF-Paper 1.0
Title: Saving and Growth: Evidence from Micro Data
Classification-JEL: E21
Author-Name: Christina Paxson
Author-Person: ppa335
Note: AG
Number: 5301
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5301
File-URL: http://www.nber.org/papers/w5301.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 40, no. 2, pp. 255-288, February 1996
Abstract: This paper examines whether the observed cross-country correlation between aggregate saving rates and economic growth can be explained by models in which higher growth increases saving rates, rather than the other way around. The paper focusses on two explanations of why growth might increase saving. First, standard life-cycle theory implies that higher growth will increase the life- time wealth of younger savers relative to older dissavers, thereby increasing the aggregate saving rate. Second, models of consumption with habit formation imply that consumption responds slowly to unexpected income growth, and so unanticipated growth can produce a higher saving rate at least in the short run. I assess the validity of these explanations using time-series of cross-sections of household income and consumption surveys from four countries: the US, Britain, Taiwan and Thailand. I find that although in three out of the four countries there is evidence that saving behavior is consistent with life-cycle theory, there is simply too little life-cycle saving for higher growth to have a large effect on the aggregate saving rate. The habit formation model also implies very small effects of growth on saving rates. A large portion of the observed cross-country correlation between saving and growth cannot be explained by these models.
Handle: RePEc:nbr:nberwo:5301
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Effects of Spinal Cord Injuries in the Dawn of the Computer Age
Classification-JEL: J28
Author-Name: Alan Krueger
Author-Person: pkr63
Author-Name: Douglas Kruse
Author-Person: pkr335
Note: LS
Number: 5302
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5302
File-URL: http://www.nber.org/papers/w5302.pdf
File-Format: application/pdf
Abstract: What effect does a severe disability have on individuals' employment and earnings? Has the computer revolution lessened the adverse labor market consequences of severe disabilities? This paper investigates the labor market effects of severe, traumatic disabilities resulting from spinal cord injuries (SCIs). We compare the employment experiences of a sample of individuals with SCIs to those of former co-workers over the same period, and to two random samples of individuals in New Jersey. The analysis is based in large part on a 1994 telephone survey of New Jersey adults who had SCIs within the past ten years. Results indicate that the occurrence of an SCI causes a steep decline in employment, hours worked, and weekly earnings, but relatively little change in wage rates for those who work. The computer revolution has the potential to expand employment opportunities for people with disabilities. Our results indicate that having computer skills is associated with higher earnings, and a faster return to work and earnings recovery, for SCI individuals, after holding constant other variables such as education. There is no apparent earnings gap between SCI and non-SCI computer users, whereas among those who do not use computers at work the earnings of SCI employees lag behind those of non-SCI employees. Despite the benefits, individuals with SCIs are less likely to use computers than the general population.
Handle: RePEc:nbr:nberwo:5302
Template-Type: ReDIF-Paper 1.0
Title: The Antebellum Transportation Revolution and Factor-Price Convergence
Classification-JEL: F15; J31
Author-Name: Matthew J. Slaughter
Note: ITI
Number: 5303
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5303
File-URL: http://www.nber.org/papers/w5303.pdf
File-Format: application/pdf
Abstract: In antebellum America an extensive network of canals and railroads was constructed which slashed transportation costs across regions. This 'transportation revolution' presents an interesting case study of the factor-price convergence (FPC) theorem. In this paper I look for integration of regional labor markets driven by FPC by studying the extent to which commodity prices and factor prices converged across regions between 1820 and 1860. My primary result is that I find very little evidence of antebellum FPC across regions. I do find that commodity prices equalized quite markedly. But I also find that nominal labor prices equalized very little, if at all. Given this result, I go on to discuss two aspects of the antebellum economy which very likely helped prevent FPC: differences across regions in endowments and technology. This finding underscores that the FPC theorem does not have unambiguous empirical predictions. How commodity prices feed into factor prices depends crucially on parameters such as endowments and technology.
Handle: RePEc:nbr:nberwo:5303
Template-Type: ReDIF-Paper 1.0
Title: Comovement in Cities
Classification-JEL: E32; R11
Author-Name: John Shea
Author-Person: psh560
Note: ME
Number: 5304
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5304
File-URL: http://www.nber.org/papers/w5304.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, vol.44, pp.169-206, June 1996
Abstract: Recent research has shown that industries that locate together in space also move together over the business cycle, and that this correspondence between spatial and temporal comovement is important to aggregate volatility. This paper asks whether this correspondence is due to local common shocks or to local spillovers. I examine interindustry comovements within seven large US cities, and find strong evidence for local spillovers. I estimate that local spillovers explain roughly one-third of manufacturing employment volatility at the city level. Local spillovers do not appear to result from transport costs and locally traded goods.
Handle: RePEc:nbr:nberwo:5304
Template-Type: ReDIF-Paper 1.0
Title: Complementarities and Comovements
Classification-JEL: E32; R12
Author-Name: John Shea
Author-Person: psh560
Note: ME
Number: 5305
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5305
File-URL: http://www.nber.org/papers/w5305.pdf
File-Format: application/pdf
Publication-Status: published as Shea, John S. "Complementarities And Comovements," Journal of Money, Credit and Banking, 2002, v34(2,May), 412-434.
Abstract: Short-run interindustry comovement may be due either to common shocks or to complementarities that propagate shocks across sectors. This paper assesses the importance of input-output linkages, aggregate activity spillovers, and local activity spillovers to comovement in postwar US manufacturing. I find that input-output linkages and local activity spillovers are important to comovement, while aggregate activity spillovers are not important. I find that complementarities are important to aggregate volatility, even after I remove observable aggregate shocks from the data. Local spillovers are particularly important, explaining between 15 and 36 percent of manufacturing employment volatility.
Handle: RePEc:nbr:nberwo:5305
Template-Type: ReDIF-Paper 1.0
Title: "Generic Entry and the Pricing of Pharmaceuticals"
Author-Name: Richard G. Frank
Author-Name: David S. Salkever
Author-Person: psa1313
Note: EH
Number: 5306
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5306
File-URL: http://www.nber.org/papers/w5306.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economics & Management Strategy, vol. 6, no. 1, pp. 75-90 Spring 1997.
Abstract: During the 1980s the share of prescriptions sold by retail pharmacies that was accounted for by generic products roughly doubled. The price response to generic entry of brand-name products has been a source of controversy. In this paper we estimate models of price responses to generic entry in the market for brand-name and generic drugs. We study a sample of 32 drugs that lost patent protection during the early to mid-1980s. Our results provide strong evidence that brand-name prices increase after entry and are accompanied by large price decreases in the price of generic drugs.
Handle: RePEc:nbr:nberwo:5306
Template-Type: ReDIF-Paper 1.0
Title: Emerging Equity Market Volatility
Classification-JEL: F3; G0
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP
Number: 5307
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5307
File-URL: http://www.nber.org/papers/w5307.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 43 (January 1997): 29-77.
Abstract: Returns in emerging capital markets are very different from returns in developed markets. While most previous research has focused on average returns, we analyze the volatility of the returns in emerging equity markets. We characterize the time-series of volatility in emerging markets and explore the distributional foundations of the variance process. Of particular interest is evidence of asymmetries in volatility and the evolution of the variance process after periods of capital market reform. We shed indirect light on the question of capital market integration by exploring the changing influence of world factors on the volatility in emerging markets. Finally, we investigate the cross-section of volatility. We use measures such as asset concentration, market capitalization to GDP, size of the trade sector, cross-sectional volatility of individual securities within each country, turnover, foreign exchange variability and national credit ratings to characterize why volatility is different across emerging markets.
Handle: RePEc:nbr:nberwo:5307
Template-Type: ReDIF-Paper 1.0
Title: Politics and the Effectiveness of Foreign Aid
Classification-JEL: E1; F35
Author-Name: Peter Boone
Note: IFM
Number: 5308
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5308
File-URL: http://www.nber.org/papers/w5308.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 40, no. 2, pp. 289-329, February 1996
Abstract: Critics of foreign aid programs have long argued that poverty reflects government failure. In this paper I analyze the effectiveness of foreign aid programs to gain insights into political regimes in aid recipient countries. My analytical framework shows how three stylized political/economic regimes labeled egalitarian, elitist and laissez-faire would use foreign aid. I then test reduced form equations using data on nonmilitary aid flows to 96 countries. I find that models of elitist political regimes best predict the impact of foreign aid. Aid does not significantly increase investment and growth, nor benefit the poor as measured by improvements in human development indicators, but it does increase the size of government. I also find that the impact of aid does not vary according to whether recipient governments are liberal democratic or highly repressive. But liberal political regimes and democracies, ceteris paribus, have on average 30% lower infant mortality than the least free regimes. This may be due to greater empowerment of the poor under liberal regimes even though the political elite continues to receive the benefits of aid programs. An implication is that short term aid targeted to support new liberal regimes may be a more successful means of reducing poverty than current programs.
Handle: RePEc:nbr:nberwo:5308
Template-Type: ReDIF-Paper 1.0
Title: Politics and Trade Policy
Classification-JEL: F13; F15
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: IFM ITI
Number: 5309
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5309
File-URL: http://www.nber.org/papers/w5309.pdf
File-Format: application/pdf
Publication-Status: published as in D.M. Kneps and K.F.Wallis(eds.), Advances in Economics and Econometrics: Theory and Applications. (New York: Cambridge University Press),1997, pp.19-45
Abstract: First I describe a number of political economy approaches that have been developed to explain trade policies. All approaches are presented in a unified framework that helps to see the key differences among them. These comparisons revolve around tariff formulas that are predicted by political equilibria. A typical formula explains cross- sectoral variations in rates of protection as well as differences in average rates of protection across countries. Second, I review a set of results that emerge from a new approach to the interaction of international economic relations with domestic politics. Importantly, there are two-way interactions in such systems. They link the formation of trade policies in the international arena with the activities of domestic special interest groups. The use of a framework of this sort is essential for a proper analysis of a host of important problems, such as negotiations about tariff levels or the formation of free trade areas. Recent studies have developed suitable tools for this purpose.
Handle: RePEc:nbr:nberwo:5309
Template-Type: ReDIF-Paper 1.0
Title: International Cycles
Classification-JEL: E23; E32
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Author-Name: Anil K. Kashyap
Author-Person: pka35
Note: ME
Number: 5310
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5310
File-URL: http://www.nber.org/papers/w5310.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 40, no. 2, pp. 331-360, February 1996
Abstract: We study twenty years of monthly production data for 11 manufacturing industries in 19 countries. Using the fact that in some countries production virtually shuts down for one summer month, together with the differences in the timing of aggregate cyclical fluctuations, we are able to learn about the cost structure of different industries. Our primary finding is that during a boom year summer shut-downs are shorter. Rather than increasing production further during the rest of the year, producers reallocate activity from high output months to low output months. We also find that there are important seasonal/cyclical interactions common to all industries within a given country, and that these countries effects are larger than the pure industry effects. The correlation of the cross-country differences with measures of taxation and labor market structure suggests the possibility that differences in the willingness (and ability) to substitute labor intertemporally are responsible for the variation.
Handle: RePEc:nbr:nberwo:5310
Template-Type: ReDIF-Paper 1.0
Title: Good News for Value Stocks: Further Evidence on Market Efficiency
Author-Name: Rafael La Porta
Author-Person: pla273
Author-Name: Josef Lakonishok
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert Vishny
Author-Person: pvi218
Note: AP
Number: 5311
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5311
File-URL: http://www.nber.org/papers/w5311.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 52, no. 2 (June 1997): 859-873.
Abstract: This paper examines the hypothesis that the superior return to so-called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5 year period after portfolio formation. The announcement returns suggest that a significant portion of the return difference between value and glamour stocks is attributable to earnings surprises that are systematically more positive for value stocks. The evidence is inconsistent with a risk-based explanation for the return differential.
Handle: RePEc:nbr:nberwo:5311
Template-Type: ReDIF-Paper 1.0
Title: The Forward Discount Anomaly and the Risk Premium: A Survey of Recent Evidence
Classification-JEL: F3
Author-Name: Charles Engel
Author-Person: pen14
Note: IFM AP
Number: 5312
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5312
File-URL: http://www.nber.org/papers/w5312.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Empirical Finance, vol. 3, pp. 123-192, 1996.
Abstract: Forward exchange rate unbiasedness is rejected in tests from the current floating exchange rate era. This paper surveys advances in this area since the publication of Hodrick's (1987) survey. It documents that the change in the future exchange rate is generally negatively related to the forward discount. Properties of the expected forward forecast error are reviewed. Issues such as the relation of uncovered interest parity to real interest parity, and the implications of uncovered interest parity for cointegration of various quantities are discussed. The modeling and testing for risk premiums is surveyed. Included in this area are tests of the consumption CAPM, tests of the latent variable model, and portfolio-balance models of risk premiums. General equilibrium models of the risk premium are examined and their empirical implications explored. The survey does not cover the important areas of learning and peso problems, tests of rational expectations based on survey data, or the models of irrational expectations and speculative bubbles.
Handle: RePEc:nbr:nberwo:5312
Template-Type: ReDIF-Paper 1.0
Title: Liquidity Models in Open Economies: Theory and Empirical Evidence
Classification-JEL: E52; F41
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Vittorio Grilli
Note: IFM
Number: 5313
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5313
File-URL: http://www.nber.org/papers/w5313.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, 40, pp.847-859, 1996.
Abstract: This paper presents an overview of recent theoretical and empirical research on 'liquidity models' in open economies; this is a class of optimizing models where money has effects on real asset prices and economic activity without relying on the 'ad-hoc' assumption of price/wage stickiness. The non-neutrality of money derives from a temporary segmentation between goods and asset markets. After surveying the theoretical literature on liquidity models, we present empirical evidence based on VAR econometric techniques for the seven major industrial countries. Such evidence is shown to be consistent with the main implications of the liquidity models.
Handle: RePEc:nbr:nberwo:5313
Template-Type: ReDIF-Paper 1.0
Title: Validating the Conjectural Variation Method: The Sugar Industry, 1890- 1914
Classification-JEL: C13
Author-Name: David Genesove
Author-Person: pge30
Author-Name: Wallace P. Mullin
Note: IO
Number: 5314
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5314
File-URL: http://www.nber.org/papers/w5314.pdf
File-Format: application/pdf
Publication-Status: published as (title change to "Testing Static Oligopoly Models: Conduct and Cost in the Sugar Industry, 1890-1914") Rand Journal of Economics, Vol. 29, no. 2(Summer 1998): 355-377.
Abstract: The Conjectural Variations (CV) methodology uses the responsiveness of price to cost determinants under differing demand conditions to infer market power and cost. It thus substitutes demand information for complete cost information. In this paper we use the American sugar refining industry at the turn of the century to assess the efficacy of the CV approach. We do so by comparing direct measures of marginal cost and price-cost markups with the indirect estimates obtained from the CV method. We find that the CV method performs reasonably well. It yields estimates of industry conduct that are close to the direct measure we derive from full cost information, and robust to the choice of the functional form of demand. The conduct parameter is underestimated, but the deviation is minimal in our context. The CV methodology does a better job of detecting differences in conduct arising from different structural regimes (corresponding to the aftermath of entry), but only when the researcher imposes the (a priori known) restriction of cost stability.
Handle: RePEc:nbr:nberwo:5314
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Insurance and Household Welfare: Microeconomic Evidence 1980-93
Classification-JEL: I38; D12
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: Daniel T. Slesnick
Note: LS
Number: 5315
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5315
File-URL: http://www.nber.org/papers/w5315.pdf
File-Format: application/pdf
Publication-Status: forthcoming: Research in Employment Policy, 1997.
Abstract: This study examines the relative economic well-being of households that receive unemployment insurance (UI) benefits, as measured by consumption flows that are derived from information on households' spending in the Consumer Expenditure Surveys from 1980- 1993. For each quarter during this period we obtain the per-capita and equivalence-scale adjusted economic welfare of the two types of households. Adjusting for differences in the households' characteristics, we find: 1) The average UI recipient household during this period had a level of economic well-being that was on average between 3 and 8 percent below that of otherwise identical households (depending on the welfare measure used); 2) During a substantial part of this time the economic well-being of households that received UI benefits was at least that of other households; and 3) There is no cyclical variation in the relative well-being of UI recipient households compared to others. The findings imply that during the 1980s and early 1990s states' UI programs did a satisfactory job of maintaining the well-being of UI recipients. Emergency programs enacted during recessions raised potential duration sufficiently to prevent the economic position of the average UI recipient from deteriorating.
Handle: RePEc:nbr:nberwo:5315
Template-Type: ReDIF-Paper 1.0
Title: The Implicit Taxes from College Financial Aid
Author-Name: Andrew W. Dick
Author-Name: Aaron S. Edlin
Author-Person: ped12
Note: PE
Number: 5316
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5316
File-URL: http://www.nber.org/papers/w5316.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Public Economics, Vol. 65, no. 3 (September 1997): 295-322.
Abstract: Families who heed the 'experts'' advice and save for their children's college education typically receive less financial aid. The variation in the net price of college functions as a large tax on savings. College financial aid also functions as an income tax. This paper estimates the size and determinants of these income and asset taxes. We find that the marginal income tax typically ranges from 2% to 16% and the marginal asset levy from somewhat under 10% to as high as 25%. If a typical family chooses to accumulate $100,000 in assets rather than consuming these resources, it loses financial aid worth $10,000-$20,000.
Handle: RePEc:nbr:nberwo:5316
Template-Type: ReDIF-Paper 1.0
Title: Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis
Classification-JEL: E62; O41
Author-Name: Gian Maria Milesi-Ferrett
Author-Person: pmi28
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: IFM PE
Number: 5317
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5317
File-URL: http://www.nber.org/papers/w5317.pdf
File-Format: application/pdf
Publication-Status: Published as "Growth Effects of Income and Consumption Taxes", Journal of Money, Credit and Banking, Vol. 30, no. 4 (November 1998): 721-744.
Abstract: The effects of income and consumption taxation are examined in the context of models in which the growth process is driven by the accumulation of human and physical capital. The different channels through which these taxes affect economic growth are discussed, and it is shown that in general the taxation of factor incomes (human and physical capital) is growth-reducing. The effects of consumption taxation on growth depend crucially on the elasticity of labor supply, and therefore on the specification of the leisure activity. The paper also derives implications for the optimal intertemporal choice of tax instruments.
Handle: RePEc:nbr:nberwo:5317
Template-Type: ReDIF-Paper 1.0
Title: Collapsing Exchange Rate Regimes: Another Linear Example
Classification-JEL: F30; F33
Author-Name: Robert P. Flood
Author-Person: pfl25
Author-Name: Peter M. Garber
Author-Person: pga124
Author-Name: Charles Kramer
Author-Person: pkr339
Note: IFM
Number: 5318
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5318
File-URL: http://www.nber.org/papers/w5318.pdf
File-Format: application/pdf
Publication-Status: published as Flood, Robert P. & Garber, Peter M. & Kramer, Charles, 1996. "Collapsing exchange rate regimes: Another linear example," Journal of International Economics, Elsevier, vol. 41(3-4), pages 223-234, November.
Abstract: In the literature on speculative attacks on a fixed exchange rate, it is usually assumed that the monetary authority responsible for fixing the exchange rate reacts passively to the monetary disruption caused by the attack. This assumption is grossly at odds with actual experience where monetary-base implications of the attacks are usually sterilized. Such sterilization renders the standard monetary-approach attack model unable to provide intellectual guidance to recent attack episodes. In this paper we describe the problems with the standard model and develop a version of the portfolio-balance exchange rate model that allows the study of episodes with sterilization. Sterilized attacks may be regarded as a laboratory test of the monetary versus portfolio-balance exchange rate models. The monetary model fails the test. These issues are motivated by reference to the December 1994 collapse of the Mexican peso.
Handle: RePEc:nbr:nberwo:5318
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Price, Availability, and Alcohol Control Policies on Binge Drinking in College
Classification-JEL: I1
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Henry Wechsler
Note: EH
Number: 5319
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5319
File-URL: http://www.nber.org/papers/w5319.pdf
File-Format: application/pdf
Publication-Status: published as FRANK J. CHALOUPKA & HENRY WECHSLER, 1996. "BINGE DRINKING IN COLLEGE: THE IMPACT OF PRICE, AVAILABILITY, AND ALCOHOL CONTROL POLICIES," Contemporary Economic Policy, vol 14(4), pages 112-124.
Abstract: The effects of beer prices, alcohol availability, and policies related to driving under the influence of alcohol on drinking and binge drinking among youths and young adults are estimated using data from a nationally representative survey of students in U.S. colleges and universities. Drinking participation, participation in binge drinking and level of drinking equations are estimated using appropriate econometric methods. The estimates indicate that the drinking practices of college students are sensitive to the price of beer, with an average estimated price elasticity of drinking participation of -0.066 and an average estimated price elasticity of binge drinking of -0.145. However, when dividing the sample by gender, one finds that the effects of prices on drinking are limited to young women. In addition, a significant negative relationship is found for the strength of policies related to drinking and driving among youths and young adults and drinking by college students. However, the results indicate that many elements of campus life, (including participation in a fraternity or sorority, living on campus, and the ready availability of alcoholic beverages) are among the most important determinants of drinking and binge drinking among college students.
Handle: RePEc:nbr:nberwo:5319
Template-Type: ReDIF-Paper 1.0
Title: Social Networks, Learning, and Flexibility: Sourcing Scientific Knowledge in New Biotechnology Firms
Classification-JEL: 031
Author-Name: Julia Porter Liebeskind
Author-Name: Amalya Lumerman Oliver
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Marilynn B. Brewer
Note: PR
Number: 5320
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5320
File-URL: http://www.nber.org/papers/w5320.pdf
File-Format: application/pdf
Publication-Status: published as Starbuck, William H. and Suzanne G. Tilleman. (eds.) Organizational Learning and Knowledge Management. Volume 3. Learning by Populations of Organizations, Elgar Reference Collection. International Library of Critical Writings on Business and Management, vol. 9. Cheltenham, U.K. and Northampton, Mass.: Elgar, 2008.
Publication-Status: published as Julia Porter Liebeskind & Amalya Lumerman Oliver & Lynne Zucker & Marilynn Brewer, 1996. "Social networks, Learning, and Flexibility: Sourcing Scientific Knowledge in New Biotechnology Firms," Organization Science, vol 7(4), pages 428-443.
Abstract: We examine how two highly successful new biotechnology firms (NBFs) source their most critical input -- scientific knowledge. We find that scientists at the two NBFs enter into large numbers of collaborative research efforts with scientists at other organizations, especially universities. Formal market contracts are rarely used to govern these exchanges of scientific knowledge. Our findings suggest that the use of boundary-spanning social networks by the two NBFs increases both their learning and their flexibility in ways that would not be possible within a self-contained hierarchical organization.
Handle: RePEc:nbr:nberwo:5320
Template-Type: ReDIF-Paper 1.0
Title: Research and Productivity
Classification-JEL: 031; 033
Author-Name: Boyan Jovanovic
Author-Name: Yaw Nyarko
Author-Person: pny18
Note: PR
Number: 5321
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5321
File-URL: http://www.nber.org/papers/w5321.pdf
File-Format: application/pdf
Publication-Status: published as Navaretti, G. Barba, et al. (eds.) Creation and transfer of knowledge: Institutions and incentives. Heidelberg and New York: Springer, 1998.
Abstract: We model research as a signal on an unknown parameter of a technology. We distinguish applied from basic research and show that firms in the same industry can optimally choose different research portfolios, and that basic research can seem to have a higher rate of return than applied research, even though it really doesn't -- essentially, firms on a 'fast track' upgrading policy opt for basic research but fast and slow-track upgrading policies can coexist in a long-run equilibrium. We also derive the lag structure for how R&D affects the firm's stock of knowledge. To a first approximation, the lags decay geometrically (as is typically assumed in practice) but the rate of decay is endogenous, and depends on how fast the firm is upgrading its technology.
Handle: RePEc:nbr:nberwo:5321
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Mexico's Entry to NAFTA
Author-Name: Aaron Tornell
Author-Person: pto157
Author-Name: Gerardo Esquivel
Author-Person: pes46
Note: ITI IFM
Number: 5322
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5322
File-URL: http://www.nber.org/papers/w5322.pdf
File-Format: application/pdf
Publication-Status: published as The Political Economy of Mexico's Entry into NAFTA, Aaron Tornell, Gerardo Esquivel Hernández. in Regionalism versus Multilateral Trade Arrangements, Ito and Krueger. 1997
Abstract: In this paper, we derive three lessons from Mexico's experience. First, deep reforms like trade liberalization are not likely to happen by government decree. Instead, they usually come about when the unanimous blocking of reform by powerful elites breaks down. In the case of Mexico, this happened during a fiscal crisis, when some groups tried to displace other groups in order to capture a greater share of fiscal revenue. Second, in the presence of entrenched elites, the sustainability of reform depends on the existence of new groups that benefit from the new status quo and have enough power to defend it. Thus, the speed of successful reform is determined by the speed with which new groups are consolidated. Initially, Mexico limited radical liberalization to the manufacturing sector. The government has only recently begun to undertake serious liberalization in the services and agriculture sectors. The third lesson we take from Mexico is that the importance of formal agreements like NAFTA lies not so much in the ability of these agreements to reduce average import tariffs among their parties and improve their terms of trade vis vis the rest of the world, as claimed by the optimal tariff literature, but in that they serve as commitment devices to force reforms to continue.
Handle: RePEc:nbr:nberwo:5322
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rate Variability and the Riskiness of U.S. Multinational Firms:Evidence from the Breakdown of the Bretton Woods System
Classification-JEL: F23; F31
Author-Name: Eli Bartov
Author-Name: Gordon M. Bodnar
Author-Person: pbo613
Author-Name: Aditya Kaul
Note: AP IFM
Number: 5323
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5323
File-URL: http://www.nber.org/papers/w5323.pdf
File-Format: application/pdf
Publication-Status: published as Bartov, Eli, Gordon M. Bodnar and Aditya Kaul. "Exchange Rate Variability And The Riskiness Of U.S. Multinational Firms: Evidence From The Breakdown Of The Bretton Woods System," Journal of Financial Economics, 1996, v42(1,Sep), 105-132.
Abstract: This study assesses the impact of exchange rate variability on the riskiness of U.S. multinational firms by examining the relation between exchange rate variability and stock return volatility and by decomposing this relation into components of systematic and diversifiable risk. Focusing on two periods around the 1973 switch from fixed to floating exchange rates, we find a significant increase in the volatility of U.S. multinational monthly stock returns corresponding to the period of increased exchange rate variability. This increase in stock return volatility is also significant relative to the increase in stock return volatility for firms in three control samples. Using a single factor market model, we show this increase in total volatility led to a significant increase in market risk (beta) for the multinational firms relative to the control samples between the two periods. Collectively, these results suggest that the increase in exchange rate variability after 1973 was perceived by investors to be associated with an increase in the riskiness of cash flows of multinational firms that required compensation in terms of higher expected returns.
Handle: RePEc:nbr:nberwo:5323
Template-Type: ReDIF-Paper 1.0
Title: Bilateral Negotiations and Multilateral Trade: The Case of Taiwan-U.S. Trade Talks
Classification-JEL: F13
Author-Name: Tain-Jy Chen
Author-Name: Meng-chun Liu
Note: ITI
Number: 5324
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5324
File-URL: http://www.nber.org/papers/w5324.pdf
File-Format: application/pdf
Publication-Status: published as Tain-Jy Chen & Meng-Chun Liu, 1997. "Bilateral Negotiations and Multilateral Trade: The Case of Taiwan - U.S. Trade Talks," NBER Chapters, in: Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6, pages 345-370 National Bureau of Economic Research, Inc.
Abstract: This paper reviews the history of bilateral trade negotiations between Taiwan and the U.S. The question posed at the outset is: does bilateralism enhance or jeopardize multilateralism? The U.S.-Taiwan experience seems to suggest a grossly negative answer. Bilateral negotiations for market opening with the threat of unilateral trade sanctions (such as Section 301 action) tend to encourage trade preferences and U.S. negotiators are inclined to accept such preferential arrangements in areas where U.S. domestic interests are homogeneous and concentrated. Even in the case of tariff negotiations where any tariff concessions made by Taiwan are extended to other trading partners on an MFN basis, bilateralism does not necessarily enhance multilateral principles. The scope of tariff concessions made by Taiwan shows a strong bias in favor of the sectors in which the U.S. has a comparative advantage in Taiwan's market and the sectors in which U.S. domestic industries exhibit monopoly power. Meanwhile, U.S. commitments to GATT strengthen its position in bilateral negotiations and help persuade Taiwan, which is not a member of GATT, to make similar concessions.
Handle: RePEc:nbr:nberwo:5324
Template-Type: ReDIF-Paper 1.0
Title: EU, NAFTA, and Asian Responses: A Perspective from the Calculus of Participation
Classification-JEL: F12; F13
Author-Name: Junichi Goto
Author-Name: Koichi Hamada
Note: ITI
Number: 5325
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5325
File-URL: http://www.nber.org/papers/w5325.pdf
File-Format: application/pdf
Publication-Status: published as Junichi Goto & Koichi Hamada, 1997. "EU, NAFTA, and Asian Responses: A Perspective from the Calculus of Participation," NBER Chapters, in: Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6, pages 91-118 National Bureau of Economic Research, Inc.
Abstract: This paper assesses the economic conditions for Asian countries to cope with the formation of EU and NAFTA. Is it desirable for them to form their own trading area? And, if desirable, is it better to have a closed one like the EAEC or a more open one like the APEC? Relying on public economics and the calculus of participation combined with the Dixit-Stiglitz-Krugman framework, we find the following: (i) the development of the EAEC by the leadership of Malaysia would be a natural response of Asian countries against two big blocs in the world, EU and NAFTA; (ii) it is natural for the United States to discourage this move because the formation of an economic bloc in Asia will have a negative economic impact on the non- Asian countries; (iii) it is natural for the U.S. to propose an opposing coalition like the APEC to nullify the possible economic impact of the EAEC; but (iv) perhaps the APEC will be a good roundabout way towards international free trade.
Handle: RePEc:nbr:nberwo:5325
Template-Type: ReDIF-Paper 1.0
Title: Inflation and Economic Growth
Classification-JEL: O40; E31
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG ME
Number: 5326
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5326
File-URL: http://www.nber.org/papers/w5326.pdf
File-Format: application/pdf
Publication-Status: published as Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
Abstract: Data for around 100 countries from 1960 to 1990 are used to assess the effects of inflation on economic performance. If a number of country characteristics are held constant, then regression results indicate that the impact effects from an increase in average inflation by 10 percentage points per year are a reduction of the growth rate of real per capita GDP by 0.2-0.3 percentage points per year and a decrease in the ratio of investment to GDP by 0.4-0.6 percentage points. Since the statistical procedures use plausible instruments for inflation, there is some reason to believe that these relations reflect causal influences from inflation to growth and investment. However, statistically significant results emerge only when high- inflation experiences are included in the sample. Although the adverse influence of inflation on growth looks small, the long-term effects on standards of living are substantial. For example, a shift in monetary policy that raises the long-term average inflation rate by 10 percentage points per year is estimated to lower the level of real GDP after 30 years by 4-7%, more than enough to justify a strong interest in price stability.
Handle: RePEc:nbr:nberwo:5326
Template-Type: ReDIF-Paper 1.0
Title: Optimal Debt Management
Classification-JEL: E62; H30
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG PE EFG
Number: 5327
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5327
File-URL: http://www.nber.org/papers/w5327.pdf
File-Format: application/pdf
Publication-Status: published as Barro, Robert J. "Notes On Optimal Debt Management," Journal of Applied Economics, 1999, v2(2,Nov), 282-290.
Abstract: Optimal debt management can be thought of in three stages. First, if taxes are lump sum and the other conditions for Ricardian equivalence hold, then the division of government financing between debt and taxes is irrelevant, and the whole level of public debt is indeterminate from an optimal-tax standpoint. Second, if taxes are distorting, then the timing of taxes will generally matter; for example, it may be desirable to smooth tax rates over time. This consideration makes determinate the levels of debt at various dates, but does not pin down the composition of the debt, say by maturity. Finally, if there is uncertainty about real interest rates, levels of public outlay, GDP, and so on, then the relation of tax rates to states of nature becomes important. In some cases, optimal taxation dictates the smoothing of tax rates over states of nature, and this element may pin down the composition of the debt. For example, the maturity structure can be designed to insulate the government's financing costs from shifts in real interest rates. This paper studies dynamic optimal taxation in an equilibrium model that yields a form of tax smoothing as a basis for debt management. The main analysis uses a tractable form of the one-sector stochastic growth model. The type of taxation that yields the clearest results on tax smoothing is a proportional levy on consumption. In a simple benchmark case, optimal debt management entails the issue of indexed consols. More generally, payouts on debt would also be contingent on aggregate consumption and the level of government spending.
Handle: RePEc:nbr:nberwo:5327
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of State Provided Health Insurance in the Progressive Era: Evidence from California
Classification-JEL: I11; I18
Author-Name: Dora L. Costa
Author-Person: pco358
Note: DAE
Number: 5328
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5328
File-URL: http://www.nber.org/papers/w5328.pdf
File-Format: application/pdf
Abstract: I investigate why the United States did not adopt European style health insurance in the 1910s by examining voting determinants on the 1918 referendum on state-provided health insurance in California. I find that although the persuasiveness of interest groups, especially doctors, was an important determinant of the 1918 vote, interest groups alone could not explain the resounding defeat of state-provided health insurance. Voters, I find, were unwilling to pass a costly measure with an unpredictable outcome.
Handle: RePEc:nbr:nberwo:5328
Template-Type: ReDIF-Paper 1.0
Title: The Balance of Payments and Borrowing Constraints: An Alternative View of the Mexican Crisis
Classification-JEL: F34; F41
Author-Name: Andrew Atkeson
Author-Person: pat52
Author-Name: Jose-Victor Rios-Rull
Author-Person: pri8
Note: IFM
Number: 5329
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5329
File-URL: http://www.nber.org/papers/w5329.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, Vol. 41, nos. 3-4 (1996): 331-349.
Abstract: In standard models of the balance of payments, crises occur when investors begin to doubt the credibility of the government's commitment to its exchange rate policy. In this paper, we develop an alternative model in which balance of payments crises occur even if the credibility of government fiscal, monetary, and exchange rate policies is never in doubt. In this alternative model, international lending is constrained by the risk of repudiation. Balance of payments crises occur when the government and citizens of a country hit their international borrowing constraints. Our model is broadly consistent with events in Mexico from 1987-1995. More generally, our model suggests that countries which undertake sweeping macroeconomic and structural reforms should expect to face a balance of payments crisis when they exhaust their access to international capital inflows.
Handle: RePEc:nbr:nberwo:5329
Template-Type: ReDIF-Paper 1.0
Title: Privatization of Social Security: How It Works and Why It Matters
Classification-JEL: H0
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 5330
Creation-Date: 1995-10
Order-URL: http://www.nber.org/papers/w5330
File-URL: http://www.nber.org/papers/w5330.pdf
File-Format: application/pdf
Publication-Status: published as Privatization of Social Security: How It Works and Why It Matters, Laurence J. Kotlikoff. in Tax Policy and the Economy, Volume 10, Poterba. 1996
Abstract: This paper uses the Auerbach-Kotlikoff Dynamic Life-Cycle Model (AK Model) to examine the macroeconomic and efficiency effects of privatizing social security, and a simple privatization proposal, the Personal Security System, to discuss other issues associated with privatization. According to the AK Model, privatizing social security can create major long-run increases in output and living standards which come largely but not exclusively at the expense of existing generations. Indeed, the pure gains refers to the welfare improvement for future generations after existing generations have been fully compensated for losses from privatization. The precise size of the efficiency gain depends on the existing tax structure, linkage between benefits and taxes under the existing social security system and the choice of the tax instrument used to finance benefits during the transition. When the initial tax structure has a progressive income tax, when the existing system's benefit-tax linkage is low, when consumption taxation is used to finance benefits during transi- tion and when existing generations are fully compensated for privatization losses, there is a 4.5 % simulated welfare gain to future generations. But if these circumstances don't hold, the efficiency gains from privatization are likely to be smaller, possibly negative. The Personal Security System shows there are simple ways to privatize the retirement portion of the U.S. Social Security System and credit workers for their past contributions, and even provide more survivors' protection than the current system. But the analysis suggests that benefits must be set against a possible reduction in progressivity and a reduction in longevity insurance for the elderly.
Handle: RePEc:nbr:nberwo:5330
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Measured School Inputs on Academic Achievement: Evidence from the 1920s, 1930s and 1940s Birth Cohorts
Classification-JEL: I20; J31
Author-Name: Susanna Loeb
Author-Name: John Bound
Author-Person: pbo406
Note: LS
Number: 5331
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5331
File-URL: http://www.nber.org/papers/w5331.pdf
File-Format: application/pdf
Publication-Status: published as Loeb, Susanna & Bound, John, 1996. "The Effect of Measured School Inputs on Academic Achievement: Evidence form the 1920s, 1930s and 1940s Birth Cohorts," The Review of Economics and Statistics, MIT Press, vol. 78(4), pages 653-64, November.
Abstract: The study presented here uses data from the NORC General Social Surveys to explore the effects of measurable school characteristics on student achievement. What separates this study from many others is the use of aggregate data on older cohorts, usually associated with research on the influence of school inputs on earnings. Earnings studies have tended to find substantial effects, while much of the research on achievement using contemporary, cross-sectional data has not. We find substantively large effects, similar in size to those found in many earnings-focused studies. In this way, our results point to the importance of aggregation and cohort effects in modeling the relationship between school inputs and student outcomes. The level of data aggregation, in particular, appears important, bringing into question causal interpretations of the results of studies using aggregate data to assess school input effects.
Handle: RePEc:nbr:nberwo:5331
Template-Type: ReDIF-Paper 1.0
Title: Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience
Author-Name: Francesco Giavazzi
Author-Person: pgi18
Author-Name: Marco Pagano
Author-Person: ppa56
Note: IFM
Number: 5332
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5332
File-URL: http://www.nber.org/papers/w5332.pdf
File-Format: application/pdf
Publication-Status: published as Swedish Economic Policy Review, vol. 3, no. 1, Spring 1996, pp. 67-103.
Abstract: In earlier work we documented two episodes in which a sharp fiscal consolidation was associated with a very large expansions in private domestic demand. In this paper we draw on further evidence to investigate if and when fiscal policy changes can have such non-Keynesian effects. In the first part of the paper, we analyze cross-country data for 19 OECD countries. In the second, we concentrate on the Swedish fiscal expansion of the early 1990s. The cross-country evidence on private consumption confirms that fiscal policy changes - both contractions and expansions - can have non-Keynesian effects if they are sufficiently large and persistent, and suggests that these effects can result not only from changes in public consumption but to some extent also from changes in taxes and transfers. The latter result is consistent with the Swedish experience where a decrease in net taxes (with almost no change in public consumption) was associated with a dramatic fall in private domestic demand. Our evidence and that from other studies agree that during the Swedish fiscal expansion of the early 1990s a large negative error appears in the consumption function. There is less consensus about how this error should be interpreted, but it is clear that the most obvious candidates (wealth effects and after-tax real interest rate effects) are not sufficient to explain it. This error may reflect a large downward revision of permanent disposable income, which affected the consumption of Swedish households over and beyond the negative effects of the drop in real asset prices. We suggest that this revision in permanent income may have been triggered, at least partly, by the fiscal expansion of the early 1990s.
Handle: RePEc:nbr:nberwo:5332
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Human Resource Management Practices on Productivity
Classification-JEL: J4; J5
Author-Name: Casey Ichniowski
Author-Name: Kathryn Shaw
Author-Person: psh162
Author-Name: Giovanna Prennushi
Note: LS PR
Number: 5333
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5333
File-URL: http://www.nber.org/papers/w5333.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 86 (June 1997): 291-313.
Abstract: Increasingly, firms are considering the adoption of new work practices, such as problem-solving teams, enhanced communication with workers, employment security, flexibility in job assignments, training workers for multiple jobs, and greater reliance on incentive pay. This paper provides empirical evidence to address the question: do these human resource management practices improve worker productivity? For this study, we constructed our own data base through personal site visits to 26 steel plants which contained one specific steelmaking process, and collected longitudinal data with precise measures on productivity, work practices, and the technology in these production lines. The empirical results consistently support the following conclusion: the adoption of a coherent system of these new work practices, including work teams, flexible job assignments, employment security, training in multiple jobs, and extensive reliance on incentive pay, produces substantially higher levels of productivity than do more 'traditional' approaches involving narrow job definitions, strict work rules, and hourly pay with close supervision. In contrast, adopting individual work practice innovations in isolation has no effect on productivity. We interpret this evidence as support for recent theoretical models which stress the importance of complementarities among a firm's work practices.
Handle: RePEc:nbr:nberwo:5333
Template-Type: ReDIF-Paper 1.0
Title: Hiring Risky Workers
Classification-JEL: J00; J41
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 5334
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5334
File-URL: http://www.nber.org/papers/w5334.pdf
File-Format: application/pdf
Publication-Status: published as Ohashi, Isao and Toshiaki Tachibanaki. Internal labour markets, incentives and employment. New York: St. Martin's Press; London: Macmillan Press, 1998.
Abstract: It has long been recognized in finance and other literature that variance provides option value. The same point carries over to the labor market. Firms like variance in new employees because they can keep the good workers and terminate the bad ones. But market wages must adjust to make the marginal firm indifferent between high and low variance workers. The market equilibrium for new, risky workers is explored to determine how workers and firms line up on the various sides of the market. Firms in growing industries prefer young, high variance workers. Growing industries will be characterized by high turnover rates. In order for risky workers to provide option value, it is necessary that the initial employer have some advantage over other firms. Private information or mobility costs can provide that advantage. Also required is that the risk have a firm specific component. General variations in ability provide no option value to an initial hirer.
Handle: RePEc:nbr:nberwo:5334
Template-Type: ReDIF-Paper 1.0
Title: Social Insurance, Incentives, and Risk Taking
Classification-JEL: H2
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 5335
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5335
File-URL: http://www.nber.org/papers/w5335.pdf
File-Format: application/pdf
Publication-Status: published as International Tax and Public Finance 3, (1996), pp. 259-280.
Abstract: From the perspective of parents, redistributive taxation can be seen as social insurance for their children, for which no private alternative exists. Because private insurance comes too late during a person's life, it cannot cover the same risks as social insurance. Empirically, 85% of social insurance covers risks for which no private insurance would have been available. Redistributive taxation can be efficiency enhancing, because it creates safety and because it stimulates income generating risk taking. However, it also brings about detrimental moral hazard effects. Both the enhancement of risk taking and the moral hazard effects tend to increase the inequality in the economy, and, under constant returns to risk taking, this increase is likely to be strong enough even to make the net-of-tax income distribution more unequal. Optimal redistributive taxation will either imply that the pie becomes bigger when there is less inequality in pre-tax incomes or that more redistribution creates more post-tax inequality. The welfare state will encounter severe risks when free migration of people, goods, and factors of production becomes possible. Basing redistributive taxation on a nationality principle may help overcome some of these risks.
Handle: RePEc:nbr:nberwo:5335
Template-Type: ReDIF-Paper 1.0
Title: Procyclical Productivity: Increasing Returns or Cyclical Utilization?
Classification-JEL: E2; E3
Author-Name: Susanto Basu
Author-Person: pba274
Note: EFG ME
Number: 5336
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5336
File-URL: http://www.nber.org/papers/w5336.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, vol. 111, no. 3, pp. 719-751, August 1996.
Abstract: It has long been argued that cyclical fluctuations in labor and capital utilization and the presence of overhead labor and capital are important for explaining procyclical productivity. Here I present two simple and direct tests of these hypotheses, and a way of measuring the relative importance of these two explanations. The intuition behind the paper is that materials input is likely to be measured with less cyclical error than labor and capital input, and materials are likely to be used in strict proportion to value added. In that case, materials growth provides a good measure of the unobserved changes in capital and labor input. Using this measure, I find that the true growth of variable labor and capital inputs is, on average, almost twice the measured change in the capital stock or labor hours. More than half of that is caused by the presence of overhead inputs in production; the rest is due to cyclical factor utilization.
Handle: RePEc:nbr:nberwo:5336
Template-Type: ReDIF-Paper 1.0
Title: Non-Walrasian Unemployment Fluctuations
Classification-JEL: E32; J64
Author-Name: Jordi Gali
Author-Person: pga43
Note: EFG
Number: 5337
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5337
File-URL: http://www.nber.org/papers/w5337.pdf
File-Format: application/pdf
Abstract: We modify the standard real business cycle model by assuming that wages are set by a monopoly union at the firm level. In the context of such a model, we introduce a measure of unemployment and analyze its equilibrium behavior. We show that a calibrated version of the model is capable of generating both a procyclical labor supply and a countercyclical unemployment rate, in a way qualitatively consistent with the evidence. The model stresses the role of countercyclical markups in the goods market as a key mechanism underlying the countercyclical behavior of unemployment.
Handle: RePEc:nbr:nberwo:5337
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Inflation on Budgetary Discipline
Classification-JEL: E3; E6
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Ricardo Hausmann
Author-Person: pha552
Note: ME
Number: 5338
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5338
File-URL: http://www.nber.org/papers/w5338.pdf
File-Format: application/pdf
Publication-Status: published as Aizenman, Joshua and Ricardo Hausmann. "The Impact Of Inflation On Budgetary Discipline," Journal of Development Economics, 2000, v63(2,Dec), 425-449.
Abstract: This paper investigates budgetary rules for an economy characterized by inflation and volatile relative prices. We view the budgetary process as a limited contingencies contract between the treasury and the ministers. The budgetary process allows a minister, whose realized real budget falls short of a threshold, to ask for a treasury, the minister obtains the extra funds needed to meet the expenditure threshold level. The contract sets both the projected budget and the threshold real expenditure that justifies budget revisions. We identify the efficient contract and show that for significant state verification costs and for low volatility, the contract is non contingent (i.e., a nominal contract). For volatility significant enough the contract becomes state contingent -- it reduces the initial allocation [i.e., the projected budget,] and reduces the threshold associated with budgetary revisions. Both adjustments imply that in volatile economies the projected revenue understates the realized budget hence the average budget error is positive. As volatility increases, the contract converges to a full ex-post indexation. Hence, one of the costs of inflation is that nominal contracts lose their disciplining role in determining the real allocation. Instead, the economy shifts towards more costly arrangements like ex-post indexation, where discipline is accomplished by constant monitoring The last part of the paper uses the data from 12 Latin American countries to test the model's predictions. Our tests confirm that in an inflationary environment the planned budget is under-predicting the realized one -- higher inflation increases the budget error and the average budget error is positive.
Handle: RePEc:nbr:nberwo:5338
Template-Type: ReDIF-Paper 1.0
Title: Trade Strategy, Investment, and Exports: Another Look at East Asia
Classification-JEL: F14; F43
Author-Name: Dani Rodrik
Author-Person: pro60
Note: EFG ITI
Number: 5339
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5339
File-URL: http://www.nber.org/papers/w5339.pdf
File-Format: application/pdf
Publication-Status: published as Rodrik, Dan. "Trade Strategy, Investment And Export: Another Look At East Asia," Pacific Economic Review, 1997, v2(1,Feb), 1-24.
Abstract: The export booms in South Korea and Taiwan starting in the early 1960s are anomalous when compared with later export booms in other, non-East Asian countries such as Chile and Turkey. First, these booms have taken place in the context of comparatively small changes in relative prices in favor of exportables. Second, they have been associated from the start with booms in investment. This paper offers an argument and a formal model to suggest that exports in East Asia may have been driven by an increase in the profitability of investment, with outward orientation a consequence of the investment boom rather than its instigator. In economies like South Korea and Taiwan, an increase in investment required an increase in imports of capital goods. Since savings rose alongside the desired investment, the investment boom was accompanied by a boom in both exports and imports. Moreover, this could happen with a relatively small change in the relative price of exportables.
Handle: RePEc:nbr:nberwo:5339
Template-Type: ReDIF-Paper 1.0
Title: The Gold Standard as a `Good Housekeeping Seal of Approval'
Classification-JEL: F21; N10
Author-Name: Michael D. Bordo
Author-Person: pbo243
Note: DAE
Number: 5340
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5340
File-URL: http://www.nber.org/papers/w5340.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History, vol. 56, no. 2, pp. 389-428, June 1996.
Abstract: In this paper we argue that adherence to the gold standard rule of convertibility of national currencies into a fixed weight of gold served as a `good housekeeping seal of approval' which facilitated access by peripheral countries to foreign capital from the core countries of western Europe. We survey the historical background of gold standard adherence in the period 1870-1914 by nine important peripheral countries. The sample includes the full range of commitment to the gold standard from continuous adherence, through intermittent adherence, to non-adherence. Evidence on the pattern of long-term government bond yields suggests that long-term commitment to the gold standard mattered even when bonds were denominated in gold: countries that remained on gold throughout the classical era were charged lower rates than countries that had a mixed record of adherence. Estimation of a model analogous to the CAPM, using the differential between peripheral country rates and UK rates augmented by a list of `fundamentals' and a dummy variable to capture gold standard adherence, reveals that capital markets attached significant weight to gold standard adherence. Countries with poor adherence records were charged considerably more than those with good records, enough to explain the determined effort to stay on gold made by a number of capital importing countries.
Handle: RePEc:nbr:nberwo:5340
Template-Type: ReDIF-Paper 1.0
Title: Economics and Politics of Rice Policy in Japan: A Perspective on the Uruguay Round
Classification-JEL: F14; Q10
Author-Name: Yujiro Hayami
Author-Name: Yoshihisa Godo
Note: ITI
Number: 5341
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5341
File-URL: http://www.nber.org/papers/w5341.pdf
File-Format: application/pdf
Publication-Status: published as Yujiro Hayami & Yoshihisa Godo, 1997. "Economics and Politics of Rice Policy in Japan: A Perspective on the Uruguay Round," NBER Chapters, in: Regionalism versus Multilateral Trade Arrangements, NBER-EASE Volume 6, pages 371-404 National Bureau of Economic Research, Inc.
Abstract: This paper reviews the recent problems of the opening of Japan's rice market and evaluates the Japanese government's rice policy from both an economic and political viewpoint. The Japanese government made strenuous resistance to the opening of Japan's rice market during the negotiations on agricultural trade at the GATT Uruguay Round. Eventually Japan's rice was made exempt from tariffication by compensating in the form of increased 'minimum access' import quotas. However, the tariffication rule of the final agreement guarantees that importing countries can impose considerably high tariffs. Thus, the volume of Japan's rice imports could be decreased if the Japanese government accepted the tariffication agreement. In retrospect the decisions made by the Japanese government have effectively protected the vested interests of the domestic rice distribution system, while hindering the structural improvement of the Japanese rice industry.
Handle: RePEc:nbr:nberwo:5341
Template-Type: ReDIF-Paper 1.0
Title: Virtuous Circles of Productivity: Star Bioscientists and the Institutional Transformation of Industry
Classification-JEL: 031
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Note: PR
Number: 5342
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5342
File-URL: http://www.nber.org/papers/w5342.pdf
File-Format: application/pdf
Publication-Status: published as Lynne G. Zucker and Michael R. Darby, “Virtuous Circles in Science and Commerce,” Papers in Regional Science, August 2007, 86(3): 445-471.
Abstract: The most productive (`star') bioscientists possessed intellectual human capital of extraordinary scientific and pecuniary value for some 10-15 yrs after Cohen & Boyer's 1973 founding discovery for biotechnology. This extraordinary value was due to the union of still scarce knowledge of the new research techniques and genius to apply these techniques in valuable ways. As in other sciences, star bioscientists were particularly protective of their ideas in the early years of the revolution, tending to collaborate more within their own institution which slowed diffusion to other scientists. Therefore, close, bench-level working ties between stars and firm scientists were needed to accomplish commercialization of the breakthroughs. Where and when the star scientists were actively producing academic publications is a key determinant of where and when commercial firms began to use biotechnology. The extent of collaboration by a firm's scientists with stars is a powerful predictor of its success: for each 9 articles co-authored by an academic star and firm scientists about 3 more products in development, 1 more on the market and 1550 more employees are estimated. Such collaboration with firms, or employment, also results in significantly higher rates of citation to articles written with the firm. The U.S. scientific and economic infrastructure has been quite effective in fostering and commercializing the bioscientific revolution. To provide an indication of international competitiveness, we estimate stars' distribution, commercial involvement and migration across the top 10 countries in bioscience. These results let us inside the black box to see how scientific breakthroughs become economic growth and consider the implications for policy.
Handle: RePEc:nbr:nberwo:5342
Template-Type: ReDIF-Paper 1.0
Title: Long-Term Effects of Job Displacement: Evidence from the Panel Study of Income Dynamics
Classification-JEL: J6
Author-Name: Ann Huff Stevens
Author-Person: pst180
Note: LS
Number: 5343
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5343
File-URL: http://www.nber.org/papers/w5343.pdf
File-Format: application/pdf
Publication-Status: published as "Persistent Effects of Job Displacement: The Importance of Multiple Job Losses," Journal of Labor Economics (January 1997).
Abstract: This paper measures the long-term wage and earnings losses of workers who lose jobs due to plant closings and layoffs, using a fixed-effects estimator to control for unobserved worker characteristics and longitudinal data from the Panel Study of Income Dynamics. The results show large and persistent effects of displacement on average, with earnings and wages falling by 25 and 12 percent in the year after job loss. Six or more years later, earnings and wages remain reduced by approximately nine percent. Multiple job losses are responsible for much of this persistence. Those workers who avoid subsequent displacements experience more rapid recovery, with earnings and wage reductions of one and four percent six or more years after displacement. These multiple job losses are not heavily concentrated among any identifiable group of workers, but instead affect the recovery patterns of workers with a variety of characteristics.
Handle: RePEc:nbr:nberwo:5343
Template-Type: ReDIF-Paper 1.0
Title: Expectations and the Effects of Monetary Policy
Classification-JEL: E3; E5
Author-Name: Laurence Ball
Author-Person: pba605
Author-Name: Dean Croushore
Author-Person: pcr86
Note: EFG ME
Number: 5344
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5344
File-URL: http://www.nber.org/papers/w5344.pdf
File-Format: application/pdf
Publication-Status: published as Ball, Laurence and Dean Croushore. "Expectations And The Effects Of Monetary Policy," Journal of Money, Credit and Banking, 2003, v35(4,Aug), 473-484.
Abstract: This paper examines the predictive power of shifts in monetary policy, as measured by changes in the federal funds rate, for output, inflation, and survey expectations of these variables. We find that policy shifts have larger effects on actual output than on expected output, suggesting that agents underestimate the effects of policy on aggregate demand. Our results help to explain the real effects of monetary policy, and they provide a strong rejection of the rational expectations hypothesis.
Handle: RePEc:nbr:nberwo:5344
Template-Type: ReDIF-Paper 1.0
Title: Nonparametric Pricing of Interest Rate Derivative Securities
Author-Name: Yacine Ait-Sahalia
Author-Person: pai23
Note: AP
Number: 5345
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5345
File-URL: http://www.nber.org/papers/w5345.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, May 1996, vol.64, no.3, pp.527-560.
Abstract: We propose a nonparametric estimation procedure for continuous- time stochastic models. Because prices of derivative securities depend crucially on the form of the instantaneous volatility of the underlying process, we leave the volatility function unrestricted and estimate it nonparametrically. Only discrete data are used but the estimation procedure still does not rely on replacing the continuous- time model by some discrete approximation. Instead the drift and volatility functions are forced to match the densities of the process. We estimate the stochastic differential equation followed by the short term interest rate and compute nonparametric prices for bonds and bond options.
Handle: RePEc:nbr:nberwo:5345
Template-Type: ReDIF-Paper 1.0
Title: Testing Continuous-Time Models of the Spot Interest Rate
Author-Name: Yacine Ait-Sahalia
Author-Person: pai23
Note: AP
Number: 5346
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5346
File-URL: http://www.nber.org/papers/w5346.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Vol. 9, no. 2 (Spring 1996): 385-426.
Abstract: Different continuous-time models for interest rates coexist in the literature. We test parametric models by comparing their implied parametric density to the same density estimated nonparametrically. We do not replace the continuous-time model by discrete approximations, even though the data are recorded at discrete intervals. The principal source of rejection of existing models is the strong nonlinearity of the drift. Around its mean, where the drift is essentially zero, the spot rate behaves like a random walk. The drift then mean-reverts strongly when far away from the mean. The volatility is higher when away from the mean.
Handle: RePEc:nbr:nberwo:5346
Template-Type: ReDIF-Paper 1.0
Title: Financial Repression and Capital Mobility: Why Capital Flows and Covered Interest Rate Differentials Fail to Measure Capital Market Integration
Classification-JEL: E44; F41
Author-Name: Michael P. Dooley
Author-Person: pdo13
Author-Name: Menzie Chinn
Author-Person: pch129
Note: IFM
Number: 5347
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5347
File-URL: http://www.nber.org/papers/w5347.pdf
File-Format: application/pdf
Publication-Status: published as Monetary and Economic Studies, Bank of Japan (December 1997): 81-103.
Abstract: Required reserves on banks' deposit liabilities have been utilized by both industrial and developing countries to discourage and sterilize international capital flows. In this paper we utilize an open economy macro model incorporating bank credit to evaluate this policy. The model suggests that high levels of reserve requirements are a perverse policy tool in that they amplify the effects of foreign monetary shocks, but changes in reserve requirements can insulate a repressed financial market from international financial shocks. The model also suggests that traditional measures of capital mobility such as interest parity conditions or the scale of gross private capital flows are of no value in assessing the openness of repressed financial systems.
Handle: RePEc:nbr:nberwo:5347
Template-Type: ReDIF-Paper 1.0
Title: The Discovery of the Residual: An Historical Note
Author-Name: Zvi Griliches
Note: PR
Number: 5348
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5348
File-URL: http://www.nber.org/papers/w5348.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Literature 34(3), Sept.1996, pp.1324-1330.
Abstract: This note reviews the history of the 'residual,' from its earliest articulation in Copeland (1937) to its codification in Solow (1957), describing the various earlier contributions by Tinbergen, Stigler, Schmookler, Fabricant, Kendrick, Abramovitz and others.
Handle: RePEc:nbr:nberwo:5348
Template-Type: ReDIF-Paper 1.0
Title: CARWARS: Trying to Make Sense of U.S.-Japan Trade Frictions in the Automobile and Automobile Parts Markets
Classification-JEL: L1; F1
Author-Name: James Levinsohn
Author-Person: ple386
Note: ITI
Number: 5349
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5349
File-URL: http://www.nber.org/papers/w5349.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of US Trade Protection and Promotion Policies," R. Feenstra, ed ., pp. 11-32, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Carwars: Trying to Make Sense of U.S.-Japan Trade Frictions in the Automobile and Automobile Parts Markets, James Levinsohn. in The Effects of US Trade Protection and Promotion Policies, Feenstra. 1997
Abstract: This paper tries to make sense of the recent trade dispute between the U.S. and Japan in autos and auto parts. The paper argues that there are structural differences between the way that the auto industries are organized in the U.S. and Japan, and that these differences have contributed to the growing bilateral trade deficit in auto parts. The paper also provides econometric estimates of what would have happened had the threatened 100 percent tariff on Japanese luxury cars not been withdrawn by the U.S.
Handle: RePEc:nbr:nberwo:5349
Template-Type: ReDIF-Paper 1.0
Title: Humps and Bumps in Lifetime Consumption
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Author-Name: James Banks
Author-Person: pba509
Author-Name: Costas Meghir
Author-Person: pme144
Author-Name: Guglielmo Weber
Author-Person: pwe54
Note: EFG
Number: 5350
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5350
File-URL: http://www.nber.org/papers/w5350.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Business and Economic Statistics, Vol. 17, no. 1 (January 1999): 22-35.
Abstract: In this paper we argue that once one departs from the simple classroom example, or `stripped down life-cycle model,' the empirical model for consumption growth can be made flexible enough to fit the main features of the data. More specifically, we show that allowing demographics to affect household preferences and relaxing the assumption of certainty equivalence can generate hump-shaped consumption profiles over age that are very similar to those observed in household-level data sources, without appealing to alternative explanations (such as liquidity constraints, myopia or mental accounting). The hump-shape is partly attributable to precautionary savings, and partly due to demographics; the tracking (whereby consumption jumps with income) is instead due to the permanent nature of the income shocks. We use US household-level data to estimate preference parameters and income profiles, and then simulate consumption profiles for different education groups. Our simulated profiles show that the key features observed in the data can be closely matched in simulation. We also show that neglecting uncertainty produces consumption profiles that are `too flat,' whereas neglecting demographics generates consumption profiles that peak `too late.'
Handle: RePEc:nbr:nberwo:5350
Template-Type: ReDIF-Paper 1.0
Title: Nonparametric Estimation of State-Price Densities Implicit in Financial Asset Prices
Classification-JEL: G12; G13
Author-Name: Yacine Ait-Sahalia
Author-Person: pai23
Author-Name: Andrew W. Lo
Author-Person: plo171
Note: AP
Number: 5351
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5351
File-URL: http://www.nber.org/papers/w5351.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol. 53, no. 2 (April 1998): 499-547.
Abstract: Implicit in the prices of traded financial assets are Arrow- Debreu state prices or, in the continuous-state case, the state-price density (SPD). We construct an estimator for the SPD implicit in option prices and derive an asymptotic sampling theory for this estimator to gauge its accuracy. The SPD estimator provides an arbitrage-free method of pricing new, more complex, or less liquid securities while capturing those features of the data that are most relevant from an asset-pricing perspective, e.g., negative skewness and excess kurtosis for asset returns, volatility 'smiles' for option prices. We perform Monte Carlo simulation experiments to show that the SPD estimator can be successfully extracted from option prices and we present an empirical application using S&P 500 index options.
Handle: RePEc:nbr:nberwo:5351
Template-Type: ReDIF-Paper 1.0
Title: A Survey of Academic Literature on Controls over International Capital Transactions
Classification-JEL: F34; G15
Author-Name: Michael P. Dooley
Author-Person: pdo13
Note: IFM
Number: 5352
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5352
File-URL: http://www.nber.org/papers/w5352.pdf
File-Format: application/pdf
Publication-Status: published as IMF, Vol. 43, no. 4 (December 1996): 639-687.
Abstract: This paper reviews recent theoretical and empirical work on controls over international capital movements. Theoretical contributions reviewed focus on 'second best' arguments for capital market restrictions as well as arguments based on multiple equilibria. The empirical literature suggests that controls have been 'effective' in the narrow sense of influencing yield differentials. But there is little evidence that controls have helped governments meet policy objectives, with the exception of reduction in the governments' debt service costs, and no evidence that controls have enhanced economic welfare in a manner suggested by theory.
Handle: RePEc:nbr:nberwo:5352
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Catholic Secondary Schooling on Educational Attainment
Classification-JEL: I2; J24
Author-Name: Derek Neal
Note: LS
Number: 5353
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5353
File-URL: http://www.nber.org/papers/w5353.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, vol.15, no.1, pp.98-123, January,1997.
Abstract: Using data from the National Longitudinal Survey of Youth, this paper provides a detailed analysis of the effect of Catholic secondary schooling on high-school graduation rates and also examines Catholic schooling's effect on college graduation rates and future wages. The paper uses data from the National Catholic Educational Association and the Survey of Churches and Church Membership to construct measures of access to Catholic secondary schooling for each county in the United States. These measures of access provide potential instruments for Catholic school attendance. The results indicate that Catholic secondary schools are geographically concentrated in urban areas and that Catholic schooling greatly increases educational attainment among urban minorities. The gains from Catholic schooling are modest for urban whites and negligible for suburban whites. Related analyses suggest that urban minorities benefit greatly from access to Catholic schooling primarily because the public schools available to them are quite poor.
Handle: RePEc:nbr:nberwo:5353
Template-Type: ReDIF-Paper 1.0
Title: State Reproductive Policies and Adolescent Pregnancy Resolution: The Case of Parental Involvement Laws
Classification-JEL: J1
Author-Name: Theodore Joyce
Author-Person: pjo112
Author-Name: Robert Kaestner
Author-Person: pka42
Note: EH
Number: 5354
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5354
File-URL: http://www.nber.org/papers/w5354.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 15, no. 5 (October 1996).
Abstract: State laws regulating abortion have increased markedly in the wake of recent Supreme Court decisions. We test whether one form of abortion regulation, parental involvement laws, affects how pregnancies are resolved. Specifically, we examine whether laws that require minors to notify or obtain consent from a parent before receiving an abortion affect the likelihood that a pregnancy will be terminated. We use individual data on births and abortions from three southern states, South Carolina, Tennessee, and Virginia. A distinguishing characteristic of our data is the large sample of abortions, the quality of reporting, and information on individual and county characteristics. We detect no significant effects of parental involvement laws on the probability of abortion for minors as a single treatment group, a finding contrary to several recent studies. We do find, however, that for non-black minors 16 years of age, South Carolina's parent consent statute is associated with a 10 percentage point fall in the probability of abortion, a relative decline of over 20 percent. We believe this to be an upper bound estimate given potential underreporting of induced terminations. We also find a comparatively weak relationship between distance from an abortion provider and the probability that a pregnancy is aborted. We conclude that minors include their parents in the decision to terminate a pregnancy. Other minors seek abortion in a neighboring state. Overall, the impact of parental involvement laws on the pregnancy resolution of minors is not large.
Handle: RePEc:nbr:nberwo:5354
Template-Type: ReDIF-Paper 1.0
Title: Technology, Trade, and Factor Prices
Author-Name: Paul Krugman
Author-Person: pkr10
Note: ITI
Number: 5355
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5355
File-URL: http://www.nber.org/papers/w5355.pdf
File-Format: application/pdf
Publication-Status: published as Krugman, Paul. R. "Technology, Trade And Factor Prices," Journal of International Economics, 2000, v50(1,Feb), 51-71.
Abstract: A number of recent studies appear to show that international trade is a secondary factor in the growing inequality of wages, with technology probably the main culprit. These studies have, however, been subjected to severe and in some cases harshly worded criticism by trade theorists, who argue that the authors of these studies have misspecified the impacts of both technology and trade on factor prices. This paper shows that it is the critics who are confused. In particular, much recent discussion about technology, trade, and wages is marked by a failure to distinguish between the models we all use and the particular thought experiments we typically use to teach these models -- which happen not to be the appropriate thought experiments we need to analyze the real-world issues.
Handle: RePEc:nbr:nberwo:5355
Template-Type: ReDIF-Paper 1.0
Title: The Effects of HMOs on Conventional Insurance Premiums: Theory and Evidence
Classification-JEL: I1; L0
Author-Name: Laurence C. Baker
Author-Name: Kenneth S. Corts
Author-Person: pco225
Note: EH
Number: 5356
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5356
File-URL: http://www.nber.org/papers/w5356.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Paper and Proceedings, Vol. 86, no. 2, 1996, pp. 389-94
Abstract: We develop a model of imperfectly competitive insurers that compete with HMOs for consumers who have private information about their health status. We illustrate two conflicting effects of increasing HMO activity on conventional insurance premiums. We term these effects market discipline -- HMO competition may limit the ability of insurers to exercise market power, thus driving prices down -- and market segmentation -- HMOs may skim the healthiest patients, thus driving insurers' costs and prices up. We empirically examine the relative importance of these effects using data from a firm-level survey that provides data on premiums, together with market-level measures of HMO activity. Our results suggest that the market segmentation effect is important, and that increases in HMO activity may increase insurance premiums.
Handle: RePEc:nbr:nberwo:5356
Template-Type: ReDIF-Paper 1.0
Title: Predation and Accumulation
Classification-JEL: O41; E21
Author-Name: Herschel I. Grossman
Author-Name: Minseong Kim
Author-Person: pki94
Note: EFG
Number: 5357
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5357
File-URL: http://www.nber.org/papers/w5357.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, vol. 1, pp. 333-350, September 1996.
Abstract: This paper incorporates the economic theory of predation into the theory of economic growth. The analytical framework is a dynamic general-equilibrium model of the interaction between two dynasties, one of which is a potential predator and the other is its prey. Each generation of each dynasty has to decide how to allocate its endowment of inherited wealth not only to consumption and productive capital, as in standard growth models, but also to either defensive fortifications or offensive weapons. Productive capital forms a basis for accumulation of wealth but in each generation predation can cause both the destruction of wealth and a redistribution of wealth from the prey dynasty to the predator dynasty. We find that, if the current wealth of the potential predator dynasty is small relative to the current wealth of the prey dynasty, then the current generation of the prey dynasty chooses to tolerate predation rather than to deter predation. We also find that over generations the security of the prey dynasty's property and the rate of accumulation of the it's productive capital both steadily decrease, while the inherited wealth of the predator dynasty grows relative to that of the prey dynasty. Eventually a generation of the prey dynasty will find that with predation its property is so insecure it is better off increasing its defensive fortifications to deter predation.Importantly, the relation between the security of the prey dynasty's property and its accumulation of productive capital, is neither continuous nor monotonic. Generations of the prey dynasty that choose to deter predation even though their property is secure accumulate productive capital more slowly than the preceding generations that tolerated predation. Even if deterrence becomes preferable for the prey dynasty than predation, deterrence is costly.
Handle: RePEc:nbr:nberwo:5357
Template-Type: ReDIF-Paper 1.0
Title: Explaining Asset Bubbles in Japan
Classification-JEL: E4; G1
Author-Name: Takatoshi Ito
Author-Name: Tokuo Iwaisako
Note: IFM
Number: 5358
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5358
File-URL: http://www.nber.org/papers/w5358.pdf
File-Format: application/pdf
Publication-Status: published as Bank of Japan, Monetary and Economic Studies. Vol. 14, July, 1996: 143-193.
Abstract: This paper examines the stock and land price behaviors during the bubble economy period (the second half of the 1980s), paying considerable attention to the linkage of the two markets and the effects of monetary policy. In particular, we examine whether the booms in these asset prices can be justified by changes of the fundamental economic variables such as the interest rates or the growth of the real economy. A complex chain of events is needed to explain the process of asset price inflation and deflation. Our empirical results suggest (i) that the initial increases of asset prices are sown by a sharp increase in bank lending to real estate; (ii) that a considerable comovement between stock and land prices is consistent with a theory that emphasizes the relationship between the collateral value of land and cash flow for constrained firms; (iii) that although the real economy was doing well and the interest rates were still low, asset price increases from mid-1987 to mid-1989 cannot be fully justified by the movement of fundamentals alone; and (iv) the stock price increase in the second half of 1989 and the land price increase in 1990 is not explained by any asset pricing model based on fundamentals or rational bubbles.
Handle: RePEc:nbr:nberwo:5358
Template-Type: ReDIF-Paper 1.0
Title: Causes and Consequences of the Export Enhancement Program for Wheat
Classification-JEL: F1; Q1
Author-Name: Pinelopi K. Goldberg
Author-Person: pgo1
Author-Name: Michael M. Knetter
Note: ITI
Number: 5359
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5359
File-URL: http://www.nber.org/papers/w5359.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of US Trade Protection and Promotion Policies, R. Feenstra, ed.pp. 273-296, (Chicago: University of Chicago Press, 1997). NBER Conference Volume
Publication-Status: published as Causes and Consequences of the Export Enhancement Program for Wheat, Pinelopi Koujianou Goldberg, Michael M. Knetter. in The Effects of US Trade Protection and Promotion Policies, Feenstra. 1997
Abstract: This paper uses regression analysis to study the causes and impacts of the Export Enhancement Program for wheat. We find that the overwhelming causes of the EEP, faltering export markets and swelling government stocks are primarily attributable to the overvaluation of the dollar in the 1980s, not the increase in EC subsidies to wheat farmers in 1985. We also find that what had been a fairly robust relationship between export shares, exchange rates, and loan rates broke down after 1985, probably due to a variety of changes in farm policy. In any case, export shares did not rebound in spite of the weaker dollar and the implementation of the EEP in the post-1985 period.
Handle: RePEc:nbr:nberwo:5359
Template-Type: ReDIF-Paper 1.0
Title: HMOs and Fee-For-Service Health Care Expenditures: Evidence from Medicare
Classification-JEL: I1
Author-Name: Laurence C. Baker
Note: EH
Number: 5360
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5360
File-URL: http://www.nber.org/papers/w5360.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 16, no. 4 (August 1997): 453-481.
Abstract: Increasing levels of HMO activity may influence health expenditures in other sectors of the market. Medicare provides FFS coverage to the majority of its beneficiaries and may thus provide a way of examining these so-called spillover effects. This paper examines 1986-1990 Medicare FFS expenditures at the county- and MSA- levels, coupled with county- and MSA-level measures of HMO market share. Fixed-effects and IV estimates of the relationship between market share and expenditures are presented. All of the models imply that FFS expenditures are concave in market share and that expenditures are decreasing in market share for market shares above about 18%. Many of the estimates suggest that expenditures become decreasing in market share at much lower levels (between 0% and 10%). Fixed-effects estimates imply that increases in market share from 20 to 30 percent would be associated with expenditure reductions of 3.4% -6.6% in Part A expenditures and 2.5% - 5.6% in Part B expenditures. IV estimates imply larger responses. The results are consistent with the hypothesis that managed care can affect non-managed-care expenditures.
Handle: RePEc:nbr:nberwo:5360
Template-Type: ReDIF-Paper 1.0
Title: Optimal Buffer Stocks and Precautionary Savings with Disappointment Aversion
Classification-JEL: F1
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI
Number: 5361
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5361
File-URL: http://www.nber.org/papers/w5361.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money & Finance, Vol. 17 (1998): 931-947.
Abstract: Developing countries use various risk reduction schemes, ranging from active management of buffer stocks and international reserves to commodity stabilization funds. The purpose of this paper is to reexamine the design of these schemes in a generalized expected utility maximization model where agents are disappointment averse. We derive first the generalized risk premium, showing that disappointment aversion increases the conventional risk premium by a term proportional to the standard deviation times the degree of disappointment aversion. Next, we show that disappointment aversion modifies the characteristics of precautionary saving. The concavity of the marginal utility continues to determine precautionary saving, but its effect is of a second order magnitude (proportional to the variance) compared to the first order effect (proportional to the standard deviation) induced by disappointment aversion. Hence, higher volatility increases the precautionary saving of a disappointment averse agent. This result applies even if the income process approaches a random walk. Finally, we reexamine the optimal size of buffer stocks, showing that disappointment aversion increases its size by a first order magnitude. A buffer stock that is rather small when agents are maximizing the conventional expected utility is rather large when agents are disappointment averse.
Handle: RePEc:nbr:nberwo:5361
Template-Type: ReDIF-Paper 1.0
Title: Privatizing Social Security: First Round Effects of a Generic, VoluntaryPrivatized U.S. Social Security System
Classification-JEL: H55
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 5362
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5362
File-URL: http://www.nber.org/papers/w5362.pdf
File-Format: application/pdf
Publication-Status: published as in Martin Feldstein, ed. Privatizing Social Security, University of Chicago Press, 1998
Abstract: This paper investigates individual responses to a simple scheme to privatize social security. The analysis explores the sensitivity of outcomes to how individuals project life expectancy, how they value spouse and survivor benefits, and to expected future reductions in social security benefits. Depending on assumptions made, first year participation ranges from 20% to almost 100%. Estimated time paths for taxes decline immediately with privatization, but the decline in benefits grows slowly over a period of two or three decades. Labor force participation rates are not greatly affected by privatization, even if major changes in pensions are induced.
Handle: RePEc:nbr:nberwo:5362
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Irreversibility and Uncertainty on Capital Accumulation
Classification-JEL: E22
Author-Name: Andrew B. Abel
Author-Person: pab10
Author-Name: Janice C. Eberly
Author-Person: peb3
Note: AP EFG ME
Number: 5363
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5363
File-URL: http://www.nber.org/papers/w5363.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 44, no. 3 (December 1999): 339-377.
Abstract: When investment decisions cannot be reversed and returns to capital are uncertain, the firm faces a higher user cost of capital than if it could reverse its decisions. This higher user cost tends to reduce the firm's capital stock. Opposing this effect is the irreversibility constraint itself: when the constraint binds, the firm would like to sell capital but cannot. This effect tends to increase the firm's capital stock. We show that a firm with irreversible investment may have a higher or a lower expected capital stock, even in the long run, compared to an otherwise identical firm with reversible investment. Furthermore, an increase in uncertainty can either increase or decrease the expected long-run capital stock under irreversibility relative to that under reversibility. However, changes in the expected growth rate of demand, the interest rate, the capital share in output, and the price elasticity of demand all have unambiguous effects.
Handle: RePEc:nbr:nberwo:5363
Template-Type: ReDIF-Paper 1.0
Title: Investment Creation and Investment Diversion: Simulation Analysis of theSingle Market Programme
Classification-JEL: F12; F43
Author-Name: Richard E. Baldwin
Author-Person: pba124
Author-Name: Rikard Forslid
Author-Name: Jan Haaland
Note: ITI
Number: 5364
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5364
File-URL: http://www.nber.org/papers/w5364.pdf
File-Format: application/pdf
Abstract: This paper studies the investment creation and diversion effects of the EU's Single Market programme (EU92). We first present empirical evidence which suggests that EU92 caused investment diversion in the European Free Trade Association (EFTA) nations and investment creation in the EU. The economic logic behind this is simple. Discriminatory liberalization shifts production of tradable goods from nonintegrating countries to the integrating region. Since tradable sectors are capital intensive relative to nontraded sectors, the production shifting raises the rental rate in the integrating regions, lowering it elsewhere. Investment creation and diversion is the result. To simulate what would have occurred if the EFTAns had never gained access to EU92 (via EU membership or the European Economic Area), we employ a computable general equilibrium model with endogenous capital stocks. The results show a modest drop in EFTA capital stocks when they are excluded from EU92, but an important rise (almost 5%) when they are included. In terms of real income, the difference between the included and excluded cases is quite large for the EFTAns (5.5% of GDP). In all cases, the EU experiences investment creation and income gains. The effects on the US and Japan are trivially small, but mostly negative in terms of capital stocks and real income.
Handle: RePEc:nbr:nberwo:5364
Template-Type: ReDIF-Paper 1.0
Title: Large Countries, Small Countries, and the Enlargement of Trade Blocs
Classification-JEL: F12; F15
Author-Name: Alessandra Casella
Author-Person: pca496
Note: ITI
Number: 5365
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5365
File-URL: http://www.nber.org/papers/w5365.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, vol. 40, no. 2, pp. 389-415, February 1996
Abstract: Are there systematic forces such that countries of different sizes participating in a free trade bloc gain differently from the entry of new members? If economies of scale imply that firms located in large countries enjoy lower costs, then the gains from enlarging the bloc will fall disproportionately on small countries, because the entry of new members diminishes the importance of the domestic market and improves the small countries' relative competitiveness. The theoretical prediction is clear, but the empirical analysis of trade flows towards Spain and Portugal after their 1986 entry into the European Community yields mixed results. France and the U.K. appear to have lost market shares relative to the small countries in the Community, but the same is not true for Italy and, to a lesser degree, for Germany.
Handle: RePEc:nbr:nberwo:5365
Template-Type: ReDIF-Paper 1.0
Title: Beauty, Productivity and Discrimination: Lawyers' Looks and Lucre
Classification-JEL: J71; J19
Author-Name: Jeff E. Biddle
Author-Person: pbi98
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 5366
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5366
File-URL: http://www.nber.org/papers/w5366.pdf
File-Format: application/pdf
Publication-Status: published as Biddle, Jeff E. and Daniel S. Hamermesh. "Beauty, Productivity, And Discrimination: Lawyers' Looks And Lucre," Journal of Labor Economics, 1998, v16(1,Jan), 172-201.
Abstract: We propose several models in which an ascriptive characteristic generates earnings differentials and is sorted across sectors. The general approach shows how to distinguish the ultimate sources of labor-market returns to such characteristics; the specific example uses longitudinal data on a large sample of attorneys who graduated from one law school. Beauty is measured by ratings of their matriculation photographs. 1) Better-looking attorneys who graduated in the 1970s earned more after 5 years of practice than their worse- looking classmates, other things equal, an effect that grew even larger by the fifteenth year of practice. There is no impact of beauty on earnings among 1980s graduates. 2) Attorneys in the private sector are better-looking than those in the public sector, with the differences rising as workers sort across sector based on their beauty. 3) Male attorneys' probability of attaining an early partnership rises with beauty. The results support a theory of dynamic sorting and the role of customer behavior. We cannot determine whether this is because clients discriminate or because better-looking lawyers are able to obtain greater pecuniary gains for their clients.
Handle: RePEc:nbr:nberwo:5366
Template-Type: ReDIF-Paper 1.0
Title: Why Do Companies Go Public? An Empirical Analysis
Author-Name: Marco Pagano
Author-Person: ppa56
Author-Name: Fabio Panetta
Author-Name: Luigi Zingales
Note: CF
Number: 5367
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5367
File-URL: http://www.nber.org/papers/w5367.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 53, no. 1 (February 1998): 27-64.
Abstract: This paper empirically analyzes the determinants of an initial public offering (IPO) and the consequences of this decision on a company's investment and financial policy. We compare both the ex ante and the ex post characteristics of IPOs with those of a large sample of privately held companies of similar size. We find that (i) the likelihood of an IPO is positively related to the market-to-book ratio prevailing in the relevant industrial sector and to a company's size, (ii) IPOs are followed by an abnormal reduction in profitability, (iii) the new equity capital raised upon listing is not used to finance subsequent investment and growth, but to reduce leverage, (iv) going public reduces the cost of bank credit; (v) it is often associated by equity sales by controlling shareholders, and is followed by a higher turnover of control than for other companies.
Handle: RePEc:nbr:nberwo:5367
Template-Type: ReDIF-Paper 1.0
Title: Strikes and the Law in the U.S., 1881-1894: New Evidence on the Origins of American Exceptionalism
Classification-JEL: J52; K31
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Joseph Ferrie
Note: DAE LS
Number: 5368
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5368
File-URL: http://www.nber.org/papers/w5368.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "The Law and Labor Strife in the U.S.; 1881-1894") Journal of Labor History (March 2000).
Abstract: The origins of American exceptionalism þ the apolitical nature of American labor unions compared to their European counterparts þ have puzzled labor historians. Recently, the hypothesis has been advanced that organized labor abandoned attempts to win reform through legislation because the reforms did not have the desired consequences. We evaluate this claim using information on each state's legal environment and unique strike-level data on over 12,000 labor disputes between 1881 and 1894. We find that the law affected strike costs and strike outcomes, though not always in the anticipated directions. For example, laws outlawing blacklisting were associated with the increased use of strike breakers, while the legalization of unions, one of the hardest won legislative changes, had little impact. Only maximum hours laws had clearly pro-labor effects. Our results are consistent with the view that the American labor movement abandoned political activism and embraced business unionism because unions found the law to be an inaccurate instrument for effecting change in labor markets.
Handle: RePEc:nbr:nberwo:5368
Template-Type: ReDIF-Paper 1.0
Title: Education Finance Reform and Investment in Human Capital: Lessons from California
Classification-JEL: I22; H42
Author-Name: Raquel Fernandez
Author-Person: pfe17
Author-Name: Richard Rogerson
Author-Person: pro53
Note: IFM PE
Number: 5369
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5369
File-URL: http://www.nber.org/papers/w5369.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 74 (1999): 327-350.
Abstract: This paper examines the effect of different education financing systems on the level and distribution of resources devoted to public education. We focus on California, which in the 1970's moved from a system of mixed local and state financing to one of effectively pure state finance and subsequently saw its funding of public education fall between ten and fifteen percent relative to the rest of the US. We show that a simple political economy model of public finance can account for the bulk of this drop. We find that while the distribution of spending became more equal, this was mainly at the cost of a large reduction in spending in the wealthier communities with little increase for the poorer districts. Our model implies that there is no simple trade-off between equity and resources; we show that if California had moved to the opposite extreme and abolished state aid altogether, funding for public education would also have dropped by almost ten percent.
Handle: RePEc:nbr:nberwo:5369
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Increased Tax Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of the 1993 Tax Rate Increases
Classification-JEL: H24; H21
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Daniel Feenberg
Author-Person: pfe56
Note: PE
Number: 5370
Creation-Date: 1995-11
Order-URL: http://www.nber.org/papers/w5370
File-URL: http://www.nber.org/papers/w5370.pdf
File-Format: application/pdf
Publication-Status: published as The Effect of Increased Tax Rates on Taxable Income and Economic Efficiency: A Preliminary Analysis of the 1993 Tax Rate Increases, Martin Feldstein, Daniel Feenberg. in Tax Policy and the Economy, Volume 10, Poterba. 1996
Abstract: The 1993 tax legislation raised marginal tax rates to 36 percent from 31 percent on taxable incomes between $140,000 and $250,000 and to 39.6 percent on incomes above $250,000. This paper uses recently published IRS data on taxable incomes by adjusted gross income class to analyze how the 1993 tax rate increases affected taxable income, tax revenue, and economic efficiency. Our estimates are based on a difference-in-difference procedure comparing growth of taxable incomes among taxpayers with AGIs over $200,000 to the growth of incomes of lower income taxpayers. We use the NBER TAXSIM model to adjust for interyear differences in the composition of the two taxpayer groups. The results show that high income taxpayers would have reported 7.8 percent more taxable income in 1993 than they did if their tax rates had not increased. Because of the high threshold for the increase in tax rates, this decline in taxable income caused the Treasury to lose more than half of the extra revenue that would have been collected if taxpayers had not changed their behavior. The deadweight loss caused by the higher marginal tax rates (including the effects on labor supply and on consumption of goods and services favored by deductions and exclusions) is approximately twice as large as the $8 billion in revenue raised by the 1993 tax rate. Several possible statistical biases could cause the estimated effect of the tax changes to either underestimate or overestimate the true long-run effect. The paper concludes with a discussion of these problems and of plans for future analysis.
Handle: RePEc:nbr:nberwo:5370
Template-Type: ReDIF-Paper 1.0
Title: Real Versus Pseudo-International Systemic Risk: Some Lessons from History
Classification-JEL: E44; G15
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Bruce Mizrach
Author-Person: pmi12
Author-Name: Anna J. Schwartz
Note: ME
Number: 5371
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5371
File-URL: http://www.nber.org/papers/w5371.pdf
File-Format: application/pdf
Publication-Status: published as Michael D. Bordo & Bruce Mizrach & Anna J. Schwartz, 1998. "Real versus Pseudo-International Systemic Risk Some Lessons from History," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 1(01), pages 31-58.
Abstract: This paper considers the meaning of domestic and international systemic risk. It examines scenarios that have been adduced as creating systemic risk both within countries and among them. It distinguishes between the concepts of real and pseudo-systemic risk. We examine the history of episodes commonly viewed either as financial crises or as evidencing systemic risk to glean lessons for today. We also present some statistical evidence on possible recent systemic risk linkages between the stock markets of emerging countries. The paper concludes with a discussion of the lessons yielded by the record.
Handle: RePEc:nbr:nberwo:5371
Template-Type: ReDIF-Paper 1.0
Title: Immigration and the Welfare State: Immigrant Participation in Means- Tested Entitlement Programs
Classification-JEL: J0
Author-Name: George J. Borjas
Author-Person: pbo44
Author-Name: Lynette Hilton
Note: LS
Number: 5372
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5372
File-URL: http://www.nber.org/papers/w5372.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 111, no. 2 (May 1996): 575-604. Published as "Immigration and the Family", JLE, Vol. 9, no. 2 (1991): 123-148.
Abstract: This paper documents the extent to which immigrants participate in the many programs that make up the welfare state. The immigrant- native difference in the probability of receiving cash benefits is small, but the gap widens once other programs are included in the analysis: 21 percent of immigrant households receive some type of assistance, as compared to only 14 percent of native households. The types of benefits received by earlier immigrants influence the types of benefits received by newly arrived immigrants. Hence there might be ethnic networks which transmit information about the availability of particular benefits to new immigrants.
Handle: RePEc:nbr:nberwo:5372
Template-Type: ReDIF-Paper 1.0
Title: Social Construction of Trust to Protect Ideas and Data in Space Science and Geophysics
Classification-JEL: O31
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Note: PR
Number: 5373
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5373
File-URL: http://www.nber.org/papers/w5373.pdf
File-Format: application/pdf
Publication-Status: published as Lynne G. Zucker and Michael R. Darby, “Sociological Analysis of Multi-Institutional Collaborations in Space Science and Geophysics,” in Joan Warnow-Blewett, Anthony J. Capitos, Joel Genuth, and Spencer R. Weart, with contributions by Frederik Nebeker, Lynne Zucker, and Michael Darby, AIP Study of Multi-Institutional Collaborations, Phase II: Space Science and Geophysics. Report No. 2: Documenting Collaborations in Space Science and Geophysics, College Park, MD: American Institute of Physics, 1995
Abstract: This paper applies a rational action/economic sociology approach to the central organizational theory question of whether action is embedded in pre-formed institutions that are relatively cheap in terms of time and energy, or to what extent action becomes embedded in newly constructed institutions that are more costly but perhaps better adapted to task goals. We develop a new model of the social construction of trust-producing social structure based on the initial endowment of this structure, the demand for it, and the cost of social construction. We test the model with data on construction of social structure in collaborations in space science and geophysics developed in a large number of interviews conducted by the Center for History of Physics of the American Institute of Physics. We do find that greater pre-existing endowment reduces social construction of new institutions while greater demand for trust increases that construction. We also find some evidence that social construction of trust-producing social structure in fact results in production of higher value science.
Handle: RePEc:nbr:nberwo:5373
Template-Type: ReDIF-Paper 1.0
Title: A Cross-Market Comparison of Institutional Equity Trading Costs
Classification-JEL: G10; G18
Author-Name: Louis K. C. Chan
Author-Name: Josef Lakonishok
Note: AP
Number: 5374
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5374
File-URL: http://www.nber.org/papers/w5374.pdf
File-Format: application/pdf
Publication-Status: Published as "Institutional Equity Trading Costs: NYSE Versus Nasdaq", Journal of Finance, Vol. 52, no. 2 (June 1997): 713-735.
Abstract: We compare execution costs (market impact plus commission) on the New York Stock Exchange (NYSE) and on Nasdaq for institutional investors. The differences in cost generally conform to each market's area of specialization. Controlling for firm size, trade size and the money management firm's identity, costs are lower on Nasdaq for trades in comparatively smaller firms. For the smallest firms, the cost advantage under a pre-execution benchmark is 0.68 percent. However, trading costs for the larger stocks are lower on NYSE. For the largest stocks, costs are lower by 0.48 percent on NYSE. Given the extreme difficulty of controlling for variables other than market structure, however, comparisons of costs should be interpreted with extreme caution.
Handle: RePEc:nbr:nberwo:5374
Template-Type: ReDIF-Paper 1.0
Title: Momentum Strategies
Classification-JEL: G12; G14
Author-Name: Louis K. C. Chan
Author-Name: Narasimhan Jegadeesh
Author-Name: Josef Lakonishok
Note: AP
Number: 5375
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5375
File-URL: http://www.nber.org/papers/w5375.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance (December 1996).
Abstract: We relate the predictability of future returns from past returns to the market's underreaction to information, focusing on past earnings news. Past return and past earnings surprise each predict large drifts in future returns after controlling for the other. There is little evidence of subsequent reversals in the returns of stocks with high price and earnings momentum. Market risk, size and book-to- market effects do not explain the drifts. Security analysts' earnings forecasts also respond sluggishly to past news, especially in the case of stocks with the worst past performance. The results suggest a market that responds only gradually to new information.
Handle: RePEc:nbr:nberwo:5375
Template-Type: ReDIF-Paper 1.0
Title: Heterogeneous Expectations and Tests of Efficiency in the Yen/Dollar Forward Foreign Exchange Rate Market
Classification-JEL: F31; G14
Author-Name: Graham Elliott
Author-Person: pel18
Author-Name: Takatoshi Ito
Note: IFM
Number: 5376
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5376
File-URL: http://www.nber.org/papers/w5376.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 43, no. 2 (April 1999): 435-456.
Abstract: This paper examines the efficiency of the forward yen/dollar market using micro survey data. We first argue that the conventional tests of efficiency (unbiasedness) of the forward rate or of the survey forecasts do not correspond directly to the zero-profit condition. Instead, we use the survey data to calculate directly potential profits of individual forecasters based on a natural trading rule. We find that although the survey data are not the best predictor of future spot rate in terms of typical mean square forecast error criteria, the survey data can be used to obtain on average positive profits. However, these profits are small and highly variable. We also examine profits generated by a trading rule using regression forecasts, where forward premium is an explanatory variable. These profits are also small and highly variable.
Handle: RePEc:nbr:nberwo:5376
Template-Type: ReDIF-Paper 1.0
Title: Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?
Classification-JEL: F11
Author-Name: Alan V. Deardorff
Author-Person: pde56
Note: IFM
Number: 5377
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5377
File-URL: http://www.nber.org/papers/w5377.pdf
File-Format: application/pdf
Publication-Status: published as Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?, Alan Deardorff. in The Regionalization of the World Economy, Frankel. 1998
Abstract: This paper derives bilateral trade from two cases of the Heckscher-Ohlin Model, both also representing a variety of other models as well. First is frictionless trade, in which the absence of all impediments to trade in homogeneous products causes producers and consumers to be indifferent among trading partners. Resolving this indifference randomly, expected trade flows correspond exactly to the simple frictionless gravity equation if preferences are identical and homothetic, or if demands are uncorrelated with supplies, and they depart from the gravity equation systematically when there are such correlations. In the second case, countries produce distinct goods, as in the H-O Model with complete specialization or a variety of other models, and preferences are either Cobb-Douglas or CES. Here trade tends to the standard gravity equation with trade declining in distance, with departures from it that depend on relative transport costs. Conclusions are, first, that even a simple gravity equation can be derived from standard trade theories, and second, that because the gravity equation characterizes many models, its use to test any of them is suspect.
Handle: RePEc:nbr:nberwo:5377
Template-Type: ReDIF-Paper 1.0
Title: Parental Altruism and Inter Vivos Transfers: Theory and Evidence
Classification-JEL: D10; D91
Author-Name: Joseph G. Altonji
Author-Person: pal266
Author-Name: Fumio Hayashi
Author-Person: pha83
Author-Name: Laurence Kotlikoff
Author-Person: pko44
Note: LS PE
Number: 5378
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5378
File-URL: http://www.nber.org/papers/w5378.pdf
File-Format: application/pdf
Publication-Status: published as Altonji, Joseph G., Fumio Hayashi and Laurence J. Kotlikoff. "Parental Altruism And Inter Vivos Transfers: Theory And Evidence," Journal of Political Economy, 1997, v105(6,Dec), 1121-1166.
Abstract: This paper uses PSID data on the extended family to test whether inter vivos transfers from parents to children are motivated by altruism. Specifically, the paper tests whether an increase by one dollar in the income of parents actively making transfers to a child coupled with a one dollar reduction in that child's income results in the parents increasing their transfer to the child by one dollar. This restriction on parental and child transfer-income derivatives is derived for the standard altruism model augmented to include uncertain and liquidity constraints. These additional elements pin down the timing of inter vivos transfers. The paper's method of estimating income-transfer derivatives takes into account unobserved heterogeneity across families in the degree of altruism. The findings strongly reject the altruism hypothesis. Redistributing one dollar from a recipient child to donor parents leads to less than a 13 cent increase in the parents' transfer to the child -- far less than the one dollar increase implied by altruism.
Handle: RePEc:nbr:nberwo:5378
Template-Type: ReDIF-Paper 1.0
Title: Predicting U.S. Recessions: Financial Variables as Leading Indicators
Classification-JEL: E52; C53
Author-Name: Arturo Estrella
Author-Person: pes29
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 5379
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5379
File-URL: http://www.nber.org/papers/w5379.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, vol.80, no.1, pp. 45-61, February 1998.
Abstract: This article examines the performance of various financial variables as predictors of subsequent U.S. recessions. Series such as interest rates and spreads, stock prices, currencies, and monetary aggregates are evaluated singly and in comparison with other financial and non-financial indicators. The analysis focuses on out-of-sample performance from 1 to 8 quarters ahead. Results show that stock prices are useful with 1-2 quarter horizons, as are some well-known macroeconomic indicators. Beyond 2 quarters, the slope of the yield curve emerges as the clear choice, and typically performs better by itself out of sample than in conjunction with other variables.
Handle: RePEc:nbr:nberwo:5379
Template-Type: ReDIF-Paper 1.0
Title: Why Have Separate Environmental Taxes?
Classification-JEL: H2; Q2
Author-Name: Don Fullerton
Author-Person: pfu10
Note: PE
Number: 5380
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5380
File-URL: http://www.nber.org/papers/w5380.pdf
File-Format: application/pdf
Publication-Status: published as Why Have Separate Environmental Taxes?, Don Fullerton. in Tax Policy and the Economy, Volume 10, Poterba. 1996
Abstract: Each environmental tax in the U.S. is designed to collect revenue for a trust fund used to clean up a particular pollution problem. Each might be intended to collect from a particular industry thought to be responsible for that pollution problem, but none represents a good example of an incentive-based tax designed to discourage the polluting activity itself. A different tax for each trust fund means that each tax rate is typically less than one percent. But each separate tax has an extra cost of administration and compliance, since taxpayers must read another set of rules and fill out another set of forms. This paper provides evidence on compliance costs that are high relative to the small revenue from each separate tax. In addition, an input-output model is used to show how current U.S. environmental tax burdens are passed from taxed industries to all other industries. Thus the extra cost incurred to administer each separate tax achieves neither targeted incentives not targeted burdens.
Handle: RePEc:nbr:nberwo:5380
Template-Type: ReDIF-Paper 1.0
Title: Turning Points in the Civil War: Views from the Greenback Market
Classification-JEL: N21; G1
Author-Name: Kristen L. Willard
Author-Name: Timothy W. Guinnane
Author-Person: pgu29
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: DAE
Number: 5381
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5381
File-URL: http://www.nber.org/papers/w5381.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, vol. 86, no. 4, pp. 1001-1018, September 1996.
Abstract: In early 1862, the United States government began issuing Greenbacks, a legal tender currency that was not convertible into gold. The government promised to redeem the Greenbacks in gold eventually, but speculators understood that the probability of redemption depended on Union Army military fortunes and political developments that affected the total cost of the war. To serve the speculative interest in gold, a market emerged for the purpose of trading Greenbacks for gold dollars. Because the market price of a Greenback reflected the public's perceptions of future war costs, the movement of these prices provides unique insights into how people at the time perceived various events. We use daily quotations of the gold price of Greenbacks to identify a set of dates during the Civil War that market participants regarded as turning points. In some cases, these dates coincide with events familiar from conventional historical accounts of the war. In other instances, however, market participants reacted strongly to events that historians have not viewed as very significant.
Handle: RePEc:nbr:nberwo:5381
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Productivity and the Productivity of Aggregates
Classification-JEL: C43; D24
Author-Name: Susanto Basu
Author-Person: pba274
Author-Name: John G. Fernald
Author-Person: pfe43
Note: EFG ME
Number: 5382
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5382
File-URL: http://www.nber.org/papers/w5382.pdf
File-Format: application/pdf
Publication-Status: published as Basu, Susanto and John G. Fernald. "Aggregate Productivity And Aggregate Technology," European Economic Review, 2002, v46(6,Jun), 963-991.
Abstract: Explanations of procyclical productivity play a key role in a variety of business-cycle models. Most of these models, however, explain this procyclicality within a representative-firm paradigm. This procedure is misleading. We decompose aggregate productivity changes into several terms, each of which has an economic interpretation. However, many of these terms measure composition effects such as reallocations of inputs across productive units. We apply this decomposition to U.S. data by aggregating from roughly the two-digit level to the private economy. We find that the compositional terms are significantly procyclical. Controlling for these terms virtually eliminates the evidence for increasing returns to scale, and implies that input growth is uncorrelated with technology change.
Handle: RePEc:nbr:nberwo:5382
Template-Type: ReDIF-Paper 1.0
Title: Learning and Growth
Classification-JEL: O3
Author-Name: Boyan Jovanovic
Note: PR
Number: 5383
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5383
File-URL: http://www.nber.org/papers/w5383.pdf
File-Format: application/pdf
Publication-Status: published as Advances in Economics, Edited by David Kreps and Kenneth Wallis, Cambridge University Press: 1996.
Abstract: In this survey, I discuss four sources of growth of knowledge: research, schooling, learning by doing, and training. In trying to disentangle what is important, I emphasize the following facts: (1) even the most advanced countries spend far more on adoption of existing technologies than on inventing new ones, and (2) countries frequently adopt 'dominated' technologies. These facts provide a useful background for evaluating the different theories. They will also sharpen the point that it is important to distinguish between technology and human capital. The conclusion is simply this: In generating world growth, the world's research outlays are an essential ingredient. But for most agents the decision determining growth is one of whether to adopt existing technologies. We have perhaps underemphasized this in our modeling so far. Moreover, the handful of models that I survey contains a bewildering array of diverse engines of growth, most of which are not based on any firm evidence.
Handle: RePEc:nbr:nberwo:5383
Template-Type: ReDIF-Paper 1.0
Title: Capital Structure Choice when Managers are in Control: Entrenchment versus Efficiency
Author-Name: Walter Novaes
Author-Person: pno138
Author-Name: Luigi Zingales
Note: CF
Number: 5384
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5384
File-URL: http://www.nber.org/papers/w5384.pdf
File-Format: application/pdf
Publication-Status: published as Walter Novaes, 2003. "Capital Structure Choice When Managers Are in Control: Entrenchment versus Efficiency," Journal of Business, University of Chicago Press, vol. 76(1), pages 49-82, January.
Abstract: Recent capital structure theories have emphasized the role of debt in minimizing the agency costs that arise from the separation between ownership and control. In this paper we argue that capital structure choices themselves are affected by the same agency problem. We show that, in general, the shareholders' and the manager's capital structure choices differ not only in their levels, but also in their sensitivities to the cost of financial distress and taxes. We argue that only the managerial perspective can explain why firms are generally reluctant to issue equity, why they issue it only following a stock price run-up, and why Corporate America recently deleveraged under the same tax system that supposedly generated the increase in leverage in the 1980s.
Handle: RePEc:nbr:nberwo:5384
Template-Type: ReDIF-Paper 1.0
Title: Internationalized Production in World Output
Classification-JEL: F20; F23
Author-Name: Robert E. Lipsey
Author-Person: pli259
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Eric Ramstetter
Note: ITI
Number: 5385
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5385
File-URL: http://www.nber.org/papers/w5385.pdf
File-Format: application/pdf
Publication-Status: published as Geography and Ownership as Bases for Economic Accounting. Baldwin, Lipsey,and Richardson, eds., pp. 83-135. The University of Chicago Press, 1998.
Publication-Status: published as Internationalized Production in World Output , Robert E. Lipsey, Magnus Blomstrom, Eric D. Ramstetter. in Geography and Ownership as Bases for Economic Accounting, Baldwin, Lipsey, and Richardson. 1998
Abstract: Internationalized production, that is, production by multinational firms outside their home countries has increased over the last two decades, but it was still, in 1990, only about 7 percent of world output. The share was higher, at 15 percent in 'industry,' including manufacturing, trade, construction, and public utilities, but it was negligible in 'services,' which are about 60 percent of world output. Given all the attention that 'globalization' has received from scholars, international organizations, and the press, these numbers are a reminder of how large a proportion of economic activity is confined to single geographical locations and home country ownership. Internationalization of production is clearly growing in importance, but the vast majority of production is still carried out by national producers within their own borders.
Handle: RePEc:nbr:nberwo:5385
Template-Type: ReDIF-Paper 1.0
Title: Volatility, Investment and Disappointment Aversion
Classification-JEL: F21; F43
Author-Name: Joshua Aizenman
Author-Person: pai8
Author-Name: Nancy Marion
Author-Person: pma1464
Note: ITI
Number: 5386
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5386
File-URL: http://www.nber.org/papers/w5386.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Volatility and Investment") Economica, Vol. 66 (1999): 157-179.
Abstract: This study uncovers a statistically significant negative correlation between volatility and private investment over the 1970-93 period in a set of almost fifty developing countries and provides a possible interpretation of this result by using the disappointment- aversion expected utility framework first described by Gul (1991). We consider a number of different volatility measures related to domestic policies or to external factors. As the various volatility measures tend to be positively correlated, we do not claim to identify a unique measure as the dominant source of volatility. Instead, we demonstrate that for a number of different measures, volatility reduces private investment in developing countries. We then show that the disappointment-aversion framework provides a useful way of illustrating the adverse first-order effects of volatility. When agents are disappointment-averse, they put more weight on 'bad' outcomes and less weight on 'good' outcomes than in the standard case. The asymmetric weighting of outcomes introduces additional concavity into the utility function and causes volatility to have significant, negative effects on economic performance. The large, negative effects of increased volatility continue to hold even if the coefficient of relative risk aversion approaches zero (that is, even if the marginal utility of income is constant so that agents are risk neutral in the conventional sense).
Handle: RePEc:nbr:nberwo:5386
Template-Type: ReDIF-Paper 1.0
Title: Sampling Errors and Confidence Intervals for Order Statistics: Implementing the Family Support Act
Classification-JEL: C42; H52
Author-Name: William C. Horrace
Author-Person: pho33
Author-Name: Peter Schmidt
Author-Name: Ann Dryden Witte
Note: LS PE
Number: 5387
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5387
File-URL: http://www.nber.org/papers/w5387.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic and Social Measurement, Vol. 24 (1998): 181-207.
Abstract: The Family Support Act allows states to reimburse child care costs up to the 75th percentile of local market price for child care. States must carry out surveys to estimate these 75th percentiles. This estimation problem raises two major statistical issues: (1) picking a sample design that will allow one to estimate the percentiles cheaply, efficiently and equitably; and (2) assessing the sampling variability of the estimates obtained. For Massa- chusetts, we developed a sampling design that equalized the standard errors of the estimated percentiles across 65 distinct local markets. This design was chosen because state administrators felt public day care providers and child advocates would find it equitable, thus limiting costly appeals. Estimation of standard errors for the sample 75th percentiles requires estimation of the density of the population at the 75th percentile. We implement and compare a number of parametric and nonparametric methods of density estimation. A kernel estimator provides the most reasonable estimates. On the basis of the mean integrated squared error criterion we selected the Epanechnikov kernel and the Sheather-Jones automatic bandwidth selection procedure. Because some of our sample sizes were too small to rely on asymptotics, we also constructed nonparametric confidence intervals using the hypergeometric distrition. For most of our samples, these confidence intervals were similar to those based on the asymptotic standard errors. Substantively we find wide variation in the price of child care, depending on the child's age, type of care and geographic location. For full-time care, the 75th percentiles ranged from $242 per week for infants in child care centers in Boston to $85 per week for family day care in western Massachusetts.
Handle: RePEc:nbr:nberwo:5387
Template-Type: ReDIF-Paper 1.0
Title: Do Children of Immigrants Make Differential Use of Public Health Insurance?
Classification-JEL: I18; I38
Author-Name: Janet Currie
Author-Person: pcu13
Note: LS
Number: 5388
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5388
File-URL: http://www.nber.org/papers/w5388.pdf
File-Format: application/pdf
Publication-Status: published as Issues in the Economics of Immigration, Borjas, George, ed., Chicago: University of Chicago Press, 2000.
Publication-Status: published as Do Children of Immigrants Make Differential Use of Public Health Insurance?, Janet Currie. in Issues in the Economics of Immigration, Borjas. 2000
Abstract: Medicaid is one of the most costly welfare programs available to immigrants. This paper uses data from the 1989 to 1992 National Health Interview Survey to compare the effects of Medicaid eligibility on public and private health insurance coverage and on the utilization of medical services among children of natives and children of immigrants. Children of immigrants are more likely to be covered by Medicaid, but less likely to use health care. However, after conditioning on eligibility and other observable characteristics and instrumenting individual eligibility using an index of the generosity of state Medicaid regulations, I find that recent expansions of eligibility had negligible effects on Medicaid coverage among children of immigrants, although coverage rose among children of the native born. Among immigrants in border states, eligibility was also associated with declines in private health insurance coverage. Effects on utilization were quite different: becoming eligible increased the probability that a child had a doctor's visit more for immigrants than non-immigrants, but increased the hospitalization rate only among children of the native born. Hence, although recent Medicaid expansions shifted as much as one-quarter of the cost of providing infra-marginal services to children of immigrants from private to public insurers in border states, they drew many previously unserved children of immigrants into care.
Handle: RePEc:nbr:nberwo:5388
Template-Type: ReDIF-Paper 1.0
Title: Changes in the Distribution of Wages, 1940-1950: The Public vs. the Private Sector
Classification-JEL: N32; J31
Author-Name: Robert A. Margo
Author-Person: pma319
Author-Name: T. Aldrich Finegan
Note: DAE
Number: 5389
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5389
File-URL: http://www.nber.org/papers/w5389.pdf
File-Format: application/pdf
Publication-Status: published as Margo, Robert A. and T. Aldrich Finegan. "The Great Compression Of The 1940s: The Public Versus The Private Sector," Explorations in Economic History, 2002, v39(2,Apr), 183-203.
Abstract: Between 1940 and 1950 wage differentials within and between labor market groups narrowed significantly - the so-called 'Great Compression'. This paper disaggregates the Great Compression into its public and private components. Wage compression in the public sector, along with a decline in the pay premia received by public sector workers, explains about 40 percent of aggregate wage compression in the 1940s. The experience of the 1940s stands in stark contrast with that of the past two decades, in which a rigid public sector wage structure has dampened increases in aggregate wage inequality.
Handle: RePEc:nbr:nberwo:5389
Template-Type: ReDIF-Paper 1.0
Title: Climbing Out of Poverty, Falling Back In: Measuring the Persistence of Poverty over Multiple Spells
Classification-JEL: I32
Author-Name: Ann Huff Stevens
Author-Person: pst180
Note: LS
Number: 5390
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5390
File-URL: http://www.nber.org/papers/w5390.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources (Summer 1999).
Abstract: This paper investigates the persistence of poverty over individuals' lifetimes using a hazard rate, or spells approach. Previous research on poverty dynamics using the spells approach has been limited by its failure to take into account multiple episodes of poverty. I estimate hazard models for exiting from and for returning to poverty and use the estimated parameters to calculate distributions of total time spent in poverty over multiple spells, using longitudinal data from the Panel Study of Income Dynamics. These models incorporate observable personal and household characteristics, as well as unobserved heterogeneity. My findings emphasize the importance of considering multiple spells in an analysis of poverty persistence. For black and white individuals falling into poverty in some year, approximately 50 and 30 percent, respectively, will have family income below the poverty line in at least five of the next ten years. A single spells approach predicts comparable figures of only 26 and 13 percent. To check the robustness of these predictions I also utilize two alternative approaches -- direct tabulations from panel data and estimation of a components-of-variance model -- and compare predictions of poverty persistence based on the three methods.
Handle: RePEc:nbr:nberwo:5390
Template-Type: ReDIF-Paper 1.0
Title: How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax
Classification-JEL: H26; H23
Author-Name: Louis Kaplow
Author-Person: pka44
Note: PE
Number: 5391
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5391
File-URL: http://www.nber.org/papers/w5391.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, vol. 49, pp. 135-150, (1996).
Abstract: Much criticism of the income tax involves administration: the enormous complexity of the system is responsible for large compliance costs, public and private, and the tax gap is large despite substantial resources devoted to enforcement. The desire for simplification and improved compliance motivates various incremental reforms as well as proposals for fundamental restructuring of the tax system. But evaluation of such changes is difficult because the underlying problems have not been analyzed in terms of the equity and efficiency concerns that animate more familiar assessments of income tax policy. This article provides a framework for a unified analysis, in which the same factors that are used to justify the choice of the tax base and the rate structure are employed to resolve problems involving complexity, compliance costs, and enforcement difficulties.
Handle: RePEc:nbr:nberwo:5391
Template-Type: ReDIF-Paper 1.0
Title: "Around the European Periphery 1870-1913: Globalization, Schooling and Growth"
Author-Name: Kevin H. O'Rourke
Author-Person: por7
Author-Name: Jeffrey G. Williamson
Author-Person: pwi169
Note: DAE
Number: 5392
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5392
File-URL: http://www.nber.org/papers/w5392.pdf
File-Format: application/pdf
Publication-Status: published as European Review of Economic History, Vol. 1, no. 2 (August 1997): 153-190.
Abstract: On average, the poor European periphery converged on the rich industrial core in the four or five decades prior to World War I. Some, like the three Scandinavian economies, used industrialization to achieve a spectacular convergence on the leaders, especially in real wages and living standards. Some, like Ireland, seemed to do it without industrialization. Some, like Italy, underwent less spectacular catch-up, and it was limited to the industrializing North. Some, like Iberia, actually fell back. What accounts for this variety? What role did trade and tariff policy play? What about emigration and capital flows? What about schooling? We offer a tentative assessment of these contending explanations and conclude that globalization was by far the dominant force accounting for convergence (and divergence) around the periphery. Some exploited it well, and some badly.
Handle: RePEc:nbr:nberwo:5392
Template-Type: ReDIF-Paper 1.0
Title: Employer Size and The Wage Structure in U.S. Manufacturing
Classification-JEL: J31
Author-Name: Steven J. Davis
Author-Person: pda15
Author-Name: John Haltiwanger
Author-Person: pha231
Note: LS
Number: 5393
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5393
File-URL: http://www.nber.org/papers/w5393.pdf
File-Format: application/pdf
Publication-Status: published as Davis & Haltiwanger, 1996. "Employer Size and the Wage Structure in U.S. Manufacturing," Annales d'Économie et de Statistique, .
Abstract: We study how the hourly wage structure varies with establishment size and how wage dispersion breaks down into between-plant and within-plant components Our study combines household and establishment data for the U.S. manufacturing sector in 1982. 1) Wage dispersion falls sharply with establishment size for nonproduction workers and mildly for production workers. 2) Size-class differences in wage dispersion often mask even sharper differences in the dispersion of wages generated by observable worker characteristics and in the 'skill prices' on those characteristics. 3) In terms of dispersion in predicted log wages worker heterogeneity tends to rise with establishment size production workers are much more homogenous in the union sector, but only at plants with 1,000 or more workers. 4) Unobserved factors generate sharply greater wage dispersion at smaller establishments. 5) The variance in mean wages across establishments accounts for 59% of total variance. Within-plant wage variance among production workers accounts for a mere 2%. 6) Mean wage differences by size of establishment account for about one-fourth of the total between-plant variance of wages. 7) Between-plant wage dispersion falls sharply with establishment size, entirely accounting for the negative relationship of establishment size to overall wage dispersion. Guided by these and other empirical findings, we assess several hypotheses about the determination of the wage structure.
Handle: RePEc:nbr:nberwo:5393
Template-Type: ReDIF-Paper 1.0
Title: Accounting for U.S. Real Exchange Rate Changes
Classification-JEL: F4; F3
Author-Name: Charles Engel
Author-Person: pen14
Note: IFM
Number: 5394
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5394
File-URL: http://www.nber.org/papers/w5394.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 107, no.3 (June 1999): 507-538.
Abstract: This study measures the proportion of U.S. real exchange rate movements that can be accounted for by movements in the relative prices of non-traded goods. The decomposition is done at all possible horizons that the data allow -- from one month up to thirty years. The accounting is performed with five different measures of non-traded goods prices and real exchange rates, for exchange rates of the U.S. relative to a number of other high income countries in each case. The outcome is surprising -- relative prices of non-traded goods appear to account for essentially none of the movement of U.S. real exchange rates at any horizon. Only for one crude measure, which uses the aggregate producer price index as an index of traded goods prices, do non-traded goods prices seem to account for more than a tiny portion of real exchange rate changes. This pattern appears to be true even during fixed nominal exchange rate episodes. Special attention is paid to the U.S. real exchange rate with Japan. The possibility of mismeasurement of traded goods prices is explored.
Handle: RePEc:nbr:nberwo:5394
Template-Type: ReDIF-Paper 1.0
Title: Regional Patterns in the Law of One Price: The Roles of Geography vs. Currencies
Classification-JEL: F4; F1
Author-Name: Charles Engel
Author-Person: pen14
Author-Name: John H. Rogers
Author-Person: pro248
Note: ITI IFM
Number: 5395
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5395
File-URL: http://www.nber.org/papers/w5395.pdf
File-Format: application/pdf
Publication-Status: published as Frankel, Jeffrey A. (ed.) Regionalization of the World Economy. Chicago: University of Chicago Press, 1998.
Publication-Status: published as Regional Patterns in the Law of One Price: The Roles of Geography versus Currencies, Charles Engel, John Rogers. in The Regionalization of the World Economy, Frankel. 1998
Abstract: We find evidence that the law of one price (LOOP) holds more nearly for country pairs that are within geographic regions than for country pairs that are not. These findings are established using disaggregated consumer price data from 23 countries (including data from eight North American cities). We find that failures of LOOP are closely related to nominal exchange rate variability, suggesting a link to sticky nominal prices. We also find that distance can explain failures of LOOP, suggesting the failures arise from imperfect market integration. However, these two sources do not explain all of the failure of LOOP. We speculate that integrated marketing and distribution systems within regions cause LOOP to hold more nearly intraregionally. We present a formal model of marketing and distribution to illustrate this hypothesis.
Handle: RePEc:nbr:nberwo:5395
Template-Type: ReDIF-Paper 1.0
Title: The Tyranny of Inequality
Author-Name: Raghuram G. Rajan
Author-Person: pra149
Author-Name: Luigi Zingales
Note: CF
Number: 5396
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5396
File-URL: http://www.nber.org/papers/w5396.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 76, no. 3 (2000): 521-558.
Abstract: Life is replete with instances where two closely related parties forego mutually advantageous opportunities: peace treaties are not signed, inefficient regulations are not altered, and possibilities for investment are frittered away. Since the parties are in close contact, asymmetric information cannot be an explanation for the failure to agree. The explanation this paper offers is based on the assumption that when two parties interact repeatedly, not all aspects of the relationship are contractible. Each party's property rights in the relationship then become endogenous. Efficiency and distribution are not separable in such a world, leading the parties to forego perfectly contractible opportunities. The inability to cooperate is especially severe when one of the parties has relatively poor production opportunities which may explain why the inefficient have undue sway. We explore a number of applications.
Handle: RePEc:nbr:nberwo:5396
Template-Type: ReDIF-Paper 1.0
Title: The Effect of a Consumption Tax on the Rate of Interest
Classification-JEL: H24; H21
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 5397
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5397
File-URL: http://www.nber.org/papers/w5397.pdf
File-Format: application/pdf
Abstract: This paper analyzes the ways in which substituting a consumption tax for the existing personal and corporate income taxes would affect equilibrium pretax interest rates. The analysis indicates that whether the pretax rate of interest rises or falls depends on the strength of the personal saving response, the nature of the capital market equilibrium between debt and equity yields, and the response of the owner-occupied housing sector. A formal two-sector model with endogenous saving, housing and corporate capital is presented. With plausible parameter values, the analysis suggests that the shift from an income tax to a consumption tax is more likely to raise rates than to lower them.
Handle: RePEc:nbr:nberwo:5397
Template-Type: ReDIF-Paper 1.0
Title: Natural Resource Abundance and Economic Growth
Classification-JEL: O40; Q32
Author-Name: Jeffrey D. Sachs
Author-Name: Andrew M. Warner
Note: EFG IFM EEE
Number: 5398
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5398
File-URL: http://www.nber.org/papers/w5398.pdf
File-Format: application/pdf
Publication-Status: published as Sachs, Jeffrey D. and Andrew M. Warner. "The Big Rush, Natural Resource Booms And Growth," Journal of Development Economics, 1999, v59(1,Jun), 43-76.
Publication-Status: published as Leading Issues in Economic Development, Oxford University Press, 2000.
Abstract: One of the surprising features of modern economic growth is that economies with abundant natural resources have tended to grow less rapidly than natural-resource-scarce economies. In this paper we show that economies with a high ratio of natural resource exports to GDP in 1971 (the base year) tended to have low growth rates during the subsequent period 1971-89. This negative relationship holds true even after controlling for variables found to be important for economic growth, such as initial per capita income, trade policy, government efficiency, investment rates, and other variables. We explore the possible pathways for this negative relationship by studying the cross-country effects of resource endowments on trade policy, bureaucratic efficiency, and other determinants of growth. We also provide a simple theoretical model of endogenous growth that might help to explain the observed negative relationship.
Handle: RePEc:nbr:nberwo:5398
Template-Type: ReDIF-Paper 1.0
Title: Schooling, Labor Force Quality, and Economic Growth
Classification-JEL: O4; I2
Author-Name: Eric A. Hanushek
Author-Person: pha97
Author-Name: Dongwook Kim
Note: LS
Number: 5399
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5399
File-URL: http://www.nber.org/papers/w5399.pdf
File-Format: application/pdf
Abstract: Human capital is almost always identified as a crucial ingredient for growing economies, but empirical investigations of cross-national growth have done little to clarify the dimensions of relevant human capital or any implications for policy. This paper concentrates on the importance of labor force quality, measured by cognitive skills in mathematics and science. By linking international test scores across countries, a direct measure of quality is developed, and this proves to have a strong and robust influence on growth. One standard deviation in measured cognitive skills translates into one percent difference in average annual real growth ratesþan effect much stronger than changes in average years of schooling, the more standard quantity measure of labor force skills. Further, the estimated growth effects of improved labor force quality are very robust to the precise specification of the regressions. The use of measures of quality significantly improves the predictions of growth rates, particularly at the high and low ends of the distribution. The importance of quality implies a policy dilemma, because production function estimates indicate that simple resource approaches to improving cognitive skills appear generally ineffective.
Handle: RePEc:nbr:nberwo:5399
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Offshore Assembly on Industry Location: Evidence from U.S. Border Cities
Classification-JEL: F15
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: ITI
Number: 5400
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5400
File-URL: http://www.nber.org/papers/w5400.pdf
File-Format: application/pdf
Publication-Status: published as The Effects of US Trade Pretection and Promotion Policies, R. Feenstra, ed. , pp. 297-32, (Chicago: University of Chicago Press, 1997).
Publication-Status: published as Hanson, Gordon H. "U.S.-Mexico Integration And Regional Economies: Evidence From Border-City Pairs," Journal of Urban Economics, 2001, v50(2,Sep), 259-287.
Publication-Status: published as The Effects of Offshore Assembly on Industry Location: Evidence from U.S. Border Cities, Gordon H. Hanson. in The Effects of US Trade Protection and Promotion Policies, Feenstra. 1997
Abstract: In this paper, I examine how the growth of offshore assembly in Mexico has affected manufacturing activity in U.S. border cities. Under the offshore assembly provision of the U.S. tariff schedule, goods that are assembled abroad using U.S.-manufactured components receive preferential tariff treatment upon reentry into the United States. Foreign assembly plants in Mexico, most of which are owned by U.S.-based multinationals, are overwhelmingly concentrated along the border with the United States. I combine data on employment and earnings in two-digit manufacturing industries for U.S. border cities with data on employment and value added in foreign assembly plants in the corresponding Mexican border cities. I study the effect that the expansion of offshore assembly in a Mexican border city has on durable and nondurable manufacturing activities in the neighboring U.S. border city. The estimation results show strong support for the hypothesis that the growth of export assembly in Mexico increases the demand for manufacturing goods produced in U.S. border cities. Implications of the North American Free Trade Agreement for the U.S.-Mexico border region are discussed.
Handle: RePEc:nbr:nberwo:5400
Template-Type: ReDIF-Paper 1.0
Title: International R&D Spillovers between Canadian and Japanese Industries
Classification-JEL: D24; D33
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: Xiaoyi Yan
Note: PR
Number: 5401
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5401
File-URL: http://www.nber.org/papers/w5401.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, 30, pp.276-294, 1997
Abstract: This paper estimates the effects of intranational and international R&D spillovers on the cost and production structure for ten Canadian and Japanese manufacturing industries. Domestic spillovers generate greater effects on average variable cost and factor intensities compared to international spillovers between the two countries. Private and social rates of return to R&D are calculated for each industry in both countries. Social rates of return to R&D are one and one-half to twelve times the private returns. The Canadian social rates of return are generally two to three times higher than the Japanese rates.
Handle: RePEc:nbr:nberwo:5401
Template-Type: ReDIF-Paper 1.0
Title: Do "Shortages" Cause Inflation?
Classification-JEL: E31; C82
Author-Name: Owen Lamont
Note: ME
Number: 5402
Creation-Date: 1995-12
Order-URL: http://www.nber.org/papers/w5402
File-URL: http://www.nber.org/papers/w5402.pdf
File-Format: application/pdf
Publication-Status: published as Reducing Inflation: Motivation and Strategy, C. Romer and D. Romer, eds.,(Chicago: University of Chicago Press, 1997)
Publication-Status: published as Do "Shortages" Cause Inflation?, Owen Lamont. in Reducing Inflation: Motivation and Strategy, Romer and Romer. 1997
Abstract: I count the number of times per month that the word `shortage' appears on the front page of The Wall Street Journal and The New York Times for the period 1969-1994. Using this as a general measure of shortages in the US economy, I test whether shortages help predict inflation. Using a variety of different specifications, I find that this time-series measure of shortages strongly predicts inflation, and contains information not captured by commodity prices, monetary aggregates, interest rates, and other proposed predictors of inflation. This suggests that disequilibrium was an important part of the adjustment of prices to macroeconomic shocks during this period.
Handle: RePEc:nbr:nberwo:5402