A revised version of this data set is available on CD-ROM. Handle: RePEc:nbr:nberwo:5910 Template-Type: ReDIF-Paper 1.0 Title: The Moral Hazard of Insuring the Insurers Author-Name: James G. Bohn Author-Name: Brian J. Hall Note: PE Number: 5911 Creation-Date: 1997-01 Order-URL: http://www.nber.org/papers/w5911 File-URL: http://www.nber.org/papers/w5911.pdf File-Format: application/pdf Publication-Status: published as Bohn, James G. and Brian J. Hall. "The Costs of Insurance Company Failures" . The Economics of Property-Casualty Insurance. Edited by David F. Bradford, Chicago: The University of Chicago Press, 1998, pp. 139-166. Publication-Status: published as (REF) The Financing of Catastrophe Risk. Froot, Kenneth A., ed., Chicago: The University of Chicago Press, 1999, pp. 363-384. Publication-Status: published as The Moral Hazard of Insuring the Insurers, James G. Bohn, Brian Hall. in The Financing of Catastrophe Risk, Froot. 1999 Abstract: State guaranty funds are quasi-governmental agencies that provide insurance to policyholders against the risk of insurance company failure. But insurance provided by guaranty funds, like all insurance, creates moral hazard problems, especially for companies that are insolvent or near-insolvent. The key insight of this paper is that because of the time lag between premium payments and losses (which is especially lengthy in long-tail lines), writing policies is one way for insurance companies to borrow money (i.e., from policyholders). Moreover, the existence of guaranty fund insurance enables insurance companies, even very risky ones, to borrow from policyholders at rates that do not reflect the insurer's default risk. Thus, one way for insurance companies to game the guaranty fund system is to engage in excessive premium writing. Consistent with this idea, we find that insolvent P&C insurance companies tended to have very high premium growth before they failed. More than one-third of the failed insurance companies had premium growth of more than 50 percent in the two years before failure. Moreover, this excessive premium growth was more pronounced in long-tail lines than in short-tail lines. We also find evidence that greater regulatory resources are associated with less gaming of the system. Handle: RePEc:nbr:nberwo:5911 Template-Type: ReDIF-Paper 1.0 Title: Pension and Social Security Wealth in the Health and Retirement Study Classification-JEL: J14; J26 Author-Name: Alan L. Gustman Author-Person: pgu327 Author-Name: Olivia S. Mitchell Author-Person: pmi73 Author-Name: Andrew A. Samwick Author-Person: psa395 Author-Name: Thomas L. Steinmeier Note: AG LS Number: 5912 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5912 File-URL: http://www.nber.org/papers/w5912.pdf File-Format: application/pdf Publication-Status: published as Wealth, Work, and Health: Innovations in Survey Measurement in the Social Sciences, Willis, Robert, ed., Ann Arbor: University of Michigan Press, 1999, pp. 150-208. Abstract: Together, pensions, social security and health insurance account for half of the wealth held by all households in the Health and Retirement Study (HRS), for 60 percent of total wealth of HRS households who are in the 45th to 55th wealth percentiles, and even for 48 percent of wealth for those in the 90th to 95th wealth percentiles. The HRS surveys households aged 51 to 61 in 1992, and obtains pension plan descriptions from respondents' employers. Pension accrual profiles, income and wealth distributions by type, wealth-income ratios and accrued wealth by pension status are also explored. Handle: RePEc:nbr:nberwo:5912 Template-Type: ReDIF-Paper 1.0 Title: Reinsurance for Catastrophes and Cataclysms Author-Name: David M. Cutler Author-Person: pcu64 Author-Name: Richard J. Zeckhauser Author-Person: pze7 Note: AP PE Number: 5913 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5913 File-URL: http://www.nber.org/papers/w5913.pdf File-Format: application/pdf Publication-Status: published as The Financing of Catastrophe Risk. Froot, Kenneth A., ed., Chicago: The University of Chicago Press, 1999, pp. 233-269. Publication-Status: published as Reinsurance for Catastrophes and Cataclysms, David M. Cutler, Richard J. Zeckhauser. in The Financing of Catastrophe Risk, Froot. 1999 Abstract: This paper examines the optimal design of insurance and reinsurance policies. We first consider reinsurance for catastrophes: risks which are large for any one insurer but not for the reinsurance market as a whole. Reinsurance for catastrophes is complicated by adverse selection. Optimal reinsurnace in the presence of adverse selection depends critically on the source of information asymmetry. When information on the probability of a loss is private but the magnitude of the loss is public optimal reinsurance employs a deductible-style deductible-style excess-of-loss policy, and when is is private but the proba- bility of a loss is common, optimal reinsurance covers small and large risks, but makes the primary insurer responsible for moderate risks. There is a dramatic divergence between these designs, which suggests that traditional approaches to design may be misguided. We then consider reinsurance for cata- clysms: risks that are so large that a loss can threaten the solvency of re- insurance such as a major earthquake, while others derive from common risks-changes in conditions that affect many individuals-such as the liability revolution or or escalating medical care costs. We argue that cataclysms must be reinsured in either broad securities markets or by the government. Beyond their one- period loss potential, cataclysms pose another risk: risk levels change over time. A simulation model traces the implications of evolving risk levels for long-term patterns of losses and premiums, where the latter reflect learning learning about loss distributions. Premium risk emerges as an important part of risk, which reinsurance and primary insurance markets do not adequately diversify." Handle: RePEc:nbr:nberwo:5913 Template-Type: ReDIF-Paper 1.0 Title: TFPG Controversies, Institutions, and Economic Performance in East Asia Classification-JEL: O30; F43 Author-Name: Dani Rodrik Author-Person: pro60 Note: EFG ITI Number: 5914 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5914 File-URL: http://www.nber.org/papers/w5914.pdf File-Format: application/pdf Publication-Status: published as The Institutional Foundations of East Asian Economic Development, Hayami, Y. and M. Aoki, eds., London: MacMillan, 1998. Abstract: The controversy over the appropriate partitioning of East Asian growth into accumulation versus technical change has overlooked a fundamental indeterminacy in measurement. As a result, we cannot rule out the possibility that East Asia has in fact experienced a tremendous amount of technological progress of the labor-saving kind. Second, an index of institutional quality (drawn from work by Knack and Keefer [1995] and Easterly and Levine [1996]) does exceptionally well in rank-ordering East Asian countries according to their growth performance. A parsimonious specification containing only initial income, initial education, and institutional quality accounts for virtually all of the variation in the growth performance in the region, even when institutional quality is instrumented. Finally, the experience of Hong Kong, which has had a flat investment ratio since the 1960s, is consistent with the idea that making the transition from a low-investment economy to a high-investment economy requires a hands-on government. Handle: RePEc:nbr:nberwo:5914 Template-Type: ReDIF-Paper 1.0 Title: Cyclical Productivity with Unobserved Input Variation Classification-JEL: E32; D24 Author-Name: Susanto Basu Author-Person: pba274 Author-Name: Miles S. Kimball Author-Person: pki97 Note: EFG Number: 5915 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5915 File-URL: http://www.nber.org/papers/w5915.pdf File-Format: application/pdf Abstract: In this paper, we derive and estimate relationships governing variable utilization of capital and labor for a firm solving a dynamic cost-minimization problem. Our method allows for (i) imperfect competition, (ii) increasing returns to scale, (iii) unobserved changes in utilization, (iv) unobserved changes in technology, (v) unobserved fluctuations in the factor prices of capital and labor, (vi) unobserved fluctuations in the shadow price of output, and (vii) the non-existence of a value-added production function. We can estimate the parameters of interest without imposing specific functional forms or using restrictions from assuming the existence of a representative consumer. We find that variable capital and labor utilization explain 40-60 percent of the cyclicality of the Solow residual in U.S. manufacturing, so true technology shocks have a lower correlation with output than the RBC literature assumes. Controlling for variable utilization also eliminates the evidence for increasing returns to scale. We show that our model-based proxies for variable utilization are valid even when extending the workweek of capital potentially has two costs: a shift premium paid to workers, as well as a higher rate of depreciation. Thus, these proxies can be used under very general conditions in a wide range of empirical work. Handle: RePEc:nbr:nberwo:5915 Template-Type: ReDIF-Paper 1.0 Title: Contract Form and Procurement Costs: The Impact of Compulsory Multiple Contractor Laws in Construction Classification-JEL: K11; K42 Author-Name: Orley Ashenfelter Author-Person: pas9 Author-Name: David Ashmore Author-Name: Randall Filer Author-Person: pfi29 Note: LE Number: 5916 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5916 File-URL: http://www.nber.org/papers/w5916.pdf File-Format: application/pdf Publication-Status: published as RAND Journal of Economics, Vol. 28, no. 0 (1997): S5-S16. Abstract: It is claimed that many regulatory rules enforce inefficiencies in order to achieve the appearance of cost control. We assess the importance of these claims by measuring the effect of New York state's compulsory multiple contractor law on the cost of public construction in New York City. Multiple contractor laws, which exist in many states, prohibit the use of general contractors in order to promote the appearance of competition. Contrasts of construction costs between buildings with identical blind cost estimates indicate that this law increases public construction costs by 8% and increases construction delays by more than a calendar year. Handle: RePEc:nbr:nberwo:5916 Template-Type: ReDIF-Paper 1.0 Title: Employment Policy of the Middle Reagan Years: What Didn't Happen and Why It Didn't Happen Classification-JEL: J6 Author-Name: Martin Feldstein Author-Person: pfe112 Note: LS PE Number: 5917 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5917 File-URL: http://www.nber.org/papers/w5917.pdf File-Format: application/pdf Publication-Status: published as Feldstein, Martin. "Employment Policy of The Middle Reagan Years: What Didn't Happen and Why It Didn't Happen." The North American Journal of Economics and Finance (1997). Abstract: This paper examines the record of employment and unemployment between 1982 and 1986 and discusses a variety of cyclical and structural employment policies that were considered but not implemented during the years 1982-84 when I served as chairman of the Council of Economic Advisers. Employment rose by 11 million jobs during the cyclical recovery of those four years, lowering the unemployment rate from 10.8 percent to 6.6 percent. Even before the recovery was visible, the Reagan administration supported the tight Federal Reserve policy to reverse the high inflation at the end of the 1970s. The policies to reduce structural unemployment that were considered but not enacted at the time have become law in later years: a gradual decline in the real minimum wage, the full taxation of unemployment insurance, and a work requirement for those on welfare. Handle: RePEc:nbr:nberwo:5917 Template-Type: ReDIF-Paper 1.0 Title: Analyzing Investments Whose Histories Differ in Length Classification-JEL: G11; G15 Author-Name: Robert F. Stambaugh Author-Person: pst282 Note: AP Number: 5918 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5918 File-URL: http://www.nber.org/papers/w5918.pdf File-Format: application/pdf Publication-Status: published as Journal of Financial Economics, Vol. 45 (1997): 285-331. Abstract: This study explores multivariate methods for investment analysis based on a sample of return histories that differ in length across assets. The longer histories provide greater information about moments of returns, not only for the longer-history assets, but for the shorter-history assets as well. To account for the remaining parameter uncertainty, or estimation risk,' portfolio opportunities are characterized by a Bayesian predictive distribution. Examples involving emerging markets demonstrate the value of using the combined sample of histories and accounting for estimation risk, as compared to truncating the sample to produce equal-length histories or ignoring estimation risk by using maximum-likelihood estimates. Handle: RePEc:nbr:nberwo:5918 Template-Type: ReDIF-Paper 1.0 Title: The Evolving External Orientation of Manufacturing Industries: Evidence from Four Countries Author-Name: Jose Campa Author-Person: pca393 Author-Name: Linda S. Goldberg Author-Person: pgo256 Note: ITI IFM Number: 5919 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5919 File-URL: http://www.nber.org/papers/w5919.pdf File-Format: application/pdf Publication-Status: published as Economic Policy Review, Vol. 3, no. 2 (July 1997): 53-81. Abstract: Significant changes in the external orientation of manufacturing industries are observed in the United States, Canada, and the United Kingdom, but not in Japan. The observed increases in external orientation are in terms of industry export shares, import penetration, and imported input use in production. United States industries have experienced a particularly dramatic increase in imported input use, accompanied by highly variable patterns of industry net external orientation over the past two decades. Although similar manufacturing industries have strong export orientation in all countries, across countries these same industries have profoundly different patterns of import penetration, imported input use, and net external exposure to exchange rate and trade policy changes Handle: RePEc:nbr:nberwo:5919 Template-Type: ReDIF-Paper 1.0 Title: On the Uses of Benefit-Cost Reasoning in Choosing Policy Toward Global Climate Change Classification-JEL: D61 Author-Name: David F. Bradford Note: PE Number: 5920 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5920 File-URL: http://www.nber.org/papers/w5920.pdf File-Format: application/pdf Publication-Status: published as Portney, Paul R. and John P. Weyant (eds.) Discounting and intergenerational equity. Washington, D.C.: Resources for the Future, 1999. Abstract: In the debate about the correct discount rate to use in evaluating policy with regard to climate change, which covers the entire world and extends for centuries, the conditions for deploying benefit-cost analysis are often overlooked. Where (a) income distributional effects of policies are large and (b) one cannot take for granted compensating adjustment in other policy instruments affecting distribution, simple aggregation of gains and losses is unlikely to provide a convincing basis for action, as an ethical matter, or predictor of policy, as a political matter. Handle: RePEc:nbr:nberwo:5920 Template-Type: ReDIF-Paper 1.0 Title: Regionalism and Multilateral Tariff Cooperation Classification-JEL: F02; F13 Author-Name: Kyle Bagwell Author-Person: pba409 Author-Name: Robert W. Staiger Author-Person: pst85 Note: ITI Number: 5921 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5921 File-URL: http://www.nber.org/papers/w5921.pdf File-Format: application/pdf Publication-Status: published as Bagwell, Kyle and Robert W. Staiger. "Multilateral Tariff Cooperation During The Formation Of Free Trade Areas," International Economic Review, 1997, v38(2,May), 291-319. Abstract: We consider a 3 country world in which each country's import market is served by competing exporters from its 2 trading partners. We assume that weak multilateral enforcement mechanisms prevent governments from implementing efficient trade policies through a multilateral agreement requiring tariffs to conform to the most-favored-nation (MFN) principle. We then ask whether ex- ceptions from MFN for the purpose of forming preferential agreements can lead to lower external tariffs, and thereby to a more efficient tariff structure under the multilateral agreement. We identify 3 opposing effects of prefer- ential agreements on the multilateral tariff structure in this setting. The tariff complementarity effect works to reduce the desired external tariffs of countries that join together in a preferential agreement. Two additional effects of preferential agreements arise only when enforcement issues at the multilateral level are considered. One of these, the punishment effect, weakens the ability of the member countries of a preferential agreement to punish deviations from the multilateral agreement thereby interfering with the ability of countries to sustain low tariffs under the multilateral agreement. The tariff discrimination effect lets countries to discriminate against those who would external tariffs of countries that join together in a preferential agreement. The relative strengths of these 3 effects determine the impact of a prefer- ential agreement on the tariff structure under the multilateral agreement. Our findings suggest that preferential agreements can have their most desirable effects on the multilateral system when the degree of multilateral cooperation is low. Handle: RePEc:nbr:nberwo:5921 Template-Type: ReDIF-Paper 1.0 Title: Equilibrium Unemployment Classification-JEL: E24; D3 Author-Name: Joao Gomes Author-Person: pgo15 Author-Name: Jeremy Greenwood Author-Person: pgr12 Author-Name: Sergio Rebelo Note: EFG Number: 5922 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5922 File-URL: http://www.nber.org/papers/w5922.pdf File-Format: application/pdf Publication-Status: published as Gomes, Joao, Jeremy Greenwood and Sergio Rebelo. "Equilibrium Unemployment," Journal of Monetary Economics, 2001, v48(1,Aug), 109-152. Abstract: A search-theoretic general equilibrium model of frictional unemployment is shown to be consistent with some of the key regularities of unemployment over the business cycle. In the model the return to a job moves stochastically. Agents can choose either to quit and search for a better job, or continue working. Search generates job offers that agents can accept or reject. Two distinguishing features of current work relative to the existing business cycle literature on labor market fluctuations are: (i) the decision to accept or reject jobs is modeled explicitly, and (ii) there is imperfect insurance against unemployment. Handle: RePEc:nbr:nberwo:5922 Template-Type: ReDIF-Paper 1.0 Title: The Uruguay Round and Welfare in Some Distorted Agricultural Economies Classification-JEL: F13; F14 Author-Name: James E. Anderson Author-Person: pan2 Note: ITI Number: 5923 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5923 File-URL: http://www.nber.org/papers/w5923.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, Vol. 56 (1998): 393-410. Abstract: There is widespread concern that the Uruguay Round may reduce the welfare of developing countries through its effect on world agricultural prices. Reduced agricultural price distortions among major supplying nations are predicted to increase basic food prices and decrease some important export prices such as those for coffee and cotton. It appears that raising food prices paid by food importers must be bad for them, while reducing world coffee and cotton prices appears bad for exporters of those products. Appearances may be deceiving, however, since theory shows that a distortion effect operates alongside the standard terms of trade effect. I report here distortion effects which are many times larger" than terms of trade effects in an analysis of the Uruguay Round's impact on 9 agricultural economies. I deploy a simple Computable General Equilibrium model. The 9 developing economies are distorted by domestic agricultural distortions in 15 markets, along with hundreds of 4 digit nonagricultural tariffs and quotas. In 3 of 9 countries, the distortion effect reverses the impact of the terms of trade effect. In 2 other countries the distortion effect raises a trivial terms of trade effect up to around 1% of national income. Handle: RePEc:nbr:nberwo:5923 Template-Type: ReDIF-Paper 1.0 Title: Labor Market Shifts and the Price Puzzle Revisited Classification-JEL: J31 Author-Name: Alan B. Krueger Author-Person: pkr63 Note: LS Number: 5924 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5924 File-URL: http://www.nber.org/papers/w5924.pdf File-Format: application/pdf Abstract: This paper examines the relationship between price growth and skill intensity across 150 manufacturing industries between 1989 and 1995. There are two main findings. First, wage growth and intermediate goods price increases are passed through to final product prices roughly in proportion to their factor shares. Second, product prices have grown relatively less in sectors that more intensively utilize less-skilled labor. The latter finding is consistent with the Stolper-Samuelson theory of expanded trade with countries that are abundant in less-skilled workers, as well as with some models of technological change. Handle: RePEc:nbr:nberwo:5924 Template-Type: ReDIF-Paper 1.0 Title: Uncertain Duration of Reform: Dynamic Implications Classification-JEL: F41; E32 Author-Name: Guillermo A. Calvo Author-Person: pca694 Author-Name: Allan Drazen Author-Person: pdr25 Note: IFM Number: 5925 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5925 File-URL: http://www.nber.org/papers/w5925.pdf File-Format: application/pdf Publication-Status: published as Calvo, Guillermo A. & Drazen, Allan, 1998. "Uncertain Duration Of Reform," Macroeconomic Dynamics, Cambridge University Press, vol. 2(04), pages 443-455, December. Abstract: We develop a framework to study the effects of policies of uncertain duration on consumption dynamics under both complete and incomplete markets. We focus on the dynamic implications of market incompleteness, specifically on the lack of state-contingent bonds. Two policies are considered: pure output-increasing and tariff-reducing (trade liberalization). With" complete markets, the output-increasing policy leads to flat consumption, while with no contingent assets, consumption jumps upward on the announcement of the policy, continues rising as long as the policy is in effect, and collapses when it is abandoned. A similar consumption path obtains in a trade liberalization in the realistic case of low elasticity of substitution and no rebate of tariffs. Market incompleteness rationalizes the existence of gradual changes in consumption. Handle: RePEc:nbr:nberwo:5925 Template-Type: ReDIF-Paper 1.0 Title: A Model of Investor Sentiment Classification-JEL: 313; E Author-Name: Nicholas Barberis Author-Name: Andrei Shleifer Author-Person: psh93 Author-Name: Robert W. Vishny Author-Person: pvi218 Note: AP Number: 5926 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5926 File-URL: http://www.nber.org/papers/w5926.pdf File-Format: application/pdf Publication-Status: published as Journal of Financial Economics, Vol. 49 (1998): 307-343. Abstract: Recent empirical research in finance has uncovered two families of pervasive regularities: underreaction of stock prices to news such as earnings announcements; and overreaction of stock prices to a series of good or bad news. In this paper, we present a parsimonious model of investor sentiment that is, of how investors form beliefs that is consistent with the empirical findings. The model is based on psychological evidence and produces both underreaction and overreaction for a wide range of parameter values. Handle: RePEc:nbr:nberwo:5926 Template-Type: ReDIF-Paper 1.0 Title: Immigrant Inflows, Native Outflows, and the Local Labor Market Impacts of Higher Immigration Classification-JEL: J2 Author-Name: David Card Author-Person: pca271 Note: LS Number: 5927 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5927 File-URL: http://www.nber.org/papers/w5927.pdf File-Format: application/pdf Publication-Status: published as Card, David. "Immigrant Inflows, Native Outflows, And The Local Labor Market Impacts Of Higher Immigration," Journal of Labor Economics, 2001, v19(1,Jan), 22-64. Abstract: This paper uses 1990 Census data to study the effects of immigrant inflows on the labor market opportunities of natives and older immigrants. I divide new immigrants, older immigrants, and natives into distinct skill groups and focus on skill-group-specific outcomes within cities. An important first question is" whether inflows of new immigrants lead to outflows of natives or earlier immigrants in the same skill groups. Even after accounting for endogenous mobility decisions I find that inter-city migration flows of natives and older immigrants are largely" unaffected by new immigrant inflows. Inflows of new immigrants are associated with lower employment rates among natives and earlier immigrants, but with relatively small effects on the relative wage structure. The estimates imply that immigrant arrivals between 1985 and 1990 depressed the employment rate of low-skilled natives in major U.S. cities by 1-2 percentage points on average, and by substantially more in high-immigrant cities. Handle: RePEc:nbr:nberwo:5927 Template-Type: ReDIF-Paper 1.0 Title: Measuring Positive Externalities from Unobservable Victim Precaution: An Empirical Analysis of Lojack Classification-JEL: H23; K42 Author-Name: Ian Ayres Author-Person: pay38 Author-Name: Steven D. Levitt Author-Person: ple59 Note: PE Number: 5928 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5928 File-URL: http://www.nber.org/papers/w5928.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 108, no. 1 (February 1998): 43- Abstract: Private expenditures on crime reduction have potentially important externalities. Observable measures such as barbed-wire fences and deadbolt locks may shift crime to those who are unprotected, imposing a negative externality. Unobservable precautions, on the other hand, may provide positive externalities since criminals cannot determine a priori who is protected. Focusing on one specific form of victim precaution, Lojack, we provide the first thorough empirical analysis of the magnitude of such externalities. Because installing Lojack does not reduce the likelihood that an individual car will be stolen, any decrease in the aggregate crime rates due to Lojack is an externality from the perspective of the individual Lojack purchaser. We find that the presence of Lojack is associated with a sharp fall in auto theft in central cities and a more modest decline in the remainder of the state. Rates of other crimes do not change appreciably. Our estimates suggest that, at least historically, the marginal social benefit of an additional unit of Lojack has been as much as 15 times greater than the marginal social cost in high crime areas. Those who install Lojack in their cars, however, obtain less than ten percent of the total social benefits of Lojack, causing Lojack to be undersupplied by the free market. Current insurance subsidies for the installation of Lojack appear to be well below the socially optimal level. Handle: RePEc:nbr:nberwo:5928 Template-Type: ReDIF-Paper 1.0 Title: The Evolution of Advanced Large Scale Information Infrastructure in the United States Author-Name: Shane M. Greenstein Author-Person: pgr134 Author-Name: Mercedes M. Lizardo Author-Name: Pablo T. Spiller Author-Person: psp34 Note: PR Number: 5929 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5929 File-URL: http://www.nber.org/papers/w5929.pdf File-Format: application/pdf Publication-Status: published as Shampine, Allan (ed.) Down to the Wire: Studies in the Diffusion and Regulation of Telecommunications Technologies. New York: Nova Science Publishers, 2003. Abstract: Is private industry investing in backbone digital technology in a manner consistent with social policy? To address this question we assemble highly disaggregate data and compute indices for the geographic distribution of advanced backbone information technology in computing and telecommunications, focusing on recent changes in the indices. Our evidence suggests that the stock of advanced information technology capital, and access to it, became more equally distributed across the U.S. between the mid 1980s and early 1990s. In light of these findings there needs to be careful rethinking of the current policy concerns about the distribution of backbone technologies. Handle: RePEc:nbr:nberwo:5929 Template-Type: ReDIF-Paper 1.0 Title: To Each According To...? Markets, Tournaments, and the Matching Problem with Borrowing Constraints Classification-JEL: D52; E44 Author-Name: Raquel Fernandez Author-Person: pfe17 Author-Name: Jordi Gali Author-Person: pga43 Note: EFG Number: 5930 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5930 File-URL: http://www.nber.org/papers/w5930.pdf File-Format: application/pdf Publication-Status: published as Review of Economic Studies, Vol. 66, no. 4 (1999): 799-824. Abstract: We compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints. The model consists of a continuum of individuals who differ in their initial wealth and ability level (e.g. students) and that are to be assigned to a continuum of investment opportunities or inputs of different productivity (e.g. schools of different qualities). With perfect capital markets both mechanisms achieve the efficient allocation, though markets generate higher aggregate consumption because of the waste associated with the production of signals under tournaments. When borrowing constraints are present, however, tournaments dominate markets in terms of aggregate output and, for sufficiently powerful signaling technologies, also in terms of aggregate consumption. Handle: RePEc:nbr:nberwo:5930 Template-Type: ReDIF-Paper 1.0 Title: Within Group "Structural" Tests of Labor-Market Discrimination: A Study of Persons with Serious Disabilities Classification-JEL: I1 Author-Name: David S. Salkever Author-Person: psa1313 Author-Name: Marisa E. Domino Note: EH LS Number: 5931 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5931 File-URL: http://www.nber.org/papers/w5931.pdf File-Format: application/pdf Publication-Status: published as Salkever, David S. and Alan Sorkin (eds.) The economics of disability, Research in Human Capital and Development, vol. 13. Stamford, CT: JAI Press, 2000. Abstract: Labor-market discrimination measures are usually derived from between-group comparisons of market outcomes for favored vs. disfavored groups, controlling for productivity-related individual characteristics. When the disfavored group is heterogeneous, one can relate variations in discrimination intensity to market outcomes within the disfavored group. We use this approach to test for employment and wage discrimination against persons with various types of disabilities. Measures of social distance' controls for the intensity of discrimination. In a national sample of adults with serious disabilities, employment discrimination effects are in the wrong' direction, however, and wage effects are unstable. Thus, variability in labor market outcomes among different types of disabilities is not explained well by variations in discrimination intensity correlated with social distance and employer attitudes. We conjecture that differences in available support services by type of disability may help to explain this variability. Handle: RePEc:nbr:nberwo:5931 Template-Type: ReDIF-Paper 1.0 Title: Reciprocity, Non-discrimination and Preferential Agreements in the Multilateral Trading System Classification-JEL: F02; F13 Author-Name: Kyle Bagwell Author-Person: pba409 Author-Name: Robert W. Staiger Author-Person: pst85 Note: ITI Number: 5932 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5932 File-URL: http://www.nber.org/papers/w5932.pdf File-Format: application/pdf Publication-Status: published as Bagwell, Kyle and Robert W. Staiger. "Reciprocity, Non-discrimination And The Preferential Agreements In The Multilateral Trading System," European Journal of Political Economy, 2001, v17(2,Jun), 281-325. Abstract: and non-discrimination, the two principles that are the pillars of the multi- lateral trading system as embodied in GATT and its successor, the WTO. We show that GATT's principle of reciprocity serves to neutralize the world-price effects of a country's trade policy decisions, and hence can deliver efficient trade-policy outcomes for its member governments provided that the externa- lities associated with trade intervention travel through world prices. We then establish that externalities indeed travel in this way if and only if tariffs also conform to the principle of non-discrimination (MFN). In this way, the principles of reciprocity and non-discrimination can work together to deliver efficient outcomes for the multilateral trading system. We also consider within our framework the implications of preferential agreements for the multilateral trading system. The introduction of free trade agreements com- plicates the way in which externalities are transmitted across countries, and in this environment the principle of reciprocity can not longer deliver efficient multilateral outcomes for its member governments. We do find a limited place for customs unions in the multilateral trading system, provided that the member countries of the union have similar political preferences. As these conditions are quite stringent, we offer little support for the hypothesis that the principle of reciprocity can deliver an efficient multi- lateral trade agreement in the presence of preferential agreements. Instead, our results offer support for the view that preferential agreements pose a threat to the existing multilateral system. Handle: RePEc:nbr:nberwo:5932 Template-Type: ReDIF-Paper 1.0 Title: Macroeconomic Fluctuations and the Allocation of Time Classification-JEL: E32 Author-Name: Robert E. Hall Note: EFG Number: 5933 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5933 File-URL: http://www.nber.org/papers/w5933.pdf File-Format: application/pdf Publication-Status: published as Journal of Labor Economics, Vol. 15, no. 1, part 2 (January 1997): S223-S250 Abstract: What are the fundamental driving forces of macroeconomic fluctuations? In particular, why do people spend more time working in booms and less in recessions? These are basic questions of macroeconomics. Recent thinking has emphasized technology shifts, preference shifts, and changes in government purchases as likely driving forces. It is useful to distinguish atemporal and intertemporal effects of the driving forces. Under standard assumptions, the technology shift has no effect through atemporal channels because income and substitution effects exactly offset. A straightforward decomposition of movements of employment attributes most of them to the atemporal effects of preference shifts. Handle: RePEc:nbr:nberwo:5933 Template-Type: ReDIF-Paper 1.0 Title: Shifts in U.S. Relative Wages: The Role of Trade, Technology and Factor Endowments Classification-JEL: F10; J31 Author-Name: Robert E. Baldwin Author-Name: Glen G. Cain Note: ITI Number: 5934 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5934 File-URL: http://www.nber.org/papers/w5934.pdf File-Format: application/pdf Publication-Status: published as Baldwin, Robert E. and Glen G. Cain. "Shifts In Relative U.S. Wages: The Role Of Trade, Technology, And Factor Endowments," Review of Economics and Statistics, 2000, v82(4,Nov), 580-595. Abstract: This paper investigates three hypotheses to account for the observed shifts in U.S. relative wages of less educated compared to more educated workers between 1967 and 1992: increased import competition, changes in the relative supplies of labor of different education levels and changes in technology. Our analysis relies on a basic relation of the standard general equilibrium trade model that relates changes in product prices to factor price changes and factor shares, and information about changes in the composition of output, trade, within-industry factor use and factor supplies. We conclude that the relative increase in the supply of well educated labor from 1967-1973 was the dominant force that narrowed the wage gap among workers of different education levels. The gap continued to narrow during the rest of the 1970s, but our results are not clear-cut enough to conclude that the continued increase in the rela- tive supply of more educated workers was the main factor shaping relative From 1980-1993, the wage gap between these workers widened sharply despite the continued relative increase in the supply of more educated workers. Increased import competition cannot account for the rise in wage inequality among these groups but it could have contributed to the decline in wages for the least educated. Instead, support is found for technical progress that is saving of less educated labor and more rapid in some manufacturing sectors using highly educated labor as the main force in widening the wage gaps these groups. Last, we use the Deardorff-Staiger model which allows changes in the factor content of trade to reveal the effects of trade on relative factor prices. Our tests show increased import competition from 1977 to 1987 was not the dominant force in widening the wage gap between more educated and less educated labor between those years. Handle: RePEc:nbr:nberwo:5934 Template-Type: ReDIF-Paper 1.0 Title: Understanding China's Economic Performance Classification-JEL: 053; 057 Author-Name: Jeffrey D. Sachs Author-Name: Wing Thye Woo Author-Person: pwo41 Note: EFG Number: 5935 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5935 File-URL: http://www.nber.org/papers/w5935.pdf File-Format: application/pdf Publication-Status: published as Jeffrey D. Sachs & Wing Thye Woo, 2001. "Understanding china's economic performance," The Journal of Policy Reform, vol 4(1), pages 1-50. Abstract: Broadly speaking, two schools of thought have emerged to interpret China's rapid growth since 1978:the experimentalist school and the convergence school. The experimentalist school attributes China's successes to the evolutionary, experimental, and incremental nature of China's reforms. Specifically, the resulting non-capitalist institutions are said to be successful in (a) agri- culture where land is not owned by the farmers; (b) township and village en- terprises (TVEs) which are owned collectively by rural communities; and (c) state owned enterprises (SOEs) where increased competition and increased wage incentive, not privatization, have been emphasized. The convergence school holds that China's successes are the result of its institutions being allowed to converge with those of non-socialist market economies, and that China's economic structure at the start of reforms is a major reason for the fast growth. China had a high population density heavily concentrated in low-wage agriculture which was favorable for labor-intensive export-led growth in other parts of East Asia. The convergence school also holds that China's gradualism results mainly from a lack of consensus over the proper course, with power divided between market reformers and old-style socialists; and that the 'inno- ative economic circumstances. Perhaps the best test of the two approaches is whether China's policy choices are in fact leading to institutions harmonized with normal market economies or to more distinctive innovations. The recent policy trend has been towards institutional harmonization rather than institutional innovation, suggesting that the government accepts that the ingredients for a dynamic market economy are already well-known. Handle: RePEc:nbr:nberwo:5935 Template-Type: ReDIF-Paper 1.0 Title: Is There Private Information in the FX Market? The Tokyo Experiment Classification-JEL: F31; G15 Author-Name: Takatoshi Ito Author-Name: Richard K. Lyons Author-Person: ply9 Author-Name: Michael T. Melvin Author-Person: pme60 Note: AP IFM Number: 5936 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5936 File-URL: http://www.nber.org/papers/w5936.pdf File-Format: application/pdf Publication-Status: published as Journal of Finance (June 1998): 1111-1130. Abstract: It is a common view that private information in the foreign exchange market does not exist. We provide evidence against this view. The evidence comes from the introduction of trading in Tokyo over the lunch-hour. Lunch return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules. Having eliminated public information as the cause, we exploit the volatility pattern over the whole day to discriminate between the two alternatives: private information and pricing errors. Three key results support the predictions of private-information models. First, the volatility U-shape flattens: greater revelation over lunch leaves a smaller share for the morning and afternoon. Second, the U-shape tilts upward, an implication of information whose private value is transitory. Finally, the morning exhibits a clear U-shape when Tokyo closes over lunch, and it disappears when trading is introduced. Handle: RePEc:nbr:nberwo:5936 Template-Type: ReDIF-Paper 1.0 Title: Neglected Effects on the Uses Side: Even a Uniform Tax Would Change Relative Goods Prices Classification-JEL: H22 Author-Name: Don Fullerton Author-Person: pfu10 Author-Name: Diane Lim Rogers Note: PE Number: 5937 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5937 File-URL: http://www.nber.org/papers/w5937.pdf File-Format: application/pdf Publication-Status: published as American Economic Review, vol.87, no.2, (May 1997): 120-125. Abstract: Fundamental tax reform may change relative prices of consumption goods and may therefore have important effects on the uses side that are ignored by most general equilibrium simulation models. For a uniform rate of tax, in our model, results on the uses side are driven by the nonuniform tax system being replaced. Similar effects occur under any uniform and comprehensive tax reform, whether the current system is replaced by a consumption tax, a wage tax, or a pure income tax. Any such reform that eliminates the current preferential treatment of housing would impose an additional one-time levy on the elderly, and any reform that eliminates the current double taxation of corporate capital would reduce the relative prices of corporate-capital-intensive goods bought by the poor. Handle: RePEc:nbr:nberwo:5937 Template-Type: ReDIF-Paper 1.0 Title: Location and Technological Change in the American Glass Industry During the Late Nineteenth and Early Twentieth Centuries Classification-JEL: D3; N0 Author-Name: Naomi R. Lamoreaux Author-Name: Kenneth L. Sokoloff Note: DAE Number: 5938 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5938 File-URL: http://www.nber.org/papers/w5938.pdf File-Format: application/pdf Publication-Status: published as as "The Geography of Invention in the American Glass Industry, 1870 1925" Journal of Economic History, Volume: 60 Issue: 03 (September 2000) Pages: 700-729 Abstract: Scholars have attempted to explain geographic clustering in inventive activity by arguing that it is connected with clustering in production or new investment. They have offered three possible reasons for this link: because invention occurs as a result of learning by doing; because new investment encourages experimentation with novel techniques; and because there are local information flows that make inventors more fertile in areas where producers are concentrated. In this article we test these theories by studying geographic patterns of production and invention in the glass industry during the late nineteenth and early twentieth centuries. We find that the patterns deviate significantly from what the theories would predict, and offer the alternative hypothesis that inventive activity proceeded most intensively in areas where markets for technology had developed most fully that is, where there were localized networks of institutions that mobilized information about technological opportunities and mediated relations among inventors, suppliers of capital, and those who would commercially develop or exploit new technologies. Handle: RePEc:nbr:nberwo:5938 Template-Type: ReDIF-Paper 1.0 Title: Patterns of Intra- and Inter-State Trade Classification-JEL: O5; F11 Author-Name: Holger C. Wolf Note: ITI Number: 5939 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5939 File-URL: http://www.nber.org/papers/w5939.pdf File-Format: application/pdf Publication-Status: published as Holger C Wolf. "Intranational Home Bias In Trade," The Review of Economics and Statistics. Volume 82, Issue 4 (November 2000) Pages: 555-563 Abstract: Recent studies suggest that intranational trade is "excessive' compared to international trade. An intuitive explanation for this home bias is provided by national trade barriers. A dataset of trade between US states, however, reveals that home bias extends to subnational units. The data suggest three additional stylized facts. First, shipment distances are shorter for intermediate than for final goods. Second, states located close to each other tend to have similar production patterns. Third, trade flows are higher among states with similar production patterns. The stylized facts are consistent with a complementary explanation of home bias resulting from a spatial clustering of production driven by natural and created comparative advantage. Handle: RePEc:nbr:nberwo:5939 Template-Type: ReDIF-Paper 1.0 Title: Technology, Trade, and Wages Classification-JEL: J3; O3 Author-Name: James D. Adams Author-Person: pad11 Note: LS PR Number: 5940 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5940 File-URL: http://www.nber.org/papers/w5940.pdf File-Format: application/pdf Abstract: Considerable effort has been devoted in recent years to the description of wage structure. This research has documented a rising return to education, unobserved skill, and work experience, but there is little research into causes of the change in structure. This paper seeks to fill the gap by study- ing the impact of domestic technology, foreign technology and trade on U.S. wages. The standard model of general equilibrium presented shows that each effect tends to be opposite in sign for high and low skilled labor. We then modify the model to allow for accumulation of sector-specific skills and sec- toral immobility. In this version shocks have the same direction of effect on high and low skilled workers. In the empirical work we devise measures of foreign and domestic R&D inputs for 6 sectors of the private U.S. economy, and of R&D outputs for 24 manufacturing industries. Holding time and industry effects constant we find that in most cases technology has the same, not oppo- site effect on wages at both skill levels; a rise in the foreign share in world innovation or US patents decreases US wages; an increase in the US share in world innovation or US patents raises US wages, especially for the less skilled; and the stock of world innovation and US patents decreases real wages especially for the less skilled. Turning to the relative skilled wage, we find that the stock of world innovation or US patents increases the skill differen- tial. Holding technology constant we find mixed results for trade. Effects of trade on real wages are generally insignificant once time effects are taken into consideration. Our findings suggest that sectoral labor immobility is a factor in the interaction between the U.S. labor market, technology and trade technology is a key element in the twists of the wage structure, and in and of itself, trade may not be an important determinant of real wages. Handle: RePEc:nbr:nberwo:5940 Template-Type: ReDIF-Paper 1.0 Title: Technological Change and Wages: An Inter-Industry Analysis Classification-JEL: J31; J24 Author-Name: Ann P. Bartel Author-Name: Nachum Sicherman Note: LS Number: 5941 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5941 File-URL: http://www.nber.org/papers/w5941.pdf File-Format: application/pdf Publication-Status: published as Journal of Political Economy, Vol. 107, no. 2 (April 1999): 285-325. Abstract: Previous research has found evidence that wages in industries characterized as high tech,' or subject to higher rates of technological change, are higher. In addition, there is evidence that skill-biased technological change is responsible for the dramatic increase in the earnings of more educated workers relative to less educated workers that took place during the 1980s. In this paper, we match a variety of industry level measures of technological change to a panel of young workers observed between 1979 and 1993 (NLSY) and examine the role played by unobserved heterogeneity in explaining the positive relationships between technological change and wages, and between technological change and the education premium. We find evidence that the wage premium associated with technological change is primarily due to the sorting of better workers into those industries. In addition, the education premium associated with technological change is found to be the result of an increase in demand for the innate ability or other observable characteristics of more educated workers. Handle: RePEc:nbr:nberwo:5941 Template-Type: ReDIF-Paper 1.0 Title: Protection for Sale: An Empirical Investigation Classification-JEL: F1 Author-Name: Pinelopi Koujianou Goldberg Author-Person: pgo1 Author-Name: Giovanni Maggi Author-Person: pma1315 Note: ITI Number: 5942 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5942 File-URL: http://www.nber.org/papers/w5942.pdf File-Format: application/pdf Publication-Status: published as American Economic Review (December 1999): 1135-1155. Abstract: A prominent model in the recent political-economy literature on trade policy is Grossman and Helpman's (1994) Protection for Sale' model. This model yields clear predictions for the cross-sectional structure of trade protection. The objective of our" paper is to check whether the predictions of the Grossman-Helpman model are consistent with the data and, if the model finds support, to estimate its two key structural parameters: the government's valuation of welfare relative to contributions, and the fraction of the voting population represented by a lobby. We find that the pattern of protection in the U.S. in 1983 is consistent with the basic predictions of the model. Our estimate of the government's valuation of welfare relative to contributions is surprisingly high; the weight of welfare in the government's objective function is estimated to be between 50 and 88 times the weight of contributions. Handle: RePEc:nbr:nberwo:5942 Template-Type: ReDIF-Paper 1.0 Title: Integration, Cointegration and the Forecast Consistency of Structural Exchange Rate Models Author-Name: Yin-Wong Cheung Author-Person: pch261 Author-Name: Menzie D. Chinn Author-Person: pch129 Note: IFM Number: 5943 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5943 File-URL: http://www.nber.org/papers/w5943.pdf File-Format: application/pdf Publication-Status: published as Journal of International Money and Finance, Vol. 17, no. 5 (October 1998): 813-830. Abstract: Exchange rate forecasts are generated using some popular monetary models of exchange rates in conjunction with several estimation techniques. We propose an alternative set of criteria for evaluating forecast rationality which entails the following requirements: the forecast and the actual series i) have the same order of integration, ii) are cointegrated, and iii) have a cointegrating vector consistent with long run unitary elasticity of expectations. When these conditions hold, we consider the forecasts to be consistent.' We find that it is fairly easy for the generated forecasts to pass the first requirement. However, according to the Johansen procedure, cointegration fails to hold the farther out the forecasts extend. At the one year ahead horizon, most series and their respective forecasts do not appear cointegrated. Of the cointegrated pairs, the restriction of unitary elasticity of forecasts with respect to actual appears not to be rejected in general. The exception to this pattern is in the case of the error correction models in the longer subsample. Using the Horvath-Watson procedure, which imposes a unitary coefficient restriction, we find fewer instances of consistency, but a relatively higher proportion of the identified cases of consistency are found at the longer horizons. Handle: RePEc:nbr:nberwo:5943 Template-Type: ReDIF-Paper 1.0 Title: Interest Rate Targeting and the Dynamics of Short-Term Rates Classification-JEL: E43; E52 Author-Name: Pierluigi Balduzzi Author-Name: Giuseppe Bertola Author-Person: pbe54 Author-Name: Silverio Foresi Author-Name: Leora Klapper Author-Person: pkl66 Note: ME Number: 5944 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5944 File-URL: http://www.nber.org/papers/w5944.pdf File-Format: application/pdf Publication-Status: published as Journal of Money Credit and Banking, Vol. 30, issue 1 (February 1998) pp. 26-50 Abstract: We find that in 1989-1996, when U.S. monetary policy tightly targeted overnight fed funds rates, the volatility and persistence of spreads between target and term fed funds levels were larger for longer-maturity loans. We show that such patterns are consistent with an expectational model where target revisions are infrequent and predictable. In our model, the (autoco-) variance of the spreads of term fed funds rates from the target increases with maturity because longer-term rates are more heavily influenced by persistent expectations of future target changes. Handle: RePEc:nbr:nberwo:5944 Template-Type: ReDIF-Paper 1.0 Title: Empirical Patterns of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation Classification-JEL: D21; D43 Author-Name: Tor Jakob Klette Author-Name: Zvi Griliches Note: PR Number: 5945 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5945 File-URL: http://www.nber.org/papers/w5945.pdf File-Format: application/pdf Publication-Status: published as Klette, Tor Jakob & Griliches, Zvi, 2000. "Empirical Patterns of Firm Growth and R&D Investment: A Quality Ladder Model Interpretation," Economic Journal, Royal Economic Society, vol. 110(463), pages 363-87, April. Abstract: We present a model of endogenous firm growth with R&D investment and innovation as the engine of growth. The objective of our analysis is to present a framework that can be used for microeconometric analysis of firm performance in high-tech industries. The model for firm growth is a partial equilibrium model drawing on the quality ladder models in the macro growth literature, but also on the literature on patent races and the discrete choice models of product differentiation. We examine to what extent the assumptions and the empirical content of our model are consistent with the findings that have emerged from empirical studies of growth, productivity, R&D and patenting at the firm level. The analysis shows that the model fits well empirical patterns such as (i) a skewed size distribution of firms with persistent differences in firm sizes, (ii) firm growth (roughly) independent of firm size (the so-called Gibrat's law) and (iii) R&D investment proportional to sales, as well as a number of other empirical patterns. Handle: RePEc:nbr:nberwo:5945 Template-Type: ReDIF-Paper 1.0 Title: Accounting for Future Costs in Medical Cost-Effectiveness Analysis Classification-JEL: I18; D61 Author-Name: David Meltzer Note: EH PR Number: 5946 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5946 File-URL: http://www.nber.org/papers/w5946.pdf File-Format: application/pdf Publication-Status: published as Journal of Health Economics, Vol.16, no.1 (1997): 33-64. Abstract: Most medical cost-effectiveness analyses include future costs only for related illnesses but this approach is controversial. This paper demonstrates that cost-effectiveness analysis is consistent with lifetime utility maximization only if it includes all future medical and non-medical expenditures. Estimates of the magnitude of these future costs suggest that they may substantially alter both the absolute and relative cost-effectiveness of medical interventions intervention increases length of life more than quality of life. In older populations, current methods overstate the cost-effectiveness of interventions which extend life compared to" interventions which improve the quality of life. Handle: RePEc:nbr:nberwo:5946 Template-Type: ReDIF-Paper 1.0 Title: On the Optimality of Interest Rate Smoothing Classification-JEL: E31; E43 Author-Name: Sergio Rebelo Author-Name: Danyang Xie Author-Person: pxi9 Note: EFG ME Number: 5947 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5947 File-URL: http://www.nber.org/papers/w5947.pdf File-Format: application/pdf Publication-Status: published as Journal of Monetary Economics, Vol. 43, no. 2 (April 1999): 263-282. Abstract: This paper studies some continuous-time cash-in-advance models in which interest rate smoothing is optimal. We consider both deterministic and stochastic models. In the stochastic case we obtain two results of independent interest: (i) we study what is, to our knowledge, the only version of the neoclassical model under uncertainty that can be solved in closed form in continuous time; and (ii) we show how to characterize the competitive equilibrium of a stochastic continuous time model that cannot be computed by solving a planning problem. We also discuss the scope for monetary policy to improve welfare in an economy with a suboptimal real competitive equilibrium, focusing on the particular example of an economy with externalities. Handle: RePEc:nbr:nberwo:5947 Template-Type: ReDIF-Paper 1.0 Title: Retiree Health Insurance and the Labor Force Behavior of Older Men in the 1990s Classification-JEL: J26; I1 Author-Name: David M. Blau Author-Person: pbl13 Author-Name: Donna B. Gilleskie Note: EH Number: 5948 Creation-Date: 1997-02 Order-URL: http://www.nber.org/papers/w5948 File-URL: http://www.nber.org/papers/w5948.pdf File-Format: application/pdf Publication-Status: published as Blau, David M. and Donna B. Gilleskie. "Retiree Health Insurance And The Labor Force Behavior Of Older Men In The 1990s," Review of Economics and Statistics, 2001, v83(1,Feb), 64-80. Abstract: We estimate the impact of employer-provided retiree health insurance on the rate at which men aged 51-62 enter and exit the labor force and switch jobs. The models estimated are an approximation of the employment decision rules implied by a dynamic stochastic model of employment behavior of older individuals. We use data from the Health and Retirement Survey (HRS), which contains more detailed and accurate measures of retiree health insurance than those used in most previous studies. The results show that availability of employer-provided retiree health insurance (EPRHI) increases the rate of exit from employment by two percentage points per year on average if the individual shares the cost of the insurance coverage with the firm, and by six percentage points if the firm pays the entire cost. The impact of EPRHI on the annual rate of labor force exit increases with age, reaching nine percentage points by age 61. These are larger than the effects estimated in previous studies. The accurate and detailed health insurance measures available in the HRS help account for the larger effects found here. Controlling for unobserved heterogeneity, a possibility not accounted for in previous studies, also has a substantial impact on the estimates. Handle: RePEc:nbr:nberwo:5948 Template-Type: ReDIF-Paper 1.0 Title: The Genesis and Evolution of Social Security Classification-JEL: H55; N42 Author-Name: Jeffrey A. Miron Author-Person: pmi250 Author-Name: David N. Weil Author-Person: pwe24 Note: DAE PE Number: 5949 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5949 File-URL: http://www.nber.org/papers/w5949.pdf File-Format: application/pdf Publication-Status: published as Miron, Jeffrey A. and David N. Weil. "The Genesis and Evolution of Social Security". The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Edited by Michael D. Bordo, Claudia Goldin, and Eugene N. White, Chicago: The University of Chicago Press, 1998, pp. 297-322. Publication-Status: published as The Genesis and Evolution of Social Security, Jeffrey A. Miron, David N. Weil. in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Bordo, Goldin, and White. 1998 Abstract: We examine the creation of Social Security during the Great Depression, and how it has evolved since, asking in particular to what extent the program as it exists today is the same as that created in 1935 and 1939. We find that there has been surprising continuity. Much of the program's growth was built in from its inception. The replacement rate and the ratio of benefits to payrolls are today roughly at the levels designed into the original legislation. Payroll tax rates today are higher than had been planned, in part because of the failure to accumulate a trust fund during the program's early years. The change in the ratio of contributors to beneficiaries which has taken place over the last 60 years was fully anticipated. The most dramatic changes in Social Security's functioning have come not from legislation, but from changes in the environment in which the program operates. Before the Depression, retirement was unlikely and often involuntary. Higher life expectancy, lower labor force participation, and better health have undermined Social Security's original purpose, which was as a form of insurance. We also find that the Depression itself had surprisingly little influence on the design chosen for Social Security. Handle: RePEc:nbr:nberwo:5949 Template-Type: ReDIF-Paper 1.0 Title: Heterogeneous Information Arrival and Option Pricing Classification-JEL: G13; D52 Author-Name: Patrick K. Asea Author-Name: Mthuli Ncube Author-Person: pnc2 Note: AP Number: 5950 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5950 File-URL: http://www.nber.org/papers/w5950.pdf File-Format: application/pdf Publication-Status: published as Asea, Patrick K. & Ncube, Mthuli, 1998. "Heterogeneous information arrival and option pricing," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 291-323. Abstract: We model the arrival of heterogeneous information in a financial market as a doubly-stochastic Poisson process (DSPP). A DSPP is a member of the family of Poisson processes in which the mean value of the process itself is governed by a stochastic mechanism. We explore the implications for pricing stock, index and foreign currency options of the assumption that the under- lying security evolves as a mixed diffusion DSPP. We derive an intertemporal CAPM and demonstrate that accounting for heterogeneous information arrival may minimize the ubiquitous pricing bias 'smile-effect' of standard option pricing models. We propose a conceptually simple but numerically intensive maximum likelihood estimator of the parameters of a DSPP. A simulation study verifies the adequacy of the asymptotic approximations in finite samples. Handle: RePEc:nbr:nberwo:5950 Template-Type: ReDIF-Paper 1.0 Title: Lending Cycles Classification-JEL: E32; E24 Author-Name: Patrick K. Asea Author-Name: S. Brock Blomberg Note: EFG Number: 5951 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5951 File-URL: http://www.nber.org/papers/w5951.pdf File-Format: application/pdf Publication-Status: published as Asea, Patrick K. & Blomberg, Brock, 1998. "Lending cycles," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 89-128. Abstract: We investigate the lending behavior of banks by exploiting a rich panel dataset on the contract terms of approximately two million commercial and industrial loans granted by 580 banks between 1977-1993. Using a Markov switching panel model we demonstrate that banks change their lending standards from tightness to laxity systematically over the cycle. We then use an efficient minimum chi-square estimator to examine the relationship between the cyclical component of aggregate unemployment and bank lending standards when both variables are jointly endogenously determined in a system of simultaneous equations with mixed, continuous/discrete dependent variables. The patterns we uncover suggest that lax lending standards that tend to occur during expansions exert considerable influence on the dynamics of aggregate fluctuations. Handle: RePEc:nbr:nberwo:5951 Template-Type: ReDIF-Paper 1.0 Title: Efficient Rules for Monetary Policy Classification-JEL: E52 Author-Name: Laurence Ball Author-Person: pba605 Note: EFG ME Number: 5952 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5952 File-URL: http://www.nber.org/papers/w5952.pdf File-Format: application/pdf Publication-Status: published as International Finance, Vol. 2, no. 1 (April 1999): 63-83 Abstract: This paper defines an efficient rule for monetary policy as one that minimizes a weighted sum of output variance and inflation variance. It derives several results about the efficiency of alternative rules in a simple macroeconomic model. First, efficient rules can be expressed as 'Taylor rules' in which interest rates respond to output and inflation. But the coefficients in efficient Taylor rules differ from the coefficients that fit actual policy in the United States. Second, inflation targets are efficient. Indeed, the set of efficient rules is equivalent to the set of inflation-target policies with different speeds of adjustment. Finally, nominal-income targets are not merely inefficient, but disastrous: they imply that output and inflation have infinite variances. Handle: RePEc:nbr:nberwo:5952 Template-Type: ReDIF-Paper 1.0 Title: The Sociology of Groups and the Economics of Incentives: Theory and Evidence on Compensation Systems Classification-JEL: I1; D23 Author-Name: William E. Encinosa III Author-Name: Martin Gaynor Author-Person: pga1 Author-Name: James B. Rebitzer Author-Person: pre77 Note: EH Number: 5953 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5953 File-URL: http://www.nber.org/papers/w5953.pdf File-Format: application/pdf Publication-Status: published as Encinosa III, William E. & Gaynor, Martin & Rebitzer, James B., 2007. "The sociology of groups and the economics of incentives: Theory and evidence on compensation systems," Journal of Economic Behavior & Organization, Elsevier, vol. 62(2), pages 187-214, February. Abstract: This paper incorporates the sociological concept of group norms' into an economic analysis of pay systems. We use a behavioral microeconomic model and a unique survey of medical groups to examine the theoretical and empirical relationship between group norms and incentive pay. Our findings suggest that, at least for medical groups, norms are binding constraints in the choice of pay practices. While group norms matter, the patterns in the data suggest that they are not all that matters. Analysis of the preferences and activities of individual physicians indicate that factors highlighted by the economic theory of agency, notably income insurance and multi-task considerations, also shape pay policies. The conclusion we draw from these results is that the sociological concept of group norms augments rather than replaces more conventional economic analyses of pay practices. Handle: RePEc:nbr:nberwo:5953 Template-Type: ReDIF-Paper 1.0 Title: The Optimum Quantity of Money: Theory and Evidence Classification-JEL: E52; E61 Author-Name: Casey B. Mulligan Author-Person: pmu64 Author-Name: Xavier X. Sala-i-Martin Author-Person: psa510 Note: EFG ME Number: 5954 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5954 File-URL: http://www.nber.org/papers/w5954.pdf File-Format: application/pdf Publication-Status: published as Journal of Money, Credit and Banking, Vol. 29, no. 4, part 2 (November 1997): 687-715 Publication-Status: published as Casey B. Mulligan & Xavier X. Sala-i-Martin & Frederic S. Mishkin & Jonas D. M. Fisher, 1997. "The optimum quantity of money: theory and evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 687-724. Abstract: In this paper we propose a simple and general model for computing the Ramsey optimal inflation tax, which includes several models from the previous literature as special cases. We show that it cannot be claimed that the Friedman rule is always optimal (or always non-optimal) on theoretical grounds. The Friedman rule is optimal or not, depending on conditions related to the shape of various relevant functions. One contribution of this paper is to relate these conditions to measurable variables such as the interest rate or the consumption elasticity of money demand. We find that it tends to be optimal to tax money when there are economies of scale in the demand for money (the scale elasticity is smaller than one) and/or when money is required for the payment of consumption or wage taxes. We find that it tends to be optimal to tax money more heavily when the interest elasticity of money demand is small. We present empirical evidence on the parameters that determine the optimal inflation tax. Calibrating the model to a variety of empirical studies yields an optimal nominal interest rate of less than 1% per year, although that finding is sensitive to the calibration. Handle: RePEc:nbr:nberwo:5954 Template-Type: ReDIF-Paper 1.0 Title: Entry, Exit, Embodied Technology, and Business Cycles Classification-JEL: E52; E32 Author-Name: Jeffrey R. Campbell Author-Person: pca89 Note: EFG Number: 5955 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5955 File-URL: http://www.nber.org/papers/w5955.pdf File-Format: application/pdf Publication-Status: published as Review of Economic Dynamics, Vol. 1, Issue 2 (April 1998): 371-408. Abstract: This paper studies the entry and exit of U.S. manufacturing plants over the business cycle and compares the results with those from a vintage capital model augmented to reproduce observed features of the plant life cycle. Looking at the entry and exit of plants provides new evidence supporting the hypothesis that shocks to embodied technological change are a significant source of economic fluctuations. In the U.S. economy, the entry rate covaries positively with output and total factor productivity growth, and the exit rate leads all three of these. A vintage capital model in which all technological progress is embodied in new plants reproduces these patterns. In the model economy, a persistent improvement to embodied technology induces obsolete plants to cease production, causing exit to rise. Later, as entering plants embodying the new technology become operational, both output and productivity increase. Handle: RePEc:nbr:nberwo:5955 Template-Type: ReDIF-Paper 1.0 Title: Computing Inequality: Have Computers Changed the Labor Market? Author-Name: David H. Autor Author-Person: pau9 Author-Name: Lawrence F. Katz Author-Person: pka266 Author-Name: Alan B. Krueger Author-Person: pkr63 Note: LS Number: 5956 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5956 File-URL: http://www.nber.org/papers/w5956.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 113, no. 4 (November 1998): 1169-1214. Abstract: This paper examines the effect of technological change and other factors on the relative demand for workers with different education levels and on the recent growth of U.S. educational wage differentials. A simple supply-demand framework is used to interpret changes in the relative quantities, wages, and wage bill shares of workers by education in the aggregate U.S. labor market in each decade since 1940 and from 1990 to 1995. The results suggest that the relative demand for college graduates grew more rapidly on average during the past 25 years (1970-95) than during the previous three decades (1940-70). The increased rate of growth of relative demand for college graduates beginning in the 1970s did not lead to an increase in the college/high school wage diffe- rential until the 1980s because the growth in the supply of college graduates increased even more sharply in the 1970s before returning to historical levels in the 1980s. The acceleration in demand shifts for more-skilled workers in the 1970s and 1980s relative to the 1960s is entirely accounted for by an increase in within-industry changes in skill utilization rather than between- industry employment shifts. Industries with large increases in the rate of skill upgrading in the 1970s and 1980s versus the 1960s are those with greater growth in employee computer usage, more computer capital per worker and larger investment as a share of total investment. The results suggest that the spread of computer technology may `explain' as much as 30-50% of the increase in the rate of growth of the relative demand for more-skilled workers since 1970. Handle: RePEc:nbr:nberwo:5956 Template-Type: ReDIF-Paper 1.0 Title: Consolidation in the Medical Care Marketplace: A Case Study from Masschusetts Author-Name: Jason R. Barro Author-Name: David Cutler Author-Person: pcu64 Note: EH Number: 5957 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5957 File-URL: http://www.nber.org/papers/w5957.pdf File-Format: application/pdf Publication-Status: published as Consolidation in the Medical Care Marketplace,A Case Study from Massachusetts, Jason Barro, David M. Cutler. in Mergers and Productivity, Kaplan. 2000 Abstract: This paper examines consolidation in the Massachusetts hospital market. We find that consolidation is driven primarily by a large decline in the demand for hospital beds, resulting from increased enrollment in managed care and technological changes. The drive to consolidate appears through three primary forces: consolidation for closure; consolidation for economies of scale; and consolidation for network creation. Handle: RePEc:nbr:nberwo:5957 Template-Type: ReDIF-Paper 1.0 Title: Are U.S. Multinationals Exporting U.S. Jobs? Classification-JEL: J23; F23 Author-Name: S. Lael Brainard Author-Name: David A. Riker Note: ITI Number: 5958 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5958 File-URL: http://www.nber.org/papers/w5958.pdf File-Format: application/pdf Abstract: Many allege multinationals are exporting' U.S. jobs when they expand operations abroad. This paper investigates the extent to which expansion of offshore production by U.S. multinationals reduces labor demand at home and at other offshore locations, using a panel on U.S. multinationals and their foreign affiliates between 1983 and 1992. The results suggest that foreign affiliate employment substitutes modestly at the margins for U.S. parent employment. There is much stronger substitution between workers at affiliates in alternative low wage locations. In contrast, activities performed by affiliates at locations with different workforce skill levels in the same region appear to be complements. The results suggest a vertical division of activities among countries with different workforce skill levels, where workers in developing countries compete with each other to perform the activities most sensitive to labor costs. When wages in developing countries, such as Mexico, fall 10 percent, U.S. parent employment falls 0.17 percent, while affiliates in other developing countries, such as Malaysia, lay off 1.6 percent of their workforce. Handle: RePEc:nbr:nberwo:5958 Template-Type: ReDIF-Paper 1.0 Title: U.S. Multinationals and Competition from Low Wage Countries Classification-JEL: J23; F23 Author-Name: David A. Riker Author-Name: S. Lael Brainard Note: ITI Number: 5959 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5959 File-URL: http://www.nber.org/papers/w5959.pdf File-Format: application/pdf Abstract: It is often argued that the globalization of production places workers in industrialized countries in competition with their counterparts in low wage countries. We examine a firm-level panel of foreign manufacturing affiliates owned by U.S. multinationals between 1983 and 1992 and find evidence to the contrary. Affiliate activities in developing countries appear to be complementary to rather than substituting for affiliate activities in industrialized countries. Workers do compete across affiliates, but the competition is between affiliates in countries with similar workforce skill levels. The results suggest that multinationals with affiliates in countries at different stages of development decompose production across borders into complementary stages that differ by skill intensity. The implied complementarity of traded intermediate inputs has important implications for the empirical debate over trade, employment, and wages. Handle: RePEc:nbr:nberwo:5959 Template-Type: ReDIF-Paper 1.0 Title: The Great Depression as a Watershed: International Capital Mobility over the Long Run Classification-JEL: F33; N20 Author-Name: Maurice Obstfeld Author-Person: pob13 Author-Name: Alan M. Taylor Author-Person: pta46 Note: DAE IFM ITI Number: 5960 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5960 File-URL: http://www.nber.org/papers/w5960.pdf File-Format: application/pdf Publication-Status: published as The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Bordo, Michael D., Claudia Goldin, and Eugene N. White, eds., pp. 353-402 (Chicago: University of Chicago Press, 1998) Publication-Status: published as The Great Depression as a Watershed: International Capital Mobility over the Long Run, Maurice Obstfeld, Alan M. Taylor. in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Bordo, Goldin, and White. 1998 Abstract: This paper surveys the evolution of international capital mobility since the late nineteenth century. We begin with an overview of empirical evidence on the fall and rise of integration in the global capital market. A discussion of institutional developments focuses on the use of capital controls and the pursuit of domestic macroeconomic policy objectives in the context of changing monetary regimes. A fundamental macroeconomic policy trilemma has forced policymakers to trade off among conflicting goals. The natural implication of the trilemma is that capital mobility has prevailed and expanded under circumstances of widespread political support either for an exchange-rate subordinated monetary policy regime (e.g., the gold standard), or for a monetary regime geared mainly toward domestic objectives at the expense of exchange-rate stability (e.g., the recent float). Through its effect on popular attitudes toward both the gold standard and the legitimate scope for government macroeconomic intervention, the Great Depression emerges as the key turning point in the recent history of international capital markets. Handle: RePEc:nbr:nberwo:5960 Template-Type: ReDIF-Paper 1.0 Title: Leverage and House-Price Dynamics in U.S. Cities Classification-JEL: G32; R31 Author-Name: Owen Lamont Author-Name: Jeremy C. Stein Author-Person: pst43 Note: CF Number: 5961 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5961 File-URL: http://www.nber.org/papers/w5961.pdf File-Format: application/pdf Publication-Status: published as RAND Journal of Economics, Vol. 30, no. 3 (Autumn 1999): 498-514. Abstract: In this paper, we use city-level data to analyze the relationship between homeowner borrowing patterns and house-price dynamics. Our principal finding is that in cities where homeowners are more leveraged--i.e., have higher loan-to-value ratios--house prices react more sensitively to city-specific shocks, such as changes in per-capita income. This finding is consistent with recent theories which emphasize the role of collateralized borrowing in shaping the behavior of asset prices. Handle: RePEc:nbr:nberwo:5961 Template-Type: ReDIF-Paper 1.0 Title: Inflation Targeting: Some Extensions Classification-JEL: E42; E52 Author-Name: Lars E. O. Svensson Author-Person: psv2 Note: AP IFM ME Number: 5962 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5962 File-URL: http://www.nber.org/papers/w5962.pdf File-Format: application/pdf Publication-Status: published as Scandinavian Journal of Economics, vol 101, no 3, pp. 337-361, 1999. Abstract: Previous analysis of the implementation of inflation targeting is extended to monetary policy responses to different shocks, consequences of model uncertainty, effects of interest rate smoothing and stabilization, a comparison with nominal GDP targeting, and implications of forward-looking behavior. Model uncertainty, output stabilization, and interest rate stabilization or smoothing all call for a more gradual adjustment of the conditional inflation forecast toward the inflation target. The conditional inflation forecast is the natural intermediate target during inflation targeting. Handle: RePEc:nbr:nberwo:5962 Template-Type: ReDIF-Paper 1.0 Title: Was the Great Depression a Watershed for American Monetary Policy? Classification-JEL: E42; E50 Author-Name: Charles W. Calomiris Author-Person: pca421 Author-Name: David C. Wheelock Note: DAE ME Number: 5963 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5963 File-URL: http://www.nber.org/papers/w5963.pdf File-Format: application/pdf Publication-Status: published as Calomiris, Charles W. and David C. Wheelock. "Was the Great Depression a Watershed for American Monetary Policy?" The Defining Moment: The Great Depression and the American Economy in the Twentieth Centruy. Edited by Michael D. Bordo, Claudia Goldin, and Eugene N. White, Chicago. The University of Chicago Press, 1998, pp. 23-65. Publication-Status: published as Was the Great Depression a Watershed for American Monetary Policy?, Charles Calomiris, David Wheelock. in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Bordo, Goldin, and White. 1998 Abstract: The Great Depression changed the institutions governing monetary policy. These changes included the departure from the gold standard, an opening of a a new avenue for monetizing government debt, changes in the structure of the the Federal Reserve System, and new monetary powers of the Treasury. Ideo- logical changes accompanied institutional changes. We examine whether and how thes changes mattered for post-Depression monetary policy. With regard to the period 1935-1941, the tools of Fed policy, but not its goals or tactics, changed. But structural reforms weakened the Federal Reserve relative to the Treasury, and removed a key limit on the monetization of government debt. The increased power of the Treasury to determine the direction of policy, along with the departure from gold and the new ment debt produced a new (albeit small) inflationary bias in monetary policy that lasted until the Treasury-Fed Accord of 1951. The Fed regained some independence with the Accord of 1951. The Fed returned to its traditional pre-Depression) operating methods, and the procyclical bias in these procedures--along with pressures to monetize government debt--explains how the Fed stumbled into an inflationary policy in the 1960s. Depression-era changes--especially the departure from the gold standard in 1933 and the relaxation of an important constraint on deficit monetization in 1932--made this inflationary policy error possible, and contributed to the persistence of inflationary policy. Handle: RePEc:nbr:nberwo:5963 Template-Type: ReDIF-Paper 1.0 Title: Private School Vouchers and Student Achievement: An Evaluation of the Milwaukee Parental Choice Program Classification-JEL: I20 Author-Name: Cecilia Elena Rouse Note: CH LS PE Number: 5964 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5964 File-URL: http://www.nber.org/papers/w5964.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 113, no. 2 (May 1998): 553-602. Abstract: In 1990, Wisconsin became the first state in the country to provide vouchers to low income students to attend non-sectarian private schools. In this paper, I use a variety of estimation strategies and samples to estimate the effect of the program on math and reading scores. First, since schools selected students randomly from among their applicants if the school was oversubscribed, I compare the academic achievement of students who were selected to those who were not selected. Second, I present instrumental variables estimates of the effectiveness of private schools (relative to public schools) using the initial selection as an instrumental variable for attendance at a private school. Finally, I used a fixed-effects strategy to compare students enrolled in the private schools to a sample of students from the Milwaukee public schools. I find that the Milwaukee Parental Choice Program appears to have had a positive effect on the math achievement of those who attended a private school; but had no benefits for reading scores. I have found the results to be fairly robust to data imputations and sample attrition, however these limitations should be kept in mind when interpreting the results. Handle: RePEc:nbr:nberwo:5964 Template-Type: ReDIF-Paper 1.0 Title: International Portfolio Diversification with Generalized Expected Utility Preferences Classification-JEL: F30; F36 Author-Name: Joshua Aizenman Author-Person: pai8 Note: IFM Number: 5965 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5965 File-URL: http://www.nber.org/papers/w5965.pdf File-Format: application/pdf Publication-Status: published as Joshua Aizenman, 1999. "International Portfolio Diversification with Generalized Expected Utility Preferences," The Canadian Journal of Economics / Revue canadienne d'Economique, vol 32(4). Abstract: This paper revisits the Home Bias Puzzle -- the relatively low interna- tional diversification of portfolios. We suggest that part of the diversifi- cation puzzle may be due to reliance on the conventional CAPM model as the benchmark predicting patterns of diversification. We compare the asset diver- sification patterns of agents who maximize a generalized expected utility (GEU) to the diversification of agents who maximize the conventional expected utility (EU). Specifically, we derive the patterns of diversification for agents who maximize a rank-dependent' expected utility, attaching more weight to bad' than to good' outcomes, in contrast to the probability weights used in a conventional expected utility maximization. We show that agents who maximize a GEU exhibit first order risk aversion and tend to refrain from di- versification in contrast to the diversification of agents who maximize the EU. For a given covariance structure we identify a `cone of diversifica- tion -- the range of domestic and foreign yields leading to a positive demand for both equities. Greater downside risk aversion increases the threshold of yields leading to diversification, shifting the cone of diversification upwards and rightwards. Thus, greater downsiderisk aversion narrows the range of foreign yields leading to diversification for a given domestic yield. Ceteris paribus, greater downside risk aversion reduces the feasible hetero- geneity of normalized excess yields associated with diversification. Conse- quently, we argue that first order risk aversion should be added to the explanatory factors that account for the observed diversification patterns. Handle: RePEc:nbr:nberwo:5965 Template-Type: ReDIF-Paper 1.0 Title: Community Choice and Local Public Services: A Discrete Choice Approach Classification-JEL: H73; R20 Author-Name: Thomas J. Nechyba Author-Person: pne28 Author-Name: Robert P. Strauss Note: PE Number: 5966 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5966 File-URL: http://www.nber.org/papers/w5966.pdf File-Format: application/pdf Publication-Status: published as Regional Science and Urban Economics, Vol. 28, no. 1 (January 1998): 51-73 Abstract: This paper uses a discrete choice approach to estimate the impact of local fiscal and other variables on individual community choices. It employs a combination of a unique micro data set composed of ninety percent of all homeowners in six school districts in Camden County, New Jersey and information on local community characteristics including local crime rates, commercial activity and distance from a metropolitan area. The empirical model implies that all these variables as well as the local per pupil spending on public education and community entry prices' play a major part in explaining the location of individual households. Estimates of elasticities of the probabilities of a representative individual choosing a particular community with respect to the various variables are calculated and discussed. Handle: RePEc:nbr:nberwo:5966 Template-Type: ReDIF-Paper 1.0 Title: When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets Classification-JEL: L51; H23 Author-Name: Ian W. H. Parry Author-Person: ppa261 Author-Name: Roberton C. Williams III Author-Person: pwi38 Author-Name: Lawrence H. Goulder Note: PE EEE Number: 5967 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5967 File-URL: http://www.nber.org/papers/w5967.pdf File-Format: application/pdf Publication-Status: published as Parry, Ian W. H., Roberton C. Williams and Lawrence H. Goulder. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role Of Distorted Factor Markets," Journal of Environmental Economics and Management, 1999, v37(1,Jan), 52-84. Abstract: This paper employs analytical and numerical general equilibrium models to assess the efficiency impacts of two policies to reduce U.S. carbon emissions -- a carbon tax and a carbon quota -- taking into account the inter- actions between these policies and pre-existing tax distortions in factor markets. We show that tax interactions significantly raise the costs of both policies relative to what they would be in a first-best setting. In addition, we show that these interactions put the carbon quota at a signficant efficiency disadvantage relative to the carbon tax: the costs of reducing emissions by 10 % are more than three times higher under the carbon quota than than under the carbon tax. This disadvantage reflects the inability of the quota policy to generate revenue that can be used to reduce pre-existing dis- tortionary taxes. Indeed, second-best considerations severely limit the potential of a carbon quota to general overall efficiency gains. Under our central estimates, a non-auctioned carbon quota (or set of grandfathered carbon emissions permits) cannot increase efficiency unless the marginal benefits from avoided future climate change are at least $25 per ton of carbon abatement. Most estimates of these marginal environmental benefits are well below $25 per ton. Thus, our analysis suggests that any carbon abatement by way of a non-auctioned quota will be efficiency-reducing. In contrast, a revenue-neutral carbon tax is found to be efficiency-improving so long as marginal environmental benefits are positive. Handle: RePEc:nbr:nberwo:5967 Template-Type: ReDIF-Paper 1.0 Title: Nominal Anchor Exchange Rate Policies as a Domestic Distortion Author-Name: Anne O. Krueger Note: IFM Number: 5968 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5968 File-URL: http://www.nber.org/papers/w5968.pdf File-Format: application/pdf Publication-Status: published as Development, Duality, and the International Economic Regime, Saxonhouse, Gary and T.N. Srinivasan, eds.: University of Michigan Press, January 1999. Abstract: This paper analyzes a nominal anchor exchange rate policy as a domestic distortion, in the tradition of international trade theory. It is shown that, in addition to the problems of sustainability and exit pinpointed in the exchange rate literature, a nominal anchor exchange rate policy, while in force, drives a wedge between the domestic and the international intertemporal marginal rates of substitution. The welfare cost of the Mexican use of the nominal anchor exchange rate policy prior to December 1994 is then estimated. Handle: RePEc:nbr:nberwo:5968 Template-Type: ReDIF-Paper 1.0 Title: The Dark Side of Internal Capital Markets: Divisional Rent-Seeking and Inefficient Investment Author-Name: David S. Scharfstein Author-Person: psc177 Author-Name: Jeremy C. Stein Author-Person: pst43 Note: CF Number: 5969 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5969 File-URL: http://www.nber.org/papers/w5969.pdf File-Format: application/pdf Publication-Status: published as Scharfstein, David S. and Jeremy C. Stein. "The Dark Side Of Internal Capital Markets: Divisional Rent-Seeking And Inefficient Investment," Journal of Finance, 2000, v55(6,Dec), 2537-2564. Abstract: We develop a model that shows how rent-seeking behavior on the part of division managers can subvert the workings of an internal capital market. In an effort to stop rent-seeking, corporate headquarters will be effectively forced into paying bribes to some division managers. And because headquarters is itself an agent of outside investors, the bribes may take the form not of cash, but rather of preferential capital budgeting allocations. One interesting feature of our model is a kind of socialism' in internal capital allocation, whereby weaker divisions tend to get subsidized by stronger ones. Handle: RePEc:nbr:nberwo:5969 Template-Type: ReDIF-Paper 1.0 Title: Returns to Regionalism: An Evaluation of Non-Traditional Gains from RTAs Classification-JEL: F13; F15 Author-Name: Raquel Fernandez Author-Person: pfe17 Note: ITI Number: 5970 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5970 File-URL: http://www.nber.org/papers/w5970.pdf File-Format: application/pdf Publication-Status: published as (With J. Portes) World Bank Economic Review, Vol. 12, no. 2 (1998): 197-220. Abstract: The last decade has witnessed an explosion in the number of regional trade agreements (RTAs). There seems to be a general if ill-defined belief on the part of many policy-makers, and among a number of academics as well, that there is more to a RTA than the traditional gains from trade. This paper examines several possible benefits that RTAs may confer to their partners, including credibility, signaling, bargaining power, insurance, and coordination. It assesses the necessary conditions for each of these candidates to work; gives stylized examples of specific types of policy where it might be applicable; examines real cases where the explanation might be relevant; and discusses their overall plausibility. It concludes by examining NAFTA and the Europe Agreements viewed in this light. Handle: RePEc:nbr:nberwo:5970 Template-Type: ReDIF-Paper 1.0 Title: A Markup Interpretation of Optimal Rules for Irreversible Investment Classification-JEL: D92; D81 Author-Name: Avinash Dixit Author-Person: pdi79 Author-Name: Robert S. Pindyck Author-Person: ppi130 Author-Name: Sigbjorn Sodal Note: IO PR Number: 5971 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5971 File-URL: http://www.nber.org/papers/w5971.pdf File-Format: application/pdf Publication-Status: published as Dixit, Aumash, Robert S. Pindyck and Sighiorn Sodal. "A Markup Interpretation Of Optimal Investment Rules," Economic Journal, 1999, v109(455,Apr), 179-189. Abstract: We re-examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade-off between a larger versus a later net benefit; we show that this trade-off is closely analogous to the standard trade-off for the pricing decision of a firm that faces a downward sloping demand curve. We reinterpret the optimal investment rule as a markup formula involving an elasticity that has exactly the same form as the formula for a firm's optimal markup of price over marginal cost. This is illustrated with several examples. Handle: RePEc:nbr:nberwo:5971 Template-Type: ReDIF-Paper 1.0 Title: The Way We Were (And Are): Changes in Public Finance and Its Textbooks Classification-JEL: H89; B20 Author-Name: Harvey S. Rosen Author-Person: pro55 Note: PE Number: 5972 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5972 File-URL: http://www.nber.org/papers/w5972.pdf File-Format: application/pdf Publication-Status: published as Rosen, Harvey S., 1997. "The Way We Were (and Are): Changes in Public Finance and Its Textbooks," National Tax Journal, National Tax Association, vol. 50(4), pages 719-30, December. Abstract: This paper uses a comparison of a contemporary Public Finance textbook with one written in the 1940s as a vehicle for assessing the changes in the field since the beginning of the National Tax Journal 50 years ago. The comparison indicates that there have been major changes in the field. From a methodological point of view, the most important change is the embrace of microeconomic theory as the framework for analyzing both positive and normative issues. In addition, the incorporation of econometrics has dramatically affected the field. With respect to topical coverage, research in Public Finance has changed along with the items on the public policy agenda, and the results of this new research have made their way into contemporary textbooks. But there is continuity as well as change: some topics and their treatments have metamorphosed very little in the last half century. Handle: RePEc:nbr:nberwo:5972 Template-Type: ReDIF-Paper 1.0 Title: The Demand for Hours of Labor: Direct Evidence from California Classification-JEL: J23 Author-Name: Daniel S. Hamermesh Author-Person: pha78 Author-Name: Stephen J. Trejo Author-Person: ptr78 Note: LS Number: 5973 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5973 File-URL: http://www.nber.org/papers/w5973.pdf File-Format: application/pdf Publication-Status: published as Hamermesh, Daniel S. and Stephen J. Trejo. "The Demand For Hours Of Labor: Direct Evidence From California," Review of Economics and Statistics, 2000, v82(1,Feb), 38-47. Abstract: For many years California has required that most women receive time-and-a-half for hours of work beyond 8 in a given day. In 1980 this daily overtime penalty was extended to men. This change provides a unique opportunity to estimate the impact of an exogenous increase in the relative price of a marginal hour of labor on the demand for hours of work. Analyzing Current Population Survey data from 1973 and 1985, we find that the overtime penalty substantially reduced the amount of daily overtime worked by California men compared to men in other states and to women in California. Our estimates imply that the price elasticity of demand for overtime hours is at least -0.70. Handle: RePEc:nbr:nberwo:5973 Template-Type: ReDIF-Paper 1.0 Title: The Forecasting Ability of Correlations Implied in Foreign Exchange Options Classification-JEL: F31; G13 Author-Name: Jose M. Campa Author-Person: pca393 Author-Name: P. H. Kevin Chang Note: AP IFM Number: 5974 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5974 File-URL: http://www.nber.org/papers/w5974.pdf File-Format: application/pdf Publication-Status: published as 2 (1995): 529- Publication-Status: published as Journal of International Money and Finance, Vol. 17, no. 5 (October 1998): 855-880. Published as "Testing the Expectations Hypothesis on the Term Structure of Volatilities in Foreign Exchange Options", Journal of Finance, Vol. 50, no. Abstract: This paper evaluates the forecasting accuracy of correlation derived from implied volatilities in dollar-mark, dollar-yen, and mark-yen options from January 1989 to May 1995. As a forecast of realized correlation between the dollar-mark and dollar-yen, implied correlation is compared against three alternative forecasts based on time series data: historical correlation, RiskMetrics' exponentially weighted moving average correlation, and correlation estimated using a bivariate GARCH (1,1) model. At the one-month and three-month forecast horizons, we find that implied correlation outperforms, often significantly, these alternative forecasts. In combinations, implied correlation always incrementally improves the performance of other forecasts, but not the converse; in certain cases historically based forecasts contribute no incremental information to implied forecasts. The superiority of the implied correlation forecast holds even when forecast errors are weighted by realized variances, reflecting correlation's contribution to the dollar variance of a multicurrency portfolio. Handle: RePEc:nbr:nberwo:5974 Template-Type: ReDIF-Paper 1.0 Title: Putting Things in Order: Patterns of Trade Dynamics and Growth Classification-JEL: F10 Author-Name: Robert C. Feenstra Author-Person: pfe116 Author-Name: Andrew K. Rose Author-Person: pro71 Note: IFM ITI Number: 5975 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5975 File-URL: http://www.nber.org/papers/w5975.pdf File-Format: application/pdf Publication-Status: published as Feenstra, Robert C. and Andrew K. Rose. "Putting Things In Order: Trade Dynamics And Product Cycles," Review of Economics and Statistics, 2000, v82(3,Aug), 369-382. Abstract: We develop a procedure to rank-order countries and commodities using dis-aggregated American imports data. We find strong evidence that both countries and commodities can be ranked, consistent with the product cycle' hypothesis. Countries habitually begin to export goods to the United States according to an ordering; goods are also exported in order. We estimate these orderings using a semi-parametric methodology which takes account of the fact that most goods are not exported by most countries in our sample. Our orderings seem sensible, robust and intuitive. For instance, our country rankings derived from dis-aggregated trade data turn out to be highly correlated with macroeconomic phenomena such as national productivity levels and growth rates. Handle: RePEc:nbr:nberwo:5975 Template-Type: ReDIF-Paper 1.0 Title: Taming the Skew: Higher-Order Moments in Modeling Asset Price Processes in Finance Author-Name: Sanjiv Ranjan Das Author-Person: pda527 Author-Name: Rangarajan K. Sundaram Note: AP Number: 5976 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5976 File-URL: http://www.nber.org/papers/w5976.pdf File-Format: application/pdf Abstract: It is widely acknowledged that many financial markets exhibit a considerably greater degree of kurtosis (and sometimes also skewness) than is consistent with the Geometric Brownian Motion model of Black and Scholes (1973). Among the many alternative models that have been proposed in this context, two have become especially popular in recent years: models of jump-diffusions, and models of stochastic volatility. This paper explores the statistical properties of these models with a view to identifying simple criteria for judging the consistency of either model with data from a given market; our specific focus is on the patterns of skewness and kurtosis that arise in each case as the length of the interval of observations changes. We find that, regardless of the precise parameterization employed, these patterns are strikingly similar within each class of models, enabling a simple consistency test along the desired lines. As an added bonus, we find that for most parameterizations, the set of possible patterns differs sharply across the two models, so that data from a given market will typically not be consistent with both models. However, there exist exceptional parameter configurations under which skewness and kurtosis in the two models exhibit remarkably similar behavior from a qualitative standpoint. The results herein will be useful to empiricists, theorists and practitioners looking for parsimonious models of asset prices. Handle: RePEc:nbr:nberwo:5976 Template-Type: ReDIF-Paper 1.0 Title: Banks and Macroeconomics Disturbances under Predetermined Exchange Rates Classification-JEL: E3; F31 Author-Name: Sebastian Edwards Author-Person: ped3 Author-Name: Carlos A. Vegh Author-Person: pve34 Note: IFM Number: 5977 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5977 File-URL: http://www.nber.org/papers/w5977.pdf File-Format: application/pdf Publication-Status: published as Journal of Monetary Economics, Vol.40 (November 1997): 239-278. Abstract: As the recent Mexican crisis vividly illustrates, Latin American countries often go through boom-bust cycles caused by both domestic policies and external shocks. Such cycles are typically magnified by weak banking systems which intermediate large capital inflows. This paper develops a simple optimizing model to analyze how the banking sector affects the propagation of shocks. In particular, we show how the world business cycle and shocks to the banking system affect output and employment through fluctuations in bank credit. We also analyze the countercyclical use of reserve requirements. Econometric evidence for Chile and Mexico supports the main predictions of the model. Handle: RePEc:nbr:nberwo:5977 Template-Type: ReDIF-Paper 1.0 Title: Openness, Productivity and Growth: What Do We Really Know? Classification-JEL: F13; F43 Author-Name: Sebastian Edwards Author-Person: ped3 Note: IFM ITI Number: 5978 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5978 File-URL: http://www.nber.org/papers/w5978.pdf File-Format: application/pdf Publication-Status: published as Economic Journal, Vol. 108, no. 447 (March 1998): 383-398. Abstract: For over a century social analysts have debated the connection between trade policy and economic performance. This controversy continues today, even as the world is experiencing an unprecedented period of trade liberalization, and in spite of numerous empirical studies that claim to have found a positive effect of openness on growth. Two issues have been at the core of these controversies: first, until recently theoretical models had been unable to link trade policy to faster equilibrium growth. And second, the empirical literature on the subject has been affected by serious data problems. In this paper I use a new comparative data set for 93 countries to analyze the robustness of the relationship between openness and TFP growth. I use nine alternative indexes of trade policy to investigate whether the evidence supports the view that, with other things given, TFP growth is faster in more open economies. The regressions reported here are robust to the use of openness indicator, estimation technique, time period and functional form, and suggest that more open countries have indeed experienced faster productivity growth. Although the use of instrumental variables goes a long way towards dealing with endogeneity, issues related to causality are still somewhat open, and will require time series analyses to be adequately addressed. Handle: RePEc:nbr:nberwo:5978 Template-Type: ReDIF-Paper 1.0 Title: Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia Classification-JEL: E31; F31 Author-Name: Takatoshi Ito Author-Name: Peter Isard Author-Name: Steven Symansky Note: IFM Number: 5979 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5979 File-URL: http://www.nber.org/papers/w5979.pdf File-Format: application/pdf Publication-Status: published as Ito, Takatoshi and Krueger, Anne O. 1999. Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues. Chicago: The University of Chicago Press. pp. 109-130. Publication-Status: published as Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia , Takatoshi Ito, Peter Isard, Steven Symansky. in Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, Ito and Krueger. 1999 Abstract: The paper tests the Balassa-Samuelson hypothesis (rapid economic growth is accompanied by real exchange rate appreciation because of differential productivity growth between tradable and nontradable sectors) using data of the APEC economies. Japan, Korea, Taiwan and, to a lesser extent, Hong Kong and Singapore, were proved to follow the Balassa-Samuelson path. These countries follow a similar industrialization pattern, increasing the weight of high value-added exports. Although Hong Kong and Singapore grew fast, their real exchange rates appreciated only moderately. High productivity growth in service sectors might have been the reason for this. Other fast-growing ASEAN countries, such as Thailand, Indonesia and Malaysia did not experience real appreciation. Closer examinations of various components of the Balassa-Samuelson hypothesis revealed that key assumptions are not uniformly supported: There is no uniform pattern for the movement of nontradable prices relative to tradable prices; and tradable prices (measured by common currency) do not show the international arbitrage. Handle: RePEc:nbr:nberwo:5979 Template-Type: ReDIF-Paper 1.0 Title: Alternative Strategies for Aggregating Prices in the CPI Classification-JEL: C82; E31 Author-Name: Matthew D. Shapiro Author-Person: psh144 Author-Name: David W. Wilcox Author-Person: pwi165 Note: EFG ME PR Number: 5980 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5980 File-URL: http://www.nber.org/papers/w5980.pdf File-Format: application/pdf Publication-Status: published as Federal Reserve Bank of St. Louis Review, vol 79, no. 3, pp. 113-125, May/June 1997 Abstract: The Consumer Price Index does not take into account the fact that consumers alter the composition of their purchases in response to changes in relative prices. This substitution effect will cause the CPI to grow faster than the cost of living. This paper presents new estimates showing that this bias in the CPI averaged 0.3 percentage points per year between December 1986 and December 1995. This bias could be eliminated by using a superlative index to aggregate prices across the item-area strata of the CPI. The paper discusses the practical difficulties in implementing such a calculation and suggests a method for overcoming them. In particular, it shows how to construct an accurate approximation to a superlative price index that can be published with the same timeliness as the CPI. Handle: RePEc:nbr:nberwo:5980 Template-Type: ReDIF-Paper 1.0 Title: The Sugar Institute Learns to Organize Information Exchange Classification-JEL: B00; L13 Author-Name: David Genesove Author-Person: pge30 Author-Name: Wallace P. Mullin Note: IO Number: 5981 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5981 File-URL: http://www.nber.org/papers/w5981.pdf File-Format: application/pdf Publication-Status: published as Learning by Doing in Markets, Firms, and Countries, Naomi Lamoreaux, Daniel M.G. Raff, and Peter Temin, eds., Chicago: University of Chicago Press, 1999, pp. 103-138. Publication-Status: published as The Sugar Institute Learns to Organize Information Exchange, David Genesove, Wallace Mullin. in Learning by Doing in Markets, Firms, and Countries, Lamoreaux, Raff, and Temin. 1999 Abstract: This paper describes information exchange under the Sugar Institute, the trade association of U.S. domestic sugar cane refiners, between 1928 and 1936. The Institute collected production and delivery data from the individual firms and returned it to them in aggregated form. Attempts to exchange sales data were stymied by the larger firms. Surprisingly, there is no indication of mis-reporting of statistics by Institute members, although statistics were, at times, withheld. The paper concentrates on the evolution of the Institute. Proposals for successor organizations show that a workable mechanism required greater discretion to the central authority and greater voting rights to the larger firms. Handle: RePEc:nbr:nberwo:5981 Template-Type: ReDIF-Paper 1.0 Title: Cellular Telephone, New Products and the CPI Author-Name: Jerry Hausman Author-Person: pha893 Note: PR Number: 5982 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5982 File-URL: http://www.nber.org/papers/w5982.pdf File-Format: application/pdf Publication-Status: published as Hausman, Jerry, 1999. "Cellular Telephone, New Products, and the CPI," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(2), pages 188-94, April. Abstract: Cellular telephone is an example of a new product that has significantly affected how Americans live. Since their introduction in 1983, cellular telephone adoption has grown at 25-35% per year such that at year end 1996 about 42 million cellular telephones are in use in the U.S. However, cellular telephone has not been included in the construction of the CPI, and the CPI will not include cellular telephone until 1998 or 1999. This neglect of new goods leads to an upward bias in the CPI. The analysis of the paper demonstrates that the gains in consumer welfare from a new product such as cellular telephone can be substantial. The paper also gives an approximation result which the BLS could use to calculate gains in consumer welfare from new products for use in the CPI. The BLS telecommunications CPI estimates that since 1988, telecommunications prices have increased by 8.5% or an increase of 1.02% per year. This estimate ignores cellular service. A corrected telecommunication services COLI that includes cellular service decreased from 1.0 in 1988 to 0.903 in 1996 for a decrease of 1.28% per year. Thus, the bias in the BLS telecommunications services CPI equals approximately 2.3 percentage points per year. The neglect of new products in the CPI can lead to significant biases. Handle: RePEc:nbr:nberwo:5982 Template-Type: ReDIF-Paper 1.0 Title: Market Wages and Youth Crime Classification-JEL: J2; K14 Author-Name: Jeff Grogger Author-Person: pgr125 Note: LS Number: 5983 Creation-Date: 1997-03 Order-URL: http://www.nber.org/papers/w5983 File-URL: http://www.nber.org/papers/w5983.pdf File-Format: application/pdf Publication-Status: published as Journal of Labor Economics, Vol. 16, no. 4 (October 1998): 756-791 Abstract: Youth crime is widespread. To study the effect of market wages on youth crime, I analyze a time-allocation model in which consumers face parametric wages and diminishing marginal returns to crime. Under these assumptions, an individual who works will commit crime if the returns to the first hour of crime exceed his market wage. This decision rule imposes considerable structure on the econometric model, which I estimate using data from the National Longitudinal Survey Youth Cohort. The empirical model provides estimates of the determinants of criminal returns and of the wage responsiveness of criminal participation. Young men's behavior appears to be very responsive to price incentives. My estimates suggest that falling real wages may have been an important determinant of rising youth crime over the past two decades. Moreover, wages explain an important component of the racial differential in criminal participation, and they largely explain the age distribution of crime. Handle: RePEc:nbr:nberwo:5983 Template-Type: ReDIF-Paper 1.0 Title: Identifying the Common Component in International Economic Fluctuations Classification-JEL: E32; C51 Author-Name: Robin L. Lumsdaine Author-Name: Eswar S. Prasad Author-Person: ppr1 Note: EFG IFM Number: 5984 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5984 File-URL: http://www.nber.org/papers/w5984.pdf File-Format: application/pdf Publication-Status: published as Lumsdaine, Robin L. and Eswar S. Prasad. "Identifying The Common Component Of International Economic Fluctuations: A New Approach," Economic Journal, 2003, v113(484,Jan), 101-127. Abstract: In this paper, we develop an aggregation procedure using time-varying weights for constructing the common component in international economic fluctuations. The methodology for deriving time-varying weights is based on some stylized features of the data documented in the paper. The model allows for a unified treatment of cyclical and seasonal fluctuations and also captures the dynamic propagation of shocks across countries. Based on correlations of individual country fluctuations with the common component, we find evidence for a `world business cycle' as well as evidence for a distinct European common component. We find few systematic differences in international business cycle relationships between the Bretton Woods and post-Bretton Woods periods. Handle: RePEc:nbr:nberwo:5984 Template-Type: ReDIF-Paper 1.0 Title: The Technology of Birth: Health Insurance, Medical Interventions, and Infant Health Classification-JEL: I18; I11 Author-Name: Janet Currie Author-Person: pcu13 Author-Name: Jonathan Gruber Author-Person: pgr20 Note: CH EH LS PE Number: 5985 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5985 File-URL: http://www.nber.org/papers/w5985.pdf File-Format: application/pdf Abstract: Two key issues for public insurance policy are the effect of insurance status on medical treatment, and the implications of insurance-induced treat- ment differentials for health outcomes. We address these issues in the context of the treatment of childbirth, using Vital Statistics data on every birth in the U.S. over the 1987-1992 period. The effects of insurance status on treat- ment and outcomes are identified using the tremendous variation in eligibility for public insurance coverage under the Medicaid program over this period. Among teen mothers and high school dropouts, who were largely uninsured before being made eligible for Medicaid, eligibility for this program was associated with significant increases in the use of a variety of obstetric procedures. On average, this more intensive treatment was associated with only marginal changes in the health of infants, as measured by neonatal mortality. But the effect of eligibility on neonatal mortality is sizeable among children born to mothers whose closest hospital had a Neonatal Intensive Care Unit, suggest- ing that insurance-induced increases in use of `high tech' treatments can have real effects on outcomes. Among women with more education there is a counter- vailing effect on procedure use. Most of these women had private insurance before becoming Medicaid-eligible, and some may have been 'crowded out' onto the public program. These women moved from more generous to less generous insurance coverage of pregnancy and neonatal care. This movement was accompanied by reductions in procedure use without any discernable change in neonatal mortality. Handle: RePEc:nbr:nberwo:5985 Template-Type: ReDIF-Paper 1.0 Title: The Great Depression and the Regulating State: Federal Government Regulation of Agriculture: 1884-1970 Author-Name: Gary D. Libecap Author-Person: pli409 Note: DAE Number: 5986 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5986 File-URL: http://www.nber.org/papers/w5986.pdf File-Format: application/pdf Publication-Status: published as Libecap, Gary D. "The Great Depression and the Regulating State: Federal Government Regulations of Agriculture: 1884-1970". The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Edited by Michael D. Bordo, Claudia Goldin, and Eugene N. White, Chicago: The University of Chicago Press, 1998, pp.181-224. Publication-Status: published as The Great Depression and the Regulating State: Federal Government Regulation of Agriculture, 1884-1970, Gary D. Libecap. in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Bordo, Goldin, and White. 1998 Abstract: The New Deal increased the amount and breadth of agricultural regulation in the economy, shifting it from providing public goods and transfers to controlling supplies and directing government purchases to raise prices, and created the institutional structure to continue the new regulation long after the crisis ended. Agricultural laws passed by Congress and the President from 1884 through 1970 are classified as to whether they provided public goods, gave direct and indirect transfers, or engaged in economic regulation. Additionally, laws enacted from 1940 through 1970 are classified as to whether or not they were linked to specific New Deal agricultural programs. The hypothesis is tested that absent the Great Depression and New Deal, the pattern of agricultural regulation with public goods and transfers that existed prior to 1933 would have continued through 1970. Budget appropriations for economic regulation of agricultural commodities are assembled and categorized as demand enhancement and supply control to analyze how the New Deal affected regulatory expenditures relative to what existed prior to 1933. Additionally, staffing and budgets for the U.S. Department of Agriculture and domestic wheat prices are examined to determine if they were changed by New Deal policies from 1933 through 1970 compared to the pre-New Deal period. International comparisons are made to determine how the U.S. regulatory experience compared to that in other western industrial countries. Handle: RePEc:nbr:nberwo:5986 Template-Type: ReDIF-Paper 1.0 Title: The Effect of Managed Care on Health Care Providers Classification-JEL: I1 Author-Name: Laurence C. Baker Author-Name: Martin L. Brown Note: EH Number: 5987 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5987 File-URL: http://www.nber.org/papers/w5987.pdf File-Format: application/pdf Publication-Status: published as RAND Journal of Economics, Vol. 30, no. 2 (Summer 1999): 351-374. Abstract: We investigate the effect of managed care on the health care system, focusing on the effects managed care could have on the number and types of health care providers and their efficiency. By influencing providers, managed care may change the structure and performance of the entire health care system in ways that influence care provided to all patients. We begin by discussing the mechanisms by which managed care influences health care providers, concentrating on shifts in market demand and increases in the amount of attention paid to price in provider choices. We develop a theoretical framework that illustrates these effects. We then empirically examine the relationship between managed care activity and mammography providers. We find evidence that increases in HMO activity are associated with changes in the number of providers, the volume of services produced by each provider, and the prices they charge. This evidence is consistent with the view that HMOs can have broad effects on health care providers. Handle: RePEc:nbr:nberwo:5987 Template-Type: ReDIF-Paper 1.0 Title: Labor Earnings Mobility and Inequality in the United States and Germany During the Growth Years of the 1980s Classification-JEL: D31; I32 Author-Name: Richard V. Burkhauser Author-Person: pbu180 Author-Name: Douglas Holtz-Eakin Author-Name: Stephen E. Rhody Note: LS Number: 5988 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5988 File-URL: http://www.nber.org/papers/w5988.pdf File-Format: application/pdf Publication-Status: published as Burkhauser, Richard V., Douglas Holtz-Eakin and Stephen E. Rhody. "Labor Earnings Mobility And Inequality In The Untied States And Germany During The Growth Years Of The 1980s," International Economic Review, 1997, v38(4,Nov), 775-794. Abstract: Recent years have witnessed increased interest in issues of inequality and mobility in the labor market. Using data from the Panel Study of Income Dynamics and the German Socio-Economic Panel, we compare the labor earnings mobility of prime age men and women in the United States and Germany during the growth years of the 1980s. Despite major differences in labor market institutions we find very similar patterns in the two countries. Our formal models of labor earnings dynamics suggest a great deal of persistence in both countries. In the United States this may derive from permanent individual-specific differences among men, while in Germany random shocks are found to persist longer for men. Women in Germany and the United States have similar earnings dynamics. Handle: RePEc:nbr:nberwo:5988 Template-Type: ReDIF-Paper 1.0 Title: The Impact of Psychiatric Disorders on Labor Market Outcomes Classification-JEL: J24; I12 Author-Name: Susan L. Ettner Author-Name: Richard G. Frank Author-Name: Ronald C. Kessler Note: EH Number: 5989 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5989 File-URL: http://www.nber.org/papers/w5989.pdf File-Format: application/pdf Publication-Status: published as Industrial and Labor Relations Review, Vol. 51, no. 1 (October 1997): 64-81 . Abstract: Data on 2225 men and 2401 women from the National Comorbidity Survey were used to examine the impact of psychiatric disorders on employment and conditional work hours and income. Two-stage instrumental variables methods were used to correct for the potential endogeneity of psychiatric disorders. The instruments used (the psychiatric disorder history of the respondent and respondent's parents) passed tests of the overidentifying restrictions. Psychiatric disorders significantly reduced employment among both men and women. Evidence was also found of small reductions in the conditional work hours of men and a substantial drop in the conditional earnings of men and women, although these findings were somewhat more sensitive to the estimation methods and specification of the model. Handle: RePEc:nbr:nberwo:5989 Template-Type: ReDIF-Paper 1.0 Title: U.S. Exports, 1972-1994: With State Exports and Other U.S. Data Classification-JEL: F14; C88 Author-Name: Robert C. Feenstra Author-Person: pfe116 Note: ITI Number: 5990 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5990 File-URL: http://www.nber.org/papers/w5990.pdf File-Format: application/pdf Abstract: This paper describes data on U.S. exports from 1972-1994, classified according to the Schedule B' system, Harmonized System (HS), Standard International Trade Classification (SITC, Revisions 2 and 3), and Standard Industrial Classification (SIC, 1972 basis), along with various concordances. All of these data sets are disaggregated by the destination country for exports. U.S. Exports, 1972-1994,' which can be ordered for $50 from the Publications Department, NBER, 1050 Massachusetts Avenue, Cambridge, MA 02138. A summary of the SIC data, which does not contain the source country detail and incorporates earlier years, is available via anonymous FTP from nber.org /pub/feenstra, or via the Web from www.nber.org. Disk 1 of the NBER Trade Database contained complete data on U.S. imports, and included on this CD-ROM is a revision to the SIC imports for the years 1989-1994. In" addition, the CD-ROM includes state-level exports and a number of other U.S. datasets contributed by various researchers, such as tariff reductions under NAFTA, antidumping cases, domestic and imported automobile data, materials consumption by industry, foreign trade zones, foreign investment, and programs used to construct and update the data. Handle: RePEc:nbr:nberwo:5990 Template-Type: ReDIF-Paper 1.0 Title: Are Countries with Official International Restrictions "Liquidity Constrained?" Author-Name: Karen K. Lewis Author-Person: ple1119 Note: AP IFM Number: 5991 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5991 File-URL: http://www.nber.org/papers/w5991.pdf File-Format: application/pdf Publication-Status: published as European Economic Review, Vol. 41, no. 6 (June 1997): 1070-1109. Abstract: In this paper, I empirically examine consumption smoothing behavior across a broad group of countries using a unique data set that indicates whether residents in a country face an official government restriction. I then ask whether the ex ante consumption movements among restricted countries differ from those of unrestricted countries. To gauge the departure from standard consumption smoothing, I use the Campbell and Mankiw (1989, 1991) approach of regressing consumption growth on income growth and instrumenting with lagged variables. Interestingly, I find that consumption growth for residents in countries that impose international restrictions has a significantly higher coefficient on income growth than for residents in countries without those restrictions. Thus, a greater proportion of consumers facing international restrictions appear to act as though they are liquidity constrained according to the Campbell and Mankiw approach. I also discuss alternative interpretations that do not depend upon liquidity constraints. Handle: RePEc:nbr:nberwo:5991 Template-Type: ReDIF-Paper 1.0 Title: Does Acquisition of a GED Lead to More Training, Post-Secondary Education, and Military Service for School Dropouts? Author-Name: Richard J. Murnane Author-Person: pmu87 Author-Name: John B. Willett Author-Name: Kathryn Parker Boudett Note: LS Number: 5992 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5992 File-URL: http://www.nber.org/papers/w5992.pdf File-Format: application/pdf Publication-Status: published as Industrial and Labor Relations Review, Vol. 51, no. 1 (October 1997): 100-116. Abstract: This paper uses longitudinal data from the National Longitudinal Survey of Youth to examine whether acquisition of a GED increases the probability that male and female school dropouts obtain training, post-secondary education, or military service. Random effects probit models are used to account for both the dichotomous nature of the dependent variables and non-zero correlations among error terms pertaining to different years of data for the same individual. We find that acquisition of a GED increases the probability that school dropouts obtain post-secondary education and the probability that they obtain non-company training, defined as training provided by government or by proprietary schools. However, it is still the case that the majority of GED recipients obtain no post-secondary education or training through the age of 26. Handle: RePEc:nbr:nberwo:5992 Template-Type: ReDIF-Paper 1.0 Title: The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy Classification-JEL: Q21; H23 Author-Name: Don Fullerton Author-Person: pfu10 Author-Name: Ann Wolverton Note: PE Number: 5993 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5993 File-URL: http://www.nber.org/papers/w5993.pdf File-Format: application/pdf Publication-Status: published as Environmental and Public Economics: Essays in Honor of Wallace E. Oates, Panagaria, A., P. Portney and R. Schwab, eds., Cheltenham, UK: Edward Elgar, 1999, pp. 32-57. Abstract: This paper builds two simple general equilibrium models to demonstrate the equivalence between the Pigovian tax and the combination of a presumptive tax and an environmental subsidy. A presumptive tax is a tax that is imposed under the presumption that all production uses a dirty technology or all consumption goods become waste. The environmental subsidy is then provided only to the extent that production uses a cleaner technology or that consumption goods are recycled. To analyze the usefulness of the tax-subsidy combination, we review conceptual considerations regarding its implementation and practical considerations regarding its actual use throughout the world. While the tax-subsidy combination is increasingly being used, in the form of a deposit-refund system, we argue that more flexible interpretations are important to explore. The two parts of such a policy do not have to apply to the same side of the market. The tax and subsidy do not have to equal one another, and they can apply to different goods altogether. Compared to the Pigovian tax, a two-part instrument may be easier to enforce, may be easier to enact, and can still force the market to recognize the social cost of disposal. Handle: RePEc:nbr:nberwo:5993 Template-Type: ReDIF-Paper 1.0 Title: Business Cycles: Theory, Evidence and Implications Classification-JEL: E32; E37 Author-Name: Russell W. Cooper Note: EFG Number: 5994 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5994 File-URL: http://www.nber.org/papers/w5994.pdf File-Format: application/pdf Publication-Status: published as Russell W. Cooper, 1998. "Business Cycles: Theory, Evidence and Policy Implications," Scandinavian Journal of Economics, vol 100(1), pages 213-237. Abstract: This paper looks at recent advances in the study of aggregate fluctuations. Our emphasis is on three prominent areas of research: the stochastic growth model, economies which exhibit macroeconomic complementarities and models that emphasize heterogeneity. Each section of the paper outlines the theory, discusses relevant empirical evidence and then discusses some implications of the analysis. Handle: RePEc:nbr:nberwo:5994 Template-Type: ReDIF-Paper 1.0 Title: The Determinants of Public Education Expenditures: Evidence from the States, 1950-1990 Classification-JEL: I22; H52 Author-Name: Raquel Fernandez Author-Person: pfe17 Author-Name: Richard Rogerson Author-Person: pro53 Note: PE Number: 5995 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5995 File-URL: http://www.nber.org/papers/w5995.pdf File-Format: application/pdf Publication-Status: published as Fernandez, Raquel and Richard Rogerson. "Public Education And Income Distribution: A Dynamic Quantitative Evaluation Of Education-finance Reform," American Economic Review, 1998, v88(4,Sep), 813-833. Abstract: We examine a panel data set for the US states over the period 1950-1990 and use it to assess the effects of growth in personal income and number of students on expenditure on public primary and secondary education. Our analysis suggests that the share of personal income devoted to education is roughly constant, implying that per student education expenditures grow at roughly the same rate as personal income per student. We also find evidence that additional factors accounted for an increase in education expenditures over the period 1950-1970. Handle: RePEc:nbr:nberwo:5995 Template-Type: ReDIF-Paper 1.0 Title: Capital-Market Imperfections and Investment Classification-JEL: E2; G3 Author-Name: R. Glenn Hubbard Author-Person: phu97 Note: CF EFG ME PE Number: 5996 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5996 File-URL: http://www.nber.org/papers/w5996.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic Literature, Vol. 36, no. 1 (March 1998): 193-225. Abstract: Over the past decade, a number of researchers have extended conventional models of business fixed investment to incorporate a role for financial constraints' in determining investment. This paper reviews developments and challenges in this empirical research, and uses advances in models of information and incentive problems to motivate those developments and challenges. First, I describe analytical underpinnings of models of capital-market imperfections in the investment process, and illustrate the principal testable implications of those models. Second, I motivate tests and describe and critique existing empirical studies. Third, the review considers applications of the underlying models to a range of investment activities, including inventory investment, R&D, employment demand, pricing by imperfectly competitive firms, business formation and survival, and risk management. Fourth, I discuss implications of this research program for analysis of effects of investment on monetary policy and tax policy. Finally, I examine some potentially fruitful avenues for future research. Handle: RePEc:nbr:nberwo:5996 Template-Type: ReDIF-Paper 1.0 Title: Sovereign Debt and Consumption Smoothing Classification-JEL: F34; H63 Author-Name: Herschel I. Grossman Author-Name: Taejoon Han Note: EFG ME Number: 5997 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5997 File-URL: http://www.nber.org/papers/w5997.pdf File-Format: application/pdf Publication-Status: published as Journal of Monetary Economics, Vol. 44, no. 1 (August 1999): 149-158. Abstract: This paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the exact nature of the penalty for debt repudiation. If a sovereign that repudiated its debt could not borrow again, but could continue to save and to dissave, then contingent debt issuance, without contingent debt servicing, cannot support a positive amount of uncollateralized sovereign debt. But, under this same specification of the penalty for repudiation, contingent debt servicing supports a positive amount of uncollateralized sovereign debt. Handle: RePEc:nbr:nberwo:5997 Template-Type: ReDIF-Paper 1.0 Title: Can Higher Cigarette Taxes Improve Birth Outcomes? Classification-JEL: H2; I12 Author-Name: William N. Evans Author-Person: pev28 Author-Name: Jeanne S. Ringel Note: EH PE Number: 5998 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5998 File-URL: http://www.nber.org/papers/w5998.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 72, no. 1 (April 1999): 135-154. Abstract: This study uses within-state variation in taxes over the 1989-1992 time period to test whether maternal smoking and birth outcomes are responsive to higher state cigarette taxes. Data on the outcomes of interest are taken from the Natality Detail files, generating a sample of roughly 10.5 million births. The results indicate that smoking participation declines when excise taxes are increased. The elasticity of demand for cigarettes is estimated to be appro- ximately -0.25. In addition, estimates of two-part models suggest that taxes only alter the probability a mother smokes and not average daily consumption conditional on smoking. Reduced-form models also indicate that higher excise taxes translate into higher birth weights. These two sets of results can be used to form an instrumental variables estimate of the impact of smoking on birth weight. This estimate indicates that maternal smoking reduces average birth weight by 367 grams, which is remarkably close to estimates from random assignment clinical trials. It is important to note that as a policy tool to improve birth outcomes, cigarette taxes are a blunt instrument. Taxes will be imposed on all smokers, but the benefits received and costs imposed extend beyond the targeted population. Under the naive assumption that the only benefits of the tax are received in the form of improved birth outcomes, we find that an increase in the cigarette tax is not as cost effective in preventing low birth weight as other more targeted public policies such as the Medicaid expansions of the late 1980's. Handle: RePEc:nbr:nberwo:5998 Template-Type: ReDIF-Paper 1.0 Title: A Clinical Exploration of Value Creation and Destruction in Acquisitions: Organizational Design, Incentives, and Internal Capital Markets Author-Name: Steven N. Kaplan Author-Name: Mark L. Mitchell Author-Name: Karen H. Wruck Note: CF Number: 5999 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w5999 File-URL: http://www.nber.org/papers/w5999.pdf File-Format: application/pdf Publication-Status: published as Steven N. Kaplan & Mark Mitchell & Karen Wruck, 2000. "A Clinical Exploration of Value Creation and Destruction in Acquisitions, Organizational Design, Incentives, and Internal Capital Markets," NBER Chapters, in: Mergers and Productivity, pages 179-238 National Bureau of Economic Research, Inc. Abstract: This paper presents clinically-based studies of two acquisitions that received very different stock market reactions at announcement one positive and one negative. Despite the differing market reactions, we find that ultimately neither acquisition created value overall. In exploring the reasons for the acquisition outcomes, we rely primarily on interviews with managers and on internally generated performance data. We compare the results of these analyses to those from analyses of post-acquisition operating and stock price performance traditionally applied to large samples. We draw two primary conclusions. (1) Our findings highlight the difficulty of implementing a successful acquisition strategy and of running an effective internal capital market. Post-acquisition difficulties resulted because: (a) managers of the" acquiring company did not deeply understand the target company at the time of the acquisition; (b) the acquirer imposed an inappropriate organizational design on the target as part of the post-acquisition integration process; and (c) inappropriate management incentives existed at both the top management and division levels. (2) Measures of operating performance used in large sample studies are weakly correlated with actual post-acquisition operating performance." Handle: RePEc:nbr:nberwo:5999 Template-Type: ReDIF-Paper 1.0 Title: Government Debt and Social Security in a Life-Cycle Economy Classification-JEL: E13; E60 Author-Name: Mark Gertler Author-Person: pge11 Note: ME PE Number: 6000 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6000 File-URL: http://www.nber.org/papers/w6000.pdf File-Format: application/pdf Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 50, no. 1 (June 1999): 61-110 Abstract: This paper develops a tractable overlapping generations model that is useful for analyzing both the short and long run impact of fiscal policy and social security. It modifies the Blanchard (1985)/Weil (1987) framework to allow for life/cycle behavior. This is accomplished by introducing random transition from work to retirement, and then from retirement to death. The transition probabilities may be picked to allow for realistic average lengths of life, work and retirement. The resulting framework is not appreciably more difficult to analyze than the standard Cass/Koopmans one sector growth model: Besides the capital stock, there is only one additional state variable: the distribution of wealth between workers and retirees. Under reasonable parameter values, government debt and social security have significant effects on capital intensity. Handle: RePEc:nbr:nberwo:6000 Template-Type: ReDIF-Paper 1.0 Title: The History of Annuities in the United States Classification-JEL: G22; D91 Author-Name: James M. Poterba Author-Person: ppo19 Note: AG AP CF PE Number: 6001 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6001 File-URL: http://www.nber.org/papers/w6001.pdf File-Format: application/pdf Publication-Status: Published as "Comparing the Cost of Capital in the United States and Japan: A Survey of Methods", FRBNY, Vol. 15, nos. 3/4 (1990): 20-32. Abstract: This paper summarizes the development of private annuity markets in the United States. Annuities constituted a small share of the U.S. insurance market until the 1930s, when two developments contributed to their growth. First, concerns about the stability of the financial system drove investors to products offered by insurance companies, which were perceived to be stable institutions. Flexible payment deferred annuities, which permit investors to save and accumulate assets as well as draw down principal, grew rapidly in this period. Second, the group annuity market for corporate pension plans began to develop in the 1930s. The group annuity market grew more rapidly than the individual annuity market for several decades after World War II. The most recent development in the annuity marketplace has been the rapid expansion of variable annuities. These annuity products combine the investment features of mutual funds with the tax deferral available for life insurance products. Variable annuity premium payments increased by a factor of five in the most recent five years for which data are available. Handle: RePEc:nbr:nberwo:6001 Template-Type: ReDIF-Paper 1.0 Title: New Evidence on the Money's Worth of Individual Annuities Classification-JEL: J14; D91 Author-Name: Olivia S. Mitchell Author-Person: pmi73 Author-Name: James M. Poterba Author-Person: ppo19 Author-Name: Mark J. Warshawsky Note: AG AP PE Number: 6002 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6002 File-URL: http://www.nber.org/papers/w6002.pdf File-Format: application/pdf Publication-Status: published as American Economic Review, vol. 89, no. 5 (December 1999): 1299-1318. Abstract: This paper presents new information on the expected present discounted value of payouts on individual life annuities. The annuity we examine is the single premium immediate life annuity, an insurance product that pays out a nominal level sum as long as the covered person lives, in exchange for an initial lump-sum premium. This annuity offers protection against the risk of someone outliving his saving, given uncertainty about longevity. For reasonable estimates of behavioral parameters, we calculate that individual annuities are currently priced so that retirees without bequest motives should find these policies of substantial value in configuring their portfolios to smooth retirement consumption. We also find that the expected present discounted value of payouts, relative to the initial cost of the annuity, has increased over the last decade. These findings bear on the policy debate regarding the role of individual choice and self-reliance in retirement planning. Handle: RePEc:nbr:nberwo:6002 Template-Type: ReDIF-Paper 1.0 Title: Local Violence, Educational Attainment, and Teacher Pay Classification-JEL: I2; J1 Author-Name: Jeff Grogger Author-Person: pgr125 Note: LS Number: 6003 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6003 File-URL: http://www.nber.org/papers/w6003.pdf File-Format: application/pdf Publication-Status: published as Grogger, Jeffrey. "Local Violence And Educational Attainment," Journal of Human Resources, 1997, v32(4,Fall), 659-682. Abstract: Violence in and around schools has drawn increasing attention lately from both the public and policy makers. Despite the importance of the problem, however, research on this topic has been limited. In this paper I analyze how local violence affects high school graduation, college attendance, and teacher pay. Using data from the High School and Beyond survey, I find that local violence has important effects. Moderate levels of violence reduce the likelihood of high school graduation by 5.1 percentage points on average, and lower the likelihood that a student will attend college by 6.9 percentage points. They also raise teacher salaries by 2.4 percent. Handle: RePEc:nbr:nberwo:6003 Template-Type: ReDIF-Paper 1.0 Title: The Optimal Tax Rate for Capital Income is Negative Classification-JEL: H21 Author-Name: Kenneth L. Judd Author-Person: pju19 Note: PE Number: 6004 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6004 File-URL: http://www.nber.org/papers/w6004.pdf File-Format: application/pdf Abstract: We examine the problem of optimal taxation in a dynamic economy with imperfectly competitive markets. We find that the optimal tax system will tend to provide subsidies for the purchase of capital goods to offset gaps between price and marginal cost. The average tax on capital income will be negative, even if pure profits are not taxed away and even if the alternative distortionary taxes have an infinite efficiency cost. These arguments hold even if it is necessary to tax consumption goods which also sell above marginal cost; the difference is that capital goods are intermediate goods and consumption goods are final goods. Since observed markups are greater for equipment than for construction, this analysis justifies the Investment Tax Credit's discrimination in favor of equipment over structures. Handle: RePEc:nbr:nberwo:6004 Template-Type: ReDIF-Paper 1.0 Title: Industry Evolution and Transition: A Neoclassical Benchmark Classification-JEL: F36; O4 Author-Name: Andrew Atkeson Author-Person: pat52 Author-Name: Patrick Kehoe Author-Person: pke4 Note: EFG IFM Number: 6005 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6005 File-URL: http://www.nber.org/papers/w6005.pdf File-Format: application/pdf Abstract: Recently, a large number of countries have undertaken major reforms that have led to a large increase in the number of new enterprises. After these reforms, however, it has taken a number of years before output and productivity have begun to grow. The thesis of this paper is that the process of starting new enterprises is turbulent and time-consuming and as a result, it takes time before the benefits of reform show up in increases in measured output and productivity. To establish a neoclassical benchmark for reforming economies, we ask what the path of transition looks like in a reforming economy for which the process governing the growth of new enterprises looks like it does in the U.S., a well-functioning market economy. We find that it takes 5-7 years until measured output and productivity begin to grow rapidly following reform. This finding suggests that, even if all other aspects of the economy are perfect, the transition following economy-wide reforms should take a substantial amount of time. Handle: RePEc:nbr:nberwo:6005 Template-Type: ReDIF-Paper 1.0 Title: International Trade Between Consumer and Conservationist Countries Author-Name: James Brander Author-Person: pbr168 Author-Name: M. Scott Taylor Author-Person: pta60 Note: ITI Number: 6006 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6006 File-URL: http://www.nber.org/papers/w6006.pdf File-Format: application/pdf Publication-Status: published as Resource and Energy Economics, Vol. 19 (May 1997): 321-344. Abstract: We consider trade between a consumer' country with an open access renewable resource and a conservationist' country that regulates resource harvesting to maximize domestic steady-state utility. In what we call the mild overuse' case, the consumer country exports the resource good and suffers steady-state losses from trade, as suggested by the conventional wisdom' that weak resource management standards confer a competitive advantage on domestic firms in the resource sector but cause welfare losses. Strikingly, however, when the resource stock is most in jeopardy, the conservationist country exports the resource good in steady state and both countries experience gains from trade. Handle: RePEc:nbr:nberwo:6006 Template-Type: ReDIF-Paper 1.0 Title: Hot Money Classification-JEL: F0; F3 Author-Name: V. V. Chari Author-Person: pch40 Author-Name: Patrick Kehoe Author-Person: pke4 Note: IFM Number: 6007 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6007 File-URL: http://www.nber.org/papers/w6007.pdf File-Format: application/pdf Publication-Status: published as Chari, V.V. and Patrick J. Kehoe. "Hot Money," Journal of Political Economy, 2003, v111(6,Dec), 1262-1292. Abstract: The conventional wisdom is that capital flows between developing countries and developed countries are more volatile than can be justified by fundamentals. In this paper we construct a simple model in which frictions in international financial markets in combination with standard debt-default problems lead to volatile capital flows. These flows act as tests of fire for borrowing countries. If a country survives this test, its reputation is enhanced and future capital flows become less volatile. Failing this test is associated with a loss of reputation and a decline in the amount of capital flows. Handle: RePEc:nbr:nberwo:6007 Template-Type: ReDIF-Paper 1.0 Title: Urban Growth Classification-JEL: O4; R00 Author-Name: Duncan Black Author-Name: Vernon Henderson Author-Person: phe30 Note: EFG PE Number: 6008 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6008 File-URL: http://www.nber.org/papers/w6008.pdf File-Format: application/pdf Publication-Status: published as "The Theory of Urban Growth," Journal of Political Economy, Vol. 107 (1999): 252-284. Abstract: This paper models and examines empirically the evolution of cities in an economy. Twentieth century evolution in the USA is characterized by parallel growth of cities of different types and on-going entry of new cities, together maintaining a stable relative size distribution of cities. Each type of city has a particular industrial composition and good(s) it specializes in and corresponding equilibrium size. This evolution is modeled in an economy with exogenous population growth and endogenous human capital accumulation. Within cities, there are knowledge spillovers as well as scale externalities. Individual city sizes grow with human capital accumulation; and cities grow in number if national population growth is high enough. Different types of cities grow in parallel in size and human capital accumulation. However, per capita income and human capital levels differ across city types by production process and benefits of human investments and spillovers, so there is observed inequality across cities among otherwise identical individuals. Handle: RePEc:nbr:nberwo:6008 Template-Type: ReDIF-Paper 1.0 Title: Public Goods and Ethnic Divisions Author-Name: Alberto Alesina Author-Person: pal207 Author-Name: Reza Baqir Author-Name: William Easterly Author-Person: pea1 Note: PE Number: 6009 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6009 File-URL: http://www.nber.org/papers/w6009.pdf File-Format: application/pdf Publication-Status: published as Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods And Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1243-1284, November. Abstract: We present a model that links heterogeneity of preferences across ethnic groups in a city to the amount and type of public good the city supplies. We test the implications of the model with three related datasets: US cities, US metropolitan areas, and US urban counties. Results show that productive public goods -- education, roads, libraries, sewers and trash pickup -- in US cities (metro areas/urban counties) are inversely related to the city's (metro area's/county's) ethnic fragmentation, even after controlling for other socioeconomic and demographic determinants. Ethnic fragmentation is negatively related to the share of local spending on welfare. The results are mainly driven by observations in which majority whites are reacting to varying sizes of minority groups. We conclude that ethnic conflict is an important determinant of local public finances. Handle: RePEc:nbr:nberwo:6009 Template-Type: ReDIF-Paper 1.0 Title: Do Wages Rise with Job Seniority? A Reassessment Classification-JEL: J31; J41 Author-Name: Joseph G. Altonji Author-Person: pal266 Author-Name: Nicolas Williams Author-Person: pwi213 Note: LS Number: 6010 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6010 File-URL: http://www.nber.org/papers/w6010.pdf File-Format: application/pdf Publication-Status: published as Joseph G. Altonji & Nicolas Williams, 2005. "Do wages rise with job seniority? A reassessment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April. Abstract: We provide new estimates of the return to job seniority using data similar to that used by Abraham and Farber (1987), Altonji and Shakotko (1987) and Topel (1991) as well as a new PSID sample. Topel's use of a wage and a tenure that refer to different years, his use of the Current Population Survey to detrend the PSID, and differences between Altonji and Shakotko's estimator and Topel's estimator explain the fact that Topel obtains much larger estimates. The evidence from the data used by AS and Topel points to an effect of ten years of tenure on the log wage equal to .11, which is above AS's preferred estimate of .066 but far below Topel's estimate. However, this estimate is probably biased upward by the wage measure used in all three studies. We also obtain a modest estimate of the return to seniority using data for 1983-1991. Handle: RePEc:nbr:nberwo:6010 Template-Type: ReDIF-Paper 1.0 Title: On The Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance Classification-JEL: 400; F Author-Name: Kenneth A. Froot Author-Person: pfr60 Author-Name: Paul G. J. O'Connell Note: AP CF IFM Number: 6011 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6011 File-URL: http://www.nber.org/papers/w6011.pdf File-Format: application/pdf Publication-Status: published as Froot, Kenneth A. & O'Connell, Paul G.J., 2008. "On the pricing of intermediated risks: Theory and application to catastrophe reinsurance," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 69-85, January. Abstract: We model the equilibrium price and quantity of risk transfer between firms and financial intermediaries. Value-maximizing firms have downward sloping demands to cede risk, while intermediaries, who assume risk, provide less-than-fully-elastic supply. We show that equilibrium required returns will be high' in the presence of financing imperfections that make intermediary capital costly. Moreover, financing imperfections can give rise to intermediary market power, so that small changes in financial imperfections can give rise to large changes in price. We develop tests of this alternative against the null that the supply of intermediary capital is perfectly elastic. We take the US catastrophe reinsurance market as an example, using detailed data from Guy Carpenter & Co., covering a large fraction of the catastrophe risks exchanged during 1970-94. Our results suggest that the price of reinsurance generally exceeds fair' values, particularly in the aftermath of large events, that market power of reinsurers is not a complete explanation for such pricing, and that reinsurers' high costs of capital appear to play an important role. Handle: RePEc:nbr:nberwo:6011 Template-Type: ReDIF-Paper 1.0 Title: Spurts in Union Growth: Defining Moments and Social Processes Author-Name: Richard B. Freeman Author-Person: pfr23 Note: LS Number: 6012 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6012 File-URL: http://www.nber.org/papers/w6012.pdf File-Format: application/pdf Publication-Status: published as Freeman, Richard B. "Spurts in Union Growth: Defining Moments and Social Processes". The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Edited by Michael D.Bordo,Claudia Goldin, and Eugene N.White, Chicago: The Univ.of Chicago Press, 1998, pp.265-295. Publication-Status: published as Spurts in Union Growth: Defining Moments and Social Processes, Richard B. Freeman. in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Bordo, Goldin, and White. 1998 Abstract: This paper examines the spurt in U.S. unionism during the Great Depression. It argues that the Depression spurt is better understood as resulting from a Depression sparked endogenous social process than from New Deal legislation and Congress of Industrial Organizations (CIO) leadership. Four pieces of evidence are offered for this interpretation: 1. The ubiquity of spurts in unionization across countries, particularly in the Depression. 2. The widespread use of recognition strikes during the 1930s spurt. 3. The growth of CIO affiliates with little CIO financial or organizing aid. 4. The growth of American Federation of Labor (AFL) affiliated unions. I model unionization as the outcome from a conflict between union/worker organizing activity and employer opposition, both of which depend on the proportion organized. Union organizing and activity rises with density, then falls with density. Employer opposition is high at low densities but falls once unions gain control of the relevant market. The result is a nonlinear difference equation that produces spurts of union growth. The Depression initiated a spurt by increasing worker desires for unions and by raising density above the critical level' for rapid growth in many industries. Handle: RePEc:nbr:nberwo:6012 Template-Type: ReDIF-Paper 1.0 Title: The Incidence of Medicare Classification-JEL: H2; I1 Author-Name: Mark McClellan Author-Name: Jonathan Skinner Author-Person: psk23 Note: AG EH PE Number: 6013 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6013 File-URL: http://www.nber.org/papers/w6013.pdf File-Format: application/pdf Publication-Status: published as McClellan, Mark and Jonathan Skinner. "The Incidence Of Medicare," Journal of Public Economics, 2006, v90(1-2,Jan), 257-276. Abstract: The Medicare program transfers more than $200 billion annually from taxpayers to beneficiaries. This paper considers the incidence of such transfers. First, we examine the net tax payments and program expenditures for individuals in different lifetime income groups. We find Medicare has led to net transfers from the poor to the wealthy, as a result of relatively regressive financing mechanisms and the higher expenditures and longer survival times of wealthier beneficiaries. Even with recent financing reforms, net transfers to the wealthy are likely to continue for at least several more decades. Second, we consider the insurance value of Medicare in providing a missing market for health insurance. With plausible parameter values, our simulations suggest that low-income elderly benefitted more than the dollar flows would suggest. Including this insurance value implies that, on net, there is faint redistribution from the highest income deciles to the lowest income deciles. We also consider the likely distributional impact of several proposed reforms in Medicare financing and benefits. Handle: RePEc:nbr:nberwo:6013 Template-Type: ReDIF-Paper 1.0 Title: The Control of Strategic Alliances: An Empirical Analysis of Biotechnology Collaborations Classification-JEL: O32; O34 Author-Name: Josh Lerner Author-Person: ple60 Author-Name: Robert P. Merges Note: PR Number: 6014 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6014 File-URL: http://www.nber.org/papers/w6014.pdf File-Format: application/pdf Publication-Status: Published as "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry", Journal of Industrial Economics, Vol. 46,no. 2 (June 1998): 125-156. Abstract: In this paper, we examine the determinants of control rights in technology strategic alliances between biotechnology firms and pharmaceutical corporations, as well as with other biotechnology firms. We undertake three clinical studies and an empirical analysis of 200 contracts. Consistent with the framework developed by Aghion and Tirole [1994], the allocation of control rights to the smaller party increases with its financial health. The empirical evidence regarding the relationship between control rights and the stage of the project at the time the contract is signed is less consistent with theoretical frameworks. Handle: RePEc:nbr:nberwo:6014 Template-Type: ReDIF-Paper 1.0 Title: Understanding the Great Depression: Lessons for Current Policy Classification-JEL: E58; G28 Author-Name: Stephen G. Cecchetti Author-Person: pce4 Note: ME Number: 6015 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6015 File-URL: http://www.nber.org/papers/w6015.pdf File-Format: application/pdf Publication-Status: published as The Economics of the Great Depression, Wheeler, M., ed., Kalamazoo, Michigan: W.E. Upjon Institute for Employment Research, 1998,pp. 171-194. Abstract: Over the four years beginning in the summer of 1929, financial markets, labor markets and goods markets all virtually ceased to function. Throughout this, the government policymaking apparatus seemed helpless. Since the end of the Great Depression, macroeconomists have labored diligently in an effort to understand the circumstances that led to the wholesale collapse of the economy. What lessons can we draw from our study of these events? In this essay, I argue that the Federal Reserve played a key role in nearly every policy failure during this period, and so the major lessons learned from the Great Depression concern the function of the central bank and the financial system. In my view, there is now a broad consensus supporting three conclusions. First, the collapse of the finance system could have been stopped if the central bank had properly understood its function as the lender of last resort. Second, deflation played an extremely important role deepening the Depression. And third, the gold standard, as a method for supporting a fixed exchange rate system, was disastrous. Handle: RePEc:nbr:nberwo:6015 Template-Type: ReDIF-Paper 1.0 Title: Issues in the Design of Monetary Policy Rules Classification-JEL: E52; E58 Author-Name: Bennett T. McCallum Note: EFG ME Number: 6016 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6016 File-URL: http://www.nber.org/papers/w6016.pdf File-Format: application/pdf Publication-Status: published as McCallum, Bennett T., 1999. "Issues in the design of monetary policy rules," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 23, pages 1483-1530 Elsevier. Publication-Status: published as McCallum, Bennett T. "Recent Developments In The Analysis Of Monetary Policy Rules," FRB Saint Louis - Review, 1999, v81(6,Nov/Dec), 3-11. Abstract: Topics covered in this survey paper include the following: distinguishing rules from discretion in practice; the feasibility of rule-like behavior by an independent central bank; optimal control vs. robustness as research strategies; choice among target variables; growth-rate vs. growing-level target paths; feasibility of interest rate and monetary base instruments; nominal indeterminacy as distinct from solution multiplicity; root-mean-square performance measures with interest rate and monetary base instruments; operationality of rule specifications; stochastic vs. counterfactual historical simulation procedures; interactions between monetary and fiscal policies; and the fiscal theory of the price level. Handle: RePEc:nbr:nberwo:6016 Template-Type: ReDIF-Paper 1.0 Title: Sectoral Productivity, Government Spending and Real Exchange Rates: Empirical Evidence for OECD Countries Classification-JEL: F31; F41 Author-Name: Menzie David Chinn Author-Person: pch129 Note: IFM Number: 6017 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6017 File-URL: http://www.nber.org/papers/w6017.pdf File-Format: application/pdf Publication-Status: published as (Published as "Productivity, Government Spending and the Real Exchange Rate: Evidence for OECD Countries") Equilibrium Exchange Rates, MacDonald, R., and Jerome Skin, eds.: Klumer, 1999, pp. 163-190. Abstract: This paper investigates the long- and short-run determinants of the real exchange rate using a panel of data for fourteen OECD countries. The data are analyzed using time series and panel unit root and panel cointegration methods. Two dynamic productivity-based models are used to motivate the empirical exercise. The candidate determinants include productivity levels in the traded and in the nontraded sectors, government spending, the terms of trade, income per capita, and the real price of oil. The empirical results indicate that it is easier to detect cointegration in panel data than in the available time series; moreover, the estimate of the rate of reversion to a cointegrating vector defined by real exchange rates and sectoral productivity differentials is estimated with greater precision as long as homogeneity of parameters is imposed upon the panel. It is more difficult to find evidence for cointegration when allowing for heterogeneity across currencies. The most empirically successful model of the real exchange rate includes sectoral productivity measures in the long run relation and government spending in the short run dynamics. Handle: RePEc:nbr:nberwo:6017 Template-Type: ReDIF-Paper 1.0 Title: Public-Private Interaction and the Productivity of Pharmaceutical Research Classification-JEL: H8; L2 Author-Name: Iain Cockburn Author-Person: pco166 Author-Name: Rebecca Henderson Note: PR Number: 6018 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6018 File-URL: http://www.nber.org/papers/w6018.pdf File-Format: application/pdf Publication-Status: published as The Journal of Industrial Economics, vol. 46, no. 2, June 1998. Abstract: We examine the impact of publicly funded biomedical research on the in-house research of the for-profit pharmaceutical industry. Qualitative analysis of the history of the discovery and development of a sample of 21 significant drugs, and a program of interviews with senior managers and scientists reveals a complex and often bidirectional relationship between the public and private sectors of the industry, illustrating the difficulties inherent in estimating the rate of return to public support of basic research. This analysis also highlights the importance for private sector firms of maintaining close connections to the upstream' scientific community, which requires them to make significant investments in doing in-house basic research and adopting appropriate internal incentives and procedures. We measure the extent and nature of this connectedness' using data on coauthorship of scientific papers between pharmaceutical company scientists and publicly funded researchers. These measures are significantly correlated with firms' internal organization, as well as their research performance in drug discovery as measured by important patents per research dollar. The size of the estimated impact of connectedness' to private research productivity implies a substantial return to public investments in basic research. Handle: RePEc:nbr:nberwo:6018 Template-Type: ReDIF-Paper 1.0 Title: Regional Integration and Foreign Direct Investment Classification-JEL: F15; F23 Author-Name: Magnus Blomstrom Author-Person: pbl88 Author-Name: Ari Kokko Author-Person: pko5 Note: ITI Number: 6019 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6019 File-URL: http://www.nber.org/papers/w6019.pdf File-Format: application/pdf Publication-Status: Published as "Foreign District Investment and Employment: Home Country Experience in the United States and Sweden", Economic Journal (1997). Publication-Status: published as Regions, Globalization and the Knowledge-Based Economy, Dunning, John, ed., Oxford: Oxford University Press, 2000. Abstract: This paper deals with the investment effects of regional integration agreements and discusses how such arrangements may affect inward and outward foreign direct investment flows in the integrating region. After setting up a conceptual framework for the analysis, we provide three studies focusing on different kinds of regional integration: North-North integration (Canada joining CUSFTA), North-South integration (Mexico's accession to NAFTA), and South-South integration (MERCOSUR). The main conclusion of the study is that the responses to an integration agreement largely depend on the environmental change brought about by the agreement and the locational advantages of the participating countries and industries. Moreover, the findings suggest that the most positive impact on FDI has occurred when regional integration agreements have coincided with domestic liberalization and macroeconomic stabilization in the member countries. Handle: RePEc:nbr:nberwo:6019 Template-Type: ReDIF-Paper 1.0 Title: Ethical Foundations of Financial Regulation Author-Name: Edward J. Kane Author-Person: pka853 Note: CF Number: 6020 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6020 File-URL: http://www.nber.org/papers/w6020.pdf File-Format: application/pdf Publication-Status: published as Journal of Financial Services Research, Vol. 12, no. 1 (August 2000): 51-74. Abstract: Regulation consists of rulemaking and enforcement. Economic theory offers two complementary rationales for regulating financial institutions. Altruistic public-benefits theories treat rules as governmental instruments for increas- ing fairness and efficiency across society as a whole. Agency-cost theory recognizes that incentive conflicts and coordination problems arise in multi- party relationships and that regulation introduces opportunities to impose rules that enhance the welfare of one sector of society at the expense of another. Each rationale sets different goals and assigns responsibiliy for choosing and adjusting rules differently. Altruistic theories assign regula- tion to governmental entities who search for market failures and correct them. It is taken for granted that we may rely on a well-intentioned government to use its discretion and choose actions for the common good. Agency-cost theories portray regulation as a way to raise the quality of financial services by improving incentives to perform contractual obligations in stress- stressful situations. These private-benefits theories count on self-interest- ed parties to spot market failures and correct them by opening more markets. In financial services markets for regulatory service create outside discipline that controls and coordinates industry behavior. Institutions benefit from Institutions benefit from regulation that: enhances customer confidence; increases the convenience of customer transactions; or creates cartel profit. profits. Agency-cost theories emphasize the need to reconcile conflicts between the interests of institutions, customers, regulators and taxpayers. Handle: RePEc:nbr:nberwo:6020 Template-Type: ReDIF-Paper 1.0 Title: Garbage and Recycling in Communities with Curbside Recycling and Unit-Based Pricing Classification-JEL: H71; Q28 Author-Name: Thomas C. Kinnaman Author-Name: Don Fullerton Author-Person: pfu10 Note: PE Number: 6021 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6021 File-URL: http://www.nber.org/papers/w6021.pdf File-Format: application/pdf Publication-Status: published as as "Garbage and Recycling with Endogenous Local Policy" Journal of Urban Economics, Volume: 48 Issue: 3 (November 2000) Pages: 419-442 Abstract: This paper estimates the impact of a user fee and a curbside recycling program on garbage and recycling amounts, allowing for the possibility of endogenous policy choices. Previous estimates of the effects of these policies could be biased if unobserved variables such as local preference for the environment jointly impact the probability of implementing these policies and the levels of garbage and recycling collected in the community. A simple sequential model of local policymaking is estimated using original data gathered from a large cross-section of communities with user fees, combined with an even larger cross-section of towns without user fees but with and without curbside recycling programs. The combined data set is larger and more comprehensive than any used in previous studies. Without correction for endogenous policy, the price per unit of garbage collection has a negative effect on garbage and a positive cross-price effect on recycling. When we correct for endogenous policy, then the effect of the user fee on garbage increases, and the significance of the cross-price effect on recycling disappears. Handle: RePEc:nbr:nberwo:6021 Template-Type: ReDIF-Paper 1.0 Title: Asymmetric Volatility and Risk in Equity Markets Author-Name: Geert Bekaert Author-Person: pbe52 Author-Name: Guojun Wu Note: AP Number: 6022 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6022 File-URL: http://www.nber.org/papers/w6022.pdf File-Format: application/pdf Publication-Status: published as Review of Financial Studies, Vol.13 (Spring 2000): 1-42. Abstract: It appears that volatility in equity markets is asymmetric: returns and conditional volatility are negatively correlated. We provide a unified framework to simultaneously investigate asymmetric volatility at the firm and the market level and to examine two potential explanations of the asymmetry: leverage effects and time-varying risk premiums. Our empirical application uses the market portfolio and portfolios with different leverage constructed from Nikkei 225 stocks, extending the empirical evidence on asymmetry to Japanese stocks. Although volatility asymmetry is present and significant at the market and the portfolio levels, its source differs across portfolios. We find that it is important to include leverage ratios in the volatility dynamics but that their economic effects are mostly dwarfed by the volatility feedback mechanism. Volatility feedback is enhanced by a phenomenon that we term covariance asymmetry: conditional covariances with the market increase only significantly following negative market news. We do not find significant asymmetries in conditional betas. Handle: RePEc:nbr:nberwo:6022 Template-Type: ReDIF-Paper 1.0 Title: Answering the Critics: Yes, ARCH Models Do Provide Good Volatility Forecasts Classification-JEL: C22; C52 Author-Name: Torben G. Andersen Author-Name: Tim Bollerslev Author-Person: pbo66 Note: AP Number: 6023 Creation-Date: 1997-04 Order-URL: http://www.nber.org/papers/w6023 File-URL: http://www.nber.org/papers/w6023.pdf File-Format: application/pdf Publication-Status: published as Torben G. Andersen and Tim Bollerslev. "Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts," International Economic Review, 1998, vol. 39, issue 4, pages 885-905 Abstract: Volatility permeates modern financial theories and decision making processes. As such, accurate measures and good forecasts of future volatility are critical for the implementation and evaluation of asset pricing theories. In response to this, a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility at the daily and lower frequencies using ARCH and stochastic volatility type models. Most of these studies find highly significant in-sample parameter estimates and pronounced intertemporal volatility persistence. Meanwhile, when judged by standard forecast evaluation criteria, based on the squared or absolute returns over daily or longer forecast horizons, ARCH models provide seemingly poor volatility forecasts. The present paper demonstrates that ARCH models, contrary to the above contention, produce strikingly accurate interdaily forecasts for the latent volatility factor that is relevant for most financial applications. Handle: RePEc:nbr:nberwo:6023 Template-Type: ReDIF-Paper 1.0 Title: Openness, Country Size and the Government Author-Name: Alberto Alesina Author-Person: pal207 Author-Name: Romain Wacziarg Author-Person: pwa67 Note: EFG ME PE Number: 6024 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6024 File-URL: http://www.nber.org/papers/w6024.pdf File-Format: application/pdf Publication-Status: published as Alesina, Alberto and Romain Wacziarg. "Openness, Country Size And Government," Journal of Public Economics, 1998, v69(3,Sep), 305-321. Abstract: This paper shows that smaller countries have larger public sectors as a share of GDP, and are also more open to trade. These empirical observations are consistent with recent theoretical models explaining country formation and break up. Handle: RePEc:nbr:nberwo:6024 Template-Type: ReDIF-Paper 1.0 Title: The Limited Financing of Catastrophe Risk: An Overview Classification-JEL: 400; F Author-Name: Kenneth A. Froot Author-Person: pfr60 Note: AP CF Number: 6025 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6025 File-URL: http://www.nber.org/papers/w6025.pdf File-Format: application/pdf Publication-Status: published as Froot, K. (ed.) The Financing of Catastrophe Risk. Chicago and London: University of Chicago Press, 1999. Publication-Status: published as Introduction to "The Financing of Catastrophe Risk", Kenneth A. Froot. in The Financing of Catastrophe Risk, Froot. 1999 Abstract: This paper argues that the financial exposure of households and firms to natural catastrophe disasters is borne primarily by insurance companies. Surprisingly, insurers use reinsurance to cover only a small fraction of these exposures, yet many insurers do not have enough capital and surplus to survive medium or large disasters. In a well-functioning financial system, these risks would be more widely shared. This paper articulates eight different explanations that may lie behind the limited risk sharing, relating them both to recent industry developments and financial theory. I then examine how financial innovation can help change the equilibrium toward a more efficient outcome. Handle: RePEc:nbr:nberwo:6025 Template-Type: ReDIF-Paper 1.0 Title: Does Parents' Money Matter? Classification-JEL: J62; O15 Author-Name: John Shea Author-Person: psh560 Note: LS Number: 6026 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6026 File-URL: http://www.nber.org/papers/w6026.pdf File-Format: application/pdf Publication-Status: published as Shea, John. "Does Parents' Money Matter?," Journal of Public Economics, 2000, v77(2,Aug), 155-184. Abstract: This paper asks whether parental income per se has a positive impact on children's human capital accumulation. Previous research has established that income is positively correlated across generations. This does not prove that parents' money matters, however, since income is presumably correlated with unobserved abilities transmitted across generations. This paper estimates the impact of parental income by focusing on variation due to parental factors -- union, industry, and job loss experience -- that arguably represent luck. When I examine a nationally representative sample, I find that changes in parental income due to luck have at best a negligible impact on children's human capital. On the other hand, I find that parental income does matter in a sample of low income families. These findings are potentially consistent with models in which credit market imperfections constrain low income households to make suboptimal investments in their children. Handle: RePEc:nbr:nberwo:6026 Template-Type: ReDIF-Paper 1.0 Title: National Borders, Trade and Migration Author-Name: John F. Helliwell Author-Person: phe368 Note: ITI Number: 6027 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6027 File-URL: http://www.nber.org/papers/w6027.pdf File-Format: application/pdf Publication-Status: published as Pacific Economic Review, vol. 3, no. 3, pp. 165-185, October 1997 Abstract: The paper first extends and reconciles recent estimates of the strikingly large effect of national borders on trade patterns. Estimates comparing trade among Canadian provinces with that between Canadian provinces and U.S. states show interprovincial trade in 1988-90 to have been more than twenty times as dense as that between provinces and states, with some evidence of a downward trend since, due to the post-FTA growth in trade between Canada and the United States. Using approximate data for the volumes and distances of internal trade in OECD countries, the 1988-92 border effect for unrelated OECD countries is estimated to exceed 12. Both types of data confirm substantial border effects, even after accounting for common borders and language, with the directly-measured data for interprovincial and province-state trade producing higher estimates." Initial estimates from a census-based gravity model of interprovincial and international migration show a much higher border effect for migration, with interprovincial migration among the Anglophone provinces almost 100 times as dense as that from U.S. states to Canadian provinces. Effects of migration on subsequent trade patterns are found for international but not for interprovincial trade, suggesting the existence of nationally-shared networks the large national border effects for trade flows. Handle: RePEc:nbr:nberwo:6027 Template-Type: ReDIF-Paper 1.0 Title: Testing Endogenous Growth in South Korea and Taiwan Classification-JEL: F14; O47 Author-Name: Robert C. Feenstra Author-Person: pfe116 Author-Name: Dorsati Madani Author-Name: Tzu-Han Yang Author-Name: Chi-Yuan Liang Note: ITI Number: 6028 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6028 File-URL: http://www.nber.org/papers/w6028.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, Vol. 60, no. 2 (December 1999): 317-341. Abstract: We evaluate the endogenous growth hypothesis using sectoral data for South Korea and Taiwan. Our empirical work relies on a direct measure of the variety of products from each sector which can serve as intermediate inputs or as final goods. We test whether changes in the variety of these inputs, for Taiwan relative to Korea, are correlated with the growth in total factor productivity (TFP) in each sector, again measured in Taiwan relative to Korea. We find that changes in relative product variety (entered as either a lag or a lead) have a positive and significant effect on TFP in eight of the sixteen sectors. Seven out of these eight sectors are what we classify as secondary industries, in that they rely on differentiated manufactured inputs, and therefore seem to fit the idea of endogenous growth. Among the primary industries that rely more heavily on natural resources, we find more mixed evidence. Handle: RePEc:nbr:nberwo:6028 Template-Type: ReDIF-Paper 1.0 Title: Impact of Augmented Prenatal Care on Birth Outcomes of Medicaid Recipients in New York City Classification-JEL: I18 Author-Name: Theodore Joyce Author-Person: pjo112 Note: EH Number: 6029 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6029 File-URL: http://www.nber.org/papers/w6029.pdf File-Format: application/pdf Publication-Status: published as Journal of Health Economics, Vol. 18, no. 1 (January 1999): 31-67 Abstract: I examine whether New York State's Prenatal Care Assistance Program (PCAP) is associated with greater use of prenatal services and improved birth outcomes. PCAP is New York State's augmented prenatal care initiative that became a part of the Medicaid program after expansion in income eligibility thresholds in January, 1990. Data are from the linkage of Medicaid administrative files with New York City birth certificates (N=23,243). For women on cash assistance, I find PCAP is associated with a 20 percent increase in the likelihood of enrollment in WIC, an increase in mean birth weight of 35 grams and a 1.3 percentage point drop in the rate of low birth weight. Associations between PCAP and improved birth outcomes for women on medical assistance are similar, but appear contaminated by selection bias. Reductions in newborn costs associated with PCAP participation are modest, between $100-$300 dollars per recipient, and are insufficient to offset program expenditures. Handle: RePEc:nbr:nberwo:6029 Template-Type: ReDIF-Paper 1.0 Title: How Taxing is Corruption on International Investors? Classification-JEL: F02; F23 Author-Name: Shang-Jin Wei Author-Person: pwe20 Note: IFM ITI Number: 6030 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6030 File-URL: http://www.nber.org/papers/w6030.pdf File-Format: application/pdf Publication-Status: published as Wei, Shang-Jin. "How Taxing Is Corruption On International Investors?," Review of Economics and Statistics, 2000, v82(1,Feb), 1-11. Abstract: This paper studies the effect of corruption on foreign direct investment. The sample covers bilateral investment from fourteen source countries to forty-five host countries during 1990-91. There are three central findings. (1) A rise in either the tax rate on multinational firms or the corruption level in a host country reduces inward foreign direct investment (FDI). An increase in the corruption level from that of Singapore to that of Mexico is equivalent to raising the tax rate by over twenty percentage points. (2) There is no support for the hypothesis that corruption has a smaller effect on FDI into East Asian host countries. (3) American investors are averse to corruption in host countries, but not necessarily more so than average OECD investors, in spite of the U.S. Foreign Corrupt Practices Act of 1977. On the other hand, there is some weak support for the hypothesis that Japanese investors may be somewhat less sensitive to corruption. Neither American nor Japanese investors treat corruption in East Asia any differently from that in other parts of the world. There are other interesting and sensible findings. For example, consistent with theories that emphasize the importance of networks in trade and investment, sharing a common linguistic tie between the source and host countries and geographic proximity between the two are associated with a sizable increase in the bilateral FDI flow. Handle: RePEc:nbr:nberwo:6030 Template-Type: ReDIF-Paper 1.0 Title: Cohort Crowding and Youth Labor Markets: A Cross-National Analysis Classification-JEL: J11; J21 Author-Name: Sanders Korenman Author-Name: David Neumark Author-Person: pne16 Note: LS Number: 6031 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6031 File-URL: http://www.nber.org/papers/w6031.pdf File-Format: application/pdf Publication-Status: published as Cohort Crowding and Youth Labor Markets (A Cross-National Analysis), Sanders Korenman, David Neumark. in Youth Employment and Joblessness in Advanced Countries, Blanchflower and Freeman. 2000 Abstract: We assess the evidence on the contribution of changes in the population age structure to the changing fortunes of youths in labor markets in advanced economies over the 1970s, 1980s and early 1990s, and use this evidence to project the likely effects of future cohort sizes on youth labor markets. We estimate a series of regression models to isolate the effects of exogenous changes in potential youth labor supply on youth employment and unemployment rates using a panel data set on 15 countries over more than 20 years. Our preferred estimates show large youth cohorts lead to increases in the unemployment rate of youths, with elasticities as high as .5 or .6. But the estimates generally indicate little effect of relative cohort size on employment rates of youths. We also find some evidence, though statistically weak, that labor market institutions that decrease flexibility lead to sharper responses of youth unemployment and employment rates to fluctuations in youth cohort size. Finally, due to recent declines in fertility, some European countries will see reductions in the size of youth cohorts over the next 16 years (especially Ireland, Italy, Portugal, and Spain). Projections suggest declining youth shares should improve youth labor markets in these countries, although the effects are not large compared with longer-term changes in youth unemployment rates. Other countries cannot expect demographic changes to improve youth labor markets since youth population shares are projected to decline moderately or to increase. Handle: RePEc:nbr:nberwo:6031 Template-Type: ReDIF-Paper 1.0 Title: Predation and Its Rate of Return: The Sugar Industry, 1887-1914 Classification-JEL: L13; L41 Author-Name: David Genesove Author-Person: pge30 Author-Name: Wallace P. Mullin Note: IO Number: 6032 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6032 File-URL: http://www.nber.org/papers/w6032.pdf File-Format: application/pdf Publication-Status: published as Genesove, David and Wallace P. Mullin. "Predation And Its Rate Of Return: The Sugar Industry, 1887-1914," Rand Journal of Economics, 2006, v37(1,Spring), 47-69. Abstract: We study entry into the American sugar refining industry before World War I. We show that the price wars following two major entry episodes were predatory. Our proof is twofold: by direct comparison of price to marginal cost, and by construction of predicted competitive price cost margins that we show to exceed observed margins. We argue that predation occurred only when the relative cost of it to the dominant firm was small, and that it was most probably used to deter future capacity additions. It was also used to lower the purchase price of preexisting firms after one entry episode. Handle: RePEc:nbr:nberwo:6032 Template-Type: ReDIF-Paper 1.0 Title: Complementarity and Cost Reduction: Evidence from the Auto Supply Industry Author-Name: Susan Helper Author-Person: phe243 Note: PR Number: 6033 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6033 File-URL: http://www.nber.org/papers/w6033.pdf File-Format: application/pdf Abstract: Over the last 20 years, the success of Japanese manufacturing firms has brought renewed attention to the importance of cost reduction on existing products as a source of productivity growth. This paper uses survey data and field interviews from the auto supply industry to explore the determinants of average-cost reduction for a sample of 171 plants in the United States and Canada between 1988 and 1992. The main result is that the determinants of cost reduction differ markedly between firms which had employee involvement programs in 1988 and firms that did not. The two groups of firms achieved equal amounts of cost reduction, but did so in very different ways. Firms with employee involvement saw their costs fall more if they also had such involvement gained no cost-reduction benefit from these programs; instead, their cost-reduction success was largely a function of increases in volume. These results provide support for Milgrom and Roberts's concept that certain production practices exhibit complementarity. Handle: RePEc:nbr:nberwo:6033 Template-Type: ReDIF-Paper 1.0 Title: Abortion Legalization and Child Living Circumstances: Who is the "Marginal Child?" Classification-JEL: I18; J13 Author-Name: Jonathan Gruber Author-Person: pgr20 Author-Name: Phillip Levine Author-Person: ple553 Author-Name: Douglas Staiger Author-Person: pst466 Note: CH EH LS Number: 6034 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6034 File-URL: http://www.nber.org/papers/w6034.pdf File-Format: application/pdf Publication-Status: published as J. Gruber & P. Levine & D. Staiger, 1999. "Abortion Legalization and Child Living Circumstances: Who is the "Marginal Child"?," The Quarterly Journal of Economics, vol 114(1), pages 263-291. Abstract: We estimate the impact of changes in abortion access in the early 1970s on the average living standards of cohorts born in those years. In particular, we address the selection inherent in the abortion decision: is the marginal child who is not born when abortion access increases more or less disadvantaged than the average child? Legalization of abortion in five states around 1970, followed by legalization nationwide due to the 1973 Roe v. Wade decision, generates natural variation which can be used to estimate the effect of abortion access. We find that cohorts born after abortion was legalized experienced a significant reduction in a number of adverse outcomes. Our estimates imply that the marginal child who was not born due to legalization would have been 70% more likely to live in a single parent family, 40% more likely to live in poverty, 50% more likely to receive welfare, and 35% more likely to die as an infant. These selection effects imply that the legalization of abortion saved the government over $14 billion in welfare expenditures through 1994. Handle: RePEc:nbr:nberwo:6034 Template-Type: ReDIF-Paper 1.0 Title: Insuring Consumption Against Illness Classification-JEL: O15; I18 Author-Name: Paul Gertler Author-Person: pge194 Author-Name: Jonathan Gruber Author-Person: pgr20 Note: EH PE Number: 6035 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6035 File-URL: http://www.nber.org/papers/w6035.pdf File-Format: application/pdf Publication-Status: published as Gertler, Paul and Jonathan Gruber. "Insuring Consumption Against Illness," American Economic Review, 2002, v92(1,Mar), 51-70. Abstract: One of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness, both in terms of medical care expenditures and lost income from reduced labor supply and productivity. As a result, families may not be able to smooth their consumption over periods of illness. In this paper, we investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from Indonesia that combines excellent measures of health status with consumption information. We focus on the effect of large exogenous changes in physical functioning. We find that there are significant economic costs associated with these illnesses, albeit more from income loss than from medical expenditures. We also find a robust and striking rejection of full consumption insurance. Indeed, the deviation from full consumption smoothing is significant, particularly for illnesses that severely limit physical function; families are able to smooth less than 30 percent of the income loss from these illnesses. These estimates suggest large welfare gains from the introduction of formal disability insurance, and that the large public subsidies for medical care typical of most developing countries may improve welfare by providing consumption insurance. Handle: RePEc:nbr:nberwo:6035 Template-Type: ReDIF-Paper 1.0 Title: Environmental Regulation, Investment Timing, and Technology Choice Classification-JEL: Q28; O33 Author-Name: Wayne B. Gray Author-Person: pgr111 Author-Name: Ronald J. Shadbegian Author-Person: psh911 Note: PR PE Number: 6036 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6036 File-URL: http://www.nber.org/papers/w6036.pdf File-Format: application/pdf Publication-Status: published as Journal of Industrial Economics, Vol.46, no.2 (June 1998), pp. 235-256. Abstract: We began this project interested in collecting real-world' insight about how environmental regulation affects the paper industry. Based on conversations with people in the industry and visits to paper mills, we formulated several hypotheses related to technology choice in new mills and the investment decision for existing plants. We tested these hypotheses using technology choice data for 686 paper mills and annual investment data for 116 mills. Technology choice is influenced by environmental regulation. New mills in states with strict environmental regulations are less likely to employ the more polluting technologies involving pulping. Differences between air and water pollution regulations also emerge, with the dirtiest technology in each medium avoiding those states with the strictest regulations. The magnitudes of the impacts are sizable, with a one standard deviation increase in stringency associated with several percentage point reductions in the probability of choosing a dirty technology. State regulatory stringency and plant technology have little or no effect on annual investment spending at existing plants. However, pollution abatement investment is significantly related to productive (non-abatement) investment. Plants with high abatement investment spend less on productive capital. The magnitude of the impact corresponds to nearly complete crowding out of productive investment by abatement investment. Examining investment timing, we find that abatement and productive investment tend to be concentrated in the same years, consistent with the high cost of shutting down a paper mill for renovations. Handle: RePEc:nbr:nberwo:6036 Template-Type: ReDIF-Paper 1.0 Title: Ohio School Milk Markets: An Analysis of Bidding Classification-JEL: L13; L41 Author-Name: Robert H. Porter Author-Person: ppo97 Author-Name: J. Douglas Zona Note: IO Number: 6037 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6037 File-URL: http://www.nber.org/papers/w6037.pdf File-Format: application/pdf Publication-Status: published as RAND Journal of Economics, Vol. 30, no. 2 (Summer 1999): 263-288. Abstract: We examine the institutional details of the school milk procurement process, bidding data, statements of dairy executives, and supply characteristics in Ohio during the 1980's. We compare the bidding behavior of a group of firms to a control group. We find that the behavior of each of the firms differs from that of the control group. We argue that the behavior of these firms is consistent with collusion. The estimated average effect of collusion on market prices is about six and one half percent, or roughly the cost of shipping school milk about 50 miles. Handle: RePEc:nbr:nberwo:6037 Template-Type: ReDIF-Paper 1.0 Title: Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits Classification-JEL: J64; J65 Author-Name: Ramon Marimon Author-Person: pma763 Author-Name: Fabrizio Zilibotti Author-Person: pzi3 Note: EFG Number: 6038 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6038 File-URL: http://www.nber.org/papers/w6038.pdf File-Format: application/pdf Publication-Status: published as Economic Journal, Vol. 109, no. 455 (April 1999): 266-291. Abstract: We develop an equilibrium search-matching model with risk-neutral agents and two-sided ex-ante heterogeneity Unemployment insurance has the standard effect of reducing employment, but also helps workers to get a suitable job. The predictions of our simple model are consistent with the contrasting performance of the labor market in Europe and US in terms of unemployment, productivity growth and wage inequality. To show this, we construct two fictitious economies with calibrated parameters which only differ by the degree of unemployment insurance and assume that they are hit by a common technological shock which enhances the importance of mismatch. This shock reduces the proportion of jobs which workers regard as acceptable in the economy with unemployment insurance (Europe). As a result, unemployment doubles in this economy. In the laissez-faire economy (US), unemployment remains constant, but wage inequality increases more and productivity grows less due to larger mismatch. The model can be used to address a number of normative issues. Handle: RePEc:nbr:nberwo:6038 Template-Type: ReDIF-Paper 1.0 Title: Wage Dispersion and Country Price Levels Classification-JEL: E31; F3 Author-Name: Robert E. Lipsey Author-Person: pli259 Author-Name: Birgitta Swedenborg Note: IFM ITI Number: 6039 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6039 File-URL: http://www.nber.org/papers/w6039.pdf File-Format: application/pdf Publication-Status: published as Wage Dispersion and Country Price Levels, Robert E. Lipsey, Birgitta Swedenborg. in International and Interarea Comparisons of Income, Output, and Prices, Heston and Lipsey. 1999 Abstract: The purpose of this paper was to investigate whether there is a relationship between the degree of wage dispersion in a country and its price level relative to other countries, compared in a common currency. It was found that once a country's real per capita income and deviations of its exchange rate from its trend value are allowed for, there is a pervasive relationship between wage dispersion and prices. Low wage dispersion, defined as a relatively small difference between the median wage and that of the lowest paid decile of workers, is associated with high price levels. The relationship applies more frequently to service prices than to goods prices, but where it does apply, the effects of wage dispersion are as large for goods as for services. Handle: RePEc:nbr:nberwo:6039 Template-Type: ReDIF-Paper 1.0 Title: The Impact and Organization of Publicly-Funded Research and Development in the European Community Classification-JEL: H5; L52 Author-Name: Maryann P. Feldman Author-Name: Frank R. Lichtenberg Author-Person: pli76 Note: PR Number: 6040 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6040 File-URL: http://www.nber.org/papers/w6040.pdf File-Format: application/pdf Publication-Status: published as Maryann P. Feldman & Frank R. Lichtenberg, 1998. "The Impact and Organization of Publicly-Funded Research and development in the European Community," Annales d'Economie et de Statistique, ADRES, issue 49-50, pages 08, Janvier-J. Abstract: This paper examines R&D activities in the European Community using the Community R&D Information Service (CORDIS) databases. We find that a country's private companies tend to be specialized in the same scientific fields as its universities and public organizations. In addition, we construct indicators of the degree of R&D tacitness and find that greater expected ability to communicate research outcomes encourages less centralized R&D programs. Programs that yield tangible results are less geographically and administratively centralized. The more that research leads to codifiable knowledge, the less centralized R&D activity needs to be. Handle: RePEc:nbr:nberwo:6040 Template-Type: ReDIF-Paper 1.0 Title: Public Health Insurance and Private Savings Classification-JEL: H51; I18 Author-Name: Jonathan Gruber Author-Person: pgr20 Author-Name: Aaron Yelowitz Author-Person: pye2 Note: AG CH EH PE Number: 6041 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6041 File-URL: http://www.nber.org/papers/w6041.pdf File-Format: application/pdf Publication-Status: published as Journal of Political Economy, Vol. 107, no. 6 (December 1999): 1249-1274. Abstract: Recent theoretical work suggests that means and asset-tested social insurance programs can explain the low savings of lower income households in the U.S. We assess the validity of this hypothesis by investigating the effect of Medicaid, the health insurance program for low income women and children, on savings behavior. We do so using data on asset holdings from the Survey of Income and Program Participation, and on consumption from the Consumer Expenditure Survey, matched to information on the eligibility of each household for Medicaid. Exogenous variation in Medicaid eligibility is provided by the dramatic expansion of this program over the 1984-1993 period. We document that Medicaid eligibility has a sizeable and significant negative effect on wealth holdings; we estimate that in 1993 the Medicaid program lowered wealth holdings by 17.7% among the eligible population. We confirm this finding by showing a strong positive association between Medicaid eligibility and consumption expenditures; in 1993, the program raised consumption expenditures among eligibles by 5.2%. We also exploit the fact that asset testing was phased out by the Medicaid program over this period to document that these Medicaid effects are much stronger in the presence of an asset test, confirming the importance of asset testing for household savings decisions. Handle: RePEc:nbr:nberwo:6041 Template-Type: ReDIF-Paper 1.0 Title: The Future of Old-Age Longevity: Competitive Pricing of Mortality Contingent Claims Author-Name: Charles Mullin Author-Name: Tomas Philipson Author-Person: pph37 Note: AG EH Number: 6042 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6042 File-URL: http://www.nber.org/papers/w6042.pdf File-Format: application/pdf Abstract: The future course of old-age mortality is of great importance to public sector expenditures in countries where old-age programs account for large fractions of the public budget. This paper argues that the competitive market prices of mortality contingent claims, such as annuities and life insurance, contain information which allow one to infer the opinion of the market regarding the pace of the continued increase in old-age longevity. The paper develops methods to identify and estimate the mortality implicit in the market prices of such claims by identifying survival functions from prices of contracts that differ in their duration. Utilizing these methods, we provide estimates using cohort-specific prices of US term life insurance contracts in 1990-96" for individuals aged 60 in each calendar year. Our main finding is that the mortality patterns inferred from these prices indicate a continued decline in cohort-specific mortality at rates equal to or greater than recent historical trends; about a 5 percent reduction in relative terms in the mortality hazards per successive cohort. Handle: RePEc:nbr:nberwo:6042 Template-Type: ReDIF-Paper 1.0 Title: The Pricing of U.S. Catastrophe Reinsurance Classification-JEL: 400; F Author-Name: Kenneth A. Froot Author-Person: pfr60 Author-Name: Paul G. J. O'Connell Note: CF Number: 6043 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6043 File-URL: http://www.nber.org/papers/w6043.pdf File-Format: application/pdf Publication-Status: published as The Financing of Catastrophe Risk. Froot, Kenneth A., ed., Chicago: The University of Chicago Press, 1999, pp. 195-227. Publication-Status: published as The Pricing of U.S. Catastrophe Reinsurance, Kenneth A. Froot, Paul G. J. O'Connell. in The Financing of Catastrophe Risk, Froot. 1999 Abstract: We explore two theories that have been advanced to explain the patterns in U.S. catastrophe reinsurance pricing. The first is that price variation is tied to demand shocks, driven in effect by changes in actuarially expected losses. The second holds that the supply of capital to the reinsurance industry is less than perfectly elastic, with the consequence that prices are bid up whenever existing funds are depleted by catastrophe losses. Using detailed reinsurance contract data from Guy Carpenter & Co. over a 25-year period, we test these two theories. Our results suggest that capital market imperfections are more important than shifts in actuarial valuation for understanding catastrophe reinsurance pricing. Supply, rather than demand, shifts seem to explain most features of the market in the aftermath of a loss. Handle: RePEc:nbr:nberwo:6043 Template-Type: ReDIF-Paper 1.0 Title: Evidence from Patents and Patent Citations on the Impact of NASA and Other Federal Labs on Commercial Innovation Author-Name: Adam B. Jaffe Author-Person: pja49 Author-Name: Michael S. Fogarty Author-Name: Bruce A. Banks Note: PR Number: 6044 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6044 File-URL: http://www.nber.org/papers/w6044.pdf File-Format: application/pdf Publication-Status: published as Journal of Industrial Economics, Vol. 46, no. 2 (June 1998): 183-206. Abstract: We explore the commercialization of government-generated technology by analyzing patents awarded to the U.S. government and the citations to those patents from subsequent patents. We use information on citations to federal patents in two ways: (1) to compare the average technological impact of NASA patents, other Federal' patents, and a random sample of all patents using measures of importance' and generality;' and (2) to trace the geographic location of commercial development by focusing on the location of inventors who cite NASA and other federal patents. We find, first, that the evidence is consistent with increased effort to commercialize federal lab technology generally and NASA specifically. The data reveal a striking NASA golden age' during the second half of the 1970s which remains a puzzle. Second, spillovers are concentrated within a federal lab complex of states representing agglomerations of labs and companies. The technology complex links five NASA states through patent citations: California, Texas, Ohio, DC/Virginia-Maryland, and Alabama. Third, qualitative evidence provides some support for the use of patent citations as proxies for both technological impact and knowledge spillovers. Handle: RePEc:nbr:nberwo:6044 Template-Type: ReDIF-Paper 1.0 Title: Average Interest Author-Name: George Chacko Author-Name: Sanjiv Ranjan Das Author-Person: pda527 Note: AP Number: 6045 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6045 File-URL: http://www.nber.org/papers/w6045.pdf File-Format: application/pdf Abstract: We develop analytic pricing models for options on averages by means of a state-space expansion method. These models augment the class of Asian options to markets where the underlying traded variable follows a mean-reverting process. The approach builds from the digital Asian option on the average and enables pricing of standard Asian calls and puts, caps and floors, as well as other exotica. The models may be used (i) to hedge long period interest rate risk cheaply, (ii) to hedge event risk (regime based risk), (iii) to manage long term foreign exchange risk by hedging through the average interest differential, (iv) managing credit risk exposures, and (v) for pricing specialized options like range-Asians. The techniques in the paper provide several advantages over existing numerical approaches. Handle: RePEc:nbr:nberwo:6045 Template-Type: ReDIF-Paper 1.0 Title: Inflation and the User Cost of Capital: Does Inflation Still Matter? Classification-JEL: E5; E6 Author-Name: Darrel Cohen Author-Name: Kevin A. Hassett Author-Person: pha378 Author-Name: R. Glenn Hubbard Author-Person: phu97 Note: EFG ME PE Number: 6046 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6046 File-URL: http://www.nber.org/papers/w6046.pdf File-Format: application/pdf Publication-Status: published as The Costs and Benefits of Price Stability, Feldstein, Martin, ed., pp. 199- 233. (Chicago: Universiy of Chicago Press, 1999). Publication-Status: published as Inflation and the User Cost of Capital: Does Inflation Still Matter?, Darrel Cohen, Kevin Hassett, R. Glenn Hubbard. in The Costs and Benefits of Price Stability, Feldstein. 1999 Abstract: In the late 1970s, many economists argued that the deleterious effects of inflation on the user cost of capital for U.S. firms were large. Since that time, the tax code has changed, the level of inflation has dropped significantly, and the of investment has evolved considerably. In this paper, we demonstrate that the net effect of these changes has--under reasonable assumptions--not relegated inflation to the sidelines. Indeed, we conclude that: (1) inflation, even at its relatively low current rates, continues to increase the user cost of capital significantly; (2) the marginal gain in investment in response to a percentage-point reduction in inflation is larger for lower levels of inflation; (3) the beneficial effects for steady-state consumption of lowering inflation even further than has been achieved to date would likely be significant; and (4) inflation has only a small impact on intratemporal distortion in the allocation of capital within the domestic business sector. We also show that the magnitude of the inflation effect on the user cost of capital is likely much smaller in open economies. Handle: RePEc:nbr:nberwo:6046 Template-Type: ReDIF-Paper 1.0 Title: The Effect of Welfare Payments on the Marriage and Fertility Behavior of Unwed Mothers: Results from a Twins Experiment Classification-JEL: I3; J1 Author-Name: Jeff Grogger Author-Person: pgr125 Author-Name: Stephen G. Bronars Author-Person: pbr432 Note: LS PE Number: 6047 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6047 File-URL: http://www.nber.org/papers/w6047.pdf File-Format: application/pdf Publication-Status: published as Grogger, Jeff and Stephen G. Bronars. "The Effect Of Welfare Payments On The Marriage And Fertility Behavior Of Unwed Mothers: Results From A Twins Experiment," Journal of Political Economy, 2001, v109(3,Jun), 529-545. Abstract: We study one aspect of the link between welfare and unwed motherhood: the relationship between benefit levels and the time-to-first-marriage and time-to-next-birth among women whose first" child was born out of wedlock. We use twin births to generate effectively random variation in welfare benefits among mothers within a state, which allows us to control for unobservable characteristics of states that typically confound the relationship between welfare payments and behavior. The twins approach yields evidence that higher base levels of welfare benefits: (1) lead initially unwed white mothers to forestall their eventual marriage; and (2) lead initially unwed black mothers to hasten their next birth. The magnitudes of these effects are small, however. Moreover, we find no evidence that the incremental benefit paid upon the birth of an additional child affects fertility. Handle: RePEc:nbr:nberwo:6047 Template-Type: ReDIF-Paper 1.0 Title: Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies Classification-JEL: E62; E65 Author-Name: Jerome Adda Author-Person: pad6 Author-Name: Russell Cooper Note: EFG Number: 6048 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6048 File-URL: http://www.nber.org/papers/w6048.pdf File-Format: application/pdf Publication-Status: published as Adda, Jerome and Russell Cooper. "Balladurette And Juppette: A Discrete Analysis Of Scrapping Subsidies," Journal of Political Economy, 2000, v108(4,Aug), 778-806. Abstract: This paper studies the effects of subsidies on durable goods markets. In particular, we study a recent policy in France in which the governments of Balladur and Jupp‚ subsidized the replacement of old cars with new ones. To study this policy, we construct a dynamic stochastic discrete choice model of car ownership at the household level. The resulting decision rules and equilibrium conditions are used to estimate, using aggregate data, the underlying parameters of the model. These policy functions are used to evaluate the short and long run effects of the French policies. We find that these policies do stimulate the automobile sector in the short run but, through the induced changes in the cross sectional distribution of car ages, create the basis for subsequent low activity. Further, while these policies increase government revenues in the short run, revenues in the long run are lower relative to a baseline without intervention. Handle: RePEc:nbr:nberwo:6048 Template-Type: ReDIF-Paper 1.0 Title: An Economic Theory of GATT Classification-JEL: F02; F13 Author-Name: Kyle Bagwell Author-Person: pba409 Author-Name: Robert W. Staiger Author-Person: pst85 Note: ITI Number: 6049 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6049 File-URL: http://www.nber.org/papers/w6049.pdf File-Format: application/pdf Publication-Status: published as American Economic Review (March 1999). Abstract: Despite the important roel played by GATT in the world economy, economist have nto developed a unified theoretical framework that interprets and evaluates the principles that form the foundation of GATT. Our purpose here is to propose such a framework. Working within a general equilibrium trade model, we represent government preferences with a very general formulation that includes all the major political-economy models of trade policy as special cases. Using this general framework we establish three key results. First, GATT's principle of reciprocity can by viewed as a mechanism for implementing efficient trade agreements. Second, through the principle of reciprocity countries can implement efficient trade agreements if and only if they also abide by the principle of nondiscrimination. And third, preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes through the principle of reciprocity, unless these agreements take the form of customs unions among partners that are sufficiently similar. Handle: RePEc:nbr:nberwo:6049 Template-Type: ReDIF-Paper 1.0 Title: Labor Mobility from Academe to Commerce Classification-JEL: J60; J44 Author-Name: Lynne G. Zucker Author-Person: pzu2 Author-Name: Michael R. Darby Author-Name: Maximo Torero Author-Person: pto34 Note: PR Number: 6050 Creation-Date: 1997-05 Order-URL: http://www.nber.org/papers/w6050 File-URL: http://www.nber.org/papers/w6050.pdf File-Format: application/pdf Publication-Status: published as Zucker, Lynne G., Michael R. Darby and Maximo Torero. "Labor Mobility From Academe To Commerce," Journal of Labor Economics, 2002, v20(3,Jul), 629-660. Abstract: Following a breakthrough discovery, scientific knowledge with natural excludability may be best transferred to industry by the labor mobility of top scientists from universities and research institutes to firms. We model labor mobility as a function of scientist's quality (as measured by scientific citations) and his or her reservation wages which is determined by labor quality and the cost of moving, and also depends on the trial frequency, (number of potential firm employers), potential interfering offers from universities, and experienced increase in productivity of top scientists already in firms (reducing reservation values). Applying our model to bioscience and related industries, we find broad support in a group duration analysis. The time a star scientist remains in a university before moving to a firm is significantly decreased as the quality of the bioscientist and as her focus on human genetics increases; decreased as the expected frequency of offers increases with increases in local firms commercializing the technology and the percentage of ties to scientists outside the bioscientist's organization; decreased by experienced increase in productivity by other star scientists nearby who have already moved to firms. Only the number of top quality universities in the local area, via interfering university moves, increases the time a star scientist remains in a university before moving to a firm. We find some evidence of heterogeneity when we decompose the sample of bioscientists by their destination status, finding only quality remains significant across both affiliated scientists (full-time employment in a firm) and linked scientists (part-time employment), with all variables that are significant in the duration model also entering for linked scientists. Handle: RePEc:nbr:nberwo:6050 Template-Type: ReDIF-Paper 1.0 Title: Experimental Estimates of Education Production Functions Classification-JEL: I21; J24 Author-Name: Alan B. Krueger Author-Person: pkr63 Note: CH LS Number: 6051 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6051 File-URL: http://www.nber.org/papers/w6051.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 114, no. 2 (May 1999): 497-532. Abstract: This paper analyzes data from Project STAR, an experiment in which 11,600 Tennessee kindergarten students and teachers were randomly assigned to one of three types of classes beginning in the 1985-86 school year: small classes (13-17 students), regular-size classes (22-25 students) teacher's aide. According to the original design, students were to remain in their initial class type through the third grade. In practice, however, students in regular-size classes were randomly re-assigned at the end of kindergarten, and about 10 percent of students moved between class types in second and third grade. Attrition was also common. Several statistical methods are used to investigate the impact of these limitations. The main conclusions are: (1) on average, performance on standardized tests increases by about 4 percentile points the first year students are assigned to a small class, irrespective of the grade in which the student first attends a small class; (2) after initial assignment to a small class, student performance increases by about one percentile point per year relative to those in regular-size classes; (3) teacher aides have little effect on student achievement; (4) class size has a larger effect on test scores for minority students and for those on free lunch; (5) the beneficial effect of smaller classes does not appear to result from Hawthorne effects. Handle: RePEc:nbr:nberwo:6051 Template-Type: ReDIF-Paper 1.0 Title: Productivity Measurement and the Impact of Trade and Technology on Wages: Estimates for the U.S., 1972-1990 Classification-JEL: F14; J30 Author-Name: Robert C. Feenstra Author-Person: pfe116 Author-Name: Gordon H. Hanson Author-Person: pha80 Note: ITI PR Number: 6052 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6052 File-URL: http://www.nber.org/papers/w6052.pdf File-Format: application/pdf Publication-Status: published as (Published as "The Impact of Outsourcing and High-Technology Capital on Wages: Estimates for the United States, 1979-1990") Quarterly Journal of Economics, Vol. 114 (1999): 907-940. Abstract: We develop an empirical framework to assess the importance of trade and technical change on the wages of production and nonproduction workers. Trade is measured by the foreign outsourcing of intermediate inputs, while technical change is measured by the shift towards high-technology capital such as computers. In our benchmark specification, we find that both foreign outsourcing and expenditures on high-technology equipment can explain a substantial amount of the increase in the wages of nonproduction (high-skilled) relative to production (low-skilled) workers that occurred during the 1980s. Surprisingly, it is expenditures on high-technology capital other than computers that are most important. These results are very sensitive, however, to our benchmark assumption that industry prices are independent of productivity. When we allow for the endogeneity of industry prices, then expenditures on computers becomes the most important cause of the increased wage inequality, and have a 50% greater impact than does foreign outsourcing. Handle: RePEc:nbr:nberwo:6052 Template-Type: ReDIF-Paper 1.0 Title: Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited Classification-JEL: F31; F41 Author-Name: Maurice Obstfeld Author-Person: pob13 Author-Name: Alan M. Taylor Author-Person: pta46 Note: IFM Number: 6053 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6053 File-URL: http://www.nber.org/papers/w6053.pdf File-Format: application/pdf Publication-Status: published as Journal of the Japanese and International Economies, Vol. 11 (December 1997): 441-479. Abstract: We propose that analysis of purchasing power parity (PPP) and the law of one price (LOOP) should explicitly take into account the possibility of commodity points' thresholds delineating a region of no central tendency among relative prices, possibly due to lack of perfect arbitrage in the presence of transaction costs and uncertainty. More than eighty years ago, Heckscher stressed the importance of such incomplete arbitrage in the empirical application of PPP. We devise an econometric method to identify commodity points. Price adjustment is treated as a nonlinear process, and a threshold autoregression (TAR) offers a parsimonious specification within which both thresholds and adjustment speeds are estimated by maximum likelihood methods. Our model performs well using post-1980 data reasonable: adjustment outside the thresholds might imply half-lives of price deviations measured in months rather than years and the thresholds correspond to popular rough estimates as to the order of magnitude of actual transport costs. The estimated commodity points appear to be positively related to objective measures of market segmentation, notably nominal exchange rate volatility. Handle: RePEc:nbr:nberwo:6053 Template-Type: ReDIF-Paper 1.0 Title: Less of a Luxury: The Rise of Recreation since 1888 Classification-JEL: D12; N11 Author-Name: Dora L. Costa Author-Person: pco358 Note: DAE LS Number: 6054 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6054 File-URL: http://www.nber.org/papers/w6054.pdf File-Format: application/pdf Abstract: I show that recreation has become much more egalitarian over the last hundred years by estimating recreational expenditure elasticities in 1888-1890, 1917-1919, 1935-1936, 1972-1973, and 1991. I find that expenditure elasticities have fallen from around two at the beginning of the century to slightly more than one today and attribute this decline to rising incomes, declines in the price of recreation, and investment in public recreational goods. My findings have implications for trends in the well-being of the poor relative to the rich and for long-term trends" in work hours and labor force participation rates. Handle: RePEc:nbr:nberwo:6054 Template-Type: ReDIF-Paper 1.0 Title: The Economics of Prefunding Social Security and Medicare Benefits Classification-JEL: H55; E2 Author-Name: Martin Feldstein Author-Person: pfe112 Author-Name: Andrew Samwick Author-Person: psa395 Note: AG EFG EH PE Number: 6055 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6055 File-URL: http://www.nber.org/papers/w6055.pdf File-Format: application/pdf Publication-Status: published as Bernanke, B. and J. Rotemberg (eds.) NBER Macroeconomics Annual 1997. Cambridge: MIT Press, 1997. Publication-Status: published as The Economics of Prefunding Social Security and Medicare Benefits, Martin Feldstein, Andrew Samwick. in NBER Macroeconomics Annual 1997, Volume 12, Bernanke and Rotemberg. 1997 Abstract: This paper presents a detailed analysis of the economics of prefunding benefits for the aged, focusing on Social Security but indicating some of the analogous magnitudes for prefunding Medicare Benefits. We use detailed Census and Social Security information to model the transition to a fully funded system based on mandatory contributions to individual accounts. The funded system we examine would permanently maintain the level of benefits now specified in current law and would require no new government borrowing (other than eventually selling the bonds in the Social Security trust fund). During the transition, the combined rate of payroll tax and mandatory saving rises at first by 2 percentage points (to a total of 14.4 percent) and then declines so that in less than 20 years it is less than the current 12.4 percent payroll tax. We estimate the impact of such prefunding on the growth of the capital stock and the level of national income and show that the combination of higher pretax wages and lower payroll taxes could raise wages net of income and payroll taxes by more than 35 % in the long run. We also discuss distributional issues and the way that the poor can be at least as well off as under Social Security. A stochastic simulation shows that a small increase in the mandatory saving rate would reduce the risk of receiving less than the scheduled level to less than one percent. Separate calculations are presented of the value of the 'forward-looking recognition bonds' and 'backward-looking recognition bonds' which the government might issue if it decides not to pay future social security benefits explicitly. Handle: RePEc:nbr:nberwo:6055 Template-Type: ReDIF-Paper 1.0 Title: What Do a Million Banks Have to Say About the Transmission of Monetary Policy? Author-Name: Anil K. Kashyap Author-Person: pka35 Author-Name: Jeremy C. Stein Author-Person: pst43 Note: CF EFG ME Number: 6056 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6056 File-URL: http://www.nber.org/papers/w6056.pdf File-Format: application/pdf Publication-Status: published as Kashyap, Anil K. and Jeremy C. Stein. "What Do A Million Observations On Banks Say About The Transmission Of Monetary Policy?," American Economic Review, 2000, v90(3,Jun), 407-428. Abstract: In an effort to shed new light on the monetary transmission mechanism, we create a panel data set that includes quarterly observations of every insured commercial bank in the United States over the period 1976-1993. Our key cross-sectional finding is that the impact of monetary policy on lending behavior is significantly more pronounced for banks with less liquid balance sheets -- i.e., banks with lower ratios of cash and securities to assets. Moreover, this result is entirely attributable to the smaller banks in our sample, those in the bottom 95% of the size distribution. Among other things, our findings provide strong support for the existence of a lending channel Handle: RePEc:nbr:nberwo:6056 Template-Type: ReDIF-Paper 1.0 Title: Public Radio in the United States: Does It Correct Market Failure or Cannibalize Commercial Stations? Classification-JEL: H41; L33 Author-Name: Steven T. Berry Author-Person: pbe18 Author-Name: Joel Waldfogel Author-Person: pwa46 Note: IO LE PE Number: 6057 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6057 File-URL: http://www.nber.org/papers/w6057.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 71, no. 2 (February 1999): 189-211. Abstract: Radio signals are pure public goods whose total value to society is the sum of their value to advertisers and listeners. Because broadcasters can capture only part of the value of their product as revenue, there is the potential for a classic problem of underprovision. Small markets have much less commercial program variety than larger markets, suggesting a possible underprovision problem. Public funding of radio broadcasting targets programming in three formats - news, classical music, and jazz - with at least some commercial competition. Whether public support corrects a market failure depends on whether the market would have provided similar services in the absence of public broadcasting. To examine this we ask whether public and commercial classical stations compete for listening share and revenue. We then directly examine whether public stations crowd out commercial stations. We find evidence consistent with the view that public broadcasting crowds out commercial programming in large markets, particularly in classical music and to a lesser extent in jazz. Although the majority of government subsidies to radio broadcasting are allocated to stations without commercial competition in their format (thereby possibly correcting inefficient market underprovision), roughly a quarter of subsidies support direct competition with existing commercial stations. Handle: RePEc:nbr:nberwo:6057 Template-Type: ReDIF-Paper 1.0 Title: Tax Rates and Work Incentives in the Social Security Disability Insurance Program: Current Law and Alternative Reforms Classification-JEL: J3; H2 Author-Name: Hilary Williamson Hoynes Author-Person: pho278 Author-Name: Robert Moffitt Author-Person: pmo48 Note: AG PE Number: 6058 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6058 File-URL: http://www.nber.org/papers/w6058.pdf File-Format: application/pdf Publication-Status: published as National Tax Journal, Vol. 52, no. 4 (December 1999): 623-654. Abstract: The Social Security Disability Insurance (SSDI) Program has long been criticized by economists for its apparent work disincentives stemming from the imposition of 100-percent tax rates on earnings. However, the program has been modified in recent years to allow recipients to keep some of their earnings for fixed periods of time. Moreover, additional proposals have been made for lowering the tax rate further and for providing various additional financial work incentives. We use the basic labor supply model to show the expected effect of these reforms on work effort. In addition, we provide a numerical simulation that shows the magnitude of the monetary incentives provided by the reforms for different categories of individuals. We find that the proposed reforms have ambiguous effects on work effort and could, contrary to perceived wisdom, possibly reduce work effort and increase the number of SSDI recipients. However, the simulations show that reforms based on earnings subsidies for private employers are more likely to increase work effort and to lower the caseload. Handle: RePEc:nbr:nberwo:6058 Template-Type: ReDIF-Paper 1.0 Title: Were Trade and Factor Mobility Substitutes in History? Classification-JEL: F1; F2 Author-Name: William J. Collins Author-Person: pco315 Author-Name: Kevin H. O'Rourke Author-Person: por7 Author-Name: Jeffrey Williamson Author-Person: pwi169 Note: DAE ITI Number: 6059 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6059 File-URL: http://www.nber.org/papers/w6059.pdf File-Format: application/pdf Publication-Status: published as Migration: The Controversies and the Evidence, Faini, R., J. DeMelo and K. Zimmerman, eds., Cambridge: Cambridge University Press, 1999. Abstract: Trade theorists have come to understand that their theory is ambiguous on the question: Are trade and factor flows substitutes? While this sounds like an open invitation for empirical research, hardly any serious econometric work has appeared in the literature. This paper uses history to fill the gap. It treats the experience of the Atlantic economy between 1870 and 1940 as panel data with almost seven hundred observations. When shorter run business cycles and long swings' are extracted from the panel data, substitutability is soundly rejected. When secular relationships are extracted over longer time periods and across trading partners, once again substitutability is soundly rejected. Finally, the paper explores immigration policy and finds that policy makers never behaved as if they viewed trade and immigration as substitutes. Handle: RePEc:nbr:nberwo:6059 Template-Type: ReDIF-Paper 1.0 Title: The Gold Standard and the Great Depression Author-Name: Barry Eichengreen Author-Person: pei2 Author-Name: Peter Temin Author-Person: pte231 Note: DAE ME Number: 6060 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6060 File-URL: http://www.nber.org/papers/w6060.pdf File-Format: application/pdf Publication-Status: published as Eichengreen, Barry and Peter Temin. "The Gold Standard and the Great Depression." Contemporary European History 9, 2 (2000): 183-207. Abstract: This paper, written primarily for historians, attempts to explain why political leaders and central bankers continued to adhere to the gold standard as the Great Depression intensified. We do not focus on the effects of the gold standard on the Depression, which we and others have documented elsewhere, but on the reasons why policy makers chose the policies they did. We argue that the mentality of the gold standard was pervasive and compelling to the leaders of the interwar economy. It was expressed and reinforced by the discourse among these leaders. It was opposed and finally defeated by mass politics, but only after the interaction of national policies had drawn the world into the Great Depression. Handle: RePEc:nbr:nberwo:6060 Template-Type: ReDIF-Paper 1.0 Title: Identifying Inflation's Grease and Sand Effects in the Labor Market Classification-JEL: E31; E52 Author-Name: Erica L. Groshen Author-Person: pgr213 Author-Name: Mark E. Schweitzer Author-Person: psc593 Note: ME Number: 6061 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6061 File-URL: http://www.nber.org/papers/w6061.pdf File-Format: application/pdf Publication-Status: published as The Costs and Effects of Price Stability. Feldstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp.273-308. Publication-Status: published as Identifying Inflation's Grease and Sand Effects in the Labor Market, Erica Groshen, Mark Schweitzer. in The Costs and Benefits of Price Stability, Feldstein. 1999 Abstract: Inflation has been accused of causing distortionary price and wage fluctuations (sand) as well as lauded for facilitating adjustments to shocks when wages are rigid downwards (grease). This paper investigates whether these two effects can be distinguished from each other in a labor market by the following identification strategy: inflation-induced deviations among employers' mean wage changes represent unintended intramarket distortions (sand), while inflation-induced, inter-occupational wage changes reflect intended alignments with intermarket forces (grease). Using a unique 40-year panel of wage changes made by large mid-western employers, we find a wide variety of evidence to support the identification strategy. We also find some indications that occupational wages in large firms gained flexibility in the past four years. These results strongly support other findings that grease and sand effects exist, but also suggest that they offset each other in a welfare sense and in unemployment effects. Thus, at levels up to five percent, the net impact of inflation on unemployment is beneficial but statistically indistinguishable from zero. It turns detrimental after that. When positive, net benefits never exceed a tenth of gross benefits. Handle: RePEc:nbr:nberwo:6061 Template-Type: ReDIF-Paper 1.0 Title: Does Inflation Harm Economic Growth? Evidence for the OECD Classification-JEL: E31; F43 Author-Name: Javier Andres Author-Person: pan70 Author-Name: Ignacio Hernando Note: ME Number: 6062 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6062 File-URL: http://www.nber.org/papers/w6062.pdf File-Format: application/pdf Publication-Status: published as The Costs and Effects of Price Stability. Feldstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp. 315-341. Publication-Status: published as Does Inflation Harm Economic Growth? Evidence from the OECD, Javier Andrés, Ignacio Hernando. in The Costs and Benefits of Price Stability, Feldstein. 1999 Abstract: The purpose of this paper is to study the correlation among growth and inflation at the OECD level, within the framework of the so-called convergence equations, and to discuss whether this correlation withstands a number of improvements in the empirical models, which try to address the most common criticisms of this evidence. The main findings are the following: 1) the negative correlation among growth and inflation is not explained by the experience of high-inflation economies; 2) the estimated costs of inflation are still significant once country-specific effects are allowed for in the empirical model; and 3) the observed correlation cannot be dismissed on the grounds of reverse causation (from GDP to inflation). Handle: RePEc:nbr:nberwo:6062 Template-Type: ReDIF-Paper 1.0 Title: The Legacy of Deposit Insurance: The Growth, Spread, and Cost of Insuring Financial Intermediaries Classification-JEL: N22; G21 Author-Name: Eugene N. White Author-Person: pwh5 Note: DAE ME Number: 6063 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6063 File-URL: http://www.nber.org/papers/w6063.pdf File-Format: application/pdf Publication-Status: published as White, Eugene N. "The Legacy of Deposit Insurance: The Growth, Spread, and Cost of Insuring Financial Intermediaries". The Defining Moment: The Great Depression and the American Economy in the Twentieth Century. Edited by Michael D. Bordo, Claudia Golden, and Eugene N.White, Chicago: The Univeristy of Chicago Press, 1998, pp.87-121. Publication-Status: published as The Legacy of Deposit Insurance: The Growth, Spread, and Cost of Insuring Financial Intermediaries, Eugene N. White. in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, Bordo, Goldin, and White. 1998 Abstract: Without the Great Depression, the United States would not have adopted deposit insurance. While the New Deal's anti-competitive barriers have largely collapsed become" deeply rooted. This paper examines how market and political competition for deposits raised the level of coverage and spread insurance to all depository institutions. A comparison of the cost of federal insurance with a counterfactual of an insurance-free system shows that federal insurance ultimately imposed a" higher cost but achieved political acceptance because of the distribution of the burden. Handle: RePEc:nbr:nberwo:6063 Template-Type: ReDIF-Paper 1.0 Title: Excess Capital Flows and the Burden of Inflation in Open Economies Classification-JEL: F32; H87 Author-Name: Mihir A. Desai Author-Name: James R. Hines Jr. Author-Person: phi111 Note: ME PE Number: 6064 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6064 File-URL: http://www.nber.org/papers/w6064.pdf File-Format: application/pdf Publication-Status: published as The Costs and Benefits of Price Stability. Feldstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp. 235-268. Publication-Status: published as Excess Capital Flows and the Burden of Inflation in Open Economies, Mihir A. Desai, James R. Hines, Jr.. in The Costs and Benefits of Price Stability, Feldstein. 1999 Abstract: This paper estimates the efficiency consequences of interactions between nominal tax systems and inflation in open economies. Domestic inflation changes after-tax real interest rates at home and abroad, thereby stimulating international capital movement and influencing domestic and foreign tax receipts, saving, and investment. The efficiency costs of inflation-induced international capital reallocations are typically much larger than those that accompany inflation in closed economies, even if capital is imperfectly mobile internationally. Differences between inflation rates are responsible for international capital movements and accompanying deadweight losses, suggesting that international monetary coordination has the potential to reduce the inefficiencies associated with inflation-induced capital movements. Handle: RePEc:nbr:nberwo:6064 Template-Type: ReDIF-Paper 1.0 Title: Are International R&D Spillovers Trade-Related? Analyzing Spillovers Among Randomly Matched Trade Partners Classification-JEL: F12; F2 Author-Name: Wolfgang Keller Author-Person: pke8 Note: PR Number: 6065 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6065 File-URL: http://www.nber.org/papers/w6065.pdf File-Format: application/pdf Publication-Status: published as Wolfgang Keller. "Are international R&D spillovers trade-related?: Analyzing spillovers among randomly matched trade partners," European Economic Review, 1998, vol. 42, issue 8, pages 1469-1481 Abstract: In this paper, I analyze recent findings by Coe and Helpman (1995) on trade-related international R&D spillovers. A Monte Carlo based robustness test is proposed which compares the elasticity of domestic productivity with respect to foreign R&D estimated by Coe and Helpman with an elasticity which is based on counterfactual international trade patterns. I show that also these randomly created trade patterns give rise to positive international R&D spillover estimates, which are larger and explain more of the variation in productivity across countries than if true' bilateral trade patterns are employed. The finding casts doubt on the claim that patterns of international trade are important in driving R&D spillovers. Handle: RePEc:nbr:nberwo:6065 Template-Type: ReDIF-Paper 1.0 Title: Japanese Research Consortia: A Microeconometric Analysis of Industrial Policy Classification-JEL: F2; L5 Author-Name: Lee Branstetter Author-Person: pbr854 Author-Name: Mariko Sakakibara Note: PR Number: 6066 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6066 File-URL: http://www.nber.org/papers/w6066.pdf File-Format: application/pdf Publication-Status: published as Journal of Industrial Economics, Vol. 46, no. 2 (June 1998): 207-233. Abstract: The existence of strong spillover' effects of private R&D increases the potential social contribution of R&D but may depress the private incentives to undertake it. R&D consortia offer a potentially effective means of internalizing this externality, and a number of prominent economists have argued for public support of such consortia (e.g., Romer, 1993). Governments in Europe and North America have adopted policies to promote the formation of such consortia, motivated less by economic theory than by the perception that the Japanese government has used such policies to great effect (Tyson, 1992). Despite the existence of a large theoretical literature analyzing the potential benefits and costs of R&D consortia, there has been little corresponding empirical work on their efficacy. In this paper, we undertake the first large-sample econometric study of Japanese government-sponsored research consortia which uses firm-level data on research inputs and outputs to measure the impact of participation on the ex-post research productivity of the firm. We are able to find evidence that frequent participation in these consortia has a positive impact on research expenditure and research productivity. These results hold after controlling for the potential endogeneity of the intensity of participation in consortia to participating firms' research productivity. Furthermore, we find evidence that part of this impact arises from the increased knowledge spillovers that take place within these consortia. Not only are Handle: RePEc:nbr:nberwo:6066 Template-Type: ReDIF-Paper 1.0 Title: Recent Immigrants: Unexpected Implications for Crime and Incarceration Classification-JEL: F22; K42 Author-Name: Kristin F. Butcher Author-Person: pbu245 Author-Name: Anne Morrison Piehl Author-Person: ppi106 Note: LS Number: 6067 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6067 File-URL: http://www.nber.org/papers/w6067.pdf File-Format: application/pdf Publication-Status: published as Kristin F. Butcher & Anne Morrison Piehl, 1998. "Recent immigrants: Unexpected implications for crime and incarceration," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 51(4), pages 654-679, July. Abstract: Among 18-40 year old men in the United States, immigrants are less likely to be institutionalized than the native-born, and much less likely to be institutionalized than native-born men with similar demographic characteristics. Furthermore, earlier immigrants are more likely to be institutionalized than more recent immigrants. Although all immigrant cohorts appear to assimilate toward the higher institutionalization rates of the native-born as time in the country increases, recent immigrants do not increase their institutionalization rates as quickly as one would predict from the experience of earlier immigrant cohorts. These results are the opposite of what one would predict from the literature on immigrant earnings, where earlier immigrants are typically found to have better permanent labor market characteristics. Handle: RePEc:nbr:nberwo:6067 Template-Type: ReDIF-Paper 1.0 Title: Debt and Corporate Performance: Evidence from Unsuccessful Takeovers Classification-JEL: G32; G33 Author-Name: Assem Safieddine Author-Name: Sheridan Titman Author-Person: pti51 Note: CF Number: 6068 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6068 File-URL: http://www.nber.org/papers/w6068.pdf File-Format: application/pdf Publication-Status: published as Journal of Finance (1999). Abstract: This paper examines how debt affects firms following failed takeovers. Using a sample of 573 unsuccessful takeovers, we find that, on average, targets significantly increase their debt levels. Targets that increase their debt levels more than the median amount reduce their levels of capital expenditures, sell off assets, reduce employment, increase focus and increase their operating cash flows. These leverage-increasing targets also realize superior stock price performance over the five years following the failed takeover. In contrast, those firms that increase their leverage the least show insignificant changes in their level of investment and their operating cash flows and realize stock price performance that is no different than their benchmarks. Those failed targets that increase their leverage the least, and fail to get taken over in the future, realize significant negative stock returns following their initial failed takeovers. The evidence is consistent with the hypothesis that debt helps firms remain independent not because it entrenches managers, but because it commits the manager to making the improvements that would be made by potential raiders. Handle: RePEc:nbr:nberwo:6068 Template-Type: ReDIF-Paper 1.0 Title: Intra-National, Intra-Continental, and Intra-Planetary PPP Author-Name: Charles Engel Author-Person: pen14 Author-Name: Michael K. Hendrickson Author-Name: John H. Rogers Author-Person: pro248 Note: IFM Number: 6069 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6069 File-URL: http://www.nber.org/papers/w6069.pdf File-Format: application/pdf Publication-Status: published as Journal of the Japanese and International Economics, Vol. 11 (1997): 480- 501. Abstract: This paper builds a model of adjustment toward PPP for a panel of real exchange rates. The model eliminates some inconsistencies in previous models, which implied a model for the real exchange rate of country B relative to country C that was not commensurate with the posited model of the real exchange rate for A relative to B, and A relative to C. The model allows us to handle correlations across exchange rates in a panel in a natural way. We put restrictions on an underlying model which yields a simple covariance matrix that can be easily estimated by GLS methods. We also put restrictions on the underlying model which allow us to easily estimate a panel PPP model in which the speed of adjustment is not the same for all real exchange rates. Our model, applied to the price levels of eight cities in four countries and two continents, does not find evidence in favor of reversion of PPP. Handle: RePEc:nbr:nberwo:6069 Template-Type: ReDIF-Paper 1.0 Title: Intergenerational Earnings Mobility, Inequality, and Growth Classification-JEL: O40; J62 Author-Name: Ann L. Owen Author-Person: pow7 Author-Name: David N. Weil Author-Person: pwe24 Note: EFG Number: 6070 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6070 File-URL: http://www.nber.org/papers/w6070.pdf File-Format: application/pdf Publication-Status: published as Journal of Monetary Economics, 1998. Abstract: We examine a model in which per capita income, inequality, intergenerational mobility, and returns to education are all determined endogenously. Individuals earn wages depending on their ability, which is a random variable. They purchase an education with transfers received from their parents, and are subject to liquidity constraints. In the model, multiple steady state equilibria are possible: countries with identical tastes and technologies can reach differing rates of mobility, inequality, and per capita income. Equilibria with higher levels of output also have lower inequality, higher mobility, and more efficient distribution of education. Handle: RePEc:nbr:nberwo:6070 Template-Type: ReDIF-Paper 1.0 Title: Money, Sticky Wages, and the Great Depression Classification-JEL: N12; E32 Author-Name: Michael D. Bordo Author-Person: pbo243 Author-Name: Christopher J. Erceg Author-Person: per53 Author-Name: Charles L. Evans Author-Person: pev23 Note: DAE ME Number: 6071 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6071 File-URL: http://www.nber.org/papers/w6071.pdf File-Format: application/pdf Publication-Status: published as American Economic Review, Vol. 90, no. 5, (December 2000): 1447-1463 Abstract: This paper examines the ability of a simple stylized general equilibrium model that incorporates nominal wage rigidity to explain the magnitude and persistence of the Great Depression in the United States. The impulses to our analysis are money supply shocks. The Taylor contracts model is surprisingly successful in accounting for the behavior of major macroaggregates and real wages during the downturn phase of the Depression, i.e., from 1929:3 through mid-1933. Our analysis provides support for the hypothesis that a monetary contraction operating through a sticky wage channel played a significant role in accounting for the downturn, and also provides an interesting refinement to this explanation. In particular, both the absolute severity of the Depression's downturn and its relative severity compared to the 1920-21 recession are likely attributable to the price decline having a much larger unanticipated component during the Depression, as well as less flexible wage-setting practices during this latter period. Another finding casts doubt on explanations for the 1933-36 recovery that rely heavily on the substantial remonetization that began in 1933. Handle: RePEc:nbr:nberwo:6071 Template-Type: ReDIF-Paper 1.0 Title: Eurowinners and Eurolosers: The Distribution of Seigniorage Wealth in EMU Classification-JEL: E58; F33 Author-Name: Hans-Werner Sinn Author-Person: psi146 Author-Name: Holger Feist Note: PE Number: 6072 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6072 File-URL: http://www.nber.org/papers/w6072.pdf File-Format: application/pdf Publication-Status: published as European Journal of Political Economy, vol. 13 (1997) 665-689 Abstract: The European Monetary Union (EMU) will involve socialization of the existing seigniorage wealth of the national central banks, because the Euro will have to be bought by these banks in exchange for assets which have been accumulated in the historical process of money creation. This socialization will create windfall gains for countries with relatively low monetary bases such as France and the UK and it will be disadvantageous for countries like Germany, the Netherlands and Spain which will suffer per capita wealth losses of between 406 and 182 ecus. This paper quantifies the gains and losses in seigniorage wealth under alternative membership and bank regulation scenarios. Handle: RePEc:nbr:nberwo:6072 Template-Type: ReDIF-Paper 1.0 Title: Measuring Market Integration: A Model of Arbitrage with an Econometric Application to the Gold Standard, 1879-1913 Classification-JEL: N1; F3 Author-Name: Gauri Prakash Author-Name: Alan M. Taylor Author-Person: pta46 Note: DAE Number: 6073 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6073 File-URL: http://www.nber.org/papers/w6073.pdf File-Format: application/pdf Publication-Status: published as Eugene Canjels & Gauri Prakash-Canjels & Alan M. Taylor, 2004. "Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard, 1879-1913," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 868-882, 05. Abstract: A major question in the literature on the classical gold standard concerns the efficiency of international arbitrage. Most authors have examined efficiency by looking at the spread of the gold points, gold-point violations, the flow of gold in profitable or unprofitable directions, or by tests of various asset market criteria, including speculative efficiency and interest arbitrage. These studies have suffered from many limitations, both methodological and empirical. We offer a new methodology for measuring market integration, based on a theoretical model of arbitrage applicable to any type of market. The model is econometrically tractable using the techniques of threshold autoregressions. We study the efficiency of the dollar-sterling gold standard in this framework, and we radically improve the empirical basis for investigation by compiling a new, high-frequency series of continuous daily data from 1879 to 1913. Using data at this frequency we can derive reasonable econometric estimates of the size of transaction-cost bands (as compared with direct cost estimates). We can also estimate the speed of adjustment through which disequilibria (gold-point violations) were corrected. The changes in these measures over time provides an insight into the evolution of market integration in the classical gold standard. Handle: RePEc:nbr:nberwo:6073 Template-Type: ReDIF-Paper 1.0 Title: Measuring the Energy Savings from Home Improvement Investments: Evidence from Monthly Billing Data Classification-JEL: E22; Q40 Author-Name: Gilbert E. Metcalf Author-Name: Kevin A. Hassett Author-Person: pha378 Note: PE EEE Number: 6074 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6074 File-URL: http://www.nber.org/papers/w6074.pdf File-Format: application/pdf Publication-Status: published as Review of Economics and Statistics, Vol. 81, no. 3 (1999): 516-528. Abstract: An important factor driving energy policy over the past two decades has been the Energy Paradox,' the perception that consumers apply unreasonably high hurdle rates to energy saving investments. We explore one possible explanation for this apparent puzzle: that realized returns fall short of the returns promised by engineers and product manufacturers. Using a unique data set, we find that the realized return to attic insulation is statistically significant, but the median estimate (12.3 percent) is close to a discount rate for this investment implied by a CAPM analysis. We conclude that the case for the Energy Paradox is weaker than has previously been believed. Handle: RePEc:nbr:nberwo:6074 Template-Type: ReDIF-Paper 1.0 Title: Output Price and Markup Dispersion in Micro Data: The Roles of Producer Heterogeneity and Noise Classification-JEL: L10; D40 Author-Name: Mark J. Roberts Author-Person: pro190 Author-Name: Dylan Supina Note: IO Number: 6075 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6075 File-URL: http://www.nber.org/papers/w6075.pdf File-Format: application/pdf Publication-Status: published as Advances in Applied Microeconomics, Vol. 9, Industrial Organization, Baye, Michael, ed., JAI Publishers, 2000. Publication-Status: published as Roberts, Mark J. and Dylan Supina. "Output Price And Markup Dispersion In Micro Data: The Roles Of Producer Heterogeneity And Noise," Advances in Applied Microeconomics, 2000, v9(1), 1-35. Abstract: This paper provides empirical evidence on the extent of producer heterogeneity in the output market by analyzing output price and price-marginal cost markups at the plant level for thirteen homogenous manufactured goods. It relies on micro data from the U.S. Census of Manufactures over the 1963-1987 period. The amount of price heterogeneity varies substantially across products. Over time, plant transition patterns indicate more persistence in the pricing of individual plants than would be generated by purely random movements. High-price and low-price plants remain in the same part of the price distribution with high frequency, suggesting that underlying time-invariant structural factors contribute to the price dispersion. For all but two products, large producers have lower output prices. Marginal cost and the markups are estimated for each plant. The markup remains unchanged or increases with plant size for all but four of the products and declining marginal costs play an important role in generating this pattern. The lower production costs for large producers are, at least partially, passed on to purchasers as lower output prices. Plants with the highest and lowest markups tend to remain so over time, although overall the persistence in markups is less than for output price, suggesting a larger role for idiosyncratic shocks in generating markup variation. Handle: RePEc:nbr:nberwo:6075 Template-Type: ReDIF-Paper 1.0 Title: The Home Market, Trade, and Industrial Structure Classification-JEL: F1; O1 Author-Name: Donald R. Davis Author-Person: pda33 Note: ITI Number: 6076 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6076 File-URL: http://www.nber.org/papers/w6076.pdf File-Format: application/pdf Publication-Status: published as American Economic Review (December 1998). Abstract: Does national market size matter for industrial structure? This has been suggested by theoretical work on home market' effects, as in Krugman (1980, 1995). In this paper, I show that what previously was regarded as an assumption of convenience - transport costs only for the differentiated goods - matters a great deal. In a focal case in which differentiated and homogeneous goods have identical transport costs, the home market effect disappears. The paper discusses available evidence on the relative trade costs for differentiated and homogenous goods. No compelling argument is found that market size will matter for industrial structure. Handle: RePEc:nbr:nberwo:6076 Template-Type: ReDIF-Paper 1.0 Title: Merger Policies and Trade Liberalization Classification-JEL: F12; L4 Author-Name: Henrik Horn Author-Name: James Levinsohn Author-Person: ple386 Note: ITI Number: 6077 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6077 File-URL: http://www.nber.org/papers/w6077.pdf File-Format: application/pdf Publication-Status: published as Horn, Henrik & Levinsohn, James, 2001. "Merger Policies and Trade Liberalisation," Economic Journal, Royal Economic Society, vol. 111(470), pages 244-76, April. Abstract: This paper is about the interactions between what is traditionally considered trade policy and a narrow but important aspect of competition policy, namely merger policy. We focus on links between merger policies and trade liberalization. We put special emphasis on the topical issue of the role that international agreements such as the GATT play when merger policies are nationally chosen. Of particular concern is the possibility that liberalization of international trade will induce countries to increasingly use competition policies to promote national interests at the expense of others. We examine the incentives for a welfare maximizing government to make such a substitution. Interpreting merger policy as a choice of degree of industrial concentration, we investigate how the merger policy that is optimal from the point of view of an individual country is affected by restrictions on the use of tariffs and export subsidies. Handle: RePEc:nbr:nberwo:6077 Template-Type: ReDIF-Paper 1.0 Title: Gender and Youth Employment Outcomes: The US and West Germany, 1984-91 Classification-JEL: J31 Author-Name: Francine D. Blau Author-Person: pbl16 Author-Name: Lawrence M. Kahn Author-Person: pka63 Note: CH LS Number: 6078 Creation-Date: 1997-06 Order-URL: http://www.nber.org/papers/w6078 File-URL: http://www.nber.org/papers/w6078.pdf File-Format: application/pdf Publication-Status: published as Youth Unemployment and Employment in Advanced Countries, Blanchflower, David, and Richard Freeman, eds., Chicago: University of Chicago Press, 2000. Publication-Status: published as Gender and Youth Employment Outcomes (The United States and West Germany, 1984-1991) , Francine D. Blau, Lawrence Kahn. in Youth Employment and Joblessness in Advanced Countries, Blanchflower and Freeman. 2000 Abstract: This paper examines gender differences in labor market outcomes for hard-to-employ youth in the US and West Germany during the 1984-91 period. We find that young, less educated American men and especially women are far less likely to be employed than their German counterparts. Moreover, less educated young women and men in the United States have lower earnings relative to more highly educated youth in their own country, and also fare much worse than less educated German youth in absolute terms, correcting for purchasing power. The relatively high employment rates of less educated German youth combined with their relatively high wages raise the question of how they are successfully absorbed into the labor market. We present evidence that the large public sector in Germany in effect functions as an employer of last resort, absorbing some otherwise unemployable low skilled youth. Our findings also suggest that the US welfare system accounts for very little of the US-German difference in employment rates. Handle: RePEc:nbr:nberwo:6078 Template-Type: ReDIF-Paper 1.0 Title: From Socialist Showcase to Mezzogiorno? Lessons on the Role of Technical Change from East Germany's Post-World War II Growth Performance Classification-JEL: O3; O4 Author-Name: Wolfgang Keller Author-Person: pke8 Note: PR Number: 6079 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6079 File-URL: http://www.nber.org/papers/w6079.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, 2000. Abstract: In this paper we emphasize the contribution of technical change, broadly defined, towards productivity growth in explaining the relative East Germany-West Germany performance during the post-World War II era. We argue that previous work was excessively focused on physical capital investments determining productivity differentials, which consequently led to an overestimation of the East German performance during the Socialist era, and an overly pessimistic assessment of the East German prospects of catching up with West Germany during the post-reunification era. We show, first, that the rates of technical change in the manufacturing industries of East German states were significantly below those in Western states, helping to account for the fact that East Germany was not the socialist showcase for which it was frequently taken before German reunification. Second, we demonstrate that the rates of technical change in the East German states have been considerably higher than those in the West since German reunification. This suggests that the Mezzogiorno prediction for East Germany--that it will stay persistently behind West Germany as does Italy's South relative to its North--, based on an analysis of the need for physical capital accumulation alone, will prove too pessimistic. Handle: RePEc:nbr:nberwo:6079 Template-Type: ReDIF-Paper 1.0 Title: Contagion and Volatility with Imperfect Credit Markets Classification-JEL: F34; F36 Author-Name: Pierre-Richard Agenor Author-Person: pag16 Author-Name: Joshua Aizenman Author-Person: pai8 Note: IFM Number: 6080 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6080 File-URL: http://www.nber.org/papers/w6080.pdf File-Format: application/pdf Publication-Status: published as Pierre-Richard Agenor & Joshua Aizenman, 1998. "Contagion and Volatility with Imperfect Credit Markets," Staff Papers - International Monetary Fund, vol 45(2). Abstract: This paper interprets contagion effects as a perceived increase (triggered by events occurring elsewhere) in the volatility of aggregate shocks impinging on the domestic economy. The implications of this approach are analyzed in a model with two types of credit market imperfections: domestic banks borrow at a premium on world capital markets, and domestic producers (whose demand for credit results from working capital needs) borrow at a premium from domestic banks which possess comparative advantage in monitoring the behavior of domestic agents. Financial intermediation spreads are shown to be determined by a markup that compensates for the expected cost of contract enforcement and state verification and for the expected revenue lost in adverse states of nature. Higher volatility of producers' productivity shocks increases both financial spreads and the producers' cost of capital, resulting in lower employment and higher incidence of default. The welfare effects of volatility are non-linear. Higher volatility does not impose any welfare cost for countries characterized by relatively low volatility and efficient financial intermediation. The adverse welfare effects are large (small) for countries that are at the threshold of full integration with international capital markets (close to financial autarky), that is, countries characterized by a relatively low (high) probability of default. Handle: RePEc:nbr:nberwo:6080 Template-Type: ReDIF-Paper 1.0 Title: Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets Classification-JEL: D1; D8 Author-Name: Christopher D. Carroll Author-Person: pca45 Author-Name: Wendy E. Dunn Note: EFG ME Number: 6081 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6081 File-URL: http://www.nber.org/papers/w6081.pdf File-Format: application/pdf Publication-Status: published as NBER Macroeconomics Annual, Bernanke, Benjamin S. and Julio Rotemberg,eds., Cambridge: MIT Press, 1997, pp. 165-229. Publication-Status: published as Unemployment Expectations, Jumping (S,s) Triggers, and Household Balance Sheets, Christopher D. Carroll, Wendy E. Dunn. in NBER Macroeconomics Annual 1997, Volume 12, Bernanke and Rotemberg. 1997 Abstract: This paper examines the relationship between household balance sheets, consumer purchases, and expectations. We find few robust empirical relationships between balance sheet measures and spending, but we do find that unemployment expectations are robustly correlated with spending. We then construct a formal model of durables and nondurables consumption with an explicit role for unemployment and for household debt. We find that the model is capable of explaining several empirical regularities which are, at best, unexplained by standard models. Finally, we show that a loosening of liquidity constraints can produce a runup in debt similar to that experienced recently in the US, and that after such a liberalization consumer purchases show heightened sensitivity to labor income uncertainty, providing a potential rigorous interpretation of the widespread view that the buildup of debt in the 1980s may have played an important role in the weakness of consumption during and after the 1990 recession. Handle: RePEc:nbr:nberwo:6081 Template-Type: ReDIF-Paper 1.0 Title: Teen Drinking and Education Attainment: Evidence From Two-Sample Instrumental Variables (TSIV) Estimates Classification-JEL: I12; I18 Author-Name: Thomas S. Dee Author-Name: William N. Evans Author-Person: pev28 Note: EH Number: 6082 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6082 File-URL: http://www.nber.org/papers/w6082.pdf File-Format: application/pdf Publication-Status: Published as "State Alcohol Policies, Teen Drinking and Traffic Fatalities" , Journal of Public Economics, Vol. 72, no. 2 (May 1999): 289-315. Abstract: Recent research has suggested that one of the important consequences of teen drinking is reduced scholastic achievement and that state excise taxes on beer and minimum legal drinking ages (MLDA) as policy instruments can have a positive impact on educational attainment. But there is reason to ask whether the results are empirically sound. Prior research as assumed the decision to drink is made independently of schooling decisions and estimations that have recognized potential simultaneity in these decisions may be poorly identified since they rely only on the cross-state variation in beer taxes and MLDA as exogenous determinants of teen drinking. A more convincing strategy would rely on the within-state variation in alcohol availability over time. We use the increases in the state MLDA during the late 70's and 80's as an exogenous source of variation in teen drinking. Using data from the 1977-92 Monitoring the Future (MTF) surveys, we show that teens with an MLDA of 18 were more likely to drink than teens with a higher drinking age. If teen drinking did reduce educational attainment then it should have risen within a state after the MLDA was increased. Using data from over 1.3 million respondents from the 1960-1969 birth cohorts in the 1990 Public-Use Microdata Sample (PUMS) we find that changes in the MLDA had small effects on educational attainment measured by high school completion, college entrance and completion. A new method developed by Angrist and Krueger (1992, 1995) lets us tie these results together. Using matched cohorts from the MTF and PUMS data sets, we report two-sample instrumental variables (TSIV) estimates of the effect of teen drinking on educational attainment. These estimates are smaller than corresponding single-equation probit estimates, indicating that teen drinking does not have an independent effect on educational attainment. Handle: RePEc:nbr:nberwo:6082 Template-Type: ReDIF-Paper 1.0 Title: Business Success and Businesses' Beauty Capital Classification-JEL: J71 Author-Name: Ciska M. Bosman Author-Name: Gerard Pfann Author-Person: ppf10 Author-Name: Jeff E. Biddle Author-Person: pbi98 Author-Name: Daniel S. Hamermesh Author-Person: pha78 Note: LS Number: 6083 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6083 File-URL: http://www.nber.org/papers/w6083.pdf File-Format: application/pdf Publication-Status: published as "Business success and businesses' beauty capital" Economics Letters, Vol 93, 3 (December 2006) Pages 201-207 Gerard A. Pfann, Jeff E. Biddle, Daniel S. Hamermesh and Ciska M. Bosman Abstract: We examine whether a difference in pay for beauty is supported by different productivity of people according to looks. Using a sample of advertising firms, we find that those firms with better-looking executives have higher revenues and faster growth than do otherwise identical firms whose executives are not so good-looking. The impact on revenue far exceeds the likely effect of beauty on the executives' wages. This suggests that their beauty creates firm-specific investments, in the form of improved relationships within work groups, the returns to which are shared by the firm and the executive. Handle: RePEc:nbr:nberwo:6083 Template-Type: ReDIF-Paper 1.0 Title: Rational Atrophy: The US Steel Industry Author-Name: Aaron Tornell Author-Person: pto157 Note: PR Number: 6084 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6084 File-URL: http://www.nber.org/papers/w6084.pdf File-Format: application/pdf Abstract: During the seventies and eighties the US steel industry received trade protection. However, these rents were not used to improve competitiveness. Instead, they were reflected in higher wages and a greater share of profits invested in sectors not related to steel. Moreover, the steel industry failed to adopt technological innovations on a timely basis and was displaced by the minimills. We rationalize these puzzling outcomes using a dynamic game between workers and firms. Handle: RePEc:nbr:nberwo:6084 Template-Type: ReDIF-Paper 1.0 Title: Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates Classification-JEL: D12; E21 Author-Name: B. Douglas Bernheim Author-Person: pbe81 Author-Name: Daniel M. Garrett Author-Name: Dean M. Maki Note: AG PE Number: 6085 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6085 File-URL: http://www.nber.org/papers/w6085.pdf File-Format: application/pdf Publication-Status: published as Bernheim, B. Douglas & Garrett, Daniel M. & Maki, Dean M., 2001. "Education and saving:: The long-term effects of high school financial curriculum mandates," Journal of Public Economics, Elsevier, vol. 80(3), pages 435-465, June. Abstract: Over the last forty years, the majority of states have adopted consumer education policies, and a sizable minority have specifically mandated that high school students receive instruction on topics related to household financial decision-making (budgeting so forth). In this paper, we attempt to determine whether the curricula arising from these mandates have had any discernable effect on adult decisions regarding saving. Using a unique household survey, we exploit the variation in requirements both across states and over time to identify the effects of interest. The evidence indicates that mandates have significantly raised both exposure to financial curricula and subsequent asset accumulation once exposed students reached adulthood. These effects appear to have been gradual rather than immediate -- a probable reflection of implementation lags. Handle: RePEc:nbr:nberwo:6085 Template-Type: ReDIF-Paper 1.0 Title: Contract Renegotiation in Agency Problems Classification-JEL: C78; D23 Author-Name: Aaron S. Edlin Author-Person: ped12 Author-Name: Benjamin E. Hermalin Author-Person: phe59 Note: LE Number: 6086 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6086 File-URL: http://www.nber.org/papers/w6086.pdf File-Format: application/pdf Publication-Status: published as Edlin, Aaron S. and Benjamin E. Hermalin. "Contract Renegotiation And Options In Agency Problems," Journal of Law, Economics and Organization, 2000, v16(2,Oct), 395-423. Abstract: This paper studies the ability of an agent and a principal to achieve the first-best outcome when the agent invests in an asset that has greater value if owned by the principal than by the agent. When contracts can be renegotiated, a well-known danger is that the principal can hold up the agent, undermining the agent's investment incentives. We begin by identifying a countervailing effect: Investment by the agent can increase his value for the asset, thus improving his bargaining position in renegotiation. We show that option contracts will achieve the first best whenever this threat-point effect dominates the holdup effect. Otherwise, achieving the first best is difficult and, in many cases, impossible. In such cases, we show that if parties have an appropriate signal available, then the first best is still attainable for a wide class of bargaining procedures. A noisy signal, however, means that the optimal contract will involve terms that courts might view as punitive and so refuse to enforce. Handle: RePEc:nbr:nberwo:6086 Template-Type: ReDIF-Paper 1.0 Title: Physician Fee Policy and Medicaid Program Costs Classification-JEL: I18 Author-Name: Jonathan Gruber Author-Person: pgr20 Author-Name: Kathleen Adams Author-Name: Joseph P. Newhouse Note: EH PE Number: 6087 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6087 File-URL: http://www.nber.org/papers/w6087.pdf File-Format: application/pdf Publication-Status: published as Journal of Human Resources, Vol. 32, no. 4 (Fall 1997): 611-634. Abstract: We investigate the hypothesis that increasing access for the indigent to physician offices shifts care from hospital outpatient settings and lowers Medicaid costs (the so-called offset effect'). To evaluate this hypothesis we exploit a large increase in physician fees in the Tennessee Medicaid program, using Georgia as a control. We find that beneficiaries shifted care from clinics to offices, but that there was little or no shifting from hospital outpatient departments or emergency rooms. Thus, we find no offset effect in outpatient expenditures. Inpatient admissions and expenditures fell, reducing overall program spending eight percent. Because the inpatient reduction did not occur in ambulatory-care-sensitive diagnoses, however, we cannot demonstrate a causal relationship with the fee change. Handle: RePEc:nbr:nberwo:6087 Template-Type: ReDIF-Paper 1.0 Title: Age Discrimination Laws and Labor Market Efficiency Classification-JEL: J14; J18 Author-Name: David Neumark Author-Person: pne16 Author-Name: Wendy A. Stock Note: AG LS Number: 6088 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6088 File-URL: http://www.nber.org/papers/w6088.pdf File-Format: application/pdf Publication-Status: published as Journal of Political Economy, Vol. 107, no. 5 (October 1999): 1081-1125. Abstract: In Lazear's (1979) model of efficient long-term incentive contracts, employers impose involuntary retirement based on age. This model implies that age discrimination laws, which bar involuntary terminations based on age, discourage the use of such contracts and reduce efficiency. Alternatively, by making it costly for firms to dismiss older workers paid in excess of their marginal product, such laws may serve as precommitment devices that make credible the long-term commitment to workers that firms must make under Lazear contracts. Given that employers remain able to use financial incentives to induce retirement, age discrimination laws may instead strengthen the bonds between workers and firms and encourage efficient Lazear contracts. We assess evidence on these alternative interpretations of age discrimination laws by estimating the effects of such laws on the steepness of age-earnings profiles. If long-term incentive contracts are strengthened or become more prevalent, average age-earnings profiles should steepen for workers who enter the labor" market after age discrimination laws are passed, and vice versa. The empirical analysis uses decennial Censuses of Population and state-level variation in age discrimination laws induced by state and federal legislation. The evidence indicates that age discrimination laws lead to steeper age-earnings profiles for cohorts entering the labor market, suggesting that these laws encourage the use of Lazear contracts, and increase efficiency. Handle: RePEc:nbr:nberwo:6088 Template-Type: ReDIF-Paper 1.0 Title: "The Bigger They Are, The Harder They Fall": How Price Differences Across U.S. Cities Are Arbitraged Classification-JEL: F31; C32 Author-Name: Paul G. J. O'Connell Author-Name: Shang-Jin Wei Author-Person: pwe20 Note: IFM ITI Number: 6089 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6089 File-URL: http://www.nber.org/papers/w6089.pdf File-Format: application/pdf Publication-Status: published as O'Connell, Paul G. J. and Shang-Jin Wei. "'The Bigger They Are, The Harder They Fall': Retail Price Differences Across U.S. Cities," Journal of International Economics, 2002, v56(1,Jan), 21-53. Abstract: Recent empirical work has made headway in exploring the non-linear dynamics of deviations from the law of one price and" purchasing power parity that are apt to arise from transaction costs. However, there are two important facets of this work that need improvement. First, the choice of empirical specification is arbitrary. Second, the data used are typically composite price indices which are subject to potentially serious aggregation biases. This paper examines the evidence for transport-cost-induced nonlinear price behavior within the U.S. We address both of the above shortcomings. First, we use a simple continuous-time model to inform the choice of empirical specification. The model indicates that the behavior of deviations from price parity depends on the relative importance of fixed and variable transport costs. Second, we employ data on disaggregated commodity prices, yielding a pure' measure of the deviations from price parity. We find strong evidence of nonlinear reversion in these deviations. The nature of this reversion suggests that fixed costs of transportation are integral to an understanding of law-of-one-price deviations. Handle: RePEc:nbr:nberwo:6089 Template-Type: ReDIF-Paper 1.0 Title: Tariff Policy for a Monopolist Under Incomplete Information Classification-JEL: F13; D82 Author-Name: Dobrin R. Kolev Author-Name: Thomas J. Prusa Author-Person: ppr249 Note: ITI Number: 6090 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6090 File-URL: http://www.nber.org/papers/w6090.pdf File-Format: application/pdf Publication-Status: published as Journal of International Economics, Vol. 49 (1999): 51-76. Abstract: We examine the incentives for a government to levy an optimal tariff on a foreign monopolist. With complete information, the home government uses tariffs to extract rents and therefore implements a policy of discriminatory tariffs entailing higher tariffs on more efficient firms. By contrast if the government is incompletely informed about costs, we show that under reasonable conditions the unique self-enforcing outcome involves pooling where firms export the same quantity regardless of efficiency. Due to the distortions created by incomplete information we find that in general, home country welfare is higher under a policy of uniform tariffs than under one of discriminatory tariffs. Our results suggest that trade policies that are motivated by rent extraction are unlikely to be robust to the introduction of incomplete information. Handle: RePEc:nbr:nberwo:6090 Template-Type: ReDIF-Paper 1.0 Title: Environmental Controls, Scarcity Rents, and Pre-Existing Distortions Classification-JEL: H2; Q2 Author-Name: Don Fullerton Author-Person: pfu10 Author-Name: Gilbert Metcalf Note: PE Number: 6091 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6091 File-URL: http://www.nber.org/papers/w6091.pdf File-Format: application/pdf Publication-Status: published as Fullerton, Don and Gilbert E. Metcalf. "Environmental Controls, Scarcity Rents, And Pre-Existing Distortions," Journal of Public Economics, 2001, v80(2,May), 249-267. Abstract: Debate about the Double Dividend Hypothesis has focused on whether an environmental policy raises revenue that can be used to cut other distorting taxes. In this paper, we show that this focus is misplaced. We derive welfare results for alternative policies in a series of analytical general equilibrium models with clean and dirty goods that might be produced using emissions as well as other resources, in the presence of other pre-existing distortions such as labor taxes or even monopoly pricing. We show that the same welfare effects of environmental protection can be achieved, without exacerbating the labor distortion, by taxes that raise revenue, certain command and control regulations that raise no revenue, and even subsidies that cost revenue. Instead, the pre-existing labor tax distortion is exacerbated by policies that generate privately-retained scarcity rents. These rents raise the cost of production, raise equilibrium output prices, and thus reduce the real net wage. Such policies include both quantity-restricting command and control policies and certain marketable permit policies. Handle: RePEc:nbr:nberwo:6091 Template-Type: ReDIF-Paper 1.0 Title: Monetary Policy in Japan, Germany and the United States: Does One Size Fit All? Classification-JEL: E52; E43 Author-Name: Menzie D. Chinn Author-Person: pch129 Author-Name: Michael P. Dooley Author-Person: pdo13 Note: IFM Number: 6092 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6092 File-URL: http://www.nber.org/papers/w6092.pdf File-Format: application/pdf Publication-Status: published as Japanese Economic Policy Reconsidered, Freedman, Craig, ed.: Edward Elgar, 1998, pp. 179-217. Abstract: We study the post-war evidence for Japan to see if the same specification for both the economy and the monetary policy rule is useful for understanding Japan's economy and monetary policy. A recurrent theme in the literature on Japanese monetary policy is that there are significant differences in both the policy procedures and objectives as compared to other industrial countries. In this paper we propose an out of sample' test of a set of restrictions on a vector autoregression employed by Clarida and Gertler (1997) in their analysis of the Bundesbank's behavior. Our interpretation of the evidence is that, with minor adjustments, the same specification provides a useful framework for understanding monetary policy in Japan. Perhaps the most interesting finding is that the Bank of Japan appears to react to inflation over longer forecast horizons as compared to other central banks. Handle: RePEc:nbr:nberwo:6092 Template-Type: ReDIF-Paper 1.0 Title: Economic Geography and Reginal Production Structure: An Empirical Investigation Classification-JEL: F1; O1 Author-Name: Donald R. Davis Author-Person: pda33 Author-Name: David E. Weinstein Author-Person: pwe34 Note: ITI Number: 6093 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6093 File-URL: http://www.nber.org/papers/w6093.pdf File-Format: application/pdf Publication-Status: published as with R. Forslid and J. Haaland, The World Economy, Vol.19, no.6 (1996): 635-659. European Economic Review (February 1999). Abstract: There are two principal theories of why countries or regions trade: comparative advantage and increasing returns to scale. Yet there is virtually no empirical work that assesses the relative importance of these two theories in accounting for production structure and trade. We use a framework that nests an increasing returns model of economic geography featuring market effects trade models to account for the structure of regional production in Japan. We find support for the existence of economic geography effects in eight of nineteen manufacturing sectors, including such important ones as transportation equipment, iron and steel, electrical machinery, and chemicals. Moreover, we find that these effects are economically very significant. The latter contrasts with the results of Davis and Weinstein (1997), which found scant economic significance of economic geography for the structure of OECD production. We conclude that while economic geography may explain little about the international structure of production, it is very important for understanding the regional structure of production. Handle: RePEc:nbr:nberwo:6093 Template-Type: ReDIF-Paper 1.0 Title: Financial Fragility and the Great Depression Classification-JEL: E32; E44 Author-Name: Russell Cooper Author-Name: Dean Corbae Author-Person: pco94 Note: EFG ME Number: 6094 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6094 File-URL: http://www.nber.org/papers/w6094.pdf File-Format: application/pdf Publication-Status: published as Cooper, Russell and Dean Corbae. "Financial Collapse: A Lesson From The Great Depression," Journal of Economic Theory, 2002, v107(2,Dec), 159-190. Abstract: We analyze a financial collapse, such as the one which occurred during the Great Depression, from the perspective of a monetary model with multiple equilibria. The economy we consider contains financial fragility due to increasing returns to scale in the intermediation process. Intermediaries provide the link between savers and firms who require working capital for production. Fluctuations in the intermediation process are driven by variations in the confidence agents place in the financial system. Our model matches quite closely the qualitative movements in some financial and real variables (the currency/deposit ratio, ex-post real interest rates, the level of intermediated activity, deflation, employment and production) during the Great Depression period. Handle: RePEc:nbr:nberwo:6094 Template-Type: ReDIF-Paper 1.0 Title: Free Trade, Growth, and Convergence Classification-JEL: E1; F1 Author-Name: Dan Ben-David Author-Person: pbe276 Author-Name: Michael B. Loewy Note: ITI Number: 6095 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6095 File-URL: http://www.nber.org/papers/w6095.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic Growth, vol. 3, July 1998, pp. 143-70. Abstract: What is the impact on output of movement towards free trade? Can trade liberalization have a permanent effect on output levels, and more importantly, does it have an impact on steady-state growth rates? The model developed here emphasizes the role" that knowledge spillovers emanating from heightened trade can have in income convergence and growth rates over the long run. The model also facilitates an analysis of the dynamic behavior of income levels and terms of trade as well as growth rates during the transition between steady states. Among the results of the model, unilateral liberalization by one country induces a level effect on the liberalizing country that reduces the income gap between it and other wealthier countries. In some cases, the liberalizing country may even leapfrog over initially wealthier countries. From the long-run growth perspective, unilateral (and multilateral) liberalization generates a positive impact on the steady-state growth of all the trading countries. Handle: RePEc:nbr:nberwo:6095 Template-Type: ReDIF-Paper 1.0 Title: International Trade and Structural Change Classification-JEL: C22; F1 Author-Name: Dan Ben-David Author-Person: pbe276 Author-Name: David H. Papell Author-Person: ppa73 Note: ITI Number: 6096 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6096 File-URL: http://www.nber.org/papers/w6096.pdf File-Format: application/pdf Publication-Status: published as Journal of International Economics, vol. 43, December 1997, pp. 513-23. Abstract: In light of the substantial movement towards trade liberalization during the postwar period, this paper attempts to determine if, and when, countries experienced statistically significant changes in the paths of their export-GDP and import-GDP ratios. We find that: (1) most trade ratios exhibited a" structural break in their time paths; (2) postbreak trade exceeded prebreak trade for the majority of countries; (3) the coincidence in timing between the import and export breaks does not appear to be particularly strong, and; (4) there is little relation between the extent of changes in imports and the extent of changes in exports for most countries. Handle: RePEc:nbr:nberwo:6096 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in the U.S. Classification-JEL: H55; J26 Author-Name: Peter Diamond Author-Person: pdi24 Author-Name: Jonathan Gruber Author-Person: pgr20 Note: AG LS PE Number: 6097 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6097 File-URL: http://www.nber.org/papers/w6097.pdf File-Format: application/pdf Publication-Status: published as Gruber and Wise (eds.) Social Security and Retirement around the World. University of Chicago Press, 1998. Abstract: The largest entitlement program in the United States today is the Social Security program (SS). We provide an overview of the interaction between the SS system and retirement behavior. We begin by documenting historical trends in labor force participation and program receipt, and contemporaneous patterns of work and income receipt for the current cohort of older persons. We then present an overview of the structure of the SS program in the U.S., and review existing evidence on the relationship between SS and retirement. Finally, we present results of a simulation model which measures the implicit tax/subsidy rate on work after age 55 through the SS system. We find that, for married workers, the system is roughly neutral with respect to work after age 62, but that it heavily penalizes work after age 65. But there are larger tax rates on single workers and on high earning workers. Handle: RePEc:nbr:nberwo:6097 Template-Type: ReDIF-Paper 1.0 Title: The Risk and Return from Factors Classification-JEL: G12 Author-Name: Louis K. C. Chan Author-Name: Jason Karceski Author-Name: Josef Lakonishok Note: AP Number: 6098 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6098 File-URL: http://www.nber.org/papers/w6098.pdf File-Format: application/pdf Publication-Status: published as Louis K. C. Chan & Jason Karceski & Josef Lakonishok, 1998. "The Risk and Return from Factors," The Journal of Financial and Quantitative Analysis, vol 33(2). Abstract: The ability to identify which factors best capture systematic return covariation is central to applications of multifactor pricing models. This paper uses a common data set to evaluate the performance of various proposed factors in capturing return comovements. Factors associated with the market, size, past return, book-to-market and dividend yield help explain return comovement on an out-of-sample basis (although they are not necessarily associated with large premiums in average returns). Except for the default premium and the term premium, macroeconomic factors perform poorly. We document regularities in the behavior of the more important factors, and confirm their influence in the Japanese and U.K. markets as well. Handle: RePEc:nbr:nberwo:6098 Template-Type: ReDIF-Paper 1.0 Title: The Structure of Firm R&D and the Factor Intensity of Production Classification-JEL: D21; O32 Author-Name: James D. Adams Author-Person: pad11 Note: PR Number: 6099 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6099 File-URL: http://www.nber.org/papers/w6099.pdf File-Format: application/pdf Publication-Status: published as The Review of Economics and Statistics, Vol. 81 (August 1999): 499-510. Abstract: This paper studies the influence of the structure of firm R&D, industry R&D spillovers, and plant level physical capital on the factor intensity of production. By the structure of firm R&D we mena its distribution across states and products. By factor intensity we mena the cost shares of variable factors, which in this paper are blue collar labor, white collarlabor, and materials. We characterize the effect of the structure of firm R&D on factor intensity using a Translog cost function with quasi-fixed factors. This cost function gives rise to a system of variable cost shares that depends on factor prices, firm and industry R&D, and physical capital. The paper turns to estimation of this system using a sample of plants owned by chemical firms. We find that total firm R&D, industry R&D spillovers, and plant level physical capital are factor biased towards labor as a whole, and factor saving in materials. None of these three factors consistently increase the factor intensity of white collar workers relative to blue collar workers. Since white collar workers are the more skilled of the two grades of labor, none of these factors is strongly associated with skill bias. When we turn to the structure of firm R&D, we find that the strongest effect of firm R&D on the factor intensity of white collar workers occurs when the R&D is conducted in the same product area as the plant. Indeed, the skill bias effect of firm R&D in the same product dominates all other variables, implying that skill bias is technologically 'localized' within firms. All told, the findings suggest that skill bias is governed by portions of the firm's R&D program that are targeted on articular plants, rather than transmitted through capital or by general firm and industry know-how. Handle: RePEc:nbr:nberwo:6099 Template-Type: ReDIF-Paper 1.0 Title: Changes Over Time in Union Relative Wage Effects in Great Britain and the United States Author-Name: David G. Blanchflower Author-Person: pbl22 Note: LS Number: 6100 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6100 File-URL: http://www.nber.org/papers/w6100.pdf File-Format: application/pdf Publication-Status: published as "Unionism in the United States and Other Advanced OECD Countries", Industrial Relations, Vol. 31, no. 1 (January 1992): 56-79. Abstract: This paper uses broadly comparable micro data at the level of the individual to examine the extent to which union relative wage effects vary across groups and through time. The main findings may be summarized as follows. a) The union wage gap averages 15% in the US and 10% in Great Britain. b) The gap is positively correlated with the (lagged) unemployment rate, and appears to be untrended in both countries. Union wages are sticky. c) The size of the wage gap varies across groups. In both the US and Great Britain the differential is relatively high in the private sector, in non-manufacturing, for manuals, the young and the least educated. d) In the US there are no differences by race or gender in the size of the differential. In Great Britain it is higher both for women and non-whites. The fact that the differential has remained more or less constant in both Great Britain and the US is a puzzle, particularly given the rapid declines in union membership in both countries. The evidence does not appear to be consistent with the widely held view that union power has been emasculated. Handle: RePEc:nbr:nberwo:6100 Template-Type: ReDIF-Paper 1.0 Title: R&D and Productivity: The International Connection Author-Name: Elhanan Helpman Author-Person: phe205 Note: ITI Number: 6101 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6101 File-URL: http://www.nber.org/papers/w6101.pdf File-Format: application/pdf Publication-Status: published as Razin. A. and E. Sadka (eds.) The Economics of Globalization. Cambridge: Cambridge University Press, 1999. Abstract: Countries differ greatly in R&D spending, and these differences are particularly striking when comparing developed with developing countries. The paper examines the extent to which the benefits of R&D are concentrated in the investing countries. It is argued that significant benefits spill over to other countries in the world. The argument is supported by quantitative estimates of such cross-country effects. Handle: RePEc:nbr:nberwo:6101 Template-Type: ReDIF-Paper 1.0 Title: The Rising Well-Being of the Young Author-Name: David G. Blanchflower Author-Person: pbl22 Author-Name: Andrew J. Oswald Note: LS Number: 6102 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6102 File-URL: http://www.nber.org/papers/w6102.pdf File-Format: application/pdf Publication-Status: Published as "A Longitudinal Analysis of the Young Self-Employed in Australia and the United States", SBE, Vol. 6, no. 1 (1994): 1-19. Publication-Status: published as The Rising Well-Being of the Young, David G. Blanchflower, Andrew Oswald. in Youth Employment and Joblessness in Advanced Countries, Blanchflower and Freeman. 2000 Abstract: Many observers believe that times are growing harder for young people in Western society. This paper looks at the evidence and finds that conventional wisdom appears to be wrong. Using the U.S. General Social Surveys and the Eurobarometer Surveys, the paper studies the reported happiness and life-satisfaction scores of random samples of young men and women. " The data cover the USA and thirteen European countries. Our main finding is that from the 1970s to the 1990s the well-being of the young increased quite markedly. A number of possible explanations are considered. Handle: RePEc:nbr:nberwo:6102 Template-Type: ReDIF-Paper 1.0 Title: Saving, Investment, and Gold: A Reassessment of Historical Current Account Data Classification-JEL: F21; F32 Author-Name: Matthew T. Jones Author-Name: Maurice Obstfeld Author-Person: pob13 Note: IFM ITI Number: 6103 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6103 File-URL: http://www.nber.org/papers/w6103.pdf File-Format: application/pdf Publication-Status: published as Money, Capital Mobility, and Trade: Essays in Honor of Robert A. Mundell, Calvo, Guillermo A., Rudiger Dornbusch, and Maurice Obstfeld, eds., Cambridge: MIT Press, 2000. Abstract: This paper revises pre-World War II current account data for thirteen countries by treating gold flows on a consistent basis. The standard historical data sources often fail to distinguish between monetary gold exports, which are capital-account credits, and nonmonetary gold exports, which are current-account credits. The paper also adjusts historical investment data to account for changes in inventories. The revised data are used to construct estimates of saving and investment over the period from 1850 to 1945. Our methodology for removing monetary gold flows from the current account leads naturally to a gold-standard version of the Feldstein-Horioka hypothesis on capital mobility. The regression results are in broad agreement with those of Eichengreen, who found a significantly positive cross-sectional correlation between saving and investment even during some periods when the gold standard prevailed. Despite reaching broadly similar conclusions, we estimate correlations between saving and investment that are somewhat lower and less significant than those Eichengreen found. In particular, we find that in comparison to other interwar subsamples, the saving-investment correlation is markedly low during the fleeting years of a revived world gold standard, 1925-1930. Handle: RePEc:nbr:nberwo:6103 Template-Type: ReDIF-Paper 1.0 Title: An Empirical Investigation of Firms' Responses to Minimum Standards Regulations Classification-JEL: L15; L5 Author-Name: Tasneem Chipty Author-Name: Ann Dryden Witte Note: PE Number: 6104 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6104 File-URL: http://www.nber.org/papers/w6104.pdf File-Format: application/pdf Publication-Status: published as Children and Youth Services Review, Vol. 21 (April 1999): 111-146. Abstract: We study firms' responses to minimum standards and other forms of regulatory intervention on both the probability of exit and the distribution of observable product quality, using firm level data for a nationally representative sample of markets. Our empirical work is motivated by the literature on quality and price competition in the presence of minimum standards. We find that minimum standards increase the probability that firms exit certain markets. Moreover, we find that exit can cause both the average and the maximum quality observed in the market to decline. This perverse regulatory effect occurs when excessively high standards cause high quality firms to exit. When minimum standards do not lead to exit, minimum standards can increase the average and maximum quality of products in the market. Such standards can not only force low quality firms to raise their quality, but may cause high quality firms to increase quality, presumably in an attempt to alleviate price competition and differentiate themselves from their now higher quality rivals. Handle: RePEc:nbr:nberwo:6104 Template-Type: ReDIF-Paper 1.0 Title: The Sensitivity of Experimental Impact Estimates: Evidence from the National JTPA Study Classification-JEL: C93; H43 Author-Name: James J. Heckman Author-Name: Jeffrey A. Smith Author-Person: psm73 Note: LS Number: 6105 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6105 File-URL: http://www.nber.org/papers/w6105.pdf File-Format: application/pdf Publication-Status: published as Youth Employment and Joblessness in Advanced Countries, Blanchflower, David and Richard Freeman, eds., Chicago: University of Chicago Press, 2000, pp. 331-356. Publication-Status: published as The Sensitivity of Experimental Impact Estimates (Evidence from the National JTPA Study), James J. Heckman, Jeffrey Smith. in Youth Employment and Joblessness in Advanced Countries, Blanchflower and Freeman. 2000 Abstract: The recent experimental evaluation of the U.S. Job Training Partnership Act (JTPA) program found negative effects of training on the earnings of disadvantaged male youth and no effect on the earnings of disadvantaged female youth. These findings provided justification for Congress to cut the budget of JTPA's youth component by over 80 percent. In this paper, we examine the sensitivity of the experimental impact estimates along several dimensions of construction and interpretation. We find that the statistical significance of the male youth estimates is extremely fragile and that the magnitudes of the estimates for both youth groups are sensitive to nearly all the factors we consider. In particular, accounting for experimental control group members who substitute training from other providers leads to a much more positive picture regarding the effectiveness of JTPA classroom training. Our study indicates the value of sensitivity analyses in experimental evaluations and illustrates that experimental impact estimates, like those from nonexperimental analyses, require careful interpretation if they are to provide a reliable guide to policymakers. Handle: RePEc:nbr:nberwo:6105 Template-Type: ReDIF-Paper 1.0 Title: Income, Schooling, and Ability: Evidence from a New Sample of Identical Twins Classification-JEL: I21 Author-Name: Orley Ashenfelter Author-Person: pas9 Author-Name: Cecilia Rouse Note: CH LS Number: 6106 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6106 File-URL: http://www.nber.org/papers/w6106.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 113, no. 1 (February 1998): 253-284. Publication-Status: published as Addison, John T. (ed.) "Recent Developments in Labor Economics," Volume 1. Elgar Reference Collection. International Library of Critical Writings in Economics, vol. 207. Cheltenham, U.K. and Northampton, MA: Elgar, 2007 Abstract: We develop a model of optimal schooling investments and estimate it using new data on approximately 700 identical twins. We estimate an average return to schooling of 9 percent for identical twins, but estimated returns appear to be slightly higher for less able individuals. Simple cross-section estimates are marginally upward biased. These empirical results imply that more able individuals attain more schooling because they face lower marginal costs of schooling, not because of higher marginal benefits. Handle: RePEc:nbr:nberwo:6106 Template-Type: ReDIF-Paper 1.0 Title: Adverse Selection in Health Insurance Author-Name: David M. Cutler Author-Person: pcu64 Author-Name: Richard J. Zeckhauser Author-Person: pze7 Note: EH PE Number: 6107 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6107 File-URL: http://www.nber.org/papers/w6107.pdf File-Format: application/pdf Publication-Status: published as Cutler, David M. and Richard J. Zeckhauser. "Adverse Selection In Health Insurance," Forum for Health Economics and Policy, 1998, v1, Article 2. Publication-Status: published as Adverse Selection in Health Insurance, David M. Cutler, Richard J. Zeckhauser. in Frontiers in Health Policy Research, Volume 1, Garber. 1998 Abstract: Individual choice over health insurance policies may result in risk-based sorting across plans. Such adverse selection induces three types of losses: efficiency losses from individuals being allocated to the wrong plans; risk sharing losses since premium variability is increased; and losses from insurers distorting their policies to improve their mix of insureds. We discuss the potential for these losses, and present empirical evidence on adverse selection in two groups of employees: Harvard University, and the Group Insurance Commission of Massachusetts (serving state and local employees). In both groups, adverse selection is a significant concern. At Harvard, the University's decision to contribute an equal amount to all insurance plans led to the disappearance of the most generous policy within 3 years. At the GIC, adverse selection has been contained by subsidizing premiums on a proportional basis and managing the most generous policy very tightly. A combination of prospective or retrospective risk adjustment, coupled with reinsurance for high cost cases, seems promising as a way to provide appropriate incentives for enrollees and to reduce losses from adverse selection. Handle: RePEc:nbr:nberwo:6107 Template-Type: ReDIF-Paper 1.0 Title: The Usual Suspects? Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates Classification-JEL: F31; F41 Author-Name: Menzie David Chinn Author-Person: pch129 Note: IFM Number: 6108 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6108 File-URL: http://www.nber.org/papers/w6108.pdf File-Format: application/pdf Publication-Status: published as Review of International Economics, Vol. 8, no. 1 (February 2000): 20-43. Abstract: The evidence for a productivity-based explanation for real exchange rate behavior of East Asian currencies is examined. Using sectoral output and employment data, relative prices and relative productivities are calculated for China, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan and Thailand. Time series regressions of the real exchange rate on relative prices indicate a role for relative prices for Indonesia, Japan and Korea. When examining real exchange rates and relative productivity ratios, one finds a relationship for Japan, Malaysia, and the Philippines. Only when augmenting the regressions with real oil prices are significant relationships obtained for Indonesia and Korea. Panel regression results are slightly more supportive of a relative price view of real exchange rates. However, the panel regressions incorporating productivity variables, as well as other demand side factors, are less encouraging, except for a small subset of countries (Indonesia, Japan, Korea, Malaysia and the Philippines). Surprisingly, government spending does not appear to be a determinant of real exchange rates in the region. Handle: RePEc:nbr:nberwo:6108 Template-Type: ReDIF-Paper 1.0 Title: Internal and External Labor Markets: An Analysis of Matched Longitudinal Employer-Employee Data Classification-JEL: J31; D21 Author-Name: John M. Abowd Author-Person: pab175 Author-Name: Francis Kramarz Author-Person: pkr29 Note: LS Number: 6109 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6109 File-URL: http://www.nber.org/papers/w6109.pdf File-Format: application/pdf Publication-Status: published as Internal and External Labor Markets: An Analysis of Matched Longitudinal Employer-Employee Data, John M. Abowd, Francis Kramarz. in Labor Statistics Measurement Issues, Haltiwanger, Manser, and Topel. 1998 Abstract: We decompose the real annual full time compensation costs of 1.1 million French workers followed over 12 years into a part that reflects their external opportunity wage and a part that reflects their internal wage rate. Using these components of compensation we investigate the extent to which firm-size wage differentials and inter-industry wage differentials are due to variability in the external wage (person effects) versus variability in the internal wage (firm effects). For France, we find that most of the firm-size wage effect and most of the inter-industry wage effect is due to person effects differences in the external wage rates. Handle: RePEc:nbr:nberwo:6109 Template-Type: ReDIF-Paper 1.0 Title: The Costs of Hiring and Separations Author-Name: John M. Abowd Author-Person: pab175 Author-Name: Francis Kramarz Author-Person: pkr29 Note: LS Number: 6110 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6110 File-URL: http://www.nber.org/papers/w6110.pdf File-Format: application/pdf Publication-Status: published as Abowd, John M. & Kramarz, Francis, 2003. "The costs of hiring and separations," Labour Economics, Elsevier, vol. 10(5), pages 499-530, October. Abstract: In this article, we estimate the costs of hiring, separation, and retirement of employees for a representative sample of French establishments in 1992. The estimates are computed using data from three sources: the Wage Structure Survey (ESS), the Workforce Movement Questionnaire (DMMO), and the Occupational Structure Survey (ESE). We show that the estimated costs are generally asymmetric (hiring is cheaper than terminations), increasing, and concave functions of the number of entries or exits (either retirements or terminations). There is a fixed component to each of these costs that is related to the structure of the firm's personnel department. Our estimates imply that firms should not adjust gradually to the desired level of employment. Handle: RePEc:nbr:nberwo:6110 Template-Type: ReDIF-Paper 1.0 Title: Minimum Wages and Youth Employment in France and the United States Classification-JEL: J31; J23 Author-Name: John M. Abowd Author-Person: pab175 Author-Name: Francis Kramarz Author-Person: pkr29 Author-Name: Thomas Lemieux Author-Person: ple92 Author-Name: David N. Margolis Note: LS Number: 6111 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6111 File-URL: http://www.nber.org/papers/w6111.pdf File-Format: application/pdf Publication-Status: published as Youth and Joblessness in Advanced Countries, Blanchflower, D. and R. Freeman, eds., Chicago: University of Chicago Press, 2000. Publication-Status: published as Minimum Wages and Youth Employment in France and the United States , John M. Abowd, Francis Kramarz, Thomas Lemieux, David N. Margolis. in Youth Employment and Joblessness in Advanced Countries, Blanchflower and Freeman. 2000 Abstract: We use longitudinal individual wage and employment data for young people in France and the United States to investigate the effect of intertemporal changes in an individual's status vis-…-vis the real minimum wage on employment transition rates. We" find that movements in both French and American real minimum wages are associated with relatively important employment effects in general, and very strong effects on workers employed at the minimum wage. In the French case, albeit imprecisely estimated, a 1% increase in the real minimum wage decreases the employment probability of a young man currently employed at the minimum wage by 2.5%. In the United States, a decrease in the real minimum of 1% increases the probability that a young man employed at the minimum wage came from nonemployment by 2.2%. These effects get worse with age in the United States, and are mitigated by eligibility for special employment promotion contracts in France. Handle: RePEc:nbr:nberwo:6111 Template-Type: ReDIF-Paper 1.0 Title: Interests, Institutions, and Ideology in the Republican Conversion to Trade Liberalization, 1934-1945 Classification-JEL: D72; D78 Author-Name: Douglas A. Irwin Author-Person: pir25 Author-Name: Randall S. Kroszner Note: DAE ITI Number: 6112 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6112 File-URL: http://www.nber.org/papers/w6112.pdf File-Format: application/pdf Publication-Status: published as Journal of Law and Economics (October 1999): 643-673. Abstract: This paper investigates the factors explaining significant policy change by studying how bipartisan support developed to sustain the Reciprocal Trade Agreements Act (RTAA) of 1934. The RTAA fundamentally transformed both the process and outcome of U.S. trade policy: Congress delegated its authority over tariff-setting to the president sharply toward trade liberalization. The durability of this change was achieved only when the Republicans, long-time supporters of high tariffs who originally vowed to repeal the RTAA, began to support this Democratic initiative in the 1940s. In seeking to explain this conversion, we find little evidence of an ideological shift among Republicans, but rather an increased sensitivity to export interests for which the institutional structure of the RTAA itself may have been responsible. Our results suggest that analyzing changes in both institutional incentives and economic interests are important for understanding lasting change in economic policy. Handle: RePEc:nbr:nberwo:6112 Template-Type: ReDIF-Paper 1.0 Title: Trade and Transmission of Technology Classification-JEL: O3; O4 Author-Name: Wolfgang Keller Author-Person: pke8 Note: ITI PR Number: 6113 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6113 File-URL: http://www.nber.org/papers/w6113.pdf File-Format: application/pdf Publication-Status: published as Keller, Wolfgang. "Trade And The Transmission Of Technology," Journal of Economic Growth, 2002, v7(1,Mar), 5-24. Abstract: We present a model of R&D-driven growth which predicts that technology, in the form of product designs and created through R&D investments, is transmitted to other domestic and foreign sectors by being embodied in differentiated intermediate goods. Empirical results are presented employing data from thirteen manufacturing industries in eight OECD countries over the period of 1970 to 1991. We confirm, first, earlier findings that R&D expenditures are positively related to productivity levels, and estimate an elasticity of TFP with respect to own-industry R&D between 7% and 17%. Second, the receiving industry benefits also from other industries' technology investments, an effect which is at least in part due to trade in embodied technology. We find that the benefit derived from foreign R&D in the same industry is in the order of 50%-95% of the productivity effect of own R&D. Third, for domestic interindustry technology flows, the results strongly suggest that trade in goods is not all that matters for technology transmission. We estimate that domestic, outside-industry R&D is one-fifth to one-half as effective in raising" productivity as own-industry R&D for these industries. Handle: RePEc:nbr:nberwo:6113 Template-Type: ReDIF-Paper 1.0 Title: The Medical Costs of The Young and Old: A Forty Year Perspective Author-Name: David M. Cutler Author-Person: pcu64 Author-Name: Ellen Meara Note: AG EH PE Number: 6114 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6114 File-URL: http://www.nber.org/papers/w6114.pdf File-Format: application/pdf Publication-Status: published as The Medical Costs of the Young and Old: A Forty-Year Perspective, David M. Cutler, Ellen Meara. in Frontiers in the Economics of Aging, Wise. 1998 Abstract: In this paper, we examine the growth in medical care spending by age over the past 40 years. We show that between 1953 and 1987, medical spending increased disproportionately for infants, those under 1 year, and the elderly, those 65 and older. Annual spending growth for infants was 9.8 percent and growth for the elderly was 8.0 percent compared to 4.7 percent for people aged 1-64. Within the infant and the elderly population, excess spending growth was largely driven by more rapid growth of spending at the top of the medical spending distribution. Aggregate changes in outcomes for infants and the elderly are consistent with these changes in spending growth, but we do not present any causal evidence on this point. Handle: RePEc:nbr:nberwo:6114 Template-Type: ReDIF-Paper 1.0 Title: Violations of the `Rules of the Game' and the Credibility of the Classical Gold Standard, 1880-1914 Classification-JEL: F31; F33 Author-Name: Michael D. Bordo Author-Person: pbo243 Author-Name: Ronald MacDonald Note: DAE IFM ME Number: 6115 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6115 File-URL: http://www.nber.org/papers/w6115.pdf File-Format: application/pdf Publication-Status: published as Bordo, Michael D. and Ronald MacDonald. "Interest Rate Interactions In The Classical Gold Standard, 1880-1914: Was There Any Monetary Independence?," Journal of Monetary Economics, 2005, v52(2,Mar), 307-327. Abstract: This paper examines the recently noted finding that the Classical gold standard represented a credible, well-behaved target zone system from the perspective of the well-documented failure of countries to play by the rules of the game in the classical period. In particular, we test an hypothesis of Svensson (1994) that a credible target zone can confer on a country a degree of independence in the operation of its monetary policy. We propose a number of ways of testing this proposition and implement them for a newly created monthly data base over the period 1880-1913. We demonstrate that the Classical gold standard worked in the way predicted by Svensson's model. This would seem to have an important bearing on the kind of institutional framework required for a modern day target zone (such as the Exchange Rate Mechanism of the European Monetary System) to function effectively and, in particular, to weather speculative attacks. Handle: RePEc:nbr:nberwo:6115 Template-Type: ReDIF-Paper 1.0 Title: Taxed Avoidance: American Participation in Unsanctioned International Boycotts Classification-JEL: F23; H87 Author-Name: James R. Hines, Jr. Author-Person: phi111 Note: ITI PE Number: 6116 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6116 File-URL: http://www.nber.org/papers/w6116.pdf File-Format: application/pdf Abstract: American firms are subject to tax and civil penalties for participating in international boycotts (other than those sanctioned by the U.S. government). These penalties apply primarily to American companies that cooperate with the Arab League's boycott of Israel. The effectiveness of U.S. antiboycott legislation is reflected in the fact that American firms comply with only 30 percent of the 10,000 boycott requests they receive annually. The cross-sectional pattern is informative: the U.S. tax penalty for boycott participation is an increasing function of foreign tax rates, and reported compliance rates vary inversely with tax rates. Tax rate differences of 10 percent are associated with 6 percent differences in rates of compliance with boycott requests. This evidence suggests that U.S. anti-boycott legislation significantly reduces the willingness of American firms to participate in the boycott of Israel, reducing boycott participation rates by as much as 15-30 percent. Handle: RePEc:nbr:nberwo:6116 Template-Type: ReDIF-Paper 1.0 Title: Misconceptions and Political Outcomes Classification-JEL: D72 Author-Name: David Romer Author-Person: pro406 Note: EFG ME PE Number: 6117 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6117 File-URL: http://www.nber.org/papers/w6117.pdf File-Format: application/pdf Publication-Status: published as Romer, David. "Misconceptions And Political Outcomes," Economic Journal, 2003, v113(484,Jan), 1-20. Abstract: A large recent literature shows that strategic interactions among actors with conflicting objectives can produce inefficient political decisions. This paper investigates an alternative explanation of such decisions: if individuals' errors in assessing the likely effects of proposed policies are correlated, democratic decision-making can produce inefficient outcomes even in the absence of distributional conflicts or heterogeneous preferences. Choosing candidates from among the best informed members of the population does not remedy the problems created by such errors, but subsidizing information and exposing representatives to information after their election do. Concentration of power has ambiguous effects. Finally, the presence of correlated errors tends to create multiple equilibria in political institutions. Handle: RePEc:nbr:nberwo:6117 Template-Type: ReDIF-Paper 1.0 Title: Why are Worker Cooperatives So Rare? Classification-JEL: D23; J54 Author-Name: Michael Kremer Author-Person: pkr20 Note: LS Number: 6118 Creation-Date: 1997-07 Order-URL: http://www.nber.org/papers/w6118 File-URL: http://www.nber.org/papers/w6118.pdf File-Format: application/pdf Abstract: This paper argues that worker cooperatives are prone to redistribution among members, and that this redistribution distorts incentives. I assume that employment contracts are incomplete. In the model cooperative members pay in a capital contribution to purchase equipment. They then receive shocks to ability. Each worker's (observable) output depends on ability and on effort, neither of which can be observed separately. After ability is realized, members vote on a wage schedule as a function of output. If the median member has less than average ability, the cooperative will vote for a redistributive schedule, dulling incentives. Whereas workers in firms owned by outside shareholders would quit if the firm redistributed away from them, cooperative members will be reluctant to leave, since this entails forfeiting the dividends on their capital contribution. The model can explain why cooperatives typically have egalitarian wage policies. Handle: RePEc:nbr:nberwo:6118 Template-Type: ReDIF-Paper 1.0 Title: Quantifying the Current U.S. Fiscal Imbalance Classification-JEL: H6 Author-Name: Alan J. Auerbach Author-Person: pau33 Note: PE Number: 6119 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6119 File-URL: http://www.nber.org/papers/w6119.pdf File-Format: application/pdf Publication-Status: published as National Tax Journal (September 1997): 387-398. Abstract: This paper considers the magnitude of the U.S. fiscal imbalance, as measured by the permanent changes needed to stabilize the national debt as a share of GDP. At present, even after recent improvements in forecast deficits, this imbalance stands at 5.3 percent of GDP -- several times the magnitude of the current official deficit. The imbalance is due primarily to the growth of Medicare, Medicaid, and Social Security. Addressing an imbalance of this size will require significant policy changes. Even if current projected reductions in other government spending occur, and policies are adopted to eliminate the estimated OASDI imbalance and balance the federal budget in 2002, an additional and immediate reduction in the primary deficit of 2.7 percent of GDP will be required to establish a feasible fiscal policy. Waiting to adopt policy changes will increase the size of the required annual primary deficit reduction. Handle: RePEc:nbr:nberwo:6119 Template-Type: ReDIF-Paper 1.0 Title: How to Compete: The Impact of Workplace Practices and Information Technology on Productivity Classification-JEL: D24; J24 Author-Name: Sandra E. Black Author-Person: pbl92 Author-Name: Lisa M. Lynch Author-Person: ply3 Note: LS Number: 6120 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6120 File-URL: http://www.nber.org/papers/w6120.pdf File-Format: application/pdf Publication-Status: published as Black, Sandra E. and Lisa M. Lynch. "How To Compete: The Impact Of Workplace Practices And Information Technology On Productivity," Review of Economics and Statistics, 2001, v83(3,Aug), 434-445. Abstract: Using data from a unique nationally representative sample of businesses, the Educational Quality of the Workforce National Employers Survey (EQW-NES), matched with the Bureau of the Census' Longitudinal Research Database (LRD), we examine the impact of workplace practices, information technology and human capital investments on productivity. We estimate an augmented Cobb Douglas production function with both cross section and panel data covering the period of 1987-1993 using both within and GMM estimators. We find that what is associated with higher productivity is not so much whether or not an employer adopts a particular work practice but rather how that work practice is actually implemented within the establishment. We also find that those unionized establishments that have adopted what have been called new or transformed' industrial relations practices that promote joint decision making coupled with incentive based compensation have higher productivity than other similar non-union plants maintain more traditional labor management relations have lower productivity. We also find that the higher the average educational level of production workers or the greater the proportion of non-managerial workers who use computers, the higher is plant productivity. Handle: RePEc:nbr:nberwo:6120 Template-Type: ReDIF-Paper 1.0 Title: Estimation of Cross-Country Differences in Industry Classification-JEL: F1; D24 Author-Name: James Harrigan Author-Person: pha151 Note: ITI Number: 6121 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6121 File-URL: http://www.nber.org/papers/w6121.pdf File-Format: application/pdf Publication-Status: Published as "Estimation of Cross-Country Differences in Industry Production Functions", Journal of International Economics, Vol. 47, no. 2 (April 1999): 267-293. Abstract: Many economists and policy makers are concerned about international differences in technology and labor quality, correctly seeing these issues as crucial to long term growth in living standards. Typically, international trade economists assume that technological knowledge is the same in all countries, and that production processes exhibit constant returns to scale. An equivalent way of stating this assumption is that total factor productivity (TFP) for each industry is the same in every country. This paper is a contribution to a growing body of work which casts doubt on this hypothesis, finding large and persistent TFP differences across countries. The paper uses a new data set on prices, inputs, and outputs for a group of industrialized countries in the 1980s. In addition to calculating industry-specific TFP indexes over time and across countries, the paper uses panel data econometric techniques to examine the sources of the observed large TFP differences across countries. Two hypotheses are examined to account for TFP differences: constant returns to scale production with country-specific technological differences economies with identical technology in each country. The data support the constant returns/different technology hypothesis over the increasing returns/same technology hypothesis. Handle: RePEc:nbr:nberwo:6121 Template-Type: ReDIF-Paper 1.0 Title: Controlled Openness and Foreign Direct Investment Classification-JEL: F15; F21 Author-Name: Joshua Aizenman Author-Person: pai8 Author-Name: Sang-Seung Yi Note: ITI Number: 6123 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6123 File-URL: http://www.nber.org/papers/w6123.pdf File-Format: application/pdf Publication-Status: published as Review of Development Economics, Vol. 2, no. 1 (1998): 1-10. Abstract: The purpose of this paper is to offer an explanation of why a developing country may adopt a partial reform under which foreign direct investments are controlled. We consider a country where the ruling elite [referred to as State capital] prevents the entry of Foreign capital and taxes the private sector before reform. The impetus to reform comes from an improved productivity of Foreign capital. The reform diminishes State capital's ability to tax the private sector but allows it to extract payment from Foreign capital for access to its markets. We show that a higher productivity of Foreign capital always increases the attractiveness of a partial reform under which State capital can control the inflow of Foreign capital. In contrast, a higher productivity of Foreign capital can reduce the attractiveness of a full reform under which the entry of Foreign capital is unregulated. Our analysis implies that, under the circumstances where the impetus to reform comes from improvements in Foreign productivity, State capital's exercise of control over Foreign capital's inflow may be a necessary condition for the reform to take place at all. In the absence of such a control, State capital may be reluctant to carry out the efficiency-enhancing reforms." Handle: RePEc:nbr:nberwo:6123 Template-Type: ReDIF-Paper 1.0 Title: Dynamic Modeling of the Product Life Cycle in the Commercial Mainframe Computer Market, 1968-1982 Author-Name: Shane M. Greenstein Author-Person: pgr134 Author-Name: James B. Wade Note: PR Number: 6124 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6124 File-URL: http://www.nber.org/papers/w6124.pdf File-Format: application/pdf Publication-Status: Published as "The Product Life Cycle in the Commercial Mainframe Computer Market, 1968-1982", RAND Journal of Economics, Vol. 29, no. 4 (Winter 1998): 772-789. Abstract: This research investigates product life cycles in the commercial mainframe computer market. We show that empirical studies conducted at the product level are useful for investigating processes underlying product life cycles. We use hazard models with time-varying covariates to estimate the probability of product exit and Poisson models to estimate the probability of introduction. We measure the importance of different aspects of market structure, such as the degree of competitiveness, cannibalization, vintage, product niche and firm effects. We find some evidence of a relationship between the determinants of product exit and product entry. Handle: RePEc:nbr:nberwo:6124 Template-Type: ReDIF-Paper 1.0 Title: The Effect of U.S. Supreme Court Ruling Sullivan v. Zebley on Child SSI and AFDC Enrollment Classification-JEL: I18 Author-Name: A. Bowen Garrett Author-Person: pga231 Author-Name: Sherry Glied Note: EH Number: 6125 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6125 File-URL: http://www.nber.org/papers/w6125.pdf File-Format: application/pdf Publication-Status: published as Bowen Garrett and Sherry Glied. "Does state AFDC generosity affect child SSI participation?" Journal of Policy Analysis and Management, Volume 19 Issue 2, Pages 275 - 295 (Spring 2000) Abstract: In 1990, in the case of Sullivan v. Zebley, the U.S. Supreme Court relaxed the criteria whereby children became eligible for Supplemental Security Income (SSI) benefits. Since that ruling, the number of children covered by SSI has almost tripled; nearly 1 million American children are receiving cash and medical benefits through SSI. Many of those new enrollees were not previously eligible for cash and Medicaid benefits. Other new eligibles had already been receiving cash and Medicaid through AFDC. This paper examines the extent of spillovers between the SSI and AFDC programs using the Sullivan v. Zebley expansion in child SSI enrollment to identify spillovers between the programs. We describe how a family's decision to participate in AFDC or SSI is likely to depend on the level of AFDC and SSI supplementation payments in a state. If the likelihood of SSI participation increases with the net financial gain of SSI relative to AFDC, child SSI participation over the period affected by Zebley is likely to be highest in states with low AFDC payments and high state SSI supplementation payments. Using difference-in-difference estimates based on state-level data, we find that the increase in child SSI participation was significantly larger in low-AFDC states than in high-AFDC states. For SSI adults (a group unaffected by the Zebley decision), we find no effect of state AFDC payments on the increase in SSI participation over this period. We use state-level data pre- and post-Zebley to obtain state fixed-effects estimates of the effects of the decision on SSI participation, AFDC participation, and total program participation and find that Zebley increased SSI participation and total participation by children. We find that Zebley increased child SSI more in states with lower AFDC payments and higher state SSI supplementation payments. Handle: RePEc:nbr:nberwo:6125 Template-Type: ReDIF-Paper 1.0 Title: Do Minimum Wages Fight Poverty? Classification-JEL: J38; K3 Author-Name: David Neumark Author-Person: pne16 Author-Name: William Wascher Note: LS Number: 6127 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6127 File-URL: http://www.nber.org/papers/w6127.pdf File-Format: application/pdf Publication-Status: published as Neumark, David and William Wascher. "Do Minimum Wages Fight Poverty?," Economic Inquiry, 2002, v40(3,Jul), 315-333. Abstract: The primary goal of a national minimum wage floor is to raise the incomes of poor or near-poor families with members in the work force. However, estimates of employment effects of minimum wages tell us little about whether minimum wages are can achieve this goal; even if the disemployment effects of minimum wages are modest, minimum wage increases could result in net income losses for poor families. We present evidence on the effects of minimum wages on family incomes from matched March CPS surveys, focusing on the effectiveness of minimum wages in reducing poverty. The results show that over a one-to-two year period, minimum wages increase both the probability that poor families escape poverty and the probability that previously non-poor families fall into poverty. The estimated increase in the number of non-poor families that fall into poverty is larger than the estimated increase in the number of poor families that escape poverty, though this difference is not statistically significant. We also find that minimum wages tend to boost the incomes of poor families that remain below the poverty line. The evidence indicates that in the wake of minimum wage increases, some families gain and others lose. On net, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families. Given these findings it is difficult to make a distributional or equity argument for minimum wages. Handle: RePEc:nbr:nberwo:6127 Template-Type: ReDIF-Paper 1.0 Title: Specification Analysis of Affine Term Structure Models Author-Name: Qiang Dai Author-Name: Kenneth J. Singleton Author-Person: psi735 Note: AP Number: 6128 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6128 File-URL: http://www.nber.org/papers/w6128.pdf File-Format: application/pdf Publication-Status: published as Dai, Qiang and Kenneth J. Singleton. "Specification Analysis Of Affine Term Structure Models," Journal of Finance, 2000, v55(5,Oct), 1943-1978. Abstract: This paper characterizes, interprets, and tests the over-identifying restrictions imposed in affine models of the term" structure. Letting r(t) = ë Y(t), where Y is an unobserved vector affine process, our analysis proceeds in three steps. First, we show that affine models can be categorized according to the different over-identifying restrictions they impose on (i) ë, and (ii) the parameters of the diffusion matrices. Second, this formulation is shown to be equivalent to a model in which there is a terraced drift structure with one of the state variables being the stochastic long-run mean of r. This equivalence allows direct comparisons of the substantive restrictions on the dynamics of interest rates imposed in CIR-style models and models in which the state variables are the stochastic long-run mean and volatility of r. Third, we compute simulated method of moments estimates of a three-factor affine term structure model, and test the over-identifying restrictions on the joint distribution of long- and short-term interest rates implied by extant affine models of r. We find allowing for correlated factors is key to simultaneously describing the short and long ends of the yield curve. This finding is interpreted in terms of the properties of the risk factors underlying term structure movements. Handle: RePEc:nbr:nberwo:6128 Template-Type: ReDIF-Paper 1.0 Title: Measuring, Forecasting and Explaining Time Varying Liquidity in the Stock Market Author-Name: Robert F. Engle Author-Name: Joe Lange Note: AP Number: 6129 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6129 File-URL: http://www.nber.org/papers/w6129.pdf File-Format: application/pdf Abstract: The paper proposes a new measure, VNET, of market liquidity which directly measures the depth of the market. The measure is constructed from the excess volume of buys or sells during a market event defined by a price movement. As this measure varies over time, it can be forecast and explained. Using TORQ data, it is found that market depth varies positively but less than proportionally with past volume and negatively with the number of transactions. Both findings suggest that over time high volumes are associated with an influx of informed traders and reduce market liquidity. High expected volatility as measured by the ACD model of Engle and Russell (1995) and wide spreads both reduce expected depth. If the asymmetric trades are transacted in shorter than expected times, the costs will be greater giving an estimate of the value of patience. Handle: RePEc:nbr:nberwo:6129 Template-Type: ReDIF-Paper 1.0 Title: Openness, Specialization, and Productivity Growth in Less Developed Countries Classification-JEL: F43; O40 Author-Name: Diana Weinhold Author-Person: pwe52 Author-Name: James Rauch Author-Person: pra166 Note: ITI Number: 6131 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6131 File-URL: http://www.nber.org/papers/w6131.pdf File-Format: application/pdf Publication-Status: published as Diana Weinhold & James E. Rauch, 1999. "Openness, Specialization, and Productivity Growth in Less Developed Countries," The Canadian Journal of Economics / Revue canadienne d'Economique, vol 32(4). Abstract: Many empirical studies have found a positive relationship between openness and growth in per capita GDP in less developed countries, and economists have produced many explanations for this correlation. However, the existing studies are consistent with all of these theories and thus do not provide direct evidence in support of any one of them. Quah and Rauch [18] show how increased openness to international trade can lead to increased specialization in models of endogenous growth through learning by doing. These models imply that increased specialization accelerates productivity growth by more fully realizing dynamic economies of scale. In order to test the hypothesis that specialization increases productivity growth in LDCs we first define a Herfindahl index of production specialization for the manufacturing sector in 39 countries. We then present a series of dynamic panel regressions controlling for country fixed effects which show that, for the less developed countries, the index of specialization is positively and significantly correlated with manufacturing productivity growth. We test the robustness of this correlation by including different variables that have been associated with growth in the regressions, such as openness, inflation, government spending, and investment. Handle: RePEc:nbr:nberwo:6131 Template-Type: ReDIF-Paper 1.0 Title: Cohort Patterns in Canadian Earnings: Assessing the Role of Skill Premia in Inequality Trends Classification-JEL: J31 Author-Name: Paul Beaudry Author-Person: pbe35 Author-Name: David Green Author-Person: pgr285 Note: LS Number: 6132 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6132 File-URL: http://www.nber.org/papers/w6132.pdf File-Format: application/pdf Publication-Status: published as Canadian Journal of Economics, Vol. 33, no. 4 (November 2000): 907-936 Abstract: This paper documents the pattern of change in age-earnings profiles across cohorts and evaluates its implications. Using synthetic cohorts from the Survey of Consumer Finances over the period 1971 to 1993, we show that the age-earning profiles of Canadian men have been deteriorating for more recent cohorts in comparison to older cohorts. We find this pattern for both high school and university educated workers. In no case do we find evidence that the return to gaining experience has been increasing over time, nor do we find increased within-cohort dispersion of earnings. We view these findings as conflicting with the hypothesis that increased skill-premium largely explains the observed increase in dispersion of male weekly earnings in Canada. When looking at the pattern for women, we find only minor differences in the age-earning relationships across cohorts. Handle: RePEc:nbr:nberwo:6132 Template-Type: ReDIF-Paper 1.0 Title: Human Capital, Unemployment, and Relative Wages in a Global Economy Classification-JEL: F1; E2 Author-Name: Donald R. Davis Author-Person: pda33 Author-Name: Trevor A. Reeve Note: ITI Number: 6133 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6133 File-URL: http://www.nber.org/papers/w6133.pdf File-Format: application/pdf Publication-Status: Published as "Technology, Unemployment, and Relative Wages in a Global Economy", European Economic Review, Vol. 42, no. 9 (November 1998): 1613-1 633. Abstract: This paper develops a simple framework for examining human capital accumulation, unemployment, and relative wages in a global economy. It builds on the models of Davis (1997a, b) of trade between a flexible wage America and a rigid wage Europe. To this it adds a model of human capital accumulation based on Findlay and Kierzkowski (1983). A variety of comparative statics are examined, including changes in educational capital and population, entry of new countries to the trading world, technical change, and a productivity slowdown. We derive the consequences for the skilled-to-unskilled wage gap, unemployment, and skill composition. Handle: RePEc:nbr:nberwo:6133 Template-Type: ReDIF-Paper 1.0 Title: Social Security Programs and Retirement Around the World: Introduction and Summary of Papers by... Author-Name: Jonathan Gruber Author-Person: pgr20 Author-Name: David Wise Author-Person: pwi45 Note: AG PE Number: 6134 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6134 File-URL: http://www.nber.org/papers/w6134.pdf File-Format: application/pdf Publication-Status: published as Gruber, Jonathan and David A. Wise. "Social Security And Retirement: An International Comparison," American Economic Review, 1998, v88(2,May), 158-163. Publication-Status: published as Jonathan Gruber & David A. Wise, 2004. "Social Security Programs and Retirement around the World: Micro-Estimation," NBER Books, National Bureau of Economic Research, Inc, number grub04-1, December. Abstract: The populations in all industrialized countries are aging rapidly and life life expectancies are increasing. Yet older workers are leaving the labor force at younger and younger ages. In some countries, the labor force participation rates of 60 to 64 year old men have fallen by 75% over the past 30 years. This decline magnifies population trends, further increasing the number of retirees relative to the number of people working. Together these trends have put enormous pressure on the financial solvency of social security systems around the world. Ironically, the provisions of the systems themselves typically contribute to the labor force withdrawal. This paper is a summary of the findings of the evidence in 11 industrialized countries. We distill the key conclusions drawn from the collective findings of the individual papers. It is clear there is a strong correspondence between the age at which benefits are available and departure from the labor force. Social security programs often provide generous retirement benefits at young ages. Also, the provisions of these programs often imply large financial penalties on earnings beyond the social security early retirement age.Furthermore, in many countries disability and unemployment programs effectively provide early retirement benefits before the official social security early retirement age. We conclude that social security program provisions have contributed to the decline in labor force participation of older persons, substantially reducing the potential productive capacity of the labor force. It seems evident that if the trend to early retirement is to be reversed, as will almost surely be dictated by demographic trends, changing the provisions of social security programs that induce early retirement will play a key role. Handle: RePEc:nbr:nberwo:6134 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in The Netherlands Author-Name: Arie Kapteyn Author-Person: pka406 Author-Name: Klaas de Vos Author-Person: pde404 Note: AG PE Number: 6135 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6135 File-URL: http://www.nber.org/papers/w6135.pdf File-Format: application/pdf Publication-Status: published as Van Praag, Bernard M. S. and Arie Kapteyn as "Further Evidence on the Individual Welfare Function of Income: An Empirical Investigation in the Netherlands," European Economic Review, Vol. 4, no. 1 (April 1973): 33-62 Publication-Status: published as van Soest, Arthur, Isolde Woittiez, and Arie Kapteyn as "Labor Supply, Income Taxes, and Hours Restrictions in the Netherlands", Journal of Human Resources, Vol. 25, no. 3 (Summer 1990): 517-558 Publication-Status: published as "Social Security and Labor-Force Participation in the Netherlands," American Economic Review, Vol. 88, no. 2 (May 1998): 164-167 Publication-Status: published as Social Security and Retirement in the Netherlands, Arie Kapteyn, Klaas de Vos. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: Compared to other industrialized countries, the labor force participation of the elderly in the Netherlands is very low. Moreover, it has fallen very fast over recent years. We discuss the incentives for employees to retire, arising from public schemes such as social security and disability insurance, and from private arrangements, such as early retirement and occupational pensions. In general, the generous replacement rates offered by these schemes act as powerful stimuli for retirement. Although Dutch research into the retirement effects of the earnings replacing schemes for the elderly was limited until the early nineties, there is now a fast growing literature on this. This literature confirms the findings in the current paper. Handle: RePEc:nbr:nberwo:6135 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in Spain Author-Name: Michele Boldrin Author-Name: Sergi Jimenez-Martni Author-Person: pji20 Author-Name: Franco Peracchi Author-Person: ppe19 Note: AG PE Number: 6136 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6136 File-URL: http://www.nber.org/papers/w6136.pdf File-Format: application/pdf Publication-Status: published as Social Security and Retirement in Spain, Michele Boldrin, Sergi Jimenez-Martin, Franco Peracchi. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: We describe the historical evolution of the Spanish Social Security system and its current organization. Our attention concentrates on the main public pension scheme for private employees in the manufacturing and service sector (RGSS) which covers by far the largest majority of Spanish workers. After describing the way in which pension and retirement decisions are regulated by this system, we try to compute the incentives to early retirement it provides to different kinds of individuals. We show that the Spanish SS legislation generates strong incentives to retire early and that Spanish workers tend to do so. In particular, our findings support the idea that pensions-induced incentives matter for the labor supply behavior of" Spanish workers. While the Spanish system does not pay a particularly generous average pension relative to GDP per-capita, its generosity' concentrates on providing large minimum pensions to individuals with below average working histories and/or low wages. At the same time, the pension system provides workers earning average or above average salaries and with complete working histories with relatively weak financial gains from not retiring after the age of 60. The combination of these features of the Spanish legislation seems to account well for the observed increase in the percentage of early retirees among Spanish pensioners during the nineties. Handle: RePEc:nbr:nberwo:6136 Template-Type: ReDIF-Paper 1.0 Title: Social Security, Occupational Pensions, and Retirement in Sweden Author-Name: Marten Palme Author-Person: ppa618 Author-Name: Ingemar Svensson Note: AG PE Number: 6137 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6137 File-URL: http://www.nber.org/papers/w6137.pdf File-Format: application/pdf Publication-Status: published as Social Security, Occupational Pensions, and Retirement in Sweden, Marten Palme, lngemar Svensson. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: This paper provides an overview of the Swedish social security system and its impact on individual retirement behavior. First, we give some historical facts, as well as a more detailed description of the current situation, of labor market behavior of older persons. Second, we describe the social security system. We also describe the different occupational pension schemes, which have an increasing importance. Finally, we show the results from a simulation, where we have used the earnings path of several representative workers to calculate the implicit tax (or subsidy) rate on additional work after age 55 generated by the social security system in interaction with occupational pensions and income taxes as well as housing allowances. We find that the observed labor market behavior of older men is in accordance with the economic incentives generated by the social security system and in particular with the occupational pension scheme for blue collar workers. Handle: RePEc:nbr:nberwo:6137 Template-Type: ReDIF-Paper 1.0 Title: Comparison Utility in a Growth Model Classification-JEL: D91; E21 Author-Name: Christopher D. Carroll Author-Person: pca45 Author-Name: Jody Overland Author-Name: David N. Weil Author-Person: pwe24 Note: ME Number: 6138 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6138 File-URL: http://www.nber.org/papers/w6138.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic Growth, Vol. 2, no. 4 (December 1997): 339-367. Publication-Status: published as Christopher D. Carroll & Jody Overland & David N. Weil, 2000. "Mathematica code for 'Saving and Growth with Habit Formation' and 'Comparison Utility in a Growth Model'," QM&RBC Codes 43, Quantitative Macroeconomics & Real Business Cycles. Abstract: This paper compares the dynamics of two general equilibrium models of endogenous growth in which agents have comparison utility.' In the inward-looking' economy, individuals care about how their consumption in the current period compares to their own consumption in the past (one way to describe this is habit-formation' in consumption). In the outward-looking' economy, individuals care about how their own level of consumption compares with others' consumption. Consider the effect of negative shock to capital. In an endogenous growth model with standard preferences, there will be no effect on the saving rate or the growth rate of output. In both of the models that we consider, however, saving and growth will temporarily fall in response to the shock. The initial decline in saving and growth will be larger in the inward-looking case. However, since agents in the outward-looking case do not take into account the externality effect of their consumption, higher growth in this case will lead to lower utility than in the inward-looking case. Handle: RePEc:nbr:nberwo:6138 Template-Type: ReDIF-Paper 1.0 Title: Why Did the SSI-Disabled Program Grow So Much? Disentangling the Effect of Medicaid Classification-JEL: H51; I18 Author-Name: Aaron Yelowitz Author-Person: pye2 Note: EH PE Number: 6139 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6139 File-URL: http://www.nber.org/papers/w6139.pdf File-Format: application/pdf Publication-Status: published as Journal of Health Economics, Vol. 17, no. 3 (June 1998): 321-350. Abstract: The number of participants in the SSI program grew by 1.1 million from 1987 to 1993. This paper examines the role of Medicaid on the SSI participation decision. I use the rapid growth in average Medicaid expenditure as a proxy for its value. OLS estimates of Medicaid's effect may be biased because of omitted variables bias and measurement error. I therefore apply two-stage least squares to estimate Medicaid's effect, using average Medicaid expenditure for blind SSI recipients as an instrument. These estimates show that rising Medicaid expenditure significantly increased SSI participation among adults with low permanent incomes, explaining 20 percent of the growth. Handle: RePEc:nbr:nberwo:6139 Template-Type: ReDIF-Paper 1.0 Title: Managed Care and the Growth of Medical Expenditures Author-Name: David M. Cutler Author-Person: pcu64 Author-Name: Louise Sheiner Note: EH PE Number: 6140 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6140 File-URL: http://www.nber.org/papers/w6140.pdf File-Format: application/pdf Publication-Status: published as Cutler, David M. and Louise Sheiner. "Managed Care And The Growth Of Medical Expenditures," Forum for Health Economics and Policy, 1998, v1, Article 4. Publication-Status: published as Managed Care and the Growth of Medical Expenditures, David M. Cutler, Louise Sheiner. in Frontiers in Health Policy Research, Volume 1, Garber. 1998 Abstract: We use data across states to examine the relation between HMO enrollment and medical spending. We find that increased managed care enrollment significantly reduces hospital cost growth. While some of this effect is offset by increased spending on physicians, we generally find a significant reduction in total spending as well. In analyzing the sources of hospital cost reductions, we find preliminary evidence that managed care has reduced the diffusion of medical technologies. States with high managed care enrollment were technology leaders in the early 1980s; by the early 1990s those states were only average in their acquisition of new technologies. This finding suggests managed care may have a significant effect on the long-run growth of medical spending. Handle: RePEc:nbr:nberwo:6140 Template-Type: ReDIF-Paper 1.0 Title: What Drives Public Employment? Classification-JEL: H50; F40 Author-Name: Dani Rodrik Author-Person: pro60 Note: ITI PE Number: 6141 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6141 File-URL: http://www.nber.org/papers/w6141.pdf File-Format: application/pdf Publication-Status: published as Rodrik, Dani. "What Drives Public Employment In Developing Countries?," Review of Development Economics, 2000, v4(3,Oct), 229-243. Abstract: Excessive levels of government employment is one of the most frequent complaints made about public-sector governance in developing economies. The explanation typically offered is that governments have used public-sector employment as a tool for generating and redistributing rents. This paper suggests an alternative hypothesis for government employment practices: relatively safe government jobs represent partial insurance against undiversifiable external risk faced by the domestic economy. By providing a larger number of secure' jobs in the public sector, a government can counteract the income and consumption risk faced by the households in the economy. I show that countries that are greatly exposed to external risk have higher levels of government employment and have experienced faster rates of growth of government consumption. The basic finding on the (partial) correlation between government employment and exposure to external risk is robust against the alternative hypothesis that government employment has been driven by considerations of rent-seeking and rent distribution. Handle: RePEc:nbr:nberwo:6141 Template-Type: ReDIF-Paper 1.0 Title: Adapting to Circumstances: The Evolution of Work, School, and Living Arrangements Among North American Youth Author-Name: David Card Author-Person: pca271 Author-Name: Thomas Lemieux Author-Person: ple92 Note: LS Number: 6142 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6142 File-URL: http://www.nber.org/papers/w6142.pdf File-Format: application/pdf Publication-Status: published as Youth Employment and Joblessness in Advanced Countries, Blanchflower, D.,and R. Freeman, eds., Chicago: University of Chicago Press, 2000. Publication-Status: published as Adapting to Circumstances (The Evolution of Work, School,and Living Arrangements among North American Youth), David Card, Thomas Lemieux. in Youth Employment and Joblessness in Advanced Countries, Blanchflower and Freeman. 2000 Abstract: We use comparable micro data sets for the U.S. and Canada to study the responses of young workers to the external labor market forces that have affected the two countries over the past 25 years. We find that young workers adjust to changes in labor market opportunities through a variety of mechanisms, including changes in living arrangements, changes in school enrollment, and changes in work effort. In particular, we find that poor labor market conditions in Canada explain why the fraction of youth living with their parents has increased in Canada relative to the U.S. recently. Paradoxically, this move back home also explains why the relative position of Canadian youth in the distribution of family income did not deteriorate as fast as in the U.S. Handle: RePEc:nbr:nberwo:6142 Template-Type: ReDIF-Paper 1.0 Title: The Objectives of the FDA's Office of Generic Drugs Classification-JEL: L51; L65 Author-Name: Fiona Scott Morton Note: IO Number: 6143 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6143 File-URL: http://www.nber.org/papers/w6143.pdf File-Format: application/pdf Abstract: I use variation in approval time for generic drugs to shed light on the objectives of the federal agency in charge of granting entry permission for these drugs (FDA). Applications belonging to firms later found to have engaged in fraud or corruption were approved nine months faster on average, controlling for other characteristics, indicating that illegal behavior was effective in reducing approval times. The FDA approved applications for large revenue markets faster; this is the only evidence that the agency is taking consumer surplus into account, but it is also consistent with a response to producer surplus and application quality. Order of entry into a drug market is insignificant in predicting approval times due to the offsetting effects of social surplus and FDA learning. The FDA appears to avoid complaints from constituent firms by preserving the entry order of applications. FDA resources clearly affect approval times; this appears in the year effects after the generic scandal (much slower) and in the agency's use of slack provided by applications submitted before patent expiration. After the scandal the FDA appears to care more about the risk inherent in a product and discounts a firm's pre-scandal technical experience. Overall, the results provide most support for an agency responding to bureaucratic preferences, complaints from constituent firms, and risk to consumers, rather than trying to maximize classic measures of social surplus (absent risk considerations). Handle: RePEc:nbr:nberwo:6143 Template-Type: ReDIF-Paper 1.0 Title: Why the United States Led in Education: Lessons from Secondary School Expansion, 1910 to 1940 Classification-JEL: H4; I2 Author-Name: Claudia Goldin Author-Person: pgo601 Author-Name: Lawrence F. Katz Author-Person: pka266 Note: DAE LS Number: 6144 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6144 File-URL: http://www.nber.org/papers/w6144.pdf File-Format: application/pdf Abstract: The second transformation' of U.S. education the growth of secondary schooling occurred swiftly in the early 1900s and placed the educational attainment of Americans far ahead of that in other nations for much of the twentieth century. Just 9 percent of U.S. youths had high school diplomas in 1910, but more than 50 percent did by 1940. By the mid-1950s the United States was 35 years in front of the United Kingdom in the educational attainment of 14 to 17-year olds. What can explain why secondary schooling advanced in the United States, why differences in secondary schooling emerged across U.S. states and cities, and why America led the world in educational attainment for much of the twentieth century? Although we motivate the paper with international comparisons, the core of the analysis exploits the considerable cross-state, cross-city, and time-series variation within the United States. The areas of the United States that led in secondary school education (the Far West, Great Plains, and parts of New England) were rich in income and wealth, had high proportions of the elderly, and had relative equality of wealth or income. Given wealth, they also contained a low proportion of jobs in manufacturing and low percentages immigrant and Catholic. Homogeneity of economic and social conditions, and the social stability of community, given a modicum of income or wealth, also fostered the extension of education to the secondary school level. Handle: RePEc:nbr:nberwo:6144 Template-Type: ReDIF-Paper 1.0 Title: How Costly is Financial (not Economic) Distress? Evidence from Highly Leveraged Transactions that Became Distressed Author-Name: Gregor Andrade Author-Name: Steven N. Kaplan Note: CF Number: 6145 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6145 File-URL: http://www.nber.org/papers/w6145.pdf File-Format: application/pdf Publication-Status: published as Journal of Finance (1998). Abstract: This paper studies thirty-one highly leveraged transactions (HLTs) of the 1980s that subsequently became financially distressed. At the time of distress, all sample firms have operating margins that are positive and in the majority of cases greater than the median for the industry. Therefore, we consider these firms financially distressed, not economically distressed. The net effect of the HLT and financial distress is a slight increase in value -- from pre-transaction to distress resolution, the sample firms experience a marginally positive change in (market- or industry-adjusted) value. This finding strongly suggests that, overall, the HLTs of the late 1980s succeeded in creating value. We also present quantitative and qualitative estimates of the (direct and indirect)costs of financial distress and their determinants. Our preferred estimates of the costs of financial distress are 10% of firm value. Our most conservative estimates do not exceed 23% of firm value. Operating margins of the distressed firms increase immediately after the HLT, decline when the firms become distressed and while they are distressed, but then rebound after the distress is resolved. Consistent with some costs of financial distress, we find evidence of unexpected cuts in capital expenditures, undesired asset sales, and costly managerial delay in restructuring. To the extent they occur, the costs of financial distress that we identify are heavily concentrated in the period after the firms become distressed, but before they enter Chapter 11. Handle: RePEc:nbr:nberwo:6145 Template-Type: ReDIF-Paper 1.0 Title: Observations and Conjectures on the U.S. Employment Miracle Classification-JEL: J23 Author-Name: Alan B. Krueger Author-Person: pkr63 Author-Name: Jorn-Steffen Pischke Author-Person: ppi29 Note: LS Number: 6146 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6146 File-URL: http://www.nber.org/papers/w6146.pdf File-Format: application/pdf Publication-Status: published as Third Public GAAC Symposium: Labor Markets in the USA and Germany, Bonn, Germany: GAAC, 1998, pp. 99-126. Publication-Status: published as Excerpt reprinted in Wirtschafts Politsche Blatter, Vol. 3 (January 1999): 259-267. Abstract: This paper has three goals; first, to place U.S. job growth in international perspective by exploring cross-country differences in employment and population growth. This section finds that the U.S. has managed to absorb added workers -- especially female workers -- into employment at a greater rate than most countries. The leading explanation for this phenomenon is that the U.S. labor market has flexible wages and employment practices, whereas European labor markets are rigid. The second goal of the paper is to evaluate the labor market rigidities hypothesis. Although greater wage flexibility probably contributes to the U.S.'s comparative success in creating jobs for its population, the slow growth in employment in many European countries appears too uniform across skill groups to result from relative wage inflexibility alone. Furthermore, a great deal of labor market adjustment seems to take place at a constant real wage in the U.S. This leads to the third goal: to speculate on other explanations why the U.S. has managed to successfully absorb so many new entrants to the labor market. We conjecture that product market constraints contribute to the slow growth of employment in many countries. Handle: RePEc:nbr:nberwo:6146 Template-Type: ReDIF-Paper 1.0 Title: "Peso Problem" Explanations for Term Structure Anomalies Classification-JEL: G1; F3 Author-Name: Geert Bekaert Author-Person: pbe52 Author-Name: Robert J. Hodrick Author-Person: pho115 Author-Name: David A. Marshall Author-Person: pma2426 Note: AP Number: 6147 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6147 File-URL: http://www.nber.org/papers/w6147.pdf File-Format: application/pdf Publication-Status: published as Bekaert, Geert, Robert J. Hodrick and David A. Marshall. "Peso Problem Explanations For Term Structure Anomalies," Journal of Monetary Economics, 2001, v48(2,Oct), 241-270. Abstract: We examine the empirical evidence on the expectations hypothesis of the term structure of interest rates in the United States, the United Kingdom, and Germany using the Campbell-Shiller (1991) regressions and a vector-autoregressive" methodology. We argue that anomalies in the U.S. term structure, documented by Campbell and Shiller (1991), may be due to a generalized peso problem in which a high-interest rate regime occurred less frequently in the sample of U.S. data than was rationally anticipated. We formalize this idea as a regime-switching model of short-term interest rates estimated with data" from seven countries. Technically, this model extends recent research on regime-switching models with state-dependent transitions to a cross-sectional setting. Use of the small sample distributions generated by the regime-switching model for inference considerably weakens the evidence against the expectations hypothesis, but it remains somewhat implausible that our data-generating process produced the U.S. data. However, a model that combines moderate time-variation in term premiums with peso-problem effects is largely consistent with term structure data from the U.S., U.K., and Germany. Handle: RePEc:nbr:nberwo:6147 Template-Type: ReDIF-Paper 1.0 Title: The Mix and Scale of Factors with Irreversibility and Fixed Costs of Investment Classification-JEL: E22 Author-Name: Andrew B. Abel Author-Person: pab10 Author-Name: Janice C. Eberly Author-Person: peb3 Note: EFG Number: 6148 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6148 File-URL: http://www.nber.org/papers/w6148.pdf File-Format: application/pdf Publication-Status: published as Abel, Andrew B. & Eberly, Janice C., 1998. "The mix and scale of factors with irreversibility and fixed costs of investment," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 101-135, June. Abstract: When factors of production can be adjusted costlessly, the mix of factors can be considered separately from their scale. We examine factor choice and utilization when investment is irreversible and subject to a fixed cost, so that the capital stock is a quasi-fixed factor that is adjusted infrequently and by discrete amounts. We derive and analyze analytic approximations for optimal investment behavior, and show how the quasi-fixity of capital eliminates the dichotomy between factor mix and scale. We show that the quasi-fixity of capital can give rise to labor hoarding, even when labor is a purely flexible factor. Handle: RePEc:nbr:nberwo:6148 Template-Type: ReDIF-Paper 1.0 Title: Transition to a Fully Funded Pension System: Five Economic Issues Classification-JEL: H55; E2 Author-Name: Martin Feldstein Author-Person: pfe112 Note: AG EFG EH PE Number: 6149 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6149 File-URL: http://www.nber.org/papers/w6149.pdf File-Format: application/pdf Publication-Status: published as Siebert, Horst (ed.) Redesigning Social Security, Institut fur Weltwirtschaft an der Universitat, Kiel. Tubingen: Mohr Siebeck, 1998. Abstract: This paper provides a relatively nontechnical discussion of the effects of shifting from a pay-as-you-go system of Social Security pensions to a fully funded plan based on individual accounts. The analysis discusses the rationale for such a shift and deals with five common problems: (1) the nature of the transition path; (2) the effect of the shift on national saving and capital accumulation; (3) the rate of return that such accounts would earn; (4) the risks of unfunded and funded systems; and (5) the distributional effects of the shift. Handle: RePEc:nbr:nberwo:6149 Template-Type: ReDIF-Paper 1.0 Title: Why do Economists Disagree About Policy? Classification-JEL: H00; J00 Author-Name: Victor R. Fuchs Author-Person: pfu157 Author-Name: Alan B. Krueger Author-Person: pkr63 Author-Name: James M. Poterba Author-Person: ppo19 Note: LS PE Number: 6151 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6151 File-URL: http://www.nber.org/papers/w6151.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic Literature, Vol. 36, no. 3 (September 1998): 1387- 1425. (Published as "Economists Views About Parameters, Values, and Policy: Survey Results in Labor and Public Finance"). Abstract: This paper reports the results of surveys of specialists in labor economics and public economics at 40 leading research universities in the United States. Respondents provided opinions of policy proposals; quantitative best estimates and 95% confidence intervals for economic parameters; answers to values questions regarding income redistribution, efficiency versus equity, and individual versus social responsibility; and their political party identification. We find considerable disagreement among economists about policy proposals. Their positions on policy are more closely related to their values than to their estimates of relevant economic parameters or to their political party identification. Average best estimates of the economic parameters agree well with the ranges summarized in surveys of relevant literature, but the individual best estimates are usually widely dispersed. Moreover, economists, like experts in many fields, appear more confident of their estimates than the substantial cross-respondent variation in estimates would warrant. Finally although the confidence intervals in general appear to be too narrow, respondents whose best estimates are farther from the median tend to give wider confidence intervals for those estimates. Handle: RePEc:nbr:nberwo:6151 Template-Type: ReDIF-Paper 1.0 Title: Evaluating Trade Reform Using Ex-Post Criteria Classification-JEL: F0; F1 Author-Name: Jiandong Ju Author-Person: pju209 Author-Name: Kala Krishna Author-Person: pkr26 Note: ITI Number: 6152 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6152 File-URL: http://www.nber.org/papers/w6152.pdf File-Format: application/pdf Publication-Status: published as Canadian Journal of Economics, Volume: 33 Issue: 3 (August 2000) Pages: 787-798 Abstract: In contrast to existing work which takes an ex-ante approach and looks for policy prescriptions which yield welfare improvements, we take an ex-post approach. We ask whether there are indicators which show whether welfare has risen or not in the wake of a reform. That is, we look for evidence of welfare improvements in outcome space. Necessary and sufficient conditions for welfare improving trade reform are derived. These conditions are shown to be useful in evaluating Free Trade Areas and in reforming Article XXIV of GATT. Handle: RePEc:nbr:nberwo:6152 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in Germany Author-Name: Axel Borsch-Supan Author-Name: Reinhold Schnabel Author-Person: psc47 Note: AG PE Number: 6153 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6153 File-URL: http://www.nber.org/papers/w6153.pdf File-Format: application/pdf Publication-Status: published as Borsch-Supan, Axel and Reinhold Schnabel. "Social Security And Declining Labor-Force Participation In Germany," American Economic Review, Vol. 88, no. 2 (May 1998): 173-178 Publication-Status: published as Social Security and Retirement in Germany, Axel Borsch-Supan, Reinhold Schnabel. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: This paper describes the German public old age social security program (,Gesetzliche Rentenversicherung') and its incentive effects on retirement decisions. The paper presents the key features of the system and expresses retirement incentives in the form of accrual rates of social security wealth and implicit tax rates on earnings. It summarizes labor market behavior of older persons in Germany during the last 35 years and surveys the empirical literature on the effects of the social security system on retirement in Germany. The paper shows that even after the 1992 reform the German system is actuarially unfair. This generates a substantial redistribution from late to early retirees and creates incentives to early retirement. Indeed, average retirement age is very low in West Germany (about age 59) and even lower in East Germany. This tendency towards early retirement is particularly hurting in times of population aging when the German social security contribution rate is expected to increase dramatically and will substantially exceed the rates in other industrialized countries. Handle: RePEc:nbr:nberwo:6153 Template-Type: ReDIF-Paper 1.0 Title: Pensions and Retirement in the UK Author-Name: Richard Blundell Author-Person: pbl81 Author-Name: Paul Johnson Note: AG PE Number: 6154 Creation-Date: 1997-08 Order-URL: http://www.nber.org/papers/w6154 File-URL: http://www.nber.org/papers/w6154.pdf File-Format: application/pdf Publication-Status: published as Richard Blundell & Paul Johnson, 1999. "Pensions and Retirement in the United Kingdom," NBER Chapters, in: Social Security and Retirement around the World, pages 403-435 National Bureau of Economic Research, Inc. Abstract: Labor force participation of men over age 50 fell sharply in the UK between the early 1970s and early 1990s. Despite the fact that the state retirement pension does not become available to men until age 65, half of men aged 60-64 were economically inactive in the mid 1990s. The main element of the state retirement pension is flat rate, and for most people is unaffected by any potential contributions made after age 60. Additional amounts of the earnings related component, SERPS, are earned as a result of extra contribu- tions. Overall the state retirement pension system offers no incentives for people to retire early. However, other benefits are available to people before the age of 65. Once the age of 60 is reached there is no availability for work test for receipt of means-tested benefits and there appears to be widespread use of invalidity and sickness benefits as a route into early retirement. Once these are accounted for a substantial incentive for early withdrawal from the labor market is apparent. The combination of this with the reduced demand for, and wages available to, low skilled labor can explain the reduced labor force participation that is observed. The state pension system, though, is complemented by extensive occupational pension coverage. For those in the occupational system the rules of their own scheme are likely to be an important element in their retirement decision. We show that the retirement behavior of those with and without occupational pensions is substantially different. Those without are more likely to withdraw from the labor market very early. A large share of those with occupational pensions retires from the age of 55 when relatively generous benefits are likely to become available. In many schemes there are incentives to retire before age 65 Handle: RePEc:nbr:nberwo:6154 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in Italy Author-Name: Agar Brugiavini Author-Person: pbr101 Note: AG PE Number: 6155 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6155 File-URL: http://www.nber.org/papers/w6155.pdf File-Format: application/pdf Publication-Status: published as Brugiavini, Agar and Franco Peracchi. "Social Security Wealth And Retirement Decisions In Italy," Labour - Review of Labour Economics and Industrial Relations, 2003, v17(Supp), 79-114. Publication-Status: published as Social Security and Retirement in Italy, Agar Brugiavini . in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: This paper analyzes the incentives provided by the Italian Social Security System (SS) to supply labor. Italy is an interesting example in this context as: (1) fertility rates are very low while life expectancy has improved dramatically over the past decades; (2) the SS Program is extremely generous to retirees by providing very high replacement rates; (3) virtually all retirement income is in the form of SS benefits; (4) the existence of an early retirement provision, which attracts no actuarial penalty, greatly distorts choices in favor of early retirement. This paper addresses the above issue by first documenting the stylized facts of the labor market and the SS provisions. A simulation model is then developed to better understand the incentive effects of SS on current cohorts of retirees. This model proposes two measures for incentives: the accrual rate (i.e. the percentage change in Social Security Wealth) from postponing retirement and the implicit tax/subsidy (via SS entitlements) on potential earnings from working an additional year. The simulation results show that the Italian SS Program provides a strong incentive to retire early and the age-implicit tax profile fits very closely with the estimated hazards out of the labor force. Additional evidence of the existence of behavioral responses to SS policy changes lends further support to the view that old age insurance arrangements have an influence on labor supply decisions. Handle: RePEc:nbr:nberwo:6155 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in Japan Author-Name: Takashi Oshio Author-Name: Naohiro Yashiro Note: AG PE Number: 6156 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6156 File-URL: http://www.nber.org/papers/w6156.pdf File-Format: application/pdf Publication-Status: published as Social Security and Retirement in Japan , Naohiro Yashiro, Takashi Oshio . in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: We provide the incentive mechanism of the public pension on the retirement decisions made in the Japanese labor market. Though the labor market participation of Japanese older persons is quite high by international standards, a principle incentive mechanism of the public pension system in Japan affecting the retirement behavior has many things in common with those in other OECD countries. The pension benefits are designed actuarially unfair,' and the decision to work beyond age 60 is penalized. As the population ages quite rapidly, it is wasteful to maintain the disincentive mechanism arising from the actuarially unfair pension scheme for older persons. Handle: RePEc:nbr:nberwo:6156 Template-Type: ReDIF-Paper 1.0 Title: Inflation Forecasts and Monetary Policy Classification-JEL: E5; E52 Author-Name: Ben S. Bernanke Author-Person: pbe55 Author-Name: Michael Woodford Author-Person: pwo3 Note: EFG ME Number: 6157 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6157 File-URL: http://www.nber.org/papers/w6157.pdf File-Format: application/pdf Publication-Status: published as Proceedings - Federal Reserve Bank of Cleveland, 1997, pp. 635-686 Publication-Status: published as Journal of Money, Credit, and Banking, Vol. 29, no. 4, part 2, (November 1997): pp. 653-684 Abstract: Proposals for 'inflation targeting' as a strategy for monetary policy leave open the important operational question of how to determine whether current policies are consistent with the long-run inflation target. An interesting possibility is that the central bank might target current private-sector forecasts of inflation, either those made explicitly by professional forecasters or those implicit in asset prices. We address the issue of existence and uniqueness of rational expectations equilibria when the central bank uses private-sector forecasts as a guide to policy actions. In a dynamic model which incorporates both sluggish price adjustment and shocks to aggregate demand and aggregate supply, we show that strict targeting of inflation forecasts is typically inconsistent with the existence of rational expectations equilibrium, and that policies approximating strict inflation-forecast targeting are likely to have undesirable properties. We also show that economies with more general forecast-based policy rules are particularly susceptible to indeterminacy of rational expectations equilibria. We conclude that, although private-sector forecasts may contain information useful to the central bank, ultimately the monetary authorities must rely on an explicit structural model of the economy to guide their policy decisions. Handle: RePEc:nbr:nberwo:6157 Template-Type: ReDIF-Paper 1.0 Title: Optimal Risk Management Using Options Classification-JEL: G13 Author-Name: Dong-Hyun Ahn Author-Name: Jacob Boudoukh Author-Name: Matthew Richardson Author-Name: Robert F. Whitelaw Note: AP Number: 6158 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6158 File-URL: http://www.nber.org/papers/w6158.pdf File-Format: application/pdf Publication-Status: published as Journal of Finance, Vol. 54, no. 1 (February 1999): 359-375. Abstract: This paper addresses the question of how an institution might optimally manage the market risk of a given exposure. We provide an analytical approach to optimal risk management under the assumption that the institution wishes to minimize its Value-at-Risk (VaR) using options follows a geometric Brownian. The optimal solution specifies the VaR-minimizing level of moneyness of the option as a function of the asset's distribution, the risk-free rate, and the VaR hedging period. We find that the optimal strike of the put is independent of the level of expense the institution is willing to incur for its hedging program. The costs associated with a suboptimal choice of exercise price, in terms of either the increased VaR for a fixed hedging cost or the increased cost to achieve a given VaR, are economically significant. Comparative static results show that the optimal strike price of these options is increasing in the asset's drift, decreasing in its volatility for most reasonable parameterizations, decreasing in the risk-free interest rate, nonmonotonic in the horizon of the hedge, and increasing in the level of protection desired by the institution (i.e., the percentage of the distribution relevant for the VaR). We show that the most important determinant is the conditional distribution of the underlying asset exposure; therefore, the optimal exercise price is very sensitive to the relative magnitude of the drift and diffusion of this exposure. Handle: RePEc:nbr:nberwo:6158 Template-Type: ReDIF-Paper 1.0 Title: Beyond Balanced Growth Classification-JEL: O14; O41 Author-Name: Piyabha Kongsamut Author-Name: Sergio Rebelo Author-Name: Danyang Xie Author-Person: pxi9 Note: EFG Number: 6159 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6159 File-URL: http://www.nber.org/papers/w6159.pdf File-Format: application/pdf Publication-Status: published as Kongsamut, Piyabha, Sergio Rebelo and Danyang Xie. "Beyond Balanced Growth," Review of Economic Studies, 2001, v68(237,Oct), 869-882. Abstract: One of the most striking regularities of the growth process is the massive reallocation of labor from agriculture into industry and services. Balanced growth models are commonly used in macroeconomics because they are consistent with the well-known Kaldor facts about economic growth. These models are, however, inconsistent with the structural change dynamics that are a central feature of economic development. This paper discusses models with generalized balanced growth paths. These paths retain some of the key features of balanced growth but are consistent with the observed labor reallocations dynamics. Handle: RePEc:nbr:nberwo:6159 Template-Type: ReDIF-Paper 1.0 Title: Effects of Air Quality Regulation on in Polluting Industries Author-Name: Randy Becker Author-Person: pbe157 Author-Name: Vernon Henderson Author-Person: phe30 Note: PR PE Number: 6160 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6160 File-URL: http://www.nber.org/papers/w6160.pdf File-Format: application/pdf Publication-Status: Published as "Effects of Air Quality Regulation", American Economic Review, Vol. 86, no. 4 (September 1996): 789-813. Publication-Status: published as Journal of Political Economy, Vol. 108 (2000): 379-421. Abstract: This paper examines unintended effects of air quality regulation on decisions of major polluters, using plant data for 1963 to 1992. A key regulatory tool since 1978 is the annual designation of county air quality attainment status, where non-attainment status triggers specific equipment requirements for" new and existing plants. We find, in the later years of regulation, that, ceteris paribus, non-attainment status reduces expected births in polluting industries by 40-50%, resulting in a shift of polluting activity to cleaner, less populated attainment areas. Starting in the 1970s effects appear first for industries with bigger plant sizes and then, within industries, first for corporate plants relative to the much smaller non-affiliate, or single plant firm sector. In all industries, non-affiliates face less regulation than the bigger corporate plants, resulting in a permanent shift away from corporate plant production in some industries. Older plants benefit from grandfathering provisions greatly enhancing survival probabilities. Finally, the negotiation and permitting process under regulation appears to induce much greater up-front investments by new plants, so that, in non-attainment areas, regulation induces 50-100% increases in initial plant sizes compared to attainment areas. But for plants over 10 years of age there are no size differences. Handle: RePEc:nbr:nberwo:6160 Template-Type: ReDIF-Paper 1.0 Title: Does Favorable Tax-Treatment of Housing Reduce Equipment Investment? Author-Name: Ben Broadbent Author-Name: Michael Kremer Author-Person: pkr20 Note: EFG PE Number: 6161 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6161 File-URL: http://www.nber.org/papers/w6161.pdf File-Format: application/pdf Publication-Status: published as Broadbent, Ben and Michael Kremer. "Does Favorable Tax-Treatment Of Housing Reduce Non-Housing Investment?," Journal of Public Economics, 2001, v81(3,Sep), 369-391. Abstract: It is often argued that low tax rates on owner-occupied housing divert investment from equipment. This paper demonstrates that if people are heterogeneous in their propensity to save, and if there are constraints on borrowing, favorable tax treatment of owner-occupied housing up to a certain value increases equipment investment. This is because low housing taxes encourage renters to become owner-occupiers, and this leads existing owner-occupiers to shift their portfolio of other assets from rental housing to equipment. Handle: RePEc:nbr:nberwo:6161 Template-Type: ReDIF-Paper 1.0 Title: Is Real Exchange Rate Mean Reversion Caused By Arbitrage? Author-Name: Jose M. Campa Author-Person: pca393 Author-Name: Holger C. Wolf Note: IFM Number: 6162 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6162 File-URL: http://www.nber.org/papers/w6162.pdf File-Format: application/pdf Abstract: The presence of purchasing power parity is often attributed to the exploitation of arbitrage opportunities in goods markets. We examine this presumption for a 1960-1996 monthly panel of bilateral exchange rates and trade for the G7 countries. The data exhibit strong mean reversion. However, despite allowing for substantial latitude in specification, we find very limited support for a simple arbitrage view. The deviations of real exchange rates and trade from trend are virtually uncorrelated. Large trade deviations neither trigger nor accelerate mean reversion. Large real exchange rate deviations do not lead to systematic changes in trade. Constricting the sample to eighteen-month episodes of notable mean reversion - large persistent depreciations starting from overvalued levels - does not reveal any systematic relation either. The timing of these episodes does point, however, to an alternative explanation of mean reversion: the majority of episodes occur during periods of nominal exchange rate regime instability, pointing towards exchange rate policy or speculation as the immediate cause of mean reversion. Both may, of course, reflect expectations of trade responses, opening an indirect role for incipient arbitrage in explaining mean reversion. Handle: RePEc:nbr:nberwo:6162 Template-Type: ReDIF-Paper 1.0 Title: Economic Integration and Political Disintegration Classification-JEL: F15; F43 Author-Name: Alberto Alesina Author-Person: pal207 Author-Name: Enrico Spolaore Author-Person: psp27 Author-Name: Romain Wacziarg Author-Person: pwa67 Note: EFG IFM ITI Number: 6163 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6163 File-URL: http://www.nber.org/papers/w6163.pdf File-Format: application/pdf Publication-Status: published as Alesina, A., E. Spolaore and R. Wacziarg. "Economic Integration And Political Disintegration," American Economic Review, 2000, v90(5,Dec), 1276-1296. Abstract: Trade liberalization and political separatism go hand in hand. In a world of trade restrictions, large countries enjoy economic benefits because political boundaries determine the size of the market. In a world of free trade and global markets even relatively small cultural, linguistic or ethnic groups can benefit from forming small and homogeneous political jurisdictions that trade peacefully and are economically integrated with others. This paper provides a formal model of the relationship between openness and the equilibrium number and size of countries, and successfully tests two implications of the model. The first one is that the economic benefits of country size depend on and are mediated by the degree of openness to trade. The second is that the history of Nation-State creations and secessions is influenced by the trade regime. Handle: RePEc:nbr:nberwo:6163 Template-Type: ReDIF-Paper 1.0 Title: Selection, Marketing, and Medicaid Managed Care Classification-JEL: I11 Author-Name: Sherry Glied Author-Name: Jane Sisk Author-Name: Sheila Gorman Author-Name: Michael Ganz Note: EH Number: 6164 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6164 File-URL: http://www.nber.org/papers/w6164.pdf File-Format: application/pdf Abstract: In several states, the Medicaid program allows beneficiaries a choice among multiple managed care plans and traditional Medicaid. This paper uses data from a survey of New York City Medicaid beneficiaries enrolled in conventional Medicaid and in 5 Medicaid managed care plans to study the effect of plan selection on measures of satisfaction with care, access to a regular source of care, and utilization of ambulatory and emergency room services. We use information on health status to evaluate selection on observable characteristics; variation in geographic patterns of enrollment to assess selection on unobservable characteristics; and survey responses to questions about source of information about a plan to study selection responses to plan marketing. We find that managed care enrollees differed from those who stayed in traditional Medicaid on both observable and unobservable characteristics. Adjusting for population differences reduced the positive effect of managed care on satisfaction with care and eliminated the apparent utilization savings from managed care, but did not reduce the positive effect of managed care on access to regular care. Enrollees in different managed care plans did not differ substantially in terms of their observable health-related characteristics, but did, however, on unobservable characteristics in ways that affected measures of satisfaction, access, and utilization. Finally, we find that enrollees who learned about plans from plan representatives were healthier than those who learned about plans from city income support staff. This suggests that marketing practices can be a contributor to selection. Differences in marketing, however, also had direct effects on patterns of use of health services that should be considered in making marketing policy decisions. Handle: RePEc:nbr:nberwo:6164 Template-Type: ReDIF-Paper 1.0 Title: Mexico's 1994 Exchange Rate Crisis Interpreted in Light of the Non-Traded Model Author-Name: Andrew M. Warner Note: IFM Number: 6165 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6165 File-URL: http://www.nber.org/papers/w6165.pdf File-Format: application/pdf Abstract: This paper attempts to make the case that a 2-sector model using the familiar traded non-traded distinction offers a reasonably successful empirical account of why Mexico needed to devalue its exchange rate in 1994. This model provides a way to define and measure disequilibrium in the exchange rate, and thus may be useful in assessing the likelihood of an exchange rate crisis in other developing countries. The results suggest that Mexico's exchange rate was about 25 percent overvalued on the eve of its 1994 crisis, but was much closer to equilibrium by the end of 1996. The approach in this paper is compared with other ways of assessing disequilibrium in the exchange rate, based on purchasing power parity or monetary models of the exchange rate. Handle: RePEc:nbr:nberwo:6165 Template-Type: ReDIF-Paper 1.0 Title: Implications of Skill-Biased Technological Change: International Evidence Classification-JEL: F1; J31 Author-Name: Eli Berman Author-Person: pbe188 Author-Name: John Bound Author-Person: pbo406 Author-Name: Stephen Machin Author-Person: pma110 Note: ITI LS PR Number: 6166 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6166 File-URL: http://www.nber.org/papers/w6166.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 113, no. 4 (November 1998): 1245-1280. Abstract: Demand for less skilled workers decreased dramatically in the US and in other developed countries over the past two decades. We argue that pervasive skill-biased technological change rather than increased trade with the developing world is the principal culprit. The pervasiveness of this technological change is important for two reasons. First, it is an immediate and testable implication of technological change. Second, under standard assumptions, the more pervasive the skill-biased technological change the greater the increase in the embodied supply of less skilled workers and the greater the depressing effect on their relative wages through world goods prices. In contrast, in the Heckscher-Ohlin model with small open economies, the skill-bias of local technological changes does not affect wages. Thus, pervasiveness deals with a major criticism of skill-biased technological change as a cause. Testing the implications of pervasive, skill-biased technological change we find strong supporting evidence. First, across the OECD, most industries have increased the proportion of skilled workers employed despite rising or stable relative wages. Second, increases in demand for skills were concentrated in the same manufacturing industries in different developed countries. Handle: RePEc:nbr:nberwo:6166 Template-Type: ReDIF-Paper 1.0 Title: The Transition in East Germany: When is a Ten Point Fall in the Gender Wage Gap Bad News? Classification-JEL: J23; J31 Author-Name: Jennifer Hunt Author-Person: phu9 Note: LS Number: 6167 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6167 File-URL: http://www.nber.org/papers/w6167.pdf File-Format: application/pdf Publication-Status: published as Hunt, Jennifer. "The Transition In East Germany: When Is A Ten-Point Fall In The Gender Wage Gap Bad News?," Journal of Labor Economics, 2002, v20(1,Jan), 148-169. Abstract: Since monetary union with western Germany on 1 July 1990, eastern female monthly wages have risen by 10 percentage points relative to male wages, but female employment has fallen 5 percentage points more than male employment. Using the German Socio-Economic Panel to study the years 1990-1994, I show that along with age, the wage of a worker in 1990 is the most important determinant of the hazard rate from employment. Differences in mean 1990 wages explain more than half of the gender gap in this hazard rate, since low earners were more likely to leave employment, and were disproportionately female. The withdrawal from employment of low earners can explain 40% of the rise in relative female wages. Competing risks analysis reveals that the wage has its effect through layoffs, and hence through labor demand, which is consistent with the hypothesis that union wage rises have caused the least productive to be laid off. There is no evidence that reduction in child care availability is a major factor in reducing female employment rates. Handle: RePEc:nbr:nberwo:6167 Template-Type: ReDIF-Paper 1.0 Title: What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms) Classification-JEL: F41 Author-Name: Sergio Rebelo Note: EFG IFM Number: 6168 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6168 File-URL: http://www.nber.org/papers/w6168.pdf File-Format: application/pdf Abstract: There is a well-known set of empirical regularities that describe the experience of countries that peg their exchange rate as part of a macroeconomic adjustment program. Following the peg economies tend to experience an increase in GDP, a large expansion of production in the non-tradable sector, a contraction in tradables production, a current account deterioration, an increase in the real wage, a reduction in unemployment, a sharp appreciation in the relative price of non-tradables and a boom in the real estate market. This paper discusses how the changes in the expected behavior of fiscal policy that tend to be associated with the peg can contribute to explaining these facts. Handle: RePEc:nbr:nberwo:6168 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in Belgium Author-Name: Pierre Pestieau Author-Name: Jean-Philippe Stijns Author-Person: pst40 Note: AG PE Number: 6169 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6169 File-URL: http://www.nber.org/papers/w6169.pdf File-Format: application/pdf Publication-Status: published as Social Security and Retirement in Belgium, Pierre Pestieau, Jean-Philippe Stijns. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: Belgium like many other industrialized countries is facing serious problems in financing its social security. Whereas the effects of aging are still to come, Belgium currently experiences one of the lowest attachments to the labor force of older persons. This paper presents the key features of the Belgian social security system and focuses on labor force participation and benefit receipt. Most of the attention is given to the interaction between retirement behavior and the various social security schemes. By measuring the implicit tax/subsidy rate on work after 55 through these schemes, we can so explain the actual pattern of early and normal retirement of Belgian older workers. Handle: RePEc:nbr:nberwo:6169 Template-Type: ReDIF-Paper 1.0 Title: Price Stability vs. Low Inflation in Germany: An Analysis of Costs and Benefits Author-Name: Karl-Heinz Todter Author-Name: Gerhard Ziebarth Note: ME Number: 6170 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6170 File-URL: http://www.nber.org/papers/w6170.pdf File-Format: application/pdf Publication-Status: published as The Costs and Benefits of Price Stability. Feldstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp. 47-94. Publication-Status: published as Price Stability versus Low Inflation in Germany: An Analysis of Costs and Benefits, Karl-Heinz Todter, Gerhard Ziebarth. in The Costs and Benefits of Price Stability, Feldstein. 1999 Abstract: We empirically investigate the costs and benefits of going from low inflation to price stability in the case of Germany. Recent empirical evidence on the sacrifice ratio suggests that the break-even point at which the permanent benefits of reducing the trend rate of inflation by 2 percentage points exceeds the temporary costs in terms of output losses is below 0.3% of GDP. We analyze the welfare implications of the interactions even of moderate rates of inflation with the distorting effects of the German tax system. Four areas of economic activity are considered: intertemporal allocation of consumption, demand for owner-occupied housing, money demand, and government debt service. We estimate the direct welfare effects of reducing the rate of inflation as well as the indirect tax revenue effects. We find that reducing the inflation rate by 2 percentage points permanently increases welfare by 1.4% of GDP. Finally, the optimal rate of disinflation is considered. Handle: RePEc:nbr:nberwo:6170 Template-Type: ReDIF-Paper 1.0 Title: Pensions and the Distribution of Wealth Classification-JEL: J26; D31 Author-Name: Kathleen McGarry Author-Person: pmc264 Author-Name: Andrew Davenport Note: AG Number: 6171 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6171 File-URL: http://www.nber.org/papers/w6171.pdf File-Format: application/pdf Publication-Status: published as McGarry, Kathleen and Andrew Davenport. "Pensions and the Distribution of Health". Frontiers in the Economics of Aging. Edited by David Wise, Chicago: The University of Chicago Press, 1998, pp. 463-485. Publication-Status: published as Pensions and the Distribution of Wealth, Kathleen M. McGarry, Andrew Davenport. in Frontiers in the Economics of Aging, Wise. 1998 Abstract: Despite the enormous gains in the economic well-being of the elderly, and the progressivity of the Social Security benefit schedule, there remains substantial inequality in financial resources. In this paper we use data from the Health and Retirement Survey to examine the distribution of pension wealth in relation to other private wealth. We pay particular attention to differences by sex and race. We find that men are approximately 50 percent more likely to have pensions than are women, and conditional on having a pension, the mean value for men is twice as great as that for women. These differences remain significant even when factors such as industry, occupation, and tenure are controlled for. Differences by race are smaller than differences by sex but are still significant. We find further that pension wealth is slightly more equally distributed than is other private wealth, however, adding pension wealth to net worth has only small effects on overall inequality, and these effects are distributed unequally across groups. Single women, in particular, fare worse when pension wealth is included as part of total wealth. In addition to these results, the paper describes in detail the assumptions necessary to calculate pension wealth from the data available in the HRS. We hope this description will lead to a discussion of the most appropriate assumptions to be made in these calculations, and to a standard set of pension wealth variables. Handle: RePEc:nbr:nberwo:6171 Template-Type: ReDIF-Paper 1.0 Title: The Main Bank System and Corporate Investment: An Empirical Reassessment Classification-JEL: E22; G3 Author-Name: Fumio Hayashi Author-Person: pha83 Note: EFG Number: 6172 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6172 File-URL: http://www.nber.org/papers/w6172.pdf File-Format: application/pdf Publication-Status: published as Aoki, M. and G. Saxonhouse (eds.) Finance, Governance, and Competitiveness in Japan. Oxford University Press, 2000. Abstract: This paper examines whether the sensitivity of corporate investment to internal funds depends on the firm's access to a main bank, using the sample of Japanese manufacturing firms constructed by Hayashi and Inoue (1991). For either of two classifications of firms by their access to a main bank, there is no evidence that main bank ties mitigate the sensitivity of investment to the firm's liquidity. The large effect of main bank ties reported in Hoshi, Kashyap, and Scharfstein (1991) is most likely due to the relatively poor quality of their capital stock estimate. Handle: RePEc:nbr:nberwo:6172 Template-Type: ReDIF-Paper 1.0 Title: Taxes, Organizational Form, and the Deadweight Loss of the Corporate Income Tax Classification-JEL: H25; L22 Author-Name: Austan Goolsbee Author-Person: pgo49 Note: PE Number: 6173 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6173 File-URL: http://www.nber.org/papers/w6173.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 69 (July 1998): 143-152. Abstract: By changing the relative gain to incorporation, corporate taxation can play an important role in a firm's choice of organizational form. General equilibrium models have shown that substantial shifting of organizational form in response to tax rates implies a large deadweight loss of taxation. This paper estimates the impact of taxes on organizational form using data from 1900-1939. The results indicate that the effect of taxes is significant but small. A corporate rate increase of .10 raises the non-corporate share of capital .002-.03. The implied deadweight loss of the corporate income tax is around 5-10% of revenue. Handle: RePEc:nbr:nberwo:6173 Template-Type: ReDIF-Paper 1.0 Title: Real Exchange Rate Misalignments and Growth Author-Name: Ofair Razin Author-Name: Susan M. Collins Note: IFM Number: 6174 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6174 File-URL: http://www.nber.org/papers/w6174.pdf File-Format: application/pdf Publication-Status: published as Razin, Assaf and Efraim Sadka (eds.) International Economic Integration: Public Economics Perspectives. Cambridge: Cambridge University Press, 1999. Abstract: Real exchange rate (RER) misalignment is now a standard concept in international macroeconomic theory and policy. However, there is neither a consensus indicator of misalignment, nor an agreed upon methodology for constructing such an indicator. This paper constructs an indicator of RER misalignment for a large sample of developed and developing countries. This indicator is based on a well-structured but simple extension of an IS-LM model of an open economy. The paper then uses regression analysis to explore whether RER misalignments are related to country growth experiences. Interestingly the work finds that there are important non-linearities in the relationship. Only very high over-valuations" appear to be associated with slower economic growth, while moderate to high (but not very high) under-valuations appear to be associated with more rapid economic growth. Handle: RePEc:nbr:nberwo:6174 Template-Type: ReDIF-Paper 1.0 Title: Ethnicity and the Intergenerational Transmission of Welfare Dependency Classification-JEL: I3 Author-Name: George J. Borjas Author-Person: pbo44 Author-Name: Glenn T. Sueyoshi Note: LS CH Number: 6175 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6175 File-URL: http://www.nber.org/papers/w6175.pdf File-Format: application/pdf Publication-Status: published as Borjas, George J. and Glenn T. Sueyoshi. “Ethnicity and the Intergenerational Transmission of Welfare Dependency.” Research in Labor Economics 16 (1997): 271-295. Abstract: There exist sizeable differences in the incidence and duration of welfare spells across ethnic groups, and these differences tend to persist across generations. Using the National Longitudinal Surveys of Youth, we find that children raised in welfare households are themselves more likely to become welfare recipients for longer durations. We also show that growing up in an ethnic environment characterized by welfare dependency has a significant effect on both the incidence and duration of welfare spells. About 80 percent of the difference in welfare participation rates between two ethnic groups in the parental generation is transmitted to the children. Handle: RePEc:nbr:nberwo:6175 Template-Type: ReDIF-Paper 1.0 Title: To Ghetto or Not to Ghetto: Ethnicity and Residential Segregation Classification-JEL: R12 Author-Name: George J. Borjas Author-Person: pbo44 Note: LS Number: 6176 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6176 File-URL: http://www.nber.org/papers/w6176.pdf File-Format: application/pdf Publication-Status: published as Journal of Urban Economics, Vol. 44, no. 2 (September 1998): 228-253 Abstract: This paper analyzes the link between ethnicity and the choice of residing in ethnically segregated neighborhoods. Data drawn from the National Longitudinal Surveys of Youth show that there exist strong human capital externalities both within and across ethnic groups. As a result, the segregation choices made by particular households depend both on the household's economic opportunities and on aggregate characteristics of the ethnic groups. The evidence suggests that highly skilled persons who belong to disadvantaged groups have lower probabilities of ethnic residential segregation relative to the choices made by the most skilled persons in the most skilled groups. Handle: RePEc:nbr:nberwo:6176 Template-Type: ReDIF-Paper 1.0 Title: Implicit Contracts and the Theory of the Firm Author-Name: George Baker Author-Name: Robert Gibbons Author-Person: pgi283 Author-Name: Kevin J. Murphy Author-Person: pmu108 Note: CF IO Number: 6177 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6177 File-URL: http://www.nber.org/papers/w6177.pdf File-Format: application/pdf Publication-Status: Published as "The Internal Economics of the Firm: Evidence from Personal Data", Quarterly Journal of Economics, Vol. 109, no. 4 (1994): 881-919. Abstract: We analyze the role of implicit contracts' (that is, informal agreements supported by" reputation rather than law) both within firms, for example in employment relationships between them, for example as hand-in-glove supplier relationships. We find that the optimal" organizational form is determined largely by what implicit contracts it facilitates. Among other" things, we also show that vertical integration is an efficient response to widely varying supply" prices. Finally, our model suggests why management' (that is, the development and" implementation of unwritten rules and codes of conduct) is essential in organizations. " Handle: RePEc:nbr:nberwo:6177 Template-Type: ReDIF-Paper 1.0 Title: Retirement Wealth Accumulation and Decumulation: New Developments and Outstanding Opportunities Classification-JEL: H55; O16 Author-Name: Olivia S. Mitchell Author-Person: pmi73 Author-Name: James F. Moore Note: AG LS Number: 6178 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6178 File-URL: http://www.nber.org/papers/w6178.pdf File-Format: application/pdf Publication-Status: published as Journal of Risk and Insurance, Vol. 65, no. 3 (December 1998): 371-400. Abstract: Analysts have raised questions about current workers' ability and inclination to save" enough for retirement. This issue is of obvious policy interest given the current debate over" reforming national retirement income programs. This paper explores the implications of recent" research regarding retirement wealth accumulation and decumulation for this debate. Our goal is" to identify problems and opportunities in the area of preparedness for retirement." Handle: RePEc:nbr:nberwo:6178 Template-Type: ReDIF-Paper 1.0 Title: Implied Exchange Rate Distributions: Evidence from OTC Option Markets Author-Name: Jose M. Campa Author-Person: pca393 Author-Name: P.H. Kevin Chang Author-Name: Robert L. Reider Note: IFM Number: 6179 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6179 File-URL: http://www.nber.org/papers/w6179.pdf File-Format: application/pdf Publication-Status: published as Journal of International Money and Finance, Vol. 17, no. 1 (February 1998): 117-160. Abstract: This paper uses a rich new data set of option prices on the dollar-mark, dollar-yen, and key EMS cross-rates to extract the entire risk-neutral probability density function (pdf) over horizons of one and three months. We compare three alternative smoothing methods---cubic splines, an implied binomial tree (trimmed and untrimmed), and a mixture of lognormals---for transforming option data into the pdf. Despite their methodological ifferences, the three approaches lead to a similar pdf distinct from the lognormal benchmark, and usually characterized by skewness and leptokurtosis. We then document a striking positive correlation between skewness in these pdfs and the spot rate. The stronger a currency the more expectations are skewed towards a further appreciation of that currency. We interpret this finding as a rejection that these exchange rates evolve as a martingale, or that they follow a credible target zone, explicit or implicit. Instead, this this positive correlation is consistent with target zones with endogenous realignment risk. We discuss two interpretations of our results on skewness: when a currency is stronger, the actual probability of further large appreciation is higher, or because of risk, such states are valued more highly. Handle: RePEc:nbr:nberwo:6179 Template-Type: ReDIF-Paper 1.0 Title: Geographical and Sectoral Shocks in the U.S. Business Cycle Classification-JEL: E30; E32 Author-Name: Atish R. Ghosh Author-Person: pgh16 Author-Name: Holger C. Wolf Note: IFM Number: 6180 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6180 File-URL: http://www.nber.org/papers/w6180.pdf File-Format: application/pdf Abstract: We examine whether the aggregate U.S. business cycle is driven mainly by geographical" shocks (affecting all sectors within a state), or by sectoral shocks (affecting the same sector in all" states). We find that, at the level of an individual sector in an individual state growth are driven by the sector, not by the state: textiles in Texas moves more with textiles" elsewhere in the U.S. than with other sectors in Texas. But shocks to sector growth rates exhibit" a lower correlation across sectors compared to the correlation of shocks to state growth rates" across states. As a result, geographical shocks gain greater importance at higher levels of" aggregation. Finally, we find that changes in the volatility of the aggregate U.S. business cycle" reflect, to a roughly comparable degree, both changes in the volatility of state and sector business" cycles, and changes in their correlation across sectors and states. Handle: RePEc:nbr:nberwo:6180 Template-Type: ReDIF-Paper 1.0 Title: Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs Classification-JEL: F13; H21 Author-Name: James E. Anderson Author-Person: pan2 Note: ITI Number: 6181 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6181 File-URL: http://www.nber.org/papers/w6181.pdf File-Format: application/pdf Publication-Status: published as Anderson, J. E. "Trade Reform Diagnostics With Many Households, Quotas, And Tariffs," Review of International Economics, 2002, v10(2,May), 215-236. Abstract: Government budget balance forces the endogenous use of distortionary tax instruments" when an exogenous reform is implemented. The aggregate efficiency of such reforms is based" on comparisons of simple summary measures of the Marginal Cost of Funds of the various tariff" or quota changes with the Marginal Cost of Funds of the alternative taxes Benefit of Government supplied goods. The aggregate efficiency of tariff liberalization is" dubious, while quota liberalization is more likely to be efficient. Social welfare rises with" aggregate efficiency unless distribution effects are perverse. Plausible sufficient conditions for" non-perverse distributional effects are provided. The results frame a diagnostic method for" sensitivity analysis in evaluations of trade and tax policies. Handle: RePEc:nbr:nberwo:6181 Template-Type: ReDIF-Paper 1.0 Title: Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs Classification-JEL: I11; C43 Author-Name: Ernst R. Berndt Author-Name: Iain M. Cockburn Author-Person: pco166 Author-Name: Douglas L. Cocks Author-Name: Arnold Epstein Author-Name: Zvi Griliches Note: AG EH PR Number: 6182 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6182 File-URL: http://www.nber.org/papers/w6182.pdf File-Format: application/pdf Publication-Status: published as Berndt, Ernst R., Iain M. Cockburn, Douglas L. Cocks, Arnold M. Epstein and Zvi Griliches. "Is Price Inflation Different For The Elderly? An Empirical Analysis Of Prescription Drugs," Forum for Health Economics and Policy, 1998, v1, Article 3. Publication-Status: published as Is Price Inflation Different for the Elderly? An Empirical Analysis of Prescription Drugs, Ernst R. Berndt, Iain M. Cockburn, Douglas L. Cocks, Arnold M. Epstein, Zvi Griliches. in Frontiers in Health Policy Research, Volume 1, Garber. 1998 Abstract: Using annual IMS data from 1990 to 1996, we examine empirically whether whether elderly-nonelderly price inflation differentials exist for one medical item, namely, prescription pharmaceuticals. We assess prices for Rx for Rx drugs destined for ultimate use by the elderly vs. the nonelderly at three points in the distribution chain: initial sales from manufacturers, intermediate purchases by retail pharmacies, and final sales from retail pharmacies to patients/payors. We find that at the initial point in the distribution chain, there are no differences in price inflation for the aggregate of drugs destined for use by the elderly vs. the nonelderly. At the intermediate sell-in to pharmacy distribution point, we examine antibiotics (ABs), antidepressants (ADs) and calcium channel blockers (CCBs). For ABs, since 1992 elderly price inflation is somewhat greater than for the young, reflecting in part the elderly's more intensive use of newer branded products having fewer side effects, adverse drug interactions and more convenient dosing--attributes of particular importance to the elderly. For ADs, elderly price inflation is considerably less than for the young, due in large part to the elderly's greater use of older generic products. For CCBs, elderly- nonelderly differentials are negligible. None of these differentials adjusts for variations in quality. At the final retail sell-out point, we only examine ADs. We find that since retailers obtain larger gross margins on generic than on branded products, and because the elderly are disproportionately large users of generic ADs, the elderly-nonelderly price inflation differential benefiting the elderly at the intermediate point is reduced considerably at final sale. Handle: RePEc:nbr:nberwo:6182 Template-Type: ReDIF-Paper 1.0 Title: Efficient Inflation Estimation Classification-JEL: E31 Author-Name: Michael F. Bryan Author-Name: Stephen G. Cecchetti Author-Person: pce4 Author-Name: Rodney L. Wiggins II Note: ME Number: 6183 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6183 File-URL: http://www.nber.org/papers/w6183.pdf File-Format: application/pdf Abstract: This paper investigates the use of trimmed means as high-frequency estimators of" inflation. The known characteristics of price change distributions, specifically the observation" that they generally exhibit high levels of kurtosis, imply that simple averages of price data are" unlikely to produce efficient estimates of inflation. Trimmed means produce superior estimates" of core inflation,' which we define as a long-run centered moving average of CPI and PPI" inflation. We find that trimming 9% from each tail of the CPI price-change distribution from the tails of the PPI price-change distribution, yields an efficient estimator of core inflation" for these two series, although lesser trims also produce substantial efficiency gains. Historically the optimal trimmed estimators are found to be nearly 23% more efficient (in terms of root-mean-square error) than the standard mean CPI Moreover, the efficient estimators are robust to sample period and to the definition of the" presumed underlying long-run trend in inflation. Handle: RePEc:nbr:nberwo:6183 Template-Type: ReDIF-Paper 1.0 Title: Procompetitive Market Access Classification-JEL: F13 Author-Name: Kala Krishna Author-Person: pkr26 Author-Name: Suddhasatwa Roy Author-Name: Marie Thursby Author-Person: pth283 Note: ITI Number: 6184 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6184 File-URL: http://www.nber.org/papers/w6184.pdf File-Format: application/pdf Publication-Status: published as Business and Economics for the 21st Century, Vol.1 (1997): 333-342. Abstract: The view that U.S. businesses are being unfairly hurt by barriers to access in foreign markets has raised demands for market access requirements (MARs) from within U.S. industry and government alike. We show that, contrary to the prevailing wisdom of the recent literature, MARs can be implemented in a procompetitive manner. The basic idea is that the requirement must be implemented in a way that provides the right incentives for increasing aggregate output or lowering prices. We provide two examples to illustrate this point. In the context of a Cournot duopoly, we show that an implementation scheme in which the U.S. firm receives a pre-announced subsidy if the market share target is met leads to increased aggregate output. In a second example, we show that a MAR on an imported intermediate input can lead not only to increased imports of the intermediate good, but also to increased output in the final good market using the input. The intuition is that increasing output of the final good helps to make the MAR less binding and this reduces the marginal cost of production in the final good market. Thus our results buttress the point made in Krishna, Roy and Thursby (1997) that the effects of MARs depend crucially on the details of their implementation. Handle: RePEc:nbr:nberwo:6184 Template-Type: ReDIF-Paper 1.0 Title: Household Portfolio Allocation Over the Life Cycle Classification-JEL: E21; G11 Author-Name: James M. Poterba Author-Person: ppo19 Author-Name: Andrew A. Samwick Author-Person: psa395 Note: AG Number: 6185 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6185 File-URL: http://www.nber.org/papers/w6185.pdf File-Format: application/pdf Publication-Status: published as Household Portfolio Allocation over the Life Cycle, James M. Poterba, Andrew Samwick. in Aging Issues in the United States and Japan, Ogura, Tachibanaki, and Wise. 2001 Abstract: In this paper, we analyze the relationship between age and portfolio structure for households in the US. We focus on both the probability that households of different ages own particular portfolio assets and the fraction of their net worth allocated to each asset category. We distinguish between age and cohort effects using data from the repeated cross-sections of the Federal Reserve Board's Surveys of Consumer Finances. We present two broad conclusions. First, there are important differences across asset classes in both the age-specific probabilities of asset ownership and in the portfolio shares of different assets at different ages. The notnion that all assets can be treated as identical from the standpoint of analyzing household wealth accumulation is not supported by the data. Institutional factors, asset liquidity, and evolving investor tastes must be recognized in modeling asset demand. These factors could affect analyses of overall household saving as well as the composition of this saving. Second, there are evident differences in the asset ownership probabilities of different birth cohorts. Currently, older households were more likely to hold corporate stock, and less likely to hold tax-exempt bonds, than younger households at any given age. These differences across cohorts are important to recognize when analyzing asset accumulation profiles. Handle: RePEc:nbr:nberwo:6185 Template-Type: ReDIF-Paper 1.0 Title: Anonymous Market and Group Ties in International Trade Classification-JEL: F10 Author-Name: Alessandra Casella Author-Person: pca496 Author-Name: James E. Rauch Author-Person: pra166 Note: ITI Number: 6186 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6186 File-URL: http://www.nber.org/papers/w6186.pdf File-Format: application/pdf Publication-Status: published as "Anonymous Market and Group Ties in International Trade" , Journal of International Economics, Vol. 58 (October 2002): 19-47. Abstract: When trade involves differentiated products, preferential ties to a group settled abroad facilitate an exporter's entry into the foreign market by providing information and access to distribution channels. This contrasts with the difficulties experienced by an unattached producer unfamiliar with the foreign environment. Inspired by the role of coethnic ties and business groups in East Asia, we build a simple general equilibrium model of trade that formalizes this observation. Output is generated through bilateral matching o agents spanning a spectrum of types. Domestic matching is perfect--every trader knows the type of all others and can approach whomever he chooses, but international matching is random--every trader lacks the information to choose his partner's type. However, group ties allow perfect matching abroad to a minority of individuals who have access to them and can decide whether or not to exploit them. We show that in the absence of ties the existence of informational barriers reduces the volume of trade. By increasing trade, group ties are beneficial to the economy as a whole, but have significant distributional effects. On average, group members benefit, but some may lose; non-members lose almost without exception, with the largest losses concentrated among those with the poorest domestic market niches. Handle: RePEc:nbr:nberwo:6186 Template-Type: ReDIF-Paper 1.0 Title: Managed Care and Health Care Expenditures: Evidence From Medicare Author-Name: Laurence C. Baker Author-Name: Sharmila Shankarkumar Note: EH Number: 6187 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6187 File-URL: http://www.nber.org/papers/w6187.pdf File-Format: application/pdf Publication-Status: published as Managed Care and Health Care Expenditures: Evidence from Medicare, 1990—1994, Laurence C. Baker, Sharmila Shankarkumar. in Frontiers in Health Policy Research, Volume 1, Garber. 1998 Abstract: Increases in the activity of managed care organizations are likely to have a number of implications for the structure and functioning of the US health care market. One possibility is that increases in managed care activity may have 'spillover effects,' influencing the performance of the entire health care delivery system, so that care for both managed care and non-managed-care patients is affected. Some discussions of Medicare reform have incorporated spillover effects as a way that increasing Medicare HMO enrollment could contribute to savings for Medicare. This paper investigates the relationship between HMO market share and expenditures for the care of beneficiaries enrolled in traditional fee-for-service Medicare. We find that increases in system-wide HMO market share (including Medicare and non-Medicare enrollment) are associated with declines in both Part A and Part B fee-for-service expenditures. The fact that managed care can influence expenditures for this population suggests that managed care activity can have broad effects on the entire health care market. Increases in Medicare HMO market share are linked with increases in Part A expenditures and with small decreases in Part B. This suggests that any spillovers directly associated with Medicare HMO enrollment are small. For general health care policy discussions, these results suggest assessment of new policies should account not only for the effects of managed care on enrollees, but also for its system-wide effects. For Medicare policy discussions, these findings imply previous results that showed the existence of large spillover effects associated with increases in Medicare HMO market share, but did not account for system-wide managed care activity and relied on older data, overstated the magnitude of actual Medicare spillovers. Handle: RePEc:nbr:nberwo:6187 Template-Type: ReDIF-Paper 1.0 Title: Doing Without Money: Controlling Inflation in a Post-Monetary World Classification-JEL: E21; E52 Author-Name: Michael Woodford Author-Person: pwo3 Note: EFG ME PE Number: 6188 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6188 File-URL: http://www.nber.org/papers/w6188.pdf File-Format: application/pdf Publication-Status: published as Review of Economic Dynamics, Vol. 1 (1998): 173-219. Abstract: This paper shows that it is possible to analyze equilibrium inflation determination without any reference to either money supply or demand, as long as one specifies policy in terms of a Wicksellian' interest-rate feedback rule. This approach should be of considerable interest, as central banks now generally agree that conventional monetary aggregates are of little use as targets or even indicators for monetary policy, owing to the instability of money demand relations in economies with well-developed financial markets." The paper's central result is an approximation theorem, showing the existence, for a simple monetary model, of a well-behaved cashless limit' in which the money balances held to" facilitate transactions become negligible. Inflation in the cashless limit is shown to be a function of the gap between the natural rate' of interest, determined by the supply of goods and opportunities for intertemporal substitution, and a time-varying parameter of the interest-rate rule indicating the tightness of monetary policy. Inflation can be completely stabilized, in principle, by adjusting the policy parameter so as to track variation in the natural rate. Under such a regime, instability of money demand has little effect upon equilibrium inflation, and need not be monitored by the central bank. Handle: RePEc:nbr:nberwo:6188 Template-Type: ReDIF-Paper 1.0 Title: Capital Income Taxation and Risk-Taking in a Small Open Economy Classification-JEL: E6; E62 Author-Name: Patrick K. Asea Author-Name: Stephen J. Turnovsky Author-Person: ptu5 Note: IFM PE Number: 6189 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6189 File-URL: http://www.nber.org/papers/w6189.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 68, no. 1 (April 1998): 55-90. Abstract: How do capital income taxes affect household portfolio choice and growth? We" approach this question within the context of a stochastic model of a small open economy in" which taxes on income from domestic capital (equity) and foreign bonds affect household" portfolio choice, welfare and the growth rate of the economy. The theoretical and numerical" analysis demonstrates the important role that risk plays in determining the mean and variability" of growth as well as the conditions under which a higher tax rate can be welfare improving. To" shed more light on the complex theoretical interaction between taxes and risk-taking we estimate" a reduced-form multinomial probit model of household portfolio choice using the method of" simulated moments. The empirical evidence is in stark contrast to the conventional wisdom " we find that higher taxes make it less likely that the household will hold risky assets." Handle: RePEc:nbr:nberwo:6189 Template-Type: ReDIF-Paper 1.0 Title: Entry Decisions in the Generic Pharmaceutical Industry Classification-JEL: L65; L21 Author-Name: Fiona M. Scott Morton Note: IO Number: 6190 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6190 File-URL: http://www.nber.org/papers/w6190.pdf File-Format: application/pdf Publication-Status: published as RAND Journal of Economics, Vol.30, no.3 (1999). Abstract: In this paper I use data on all generic drug approvals granted from 1984- 1994 to examine whether heterogeneity among potential generic entrants can be used to predict which firms will choose to enter a particular market. The findings suggest that a firm's portfolio characteristics, namely, its previous experience with a drug or therapy reduces the cost of preparing an ANDA and increases the probability of entry. A subsidiary's parent's experience is not generally significant in predicting entry of the subsidiary. Firms also prefer entering markets that are similar, in terms of revenue and sales to hospitals, to markets already in their portfolios. On both scientific and marketing dimensions evidence shows that firms are specializing. I explore several different ways of constructing the set of potential entrants and find the results are not affected by methodological variation. Standard IO theory suggests that profits per entrant will decline in the number of entrants. Previous research has found that generic prices depend on the number of generic entrants, and the results presented here show that the total number of entrants increases with the size of the market (revenue). These findings imply that generic firms face a negative competition externality which makes their expectations about who else might be planning to enter any given market important in the entry decision. The limited evidence on entrant beliefs supports this conjecture as do several features of a regulatory upheaval when firms began entering different markets than they had in the past. Handle: RePEc:nbr:nberwo:6190 Template-Type: ReDIF-Paper 1.0 Title: Juvenile Crime and Punishment Classification-JEL: K42 Author-Name: Steven D. Levitt Author-Person: ple59 Note: LE PE Number: 6191 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6191 File-URL: http://www.nber.org/papers/w6191.pdf File-Format: application/pdf Publication-Status: published as Journal of Political Economy, Vol. 106, no. 6 (December 1998): 1156-1185. Abstract: Over the last two decades the punitiveness of the juvenile justice system has declined" substantially relative to the adult courts. During that same time period juvenile violent crime" rates have grown almost twice as quickly as adult crime rates. This paper examines the degree to" which those two empirical observations are related, finding that changes in relative punishments" can account for 60 percent of the differential growth rates in juvenile and adult violent crime" between 1978 and 1993. Juvenile offenders appear to be at least as responsive to criminal" sanctions as adults. Moreover, sharp changes in criminal involvement with the transition from" the juvenile to the adult court suggest that deterrence, rather than simply incapacitation important role. There does not, however, appear to be a strong relationship between the" punitiveness of the juvenile justice system that a cohort faces and the extent of criminal" involvement for that cohort later in life. Handle: RePEc:nbr:nberwo:6191 Template-Type: ReDIF-Paper 1.0 Title: Investment Tax Incentives, Prices, and the Supply of Capital Goods Classification-JEL: E62 Author-Name: Austan Goolsbee Author-Person: pgo49 Note: PE Number: 6192 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6192 File-URL: http://www.nber.org/papers/w6192.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 113, no. 1 (February 1998): 121-148. Abstract: Using data on the prices of capital goods, this paper shows that much of the benefit of" investment tax incentives does not go to investing firms but rather to capital suppliers through" higher prices. The reduction in the cost of capital from a 10 percent investment tax credit" increases equipment prices 3.5-7.0 percent. This lasts several years and is largest for assets with" large order backlogs, low import competition, or with a large fraction of buyers able to use" investment subsidies. Capital goods workers' wages rise, too. Instrumental variables estimates" of the short-run supply elasticity are around 1 and can explain the traditionally small estimates of" investment demand elasticities. In absolute value, the demand elasticity implied here exceeds 1." Handle: RePEc:nbr:nberwo:6192 Template-Type: ReDIF-Paper 1.0 Title: The Predictive Validity of Subjective Probabilities of Survival Classification-JEL: I12; J14 Author-Name: Michael D. Hurd Author-Person: phu137 Author-Name: Kathleen McGarry Author-Person: pmc264 Note: AG Number: 6193 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6193 File-URL: http://www.nber.org/papers/w6193.pdf File-Format: application/pdf Publication-Status: published as as "Evaluation of the Subjective Probabilities of Survival in the Health and Retirement Study," Journal of Human Resources, 1995, Vol. 30 - Special issue on Health and Retirement Study, pp. S268-S292 Publication-Status: published as The Economic Journal, Vol. 112, no. 482 (October 2002): 966-985 Abstract: Although expectations (or subjective probability distributions) play a prominent role in models of decision-making under uncertainty, we have very little data on them and are instead forced to base our models on unverifiable assumptions. Macroeconomic models often assume rational expectations, and microeconomic models base estimation on observable population probabilities. An alternative to these assumptions is to query individuals directly about their subjective probabilities, and to use the responses as measures of expectations. Prior research on subjective survival probabilities in the Health and Retirement Study has shown that reported probabilities aggregate closely to life table values and covary appropriately with known risk factors. This paper uses panel data to study the evolution of subjective survival probabilities and their ability to predict actual mortality. We find that respondents modify appropriately their survival probabilities based on new information. The onset of a new disease condition or the death of a parent between the waves is associated with a reduction in survival probabilities. The subjective survival probabilities also predict actual survival. Those who survived in our panel reported probabilities approximately 50 percent greater at baseline than those who died. Although more needs to be learned about properties of subjective probabilities we conclude that they show considerable promise for estimating models of decision-making under uncertainty. Handle: RePEc:nbr:nberwo:6193 Template-Type: ReDIF-Paper 1.0 Title: Adverse Selection in Durable Goods Markets Classification-JEL: D82; L15 Author-Name: Igal Hendel Author-Name: Alessandro Lizzeri Author-Person: pli177 Note: IO Number: 6194 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6194 File-URL: http://www.nber.org/papers/w6194.pdf File-Format: application/pdf Publication-Status: published as American Economic Review, Vol. 89, no. 5 (December 1999): 1097-1115. Abstract: An undesirable feature of Akerlof style models of adverse selection is that ownership of" used cars is independent of preferences and is therefore ad hoc. We present a dynamic model" that incorporates the market for new goods. Consumers self-select into buying new or used" goods making ownership of used goods endogenous. We show that, in contrast with Akerlof and" in agreement with reality, the used market never shuts down and that the volume of trade can be" quite substantial even in cases with severe informational asymmetries. By incorporating the" market for new goods, the model lends itself to a study of the effects of adverse selection on" manufacturers' incentives. We find that manufacturers may gain from adverse selection. We" also give an example in which the market allocation under adverse selection is socially optimal. " An extension of the model to a world with many brands that differ in reliability leads to testable" predictions of the effects of adverse selection. We show that unreliable car brands have steeper" price declines and lower volumes of trade. Handle: RePEc:nbr:nberwo:6194 Template-Type: ReDIF-Paper 1.0 Title: Immigration and the Quality of Jobs Classification-JEL: J61; J23 Author-Name: Daniel S. Hamermesh Author-Person: pha78 Note: LS Number: 6195 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6195 File-URL: http://www.nber.org/papers/w6195.pdf File-Format: application/pdf Publication-Status: published as "Immigration and the Quality of Jobs" Hamermesh, Daniel S.; Help or hinderance? The economic implications of immigration for African Americans, 1998, pp. 75-106, New York: Russell Sage Foundation Abstract: A precondition for the absence of labor-market competition between immigrants and natives is that they differ in their willingness to accept work that offers different amenities. The implications of a model embodying this assumption are that immigrants will be observed experiencing inferior workplace amenities than natives, and that the presence of immigrants will affect the amenities natives enjoy. I examine these possibilities on three sets of household data: The merged May and June 1991 Current Population Surveys, giving information on the timing of work over the day by nativity; the June 1991 CPS merged with industry data on workplace injury rates and durations; and the Quality of American Life Surveys of 1971 and 1978, providing workers' responses about their satisfaction with particular aspects of their jobs. The analysis clearly shows that observationally similar immigrants and native whites enjoy very similar packages of amenities: The precondition for noncompetition between immigrants and natives does not exist. Also, a greater immigrant concentration has no consistent effect on the amenities natives enjoy. African-Americans, however, receive a set of workplace amenities that is inferior to that of otherwise similar native whites and immigrants. Handle: RePEc:nbr:nberwo:6195 Template-Type: ReDIF-Paper 1.0 Title: Restraining the Leviathan: Property Tax Limitation in Massachusetts Author-Name: David M. Cutler Author-Person: pcu64 Author-Name: Douglas W. Elmendorf Author-Person: pel79 Author-Name: Richard J. Zeckhauser Author-Person: pze7 Note: PE Number: 6196 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6196 File-URL: http://www.nber.org/papers/w6196.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 71, no. 3 (March 1999): 313-334. Abstract: Proposition 2.5, a ballot initiative approved by Massachusetts voters in 1980 sharply reduced local property taxes and restricted their future growth. We examine the effects of Proposition 2.5 on municipal finances and assess voter satisfaction with these effects. We find that Proposition 2.5 had a smaller impact on local revenues and spending than expected; amendments to the law and a strong economy combined to boost both property tax revenue and state aid above forecasted amounts. Proposition 2.5 did reduce local revenues substantially during the recession of the early 1990s. There were two reasons for voter discontent with the pre-Proposition 2.5 financing system: agency losses from inability to monitor government were perceived to be high, and individuals viewed government as inefficient because their own tax burden was high. Through override votes, voters approved substantial amounts of taxes above the limits imposed by the Proposition. Handle: RePEc:nbr:nberwo:6196 Template-Type: ReDIF-Paper 1.0 Title: Optimal Management of Indexed and Nominal Debt Classification-JEL: H6; E6 Author-Name: Robert J. Barro Author-Person: pba251 Note: EFG ME PE Number: 6197 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6197 File-URL: http://www.nber.org/papers/w6197.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. Publication-Status: published as Robert J. Barro, 2002. "Optimal Management of Indexed and Nominal Debt," Central Banking, Analysis, and Economic Policies Book Series, in: Fernando Lefort & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Serie (ed.), Indexation, Inflation and Monetary Policy, edition 1, volume 2, chapter 5, pages 135-150 Central Bank of Chile. Publication-Status: published as Robert Barro, 2003. "Optimal Management of Indexed and Nominal Debt," Annals of Economics and Finance, Society for AEF, vol. 4(1), pages 1-15, May. Abstract: A tax-smoothing objective is used to assess the optimal consumption of public debt with respect to maturity and contingencies. This objective motivates the government to make its debt payout contingent on the levels of public outlay and the tax base. If these contingencies are present, but asset prices of non-contingent indexed debt are stochastic, then full tax smoothing dictates an optimal maturity structure of the non-contingent debt. If the certainty-equivalent outlays are the same for each period then the government should guarantee equal real payouts in each period, that is, the debt takes the form of indexed consols. This structure insulates the government's budget constraint from unpredictable variations in the market prices of indexed bonds of various maturities. If contingent debt is precluded, then the government may want to depart from a consol maturity structure to exploit covariances among public outlay, the tax base, and the term structure of real interest rates. However, if moral hazard is the reason for the preclusion of contingent debt, then this consideration also deters exploitation of these covariances and tends to return the optimal solution to the consol maturity structure. The issue of nominal bonds may allow the government to exploit the covariances among public outlay, the tax base, and the rate of inflation. But if moral-hazard explains the absence of contingent debt, then the same reasoning tends to make nominal debt issue undesirable. The bottom line is that an optimal-tax approach to public debt favors bonds that are indexed and long term. Handle: RePEc:nbr:nberwo:6197 Template-Type: ReDIF-Paper 1.0 Title: Schooling Quality in a Cross Section of Countries Classification-JEL: I21; J24 Author-Name: Jong-Wha Lee Author-Person: ple164 Author-Name: Robert J. Barro Author-Person: pba251 Note: PE Number: 6198 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6198 File-URL: http://www.nber.org/papers/w6198.pdf File-Format: application/pdf Publication-Status: published as Lee, Jong-Wha and Robert J. Barro. "Schooling Quality In A Cross-Section Of Countries," Economica, 2001, v68(271,Nov), 465-488. Abstract: We investigate the determinants of educational quality in a panel data set that includes" output and input measures for a broad number of countries. The results show that family inputs" and school resources are closely related to school outcomes, as measured by internationally" comparable test scores, repetition rates, and drop-out rates. Family characteristics income and education of parents, have strong effects on student performance. The findings also" indicate that more school resources - especially smaller class sizes but probably also higher" teacher salaries and greater school length - enhance educational outcomes." Handle: RePEc:nbr:nberwo:6198 Template-Type: ReDIF-Paper 1.0 Title: Environmental Taxes and the Double-Dividend Hypothesis: Did You Really Expect Something for Nothing? Classification-JEL: H2; Q2 Author-Name: Don Fullerton Author-Person: pfu10 Author-Name: Gilbert E. Metcalf Note: PE Number: 6199 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6199 File-URL: http://www.nber.org/papers/w6199.pdf File-Format: application/pdf Publication-Status: published as Chicago-Kent Law Review, Vol. 73, no. 1 (1998): 221-256. Abstract: The double-dividend hypothesis' suggests that increased taxes on polluting activities can provide two kinds of benefits. The first is an improvement in the environment, and the second is an improvement in economic efficiency from the use of environmental tax revenues to reduce other taxes such as income taxes that distort labor supply and saving decisions. In this paper, we make four main points. First, the validity of the double-dividend hypothesis cannot logically be settled as a general matter. Second, the focus on revenue in this literature is misplaced. We demonstrate that three policies have equivalent impacts on the environment and on labor supply. One of those policies raises revenue from the environmental component of the reform, another loses revenue, and a third has no revenue associated with it. Third, what matters is the creation of privately-held scarcity rents. Policies that raise product prices through some restriction on behavior may create scarcity rents. Unless those rents are captured by the government, such policies are less efficient at ameliorating an environmental problem than are policies that do not create rents. Finally, we distinguish between two types of command and control regulations on the basis of whether they create scarcity rents. Handle: RePEc:nbr:nberwo:6199 Template-Type: ReDIF-Paper 1.0 Title: Capital Income Taxes and the Benefit of Price Stability Classification-JEL: E3; E5 Author-Name: Martin Feldstein Author-Person: pfe112 Note: EFG ME PE Number: 6200 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6200 File-URL: http://www.nber.org/papers/w6200.pdf File-Format: application/pdf Publication-Status: published as The Costs and Benefits of Price Stability. Felstein, Martin, ed., Chicago: The University of Chicago Press, 1999, pp. 9-40. Publication-Status: published as Capital Income Taxes and the Benefit of Price Stability, Martin S. Feldstein. in The Costs and Benefits of Price Stability, Feldstein. 1999 Abstract: Going from low inflation to price stability involves a short term loss (associated with the" higher unemployment rate required to reduce the inflation) and results in a series of welfare gains" in all future years. The primary source of these gains is the reduction in the distortions that result" from the interaction of tax rules and inflation. The paper quantifies the gains associated with" reducing the distortion in favor of current consumption rather than future consumption and in" favor of the consumption of owner occupied housing. These tax effects are much larger than the" effect on the demand for money that is generally emphasized in studies of the distorting effect of" inflation. The seignorage gains are also small in comparison to other effects of the tax-inflation" interaction. The estimates imply that the annual value of the net benefits of going from two" percent inflation to price stability are about one percent of GDP. Discounting this growing" stream of benefits at a real discount rate of five percent implies a net present value of about more" than 30 percent of GDP. All estimates of the short-run cost of going from low inflation to price" stability are less than this. Handle: RePEc:nbr:nberwo:6200 Template-Type: ReDIF-Paper 1.0 Title: Monetary Policy Regimes and Economic Performance: The Historical Record Classification-JEL: E42; E52 Author-Name: Michael D. Bordo Author-Person: pbo243 Author-Name: Anna J. Schwartz Note: ME Number: 6201 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6201 File-URL: http://www.nber.org/papers/w6201.pdf File-Format: application/pdf Publication-Status: published as Handbook of Macroeconomics, John Taylor and Michael Woodford (eds.), vol. 1 A, pp. 149-234, 1999. Abstract: Monetary policy regimes encompass the constraints or limits imposed by custom, institutions and nature on the ability of the monetary authorities to influence the evolution of macroeconomic aggregates. This paper surveys the historical experience of both international and domestic (national) aspects of monetary regimes from the nineteenth century to the present. We first survey the experience of four broad international monetary regimes: the classical gold standard 1880-1914; the interwar period with a short lived restoration of the gold standard; the postwar Bretton Woods international monetary system (1946-1971) indirectly linked to gold; the recent managed float period (1971- float period (1971-1995). We then present in some detail the institutional arrangements and policy actions of the Federal Reserve in the United States as an important example of a domestic policy regime. The survey of the Federal Reserve subdivides the demarcated broad international policy regimes into a number of episodes. A salient theme in our survey is that the convertibility rule or principle that dominated both domestic and international aspects of the monetary regime before World War I has since declined in its relevance At the same time, policymakers within major nations placed more emphasis on stabilizing the real economy. In the post-World War II era, the complete abandonment of the convertibility principle, and its replacement by the goal of full employment, combined with the legacy of inadequate policy tools and theory from the interwar period set the stage for the Great Inflation of the 1970s. The lessons from that experience have convinced monetary authorities to reemphasize the goal of low inflation, as it were, committing themselves to rule-like behavior. Handle: RePEc:nbr:nberwo:6201 Template-Type: ReDIF-Paper 1.0 Title: Chinese Rural Industrial Productivity and Urban Spillovers Classification-JEL: O10 Author-Name: Yusheng Peng Author-Name: Lynne G. Zucker Author-Person: pzu2 Author-Name: Michael R. Darby Note: PR Number: 6202 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6202 File-URL: http://www.nber.org/papers/w6202.pdf File-Format: application/pdf Abstract: Chinese rural industry has grown three times faster than national GDP, surpassing agriculture in size in 1987, and now nearing half of the total Chinese economy. We use a rich, new county-level data set to explore this dramatic growth. We find that a Cobb-Douglas production function explains over 80 percent of across-county variation in 1991 rural industrial output per capita, with little role for idiosyncratic regional or provincial fixed effects. There is a very large effect on productivity from being near cities (30 to 35 percent higher productivity for a county one standard deviation above average in nearness to population centers) due to embodied technology transfer from urban residents. We find strong support for the hypothesis that saving from past agricultural income has provided start-up capital for rural enterprises. However, higher land-labor ratios lead to greater allocation of labor and capital to agriculture instead of industry, although induced inflow of migrants reduces the effect on industrial labor. Nearness to cities and more education increase capital and labor in rural industry. Substantial explanatory power (one third or more) for industrial labor and capital is attributed to provincial fixed effects, possibly reflecting local commercial and migration policies. Handle: RePEc:nbr:nberwo:6202 Template-Type: ReDIF-Paper 1.0 Title: Vertical Multinationals and Host-Country Characteristics Classification-JEL: F12; F23 Author-Name: Kevin H. Zhang Author-Name: James R. Markusen Author-Person: pma528 Note: ITI Number: 6203 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6203 File-URL: http://www.nber.org/papers/w6203.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, Vol. 59, no. 2 (August 1999): 233-252 Abstract: The literature on multinationals and developing countries has examined the causality" running from direct investment to changes in country characteristics (wages skills, etc.) and also the opposite direction of causality, from existing country characteristics to" inward direct investment. This paper contributes to the second line of research the question of what country characteristics, particularly market size and labor-force" composition, attract inward investment. This approach is motivated by the empirical" observation that the poorest countries attract a far smaller share of world direct investment than" their share of income. Small markets receive less investment per capita than larger ones. We" develop a model that generates both stylized facts in equilibrium, suggesting the existence of a" development trap for small, skilled-labor-scarce countries. Handle: RePEc:nbr:nberwo:6203 Template-Type: ReDIF-Paper 1.0 Title: Stronger Protection or Technological Revolution: What is Behind the Recent Surge in Patenting? Classification-JEL: O30; O32 Author-Name: Samuel Kortum Author-Person: pko74 Author-Name: Josh Lerner Author-Person: ple60 Note: PR Number: 6204 Creation-Date: 1997-09 Order-URL: http://www.nber.org/papers/w6204 File-URL: http://www.nber.org/papers/w6204.pdf File-Format: application/pdf Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 48 (June 1998): 247-304. Research Policy, Vol. 28 (January 1999): 1-22 (condensed version printedas "What is Behind the Recent Surge in Parenting?"). Abstract: We investigate the cause of an unprecedented surge of U.S. patenting over the past" decade. Conventional wisdom points to the establishment of the Court of Appeals of the" Federal Circuit by Congress in 1982. We examine whether this institutional change benefitted patent holders, explains the burst in U.S. patenting. Using both international and" domestic data on patent applications and awards, we conclude that the evidence is not favorable" to the conventional view. Instead, it appears that the jump in patenting reflects an increase in" U.S. innovation spurred by changes in the management of research. Handle: RePEc:nbr:nberwo:6204 Template-Type: ReDIF-Paper 1.0 Title: Foreign Direct Investment and Employment: Home Country Experience in the United States and Sweden Classification-JEL: F23; J23 Author-Name: Magnus Blomstrom Author-Person: pbl88 Author-Name: Gunnar Fors Author-Name: Robert E. Lipsey Author-Person: pli259 Note: ITI EEE Number: 6205 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6205 File-URL: http://www.nber.org/papers/w6205.pdf File-Format: application/pdf Publication-Status: published as Economic Journal, Vol. 107, no. 445 (November 1997): 1787-1797. Abstract: We compare the relation between foreign affiliate production and parent employment in U.S. manufacturing multinationals with that in Swedish firms. U.S. multinationals appear to have allocated some of their more labor intensive operations selling in world markets to affiliates in developing countries, reducing the labor intensity in their home production. Swedish multinationals produce relatively little in developing countries and most of that has been for sale within host countries with import-substituting trade regimes. The great majority of Swedish affiliate production is in high-income countries, the U.S. and Europe, and is associated with more employment, particularly blue-collar employment, in the parent companies. The small Swedish-owned production that does take place in developing countries is also associated with more white-collar employment at home. The effects on white-collar employment within the Swedish firms have grown smaller and weaker over time. Handle: RePEc:nbr:nberwo:6205 Template-Type: ReDIF-Paper 1.0 Title: Trends in the Well-Being of American Women, 1970-1995 Classification-JEL: J16; J31 Author-Name: Francine D. Blau Author-Person: pbl16 Note: LS Number: 6206 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6206 File-URL: http://www.nber.org/papers/w6206.pdf File-Format: application/pdf Publication-Status: published as Francine D. Blau, 1998. "Trends in the Well-Being of American Women, 1970-1995," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 112-165, March. Abstract: This paper examines the trends in the well-being of American women over the last 25 years, a time of significant changes in the relative economic status of women and in the labor market as a whole. A broad range of indicators are considered to capture changes in women's well-being in the family as well as in the labor market. For virtually all age and education groups, substantial evidence is obtained of rising gender equality in labor market outcomes, notably labor force participation, wages, and occupational distributions. Broad evidence is also found of greater gender parity within married couple families as the housework time of husbands increased relative to wives' and the relative wages of wives rose compared to their husbands'. However, parallel to the recent evidence of the declining labor market position of lower skilled men, there has been a similar deterioration in the economic status of less educated women, especially high school dropouts. Their labor force participation rates and wages have risen at a much slower pace than those of more highly educated women, while their incidence of single headship has increased much more rapidly. These findings for less educated women serve to underscore the widening gap between more and less skilled Americans of both sexes, as well as to emphasize its broad dimensions. Handle: RePEc:nbr:nberwo:6206 Template-Type: ReDIF-Paper 1.0 Title: Trends in Male Labor Force Participation And Retirement: Some Evidence On The Role Of Pensions And Social Security In The 1970's And 1980's Classification-JEL: H55; J14 Author-Name: Patricia M. Anderson Author-Name: Alan L. Gustman Author-Person: pgu327 Author-Name: Thomas L. Steinmeier Note: AG LS Number: 6208 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6208 File-URL: http://www.nber.org/papers/w6208.pdf File-Format: application/pdf Publication-Status: published as Journal of Labor Economics, Vol. 17, no. 4 (October 1999): 757-783. Abstract: This paper estimates the effects on steady state retirement by men of changes in pension" plans and social security in the 1970's and 1980's. Work incentives associated with pension" coverage and plan characteristics are calculated primarily from the 1969-79 Retirement History" Study and the 1983 and 1989 Surveys of Consumer Finances. Simulations with a structural" retirement model suggest that the long run effects of changes in pension plans and social security" account for about a quarter of the reduction in full-time work by men in their early sixties none of the trend for those age 65. Handle: RePEc:nbr:nberwo:6208 Template-Type: ReDIF-Paper 1.0 Title: Immigrants and Natives in General Equilibrium Trade Models Classification-JEL: F1; F2 Author-Name: Daniel Trefler Author-Person: ptr44 Note: ITI LS Number: 6209 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6209 File-URL: http://www.nber.org/papers/w6209.pdf File-Format: application/pdf Publication-Status: published as In The Immigration Debate: Studies on the Economic, Demographic, and Fiscal Effects of Immigration, Smith, James P., ed., Washington, D.C.: National Academy Press, 1998, pp. 206-238. Abstract: This paper makes three observations about international trade and immigration. (i)" Borjas has argued that immigration may yield a net social benefit even though it hurts those less-skilled workers who directly compete with immigrants. I show that this closed-economy" argument unravels when imbedded in the Ricardian or Heckscher-Ohlin models of international" trade. (ii) Following Wood and Feenstra-Hanson, I argue that within an industry those goods" produced abroad use more unskilled labor than those goods produced in the United States. How" much more depends on whether the good is produced in a developed or developing country. " After transparently incorporating this into a new factor content study I find that changes in U.S." trade patterns almost certainly battered wages of those at the very bottom of the skill ladder. (iii)" Despite globalization pressures, I find little evidence of earnings convergence for a sample of 75" countries over the 1963-92 period. This holds true even after controlling for education and workers' industry of affiliation. Handle: RePEc:nbr:nberwo:6209 Template-Type: ReDIF-Paper 1.0 Title: Financial Constraints and Stock Returns Classification-JEL: G12; G32 Author-Name: Owen Lamont Author-Name: Christopher Polk Author-Person: ppo238 Author-Name: Jesus Saa-Requejo Note: AP ME Number: 6210 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6210 File-URL: http://www.nber.org/papers/w6210.pdf File-Format: application/pdf Publication-Status: published as Lamont, O., C. Polk and J. Saa-Requejo. "Financial Constraints And Stock Returns," Review of Financial Studies, 2001, v14(2,Jun), 529-554. Abstract: We test whether the impact of financial constraints on firm value is observable in asset" returns. We form portfolios of firms based on observable characteristics related to financial" constraints, and test for common covariation in the stock returns of these firms. Using several" different measures of financial constraints, we find that financially constrained firms' stock" returns move together over time. This financial constraint factor in stock returns is related to not well explained by, other empirically identified factors in asset returns. Constrained firms" have remarkably low returns in our sample period of 1968-1995, both unconditionally and in the" context of empirical asset pricing models. Financial constraint returns help explain returns" following initial public offerings and dividend omissions. We find only limited support for the" hypothesis that the relative performance of financially constrained firms reflects monetary" policy, credit conditions, and business cycles. Handle: RePEc:nbr:nberwo:6210 Template-Type: ReDIF-Paper 1.0 Title: Free Trade vs. Strategic Trade: A Peek into Pandora's Box Classification-JEL: F13 Author-Name: Gene M. Grossman Author-Person: pgr21 Author-Name: Giovanni Maggi Author-Person: pma1315 Note: ITI Number: 6211 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6211 File-URL: http://www.nber.org/papers/w6211.pdf File-Format: application/pdf Publication-Status: published as Global Integration and Competition, R. Sato, R.V. Ramachandran and K. Minoeds., Boston/Dordrecht/London: Kluwer Academic Publishers, 1998. Abstract: We investigate whether a welfare-maximizing government ought to pursue a program of" strategic trade intervention or instead commit itself to free trade when domestic firms will have an opportunity to manipulate the government's choice of the level of" intervention. Domestic firms may overinvest in physical and knowledge capital in a regime of" strategic intervention in order to influence the government's choice of subsidy. In the event commitment to free trade may be desirable even in settings where profit-shifting would be" possible. We analyze the desirability of such a commitment when the government is well" informed about firms' types and actions, and when it suffers from an informational disadvantage." Handle: RePEc:nbr:nberwo:6211 Template-Type: ReDIF-Paper 1.0 Title: Young and Out in Germany: On the Youths' Chances of Labor Market Entrance in Germany Classification-JEL: J21; C25 Author-Name: Wolfgang Franz Author-Name: Joachim Inkmann Author-Person: pin35 Author-Name: Winfried Pohlmeier Author-Person: ppo129 Author-Name: Volker Zimmermann Note: LS Number: 6212 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6212 File-URL: http://www.nber.org/papers/w6212.pdf File-Format: application/pdf Publication-Status: published as Wolfgang Franz & Joachim Inkmann & Winfried Pohlmeier & Volker Zimmermann, 2000. "Young and Out in Germany (On Youths? Chances of Labor Market Entrance in Germany)," NBER Chapters, in: Youth Employment and Joblessness in Advanced Countries, pages 381-426 National Bureau of Economic Research, Inc. Abstract: This paper deals with the labor market entrance of young people in the Federal Republic" of Germany. The main focus is on failures during this stage. First, an overview of the youth" labor market in Germany is given. Then, the transition from vocational training to work is" analyzed: The duration of the first spell of non-employment after completion of formal" vocational training is analyzed by means of a proportional hazard function approach. Besides the" strong influence of the human capital variables there is a striking effect of the family background" of the youths. The following section addresses the extent to which early failures in the work" history have long-lasting effects on future incomes. There is some evidence for a permanent" income reduction. Handle: RePEc:nbr:nberwo:6212 Template-Type: ReDIF-Paper 1.0 Title: Are CEOs Really Paid Like Bureaucrats? Author-Name: Brian J. Hall Author-Name: Jeffrey B. Liebman Author-Person: pli184 Note: CF LS PR Number: 6213 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6213 File-URL: http://www.nber.org/papers/w6213.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics (August 1998). Abstract: A common view of CEO compensation is that there is essentially no correlation between firm performance and CEO pay. This calls into question an important component of effective corporate governance. This zero correlation' belief is based on the widely cited result that CEO wealth rises by only $3.25 for every $1,000 increase in firm value (Jensen and Murphy, 1990b) and findings that the elasticity of CEO salary and bonus with respect to firm market value is only 0.1. We use a new 15-year panel data set of CEOs in the largest U.S. firms and focus on a broad measure of compensation' that includes changes in the value of CEO holdings of stock and stock options. We find very large pay to performance sensitivity. For example, for a moderate change in firm performance (moving from a median stock price performance to a 70th percentile performance), the compensation of the median CEO in our sample increases by more than 50 percent, which represents an increase in CEO wealth of $1.8 million. We estimate a median elasticity of CEO compensation with respect to firm value of 3.9 for 1994. This value is about 30 times larger than previous elasticity estimates that ignore the effects of changes in the value of stock stock option holdings. We also document that both the level of CEO compensation and th sensitivity of CEO compensation to firm performance have grown dramatically over the past 15 years. In our sample, the direct compensation (salary and bonus plus stock option grants) of the mean (median) CEO increased by 209 percent (136 percent) from 1980 to 1994. Because of the large increase in stock option awards and in the value of stock holdings in the past 15 years, measures of CEO pay-to-performance sensitivity increased during the period by factors of 2 to nearly 7. Handle: RePEc:nbr:nberwo:6213 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in France Author-Name: Didier Blanchet Author-Person: pbl98 Author-Name: Louis-Paul Pele Note: AG PE Number: 6214 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6214 File-URL: http://www.nber.org/papers/w6214.pdf File-Format: application/pdf Publication-Status: published as Social Security and Retirement in France, Didier Blanchet, Louis-Paul Pele. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: Among numerous retirement schemes in France, the Social Security general regime" covers all wage earners from the private sector, about 65% of workers. In this regime are eligible for a full pension at 65, or between 60 and 65 if they contributed to the regime for at" least 37.5 years. For people between 60 and 65 who do not fulfill this condition still possible but with a downward adjustment of benefits. Our computations show that early" retirement adjustment rules give strong incentives to go on working until being eligible for a full" pension, even if mandatory complementary schemes soften incentives, especially for executives." These results are consistent with empirical hazard rates, showing two spikes at 60 and 65 with the change in the retirement age induced by the 1983 reform. Handle: RePEc:nbr:nberwo:6214 Template-Type: ReDIF-Paper 1.0 Title: The Benefits of Privatization: Evidence from Mexico Author-Name: Rafael La Porta Author-Person: pla273 Author-Name: Florencio Lopez-de-Silane Author-Person: plo137 Note: CF PE Number: 6215 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6215 File-URL: http://www.nber.org/papers/w6215.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics (November 1999): 1193-1242. Abstract: Criticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as firms seek to roll back generous labor contracts. Using data for all 218 non-financial privatizations that took place in Mexico between 1983 and 1991 we find that privatized firms quickly bridge the pre-privatization performance gap with industry-matched control groups. For example, privatization is followed by a 24 percentage point increase in the ratio of operating income to sales. We roughly decompose those gains in profitability as follows: 10 percent of the increase is due to higher product prices; 33 percent of the increase represents a transfer from laid-off workers; and productivity gains account for the residual 57 percent. Transfers from society to the firm are partially offset by taxes which absorb slightly over half the gains in operating income. Finally, we also find evidence indicating that deregulation is associated with faster convergence to industry benchmarks. Handle: RePEc:nbr:nberwo:6215 Template-Type: ReDIF-Paper 1.0 Title: Trade and Environment: Bargaining Outcomes from Linked Negotiations Author-Name: Lisandro Abrego Author-Name: Carlo Perroni Author-Person: ppe298 Author-Name: John Whalley Author-Person: pwh8 Author-Name: Randall M. Wigle Author-Person: pwi292 Note: ITI Number: 6216 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6216 File-URL: http://www.nber.org/papers/w6216.pdf File-Format: application/pdf Publication-Status: published as Abrego, Lisandro, Carlo Perroni, John Whalley and Randall Wigle. "Trade And Environment: Bargaining Outcomes From Linked Negotiations," Review of International Economics, 2001, v9(3,Aug), 414-428. Abstract: Recent literature has explored both physical and policy linkage between trade and environment. Here we explore linkage through leverage in bargaining, whereby developed countries can use trade policy threats to achieve improved developing country environmental management, while developing countries can use environmental concessions to achieve trade disciplines in developed countries. We use a global numerical simulation model to compute bargaining outcomes from linked trade and environment negotiations, comparing developed-developing country bargaining only on trade policy with joint bargaining on both trade and domestic environmental policies. Results indicate joint gains from expanding the trade bargaining set to include environment, opposite to the current developing country reluctance to negotiate in the World Trade Organization on this issue. However, compared to bargaining with cash side payments, linking trade and environment through negotiation on policy instruments provides significantly inferior developing country outcomes. Thus, a trade and environment policy-linked negotiation may be better than an environment-only negotiation, but negotiating compensation to developing countries for environmental restraint would be better. We provide sensitivity and further analysis of our results and indicate what other factors could qualify our main finding, including the erosion of the MFN principle involved with environmentally based trade actions. Handle: RePEc:nbr:nberwo:6216 Template-Type: ReDIF-Paper 1.0 Title: Gradual Incorporation of Information into Stock Prices: Empirical Strategies Classification-JEL: G1; G14 Author-Name: Sara Fisher Ellison Author-Name: Wallace P. Mullin Note: AP Number: 6218 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6218 File-URL: http://www.nber.org/papers/w6218.pdf File-Format: application/pdf Publication-Status: published as Ellison, Sara Fisher and Wallace P. Mullin. "Gradual Incorporation Of Information: Pharmaceutical Stocks And The Evolution Of President Clinton's Health Care Reform," Journal of Law and Economics, 2001, v44(1,Apr), 89-129. Abstract: This paper explores environments in which either the revelation or diffusion of information, or its incorporation into stock prices, is gradual, and develops appropriate estimation techniques. This paper has implications both for event study methodology and for understanding the process by which stock prices incorporate information. Two environments are highlighted. First, information is often not revealed in one announcement but rather through a process of gradual public revelation, which may not be completely observable by a researcher. We examine the effect of the evolution of the Clinton health care reform proposal on pharmaceutical stock prices. We estimate the expected path of market-adjusted pharmaceutical prices over September 1992- October 1993 by isotonic regression, and find that the major portion of the decline in stock prices occurred gradually, and did not correspond to identified news events. Second, the trading process itself may incorporate private information into stock prices gradually. That is an implication of the Kyle (1985) model, in which one or a small number of informed traders use their market power over their private information to maximize profits dynamically. We use the functional form predictions from Kyle in our estimation, and the results from a sample of targets of tender offers are consistent with the model. Handle: RePEc:nbr:nberwo:6218 Template-Type: ReDIF-Paper 1.0 Title: Discount Rate Heterogeneity and Social Security Reform Classification-JEL: H55; E21 Author-Name: Andrew A. Samwick Author-Person: psa395 Note: AG PE Number: 6219 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6219 File-URL: http://www.nber.org/papers/w6219.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, Vol. 57 (October 1998): 117-146. Abstract: As many countries consider the privatization of existing pay-as-you-go Social Security systems, the option to make participation in the new system voluntary may appeal to policy makers who need to obtain the political support of their workers. A critical issue in evaluating such a reform and its economic consequences is the unobserved heterogeneity in households' preferences for consumption. This paper estimates the distribution of rates of time preference from the wealth data in the Survey of Consumer Finances 1992 and a flexible life-cycle model of consumption under income uncertainty. The estimated distribution is then applied to a variety of reform proposals that incorporate a voluntary choice of how much to contribute to a dedicated retirement account and a rebate of the existing payroll tax that increases with the magnitude of the contribution. The main finding is that an appropriate menu of reform plans can induce the voluntary buy out of 84 percent of existing payroll taxes at an immediate cost to national saving of less than 0.25 percentage point. Handle: RePEc:nbr:nberwo:6219 Template-Type: ReDIF-Paper 1.0 Title: The Misallocation of Housing Under Rent Control Classification-JEL: R20; D45 Author-Name: Edward L. Glaeser Author-Person: pgl9 Author-Name: Erzo F. P. Luttmer Author-Person: plu27 Note: PE Number: 6220 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6220 File-URL: http://www.nber.org/papers/w6220.pdf File-Format: application/pdf Publication-Status: published as Glaeser, Edward L. and Erzo F. P. Luttmer. "The Misallocation Of Housing Under Rent Control," American Economic Review, 2003, v93(4,Sep), 1027-1046. Abstract: When there are binding price controls, there are shortages and the allocation of goods across consumers may not be efficient. In general, the misallocation costs of price controls are first order, while the classic welfare losses due to undersupply are second order. This paper presents an empirical methodology for estimating the degree of misallocation of housing units due to rent control in New York City. This methodology involves comparing the relative consumption of different demographic groups within the rent controlled area with the relative levels of consumption in a free market area. Our best estimate of the costs of rent control in New York due to the misallocation of rental apartments is 200 dollars per apartment annually. Handle: RePEc:nbr:nberwo:6220 Template-Type: ReDIF-Paper 1.0 Title: Jobless Growth: Appropriability, Factor Substitution, and Unemployment Classification-JEL: E0; E2 Author-Name: Ricardo J. Caballero Author-Person: pca44 Author-Name: Mohamad L. Hammour Note: EFG Number: 6221 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6221 File-URL: http://www.nber.org/papers/w6221.pdf File-Format: application/pdf Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 48 (June 1998): 51-94. Abstract: A central determinant of the political economy of capital-labor relations is the appropriability of specific quasi-rents. " This paper is concerned with the general-equilibrium interaction of appropriability and characteristics of technology namely, the embodiment of technology in capital and capital-labor substitutability in the technological menu. Technological embodiment means that the supply of capital is effectively much less elastic in the short than in the long run, and is therefore more exposed to appropriability; technology choice implies that an attempt at appropriating capital will induce a substitution away from labor in the long run, and constitutes a mechanism to thwart appropriation. Shifts in European labor relations in the last three decades offer a good laboratory to explore the empirical relevance of those mechanisms. The evolution of the labor share, the profit rate, the capital/output ratio, and unemployment which we examine more particularly in the case of France appears highly supportive. Handle: RePEc:nbr:nberwo:6221 Template-Type: ReDIF-Paper 1.0 Title: Option Hedging Using Empirical Pricing Kernels Author-Name: Joshua V. Rosenberg Author-Person: pro389 Author-Name: Robert F. Engle Note: AP Number: 6222 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6222 File-URL: http://www.nber.org/papers/w6222.pdf File-Format: application/pdf Publication-Status: published as Rosenberg, Joshua V. and Robert F. Engle. "Empirical Pricing Kernels," Journal of Financial Economics, 2002, v64(3,Jun), 341-372. Abstract: This paper develops a method for option hedging which is consistent with time-varying preferences and probabilities. The preferences are expressed in the form of an empirical pricing kernel (EPK), which measures the state price per unit probability, while probabilities are derived from an estimated stochastic volatility model of the form GARCH components with leverage. State prices are estimated using the flexible risk-neutral density method of Rosenberg (1995) and a daily cross-section of option premia. Time-varying preferences over states are linked to a dynamic model of the underlying price to obtain a one-day ahead forecast of derivative price distributions and minimum variance hedge ratios. Empirical results suggest that risk aversion over S&P500 return states is substantially higher than risk aversion implied by Black-Scholes state prices and probabilities using long run estimates of S&P500 return moments. It is also found that the daily level of risk aversion is strongly positively autocorrelated, negatively correlated with S&P500 price changes,and positively correlated with the spread between implied and objective volatilities. Hedging results reveal that typical hedging techniques for out-of-the-money S&P500 index options, such as Black-Scholes or historical minimum variance hedging, are inferior to the EPK hedging method. Thus, time-varying preferences and probabilities appear to be an important factor in the day-to-day pricing of S&P500 options. Handle: RePEc:nbr:nberwo:6222 Template-Type: ReDIF-Paper 1.0 Title: Trade and Security,I: Anarchy Classification-JEL: D7; F1 Author-Name: James E. Anderson Author-Person: pan2 Author-Name: Douglas Marcouiller Author-Person: pma51 Note: ITI Number: 6223 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6223 File-URL: http://www.nber.org/papers/w6223.pdf File-Format: application/pdf Abstract: Market exchange is subject to an endogenously determined level of predation which impedes specialization and gains from trade. We construct a model in which utility-maximizing agents opt between careers in production and careers in predation. Three types of equilibria may emerge: autarky (with no predation and no defense), insecure exchange equilibria (with predation and defense), and secure exchange equilibria (in which defense completely deters predation). Trading equilibria, two-thirds of them secure, are supported only in a narrow range of security parameter values. Since changes in the technologies of defense and predation have terms of trade effects, some producers may be hurt by enhanced security. We show cases of immiserizing security' in which producers in large poor countries are harmed by increased security. Handle: RePEc:nbr:nberwo:6223 Template-Type: ReDIF-Paper 1.0 Title: Both Sides of Corporate Diversification: The Value Impacts of Geographic and Industrial Diversification Classification-JEL: F3; G3 Author-Name: Gordon M. Bodnar Author-Person: pbo613 Author-Name: Charles Tang Author-Name: Joseph Weintrop Note: IFM Number: 6224 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6224 File-URL: http://www.nber.org/papers/w6224.pdf File-Format: application/pdf Abstract: This paper examines the effect of geographic and industrial diversification on firm value for a sample of over 20,000 firm-year observations of U.S. corporations from 1987-1993. Our" multivariate tests indicate the average value of a firm with international operations is 2.2% higher than comparable domestic single activity firms, while the average value of a firm with activities in multiple industrial segments is 5.4% lower than a portfolio of comparable focused domestic firms in similar activities. More importantly, we demonstrate that failure to control simultaneously for both dimensions of diversification results in over-estimation of the negative value impact of industrial diversification, but has little impact on estimates of the positive value impact of geographic diversification. Handle: RePEc:nbr:nberwo:6224 Template-Type: ReDIF-Paper 1.0 Title: Consumption vs. Production of Insurance Classification-JEL: I1 Author-Name: Tomas Philipson Author-Person: pph37 Author-Name: George Zanjani Note: EH Number: 6225 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6225 File-URL: http://www.nber.org/papers/w6225.pdf File-Format: application/pdf Abstract: Many forms of insurance are produced by groups themselves rather than purchased in the market. For example, coverage for workers compensation provided by employers is often produced by the employer, in the sense that the employer bears some or all of the financial risk associated with the insurance. This paper generalizes the theory of insurance to analyze what factors determine whether groups produce insurance internally by self-insuring or consume it by purchasing coverage in the market. The" theory makes cross-sectional predictions on which firms will choose to produce insurance, as well as how prices and loss experience will vary with the production decision; the theory also predicts which lines of insurance are likely to be associated with internal production and those in which coverage will be provided entirely by the market. Furthermore, the time-series properties of claims under various degrees of internal" production are analyzed, revealing a more pronounced lag structure for claims under partial risk-bearing than under full self-insurance or market insurance. These predictions are generated by a fundamental diseconomy of scale that offsets the standard scale economy associated with risk-pooling. The tradeoff facing a group in its make-or-buy decision is that self-insurance rewards self-protection but forgoes the pooling of risk" with members outside the group. Handle: RePEc:nbr:nberwo:6225 Template-Type: ReDIF-Paper 1.0 Title: The Surprising Symmetry of Gross Job Flows Classification-JEL: E32 Author-Name: Christopher L. Foote Author-Person: pfo133 Note: LS ME Number: 6226 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6226 File-URL: http://www.nber.org/papers/w6226.pdf File-Format: application/pdf Abstract: A large literature attempts to explain the asymmetric behavior of job destruction and job creation over the business cycle. This paper contends that much of this asymmetry is spurious. Analyzing gross flows in relation to the net flow virtually eliminates cyclical asymmetry in annual data and substantially reduces it in quarterly data. To the extent that gross flows are symmetric, there is a fundamental identification problem in moving between gross flows and the net flow that is reminiscent of the earlier empirical literature on sectoral shifts. Handle: RePEc:nbr:nberwo:6226 Template-Type: ReDIF-Paper 1.0 Title: What Accounts for the Variation in Retirement Wealth Among U.S. Households? Classification-JEL: E2; D1 Author-Name: B. Douglas Bernheim Author-Person: pbe81 Author-Name: Jonathan Skinner Author-Person: psk23 Author-Name: Steven Weinberg Note: AG PE Number: 6227 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6227 File-URL: http://www.nber.org/papers/w6227.pdf File-Format: application/pdf Publication-Status: published as Bernheim, B. Douglas, Jonathan Skinner and Steven Weinberg. "What Accounts For The Variation In Retirement Wealth Among U.S. Households?," American Economic Review, 2001, v91(4,Sep), 832-857. Abstract: Household survey data consistently depict large variations in saving and wealth among households with similar socio-economic characteristics. Within the context of the life" cycle hypothesis, families with identical lifetime resources might choose to accumulate" different levels of wealth for a variety of reasons, including variation in time preference rates risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages income replacement rates, and so forth. These factors can be divided into a small number of" classes, each with a distinctive implication concerning the relation between accumulated wealth" and the shape of the consumption profile. By examining this relation empirically for the presence or absence of these particular explanations for differences in wealth. Using" the Panel Study of Income Dynamics and the Consumer Expenditure Survey little support for life cycle models that rely on the above factors to explain wealth variation. " The data are, however, consistent with rule of thumb' or mental accounting' theories of" wealth accumulation. Handle: RePEc:nbr:nberwo:6227 Template-Type: ReDIF-Paper 1.0 Title: Evaluating Density Forecasts of Inflation: The Survey of Professional Forecasters Classification-JEL: E3; C1 Author-Name: Francis X. Diebold Author-Person: pdi1 Author-Name: Anthony S. Tay Author-Person: pta22 Author-Name: Kenneth F. Wallis Author-Person: pwa27 Note: EFG Number: 6228 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6228 File-URL: http://www.nber.org/papers/w6228.pdf File-Format: application/pdf Publication-Status: published as Cointegration, Causality and Forecasting: A Festschrift in Honor of Clive W. J. Granger, 76-90, Engleand, R. and H. Whie, eds., Oxford: Oxford University Press, 1999. Abstract: Since 1968, the Survey of Professional Forecasters has asked respondents to provide a" complete probability distribution of expected future inflation. We evaluate the adequacy of" those density forecasts using the framework of Diebold, Gunther and Tay (1997). The analysis" reveals several interesting features of the density forecasts in relation to realized inflation including several deficiencies of the forecasts. The probability of a large negative inflation" shock is generally overestimated, and in more recent years the probability of a large shock of" either sign is overestimated. Inflation surprises are serially correlated eventually adapt. Expectations of low inflation are associated with reduced uncertainty. The" results suggest several promising directions for future research. Handle: RePEc:nbr:nberwo:6228 Template-Type: ReDIF-Paper 1.0 Title: The Value of Children and Immigrants in a Pay-As-You-Go Pension System: A Proposal for a Partial Transition to a Funded System Classification-JEL: H55; J6 Author-Name: Hans-Werner Sinn Author-Person: psi146 Note: PE Number: 6229 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6229 File-URL: http://www.nber.org/papers/w6229.pdf File-Format: application/pdf Publication-Status: published as Sinn, Hans-Werner. "The Value of Children and Immigrants in a Pay-as-You-Go Pension System: A Proposal for a Partial Transition to a Funded System." Ifo Studien 47, 1 (2001): 77-94. Abstract: It is shown that the net fiscal externality created by an additional member of a pay-as-you-go pension system that is endowed with individual accounts equals the gross contributions" of this member. In Germany, this is an amount of about DM 175,000. The paper uses this" information to design a hybrid funded system that avoids this externality and improves the" public pension system under equity and efficiency considerations. Handle: RePEc:nbr:nberwo:6229 Template-Type: ReDIF-Paper 1.0 Title: Business Cycles Observed and Assessed: Why and How They Matter Classification-JEL: E32; E37 Author-Name: Victor Zarnowitz Note: EFG Number: 6230 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6230 File-URL: http://www.nber.org/papers/w6230.pdf File-Format: application/pdf Abstract: Business cycles are fairly well defined yet they have no generally accepted explanation. Natural disasters and then financial crises constituted the earliest perceived reasons for economic instability. Classical literature developed in late 19th-early 20th century favored the idea of self-sustaining or endogenous fluctuations, but recent models stress outside factors and random shocks. In an ideal world under assumptions of perfect competition, flexible prices, national expectations, and money neutrality, real business cycles due to shocks to technology are possible and perhaps also shocks to tastes, relative prices, and fiscal variables. In the real world, there is evidence that many sticky prices and wages coexist with many flexible prices flexible prices and wages. Movements in levels of prices can be stabilizing even while movements in expected changes of prices are destabilizing. Cyclical movements in nominal aggregates point to the role of money. The premise of passive money clashes with the view that monetary policy is very important. Recent history shows monetary factors influence the course of economic activity along with real and expectational variables. Certain variables have long been critically important in business cycles as shown by historical studies within and across countries: profits, investment, interest rates, money and credit. Leads and lags, nonlinearities and asymmetries also had demonstrably eminent roles, which they retain. Multiple-shock models are superior to single-shock models. Finally, recessions have high social costs in terms of unemployment and depressed growth. Expansions can also be costly by causing imbalances and excesses. Structural and policy problems may seem to be separable from these cyclical problems but often are not. Handle: RePEc:nbr:nberwo:6230 Template-Type: ReDIF-Paper 1.0 Title: Trade versus Investment Liberalization Classification-JEL: F12; F23 Author-Name: James R. Markusen Author-Person: pma528 Note: ITI Number: 6231 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6231 File-URL: http://www.nber.org/papers/w6231.pdf File-Format: application/pdf Abstract: Despite several theoretical contributions and considerable informal empirical evidence" to the contrary, a notion that trade and investment are substitutes persists in trade policy" analysis. This paper considers the liberalization of commodity trade versus liberalization" allowing direct investment versus the two together. For a relatively skilled-labor-scarce" economy, I show that trade and investment liberalization are quite different together are in a sense complements. The intuition may be that direct investment provides such" a country with crucial inputs (knowledge-intensive producer services) without which the" country cannot effectively exploit its abundant factors in certain industries." Handle: RePEc:nbr:nberwo:6231 Template-Type: ReDIF-Paper 1.0 Title: Liberalization and Incentives for Labor Migration: Theory with Applications to NAFTA Classification-JEL: F22; F15 Author-Name: James R. Markusen Author-Person: pma528 Author-Name: Stephen Zahniser Note: ITI Number: 6232 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6232 File-URL: http://www.nber.org/papers/w6232.pdf File-Format: application/pdf Publication-Status: published as Trade and Factor Mobility, deMelo, J., R. Faini and K. Zimmerman, eds., London: Cambridge University Press, 1999, pp. 263-294. Abstract: One of the motivations for NAFTA from the US point of view was to reduce the" incentives for Mexican migration into the US. Unskilled rural males are a primary source of" illegal immigration and also Mexico's relatively abundant factor. This group should therefore" be made better off by trade and investment liberalization according to the traditional" Heckscher-Ohlin model. Existing evidence, along with best guesses of many experts in the" area, suggest that NAFTA is unlikely to have a significant positive impact on this group least not within the time frame of several decades. We draw on a number of recent theoretical" contributions in order to offer reasons why NAFTA may not raise the wages of unskilled" Mexican workers. Handle: RePEc:nbr:nberwo:6232 Template-Type: ReDIF-Paper 1.0 Title: The Determinants and Implications of Corporate Cash Holdings Author-Name: Tim Opler Author-Name: Lee Pinkowitz Author-Name: Rene Stulz Author-Name: Rohan Williamson Note: CF Number: 6234 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6234 File-URL: http://www.nber.org/papers/w6234.pdf File-Format: application/pdf Publication-Status: published as Journal of Financial Economics, Vol. 52, no. 1 (April 1999): 3-46. Abstract: We examine the determinants and implications of holdings of cash and marketable" securities by publicly traded U.S. firms in the 1971-1994 period. Firms with strong growth" opportunities and riskier cash flows hold relatively high ratios of cash to total assets. Firms" that have the greatest access to the capital markets (e.g. large firms and those with credit" ratings) tend to hold lower ratios of cash to total assets. These results are consistent with the" view that firms hold liquid assets to ensure that they will be able to keep investing when cash" flow is too low relative to planned investment and when outside funds are expensive. The" short run impact of excess cash on capital expenditures, acquisition spending and payouts to" shareholders is small. The main reason that firms experience large changes in excess cash is" the occurrence of operating losses. There is no evidence that risk management and cash" holdings are substitutes. Handle: RePEc:nbr:nberwo:6234 Template-Type: ReDIF-Paper 1.0 Title: Firm-level Evidence on Productivity Differentials, Turnover, and Exports in Taiwanese Manufacturing Classification-JEL: O12; D24 Author-Name: Bee Yan Aw Author-Name: Xiaomin Chen Author-Name: Mark J. Roberts Author-Person: pro190 Note: PR Number: 6235 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6235 File-URL: http://www.nber.org/papers/w6235.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, Vol. 66, October 2001, pp. 51-86. Abstract: The manufacturing sector in Taiwan has a market structure composed of large numbers of small firms, a focus on less capital-intensive industries, and a dense network of firms specializing in subcontracting and trading services. It has been argued that these features lower the start-up costs of new manufacturing firms. Recent theoretical models of market evolution show that low sunk entry and exit costs act to speed firm turnover by facilitating entry and increasing the pressure on inefficient firms to exit. As a result, low cost entry and exit may help improve aggregate productivity by allowing for the rapid transfer of resources from less to more efficient producers within an industry. Using comprehensive firm-level panel data from the Taiwanese Census of Manufactures for 1981, 1986, and 1991, we measure differences in total factor productivity among entering, exiting, and continuing firms, and quantify the contribution of firm turnover to industry productivity improvements. We find notable differences in productivity across manufacturing firms that are reflected in turnover patterns in both the domestic and export market. Cohorts of new firms have lower average productivity than incumbents but are also a heterogeneous group. The more productive members of the group survive and in many cases their productivity converges to the productivity level of incumbents. Exiting firms are less productive than survivors. Exporters, including firms that recently left the export market, are more productive than nonexporters. These patterns are consistent with the view that both the domestic and export market sort out high productivity from low productivity firms and that the export market is a tougher screen. Handle: RePEc:nbr:nberwo:6235 Template-Type: ReDIF-Paper 1.0 Title: Finance and Development in an Emerging Market: Argentina and the Interwar Period Author-Name: Gerardo della Paolera Author-Person: pde864 Author-Name: Alan M. Taylor Author-Person: pta46 Note: IFM Number: 6236 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6236 File-URL: http://www.nber.org/papers/w6236.pdf File-Format: application/pdf Publication-Status: published as Coatsworth, John H. and Alan M. Taylor (eds.) Latin America and the world economy since 1800, Series on Latin American Studies. Cambridge: David Rockefeller Center for Latin American Studies; distributed by Harvard University Press, 1998. Abstract: The long-run economic performance of Argentina since World War One has been relatively disappointing until recently. Yet, in the interwar period, signs of future retardation and" recurring crises were not so obvious. It is often claimed that an unmitigated success was the" remarkably rapid growth of domestic financial markets. In conventional models deepening industrializing economy such as" Argentina's. Yet the promise of this trend was unfulfilled: first the outbreak of World War One" and then the Great Depression proved a setback for the fledgling financial system deterioration set in after 1940. In this paper we trace the course of financial development using" historical and international comparisons and we analyze both macro- and microeconomic aspects" of financial intermediation. Handle: RePEc:nbr:nberwo:6236 Template-Type: ReDIF-Paper 1.0 Title: State Fiscal Institutions and the U.S. Municipal Bond Market Classification-JEL: H61; H74 Author-Name: James M. Poterba Author-Person: ppo19 Author-Name: Kim S. Rueben Author-Person: pru27 Note: PE Number: 6237 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6237 File-URL: http://www.nber.org/papers/w6237.pdf File-Format: application/pdf Publication-Status: published as Fiscal Institutions and Fiscal Performance. Poterba, James M., and Jurgen von Hagen, eds., Chicago: The University of Chicago Press, 1999,pp. 181-207. Publication-Status: published as Poterba, James M. and Kim S. Rueben. "Fiscal News, State Budget Rules, And Tax-Exempt Bond Yields," Journal of Urban Economics, 2001, v50(3,Nov), 537-562. Publication-Status: published as State Fiscal Institutions and the U.S. Municipal Bond Market, James M. Poterba, Kim Rueben. in Fiscal Institutions and Fiscal Performance, Poterba and von Hagen. 1999 Abstract: This paper presents new evidence on the effect of state fiscal institutions, particularly balanced-budget rules and restrictions on state debt issuance, on the yields on state general obligation bonds. We analyze information from the Chubb Relative Value Survey, which contains relative tax-exempt yields on the bonds issued by different states over the period 1973-1996. We find that states with tighter anti-deficit rules, and more restrictive provisions on the authority of state legislatures to issue debt, pay lower interest rates on their bonds. The interest rate differential between a state with a very strict anti-deficit fiscal constitution, and one with a lax constitution, is between fifteen and twenty basis points. States with binding revenue limits tend to face higher borrowing rates by approximately the same amount, while states with expenditure limits face lower borrowing costs. Thus fiscal restraints that control expenditures are viewed favorably by bond market participants, while those that restrict taxes, and therefore might interfere with the state's ability to repay interest, result in higher borrowing costs. The effect of strict fiscal institutions is particularly evident when a state's economy is weak. These results provide important evidence that bond market participants consider fiscal institutions in assessing the risk characteristics of tax-exempt bonds, and further support the view that fiscal institutions have real effects on fiscal policy outcomes. Handle: RePEc:nbr:nberwo:6237 Template-Type: ReDIF-Paper 1.0 Title: Is Bank-Centered Corporate Governance Worth It? A Cross-Sectional Analysis of the Performance of Japanese Firms during the Asset Price Deflation Author-Name: Jun-Koo Kang Author-Name: Rene M. Stulz Note: CF Number: 6238 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6238 File-URL: http://www.nber.org/papers/w6238.pdf File-Format: application/pdf Publication-Status: published as Kang, Jun-Koo and Rene M. Stulz. "Do Banking Shocks Affect Borrowing Firm Performance? An Analysis Of The Japanese Experience," Journal of Business, 2000, v73(1,Jan), 1-23. Abstract: This paper examines the determinants of firm stock-price performance from 1990 to 1993" in Japan. During that period of time, the typical firm on the Tokyo Stock Exchange lost more" than half its value and banks experienced severe adverse shocks. We show that firms whose debt" had a higher fraction of bank loans in 1989 performed worse from 1990 to 1993. This effect is" statistically as well as economically significant and holds when we control for a variety of" variables that affect performance during this period of time. We find that firms that were more" bank-dependent also invested less during this period than other firms. This evidence points to an" adverse effect of bank-centered corporate governance, namely that firms suffer when their banks" are experiencing difficulties. Handle: RePEc:nbr:nberwo:6238 Template-Type: ReDIF-Paper 1.0 Title: Higher Tariffs, Lower Revenues? Analyzing the Fiscal Aspects of the "Great Tariff Debate of 1888" Classification-JEL: N71; H6 Author-Name: Douglas A. Irwin Author-Person: pir25 Note: DAE ITI Number: 6239 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6239 File-URL: http://www.nber.org/papers/w6239.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic History (March 1998). Abstract: After the Civil War, Congress justified high import tariffs (relative to their prewar levels)" as necessary in order to raise sufficient revenue to pay off the public debt. By the early 1880s the federal government was running large and seemingly intractable fiscal surpluses revenues" exceeded expenditures (including debt service and repurchases) by over 40 percent during that" decade. The political parties proposed alternative plans to deal with the surplus: the Democrats" proposed a tariff reduction to reduce customs revenue, the Republicans offered higher tariffs to" reduce imports and customs revenue. This paper examines this debate and attempts to determine" the revenue effects of the proposed tariff changes. The results indicate that the tariff and the price elasticity of U.S. import demand during the 1880s below the maximum revenue rate, and therefore a tariff reduction would have reduced customs" revenue. Handle: RePEc:nbr:nberwo:6239 Template-Type: ReDIF-Paper 1.0 Title: Projected Retirement Wealth and Savings Adequacy in the Health and Retirement Study Classification-JEL: J14; G23 Author-Name: James F. Moore Author-Name: Olivia S. Mitchell Author-Person: pmi73 Note: AG Number: 6240 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6240 File-URL: http://www.nber.org/papers/w6240.pdf File-Format: application/pdf Publication-Status: published as Forecasting Retirement Needs and Retirement Wealth, Mitchell, O.S., B. Hammond and A. Rappaport, eds., Pension Research Council, Philadelphia: University of Pennsylvania Press, 2000, pp. 68-94. Abstract: Low saving rates raise questions about Americans' ability to maintain consumption levels in old age. Using the Health and Retirement Study, this paper explores asset holdings among a nationally representative sample of people on the verge of retirement. Making reasonable projections about asset growth, we assess how much more people would need to save in order to preserve consumption levels after retirement. We find that the median older household has current wealth of approximately $325,000 including pensions, social security, housing, and other financial wealth, an amount projected to grow to about $380,000 by retirement at age 62. Nevertheless, our model suggests that this median household will still need to save 16% of annual earnings to preserve pre-retirement consumption. For retirement at age 65, assets are expected to be about $420,000 and required additional saving totals 7% of earnings per year. These summary statistics conceal extraordinary heterogeneity in both assets and saving needs in the older population. Older high wealth households have 45 times more assets than the poorest decile and this disparity increases with age. There are also large differences in prescribed saving targets, ranging from 38% of annual earnings for those in the lowest wealth decile to negative rates for the wealthiest decile. Handle: RePEc:nbr:nberwo:6240 Template-Type: ReDIF-Paper 1.0 Title: Foreign Direct Investment as a Catalyst for Industrial Development Author-Name: James R. Markusen Author-Person: pma528 Author-Name: Anthony J. Venables Author-Person: pve7 Note: ITI Number: 6241 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6241 File-URL: http://www.nber.org/papers/w6241.pdf File-Format: application/pdf Publication-Status: published as European Economic Review, Vol. 43 (1999): 335-356. Abstract: How does an FDI project affect local firms in the same industry? Competition in the" product and factor markets tends to reduce profits of local firms, but linkage effects to supplier" industries may reduce input costs and raise profits. This paper develops an analytical framework" to assess these effects. Circumstances in which FDI is complementary to local industry are" established, and it is shown how FDI may lead to the establishment of local industrial sectors. " These sectors may grow to the point where local production overtakes and forces out FDI plants. " Our results are consistent with the experience of a number of industrial sectors in the NICs." Handle: RePEc:nbr:nberwo:6241 Template-Type: ReDIF-Paper 1.0 Title: Impact of a Managed Behavioral Health Care Carve-Out: A Case Study of One HMO Classification-JEL: I11 Author-Name: Anne E. Brisson Author-Name: Richard G. Frank Author-Name: Elizabeth S. Notman Author-Name: Julie A. Gazmararian Note: EH Number: 6242 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6242 File-URL: http://www.nber.org/papers/w6242.pdf File-Format: application/pdf Abstract: In this study we examine a case study of a carve-out for mental health and substance abuse services between a local plan of a national HMO (N=120,213) and a local managed behavioral health care vendor (MBHC). This is one of the first studies which estimates the impact of an HMO carve-out on costs and patterns of MH/SA care. Three years of insurance claims data (1993-1995) were used for the analyses, with a new carve-out contract implemented in May 1994. The new carve-out arrangement included a new vendor, a change in the organizational structure of clinical services, and increased financial risk to the vendor for inpatient care. Descriptive and empirical analyses are reported on a continuously enrolled population (N=49,529). Results from the analyses showed the new carve-out arrangements had a significant impact on spending and utilization of services. Enrollees were 20% less likely to use MH/SA services after the implementation of the new carve-out, and inpatient MH/SA utilization dropped 50% under the new carve-out. Overall, MH/SA spending per enrollee dropped from approximately $4.90 per month to $2.20 per month. Outpatient MH/SA spending per user dropped 35% after the implementation of the new carve-out. Further research should be conducted to evaluate the impact on access and quality of care, given the substantial decrease in utilization and spending. Handle: RePEc:nbr:nberwo:6242 Template-Type: ReDIF-Paper 1.0 Title: International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns Author-Name: John M. Griffin Author-Name: Rene M. Stulz Note: AP Number: 6243 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6243 File-URL: http://www.nber.org/papers/w6243.pdf File-Format: application/pdf Publication-Status: published as Griffin, J. M. and R. M. Stulz. "International Competition And Exchange Rate Shocks: A Cross-Country Industry Analysis Of Stock Returns," Review of Financial Studies, 2001, v14(1,Spring), 215-241. Abstract: It is widely accepted that, for some industries, competition across countries is" economically important and that this competition is strongly affected by exchange rate changes." This paper explores the validity of this view using weekly stock return data on 320 industry pairs" in six countries from 1975 to 1997. It is found that common shocks to industries across countries" are more important than competitive shocks. Weekly exchange rate shocks explain almost" nothing of the relative performance of industries. Using returns measured over longer horizons the importance of exchange rate shocks increases slightly and the importance of common shocks" to industries increases more substantially. Both industry and exchange rate shocks are more" important for industries that produce goods traded internationally, but the importance of these" shocks is economically small for these industries as well. Handle: RePEc:nbr:nberwo:6243 Template-Type: ReDIF-Paper 1.0 Title: Growth, Distribution and Demography: Some Lessons from History Classification-JEL: D3; F1 Author-Name: Jeffrey G. Williamson Author-Person: pwi169 Note: DAE Number: 6244 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6244 File-URL: http://www.nber.org/papers/w6244.pdf File-Format: application/pdf Publication-Status: published as Explorations in Economic History, Vol. 35, no. 3 (July 1998): 241-271. Abstract: If we have learned anything from the recent outpouring of empirical growth equations is that life is far too complex to expect unconditional' convergence among all countries and at" all times. This fact motivates two questions. First, why has it taken economists so long to learn" the same lesson from the Kuznets Curve debate? No economist should expect an unconditional'" Kuznets Curve to emerge from the growth experience of all countries and at all times. The" industrial revolutionary forces thought to have an impact on inequality can be offset or reinforced" by demography, skill supply and globalization. This paper assesses the role of globalization and" demography via mass migrations. Second, why has it taken economists so long to learn that" demography influences growth? When treated properly, demography can be shown to have a" significant impact on GDP per capita growth. The answers to these two questions are sought by" looking at inequality and growth experience in the Old World, the New World last century and a half. Handle: RePEc:nbr:nberwo:6244 Template-Type: ReDIF-Paper 1.0 Title: Consumer Beliefs and Buyer and Seller Behavior in the Vehicle Inspection Market Classification-JEL: L14; L15 Author-Name: Thomas N. Hubbard Note: IO Number: 6245 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6245 File-URL: http://www.nber.org/papers/w6245.pdf File-Format: application/pdf Publication-Status: Published as "An Empirical Examination of Moral Hazard in the Vehicle Inspection Market", RAND Journal of Economic, Vol. 29, no. 2 (Summer 1998): 406-426. Abstract: Moral hazard exists in diagnosis-cure' markets because sellers have an incentive to" shade their reports of buyers' condition to increase the short-run demand for the treatments they" supply. The California vehicle emission inspection market offers a rare opportunity to examine" how incentives operate in such markets. This paper investigates why sellers help vehicles pass" inspections, focusing on multiperiod mechanisms such as those in reputation models. I show that" the demand individual firms face is sensitive to inspection outcomes. Consumers are 30% more" likely to return to a firm at which they previously passed than one at which they previously" failed. If, over the long run, an independent garage fails one additional vehicle per month decreases demand by 5.6 inspections per month on the average. This figure is lower for service" stations and new car dealers. Consumers' behavior is consistent with a learning model in which" they have diffuse initial priors regarding the probability they fail at individual firms Bayesian update using two to three inspection outcomes at each firm. Handle: RePEc:nbr:nberwo:6245 Template-Type: ReDIF-Paper 1.0 Title: Explaining National Differences in the Size and Industry Distribution of Employment Classification-JEL: L52; J21 Author-Name: Steven J. Davis Author-Person: pda15 Author-Name: Magnus Henrekson Author-Person: phe60 Note: LS Number: 6246 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6246 File-URL: http://www.nber.org/papers/w6246.pdf File-Format: application/pdf Publication-Status: published as Small Business Economics, Vol. 12, no. 1 (February 1999): 59-83. Abstract: What factors determine national differences in the size and industry distribution of employment? We stress the role of the economic policy environment as determined by business taxes, employment securitylaws, credit market regulations, the national pension system, wage-setting institutions and the size of the public sector. We characterize these aspects of the policy environment in Sweden prior to 1990-91 and compare them to the situation in other European countries and the United States. Our characterization and international comparisons show that Swedish policies strongly disfavored less capital-intensive firms, smaller firms, entry by new firms and individual and family ownership of business. We also compile evidence that these policies affect outcomes. Taking the U.S. industry distribution as a benchmark that reflects a comparatively neutral set of policies and institutions, Sweden's employment distribution in the mid-1980s is sharply tilted away from low-wage industries and industries with greater employment shares for smaller firms and establishments. Compared to other European countries, Sweden has an unusually high share of employment in large firms. Furthermore, the Swedish rate of self-employment in the 1970s and 80s is the lowest among all OECD countries. The institutional and policy factors emphasized by our study differ greatly across countries. This fact suggests that our approach can be fruitfully applied to other studies of national differences in industry and size structures and their evolution over time. As an example, the tax reform wave of the 1980s which largely evened out cross-country differences in corporate taxation among OECD countries offers some basis for projecting a movement towards greater similarity among wealthy countries in the size and industry distribution of employment. Handle: RePEc:nbr:nberwo:6246 Template-Type: ReDIF-Paper 1.0 Title: Capital Mobility and Exchange Market Intervention in Developing Countries Classification-JEL: F32; F36 Author-Name: Michael P. Dooley Author-Person: pdo13 Author-Name: Donald J. Mathieson Author-Name: Liliana Rojas-Suarez Note: IFM Number: 6247 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6247 File-URL: http://www.nber.org/papers/w6247.pdf File-Format: application/pdf Abstract: This paper develops a new technique for measuring changes in the degree of capital mobility confronting a developing country that has restrictions on capital flows and official ceilings on domestic interest rates. Because such official controls rule out the use of traditional interest rate parity conditions to measure changes in the degree of capital mobility, the analysis first examines an intertemporal model of an open economy. This model describes the linkages between the cost of undertaking disguised capital flows, the current account, capital controls, domestic and external financial market conditions, and the authorities' foreign exchange market interventions. The model suggests a means of measuring changes in the cost of undertaking disguised capital flows, based on the past history of differentials between external interest rates (adjusted for exchange rate changes) and domestic ceiling interest rates, provided that the authorities' foreign exchange market activities are incorporated into the analysis. Parameter estimates for Korea, Mexico, and the Philippines indicate that the real cost of undertaking disguised capital flows declined on average by nearly 70 percent between the early 1970s and the late 1980s. Handle: RePEc:nbr:nberwo:6247 Template-Type: ReDIF-Paper 1.0 Title: Simulating U.S. Tax Reform Classification-JEL: H20; C68 Author-Name: David Altig Author-Name: Alan J. Auerbach Author-Person: pau33 Author-Name: Laurence J. Kotlikoff Author-Person: pko44 Author-Name: Kent A. Smetters Author-Person: psm21 Author-Name: Jan Walliser Note: PE Number: 6248 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6248 File-URL: http://www.nber.org/papers/w6248.pdf File-Format: application/pdf Publication-Status: published as Altig, David. "Simulating Fundamental Tax Reform in the United States." American Economic Review, 2001, 91(3), pp. 574-95. Abstract: This paper uses a new large-scale dynamic simulation model to compare the equity, efficiency, and macroeconomic effects of five alternative to the current U.S. federal income tax. These reforms are a proportional income tax, a proportional consumption tax, a flat tax, a flat tax with transition relief, and a progressive variant of the flat tax called the 'X tax.' The model incorporates intragenerational heterogeneity and kinked budget constraints. It predicts major macroeconomic gains (including an 11 percent increase in long-run output) from replacing the federal tax system with a proportional consumption tax. Future middle- and upper-income classes gain from this policy, but initial older generations are hurt by the policy's implicit capital levy. Poor members of current and future generations also lose. The The flat tax, which adds a standard deduction to the consumption tax, makes all members of future generations better off, but at a cost of halving the economy's long-run output gain and harming initial older generations. Insulating these older generations through transition relief further reduces transition relief further reduces the long-run gains from tax reform. Switching to a proportional income tax without deductions and exemptions hurts current and future low lifetime earners, but helps everyone else. It also raises long-run output by over 5 percent. The X tax makes everyone better off in the long-run and also raises long-run output by 7.5 percent. But it harms initial older generations who bear its implicit wealth tax. Handle: RePEc:nbr:nberwo:6248 Template-Type: ReDIF-Paper 1.0 Title: Persistence of Medicare Expenditures Among Elderly Beneficiaries Classification-JEL: I11; J14 Author-Name: Alan M. Garber Author-Name: Thomas E. MaCurdy Author-Name: Mark B. McClellan Note: AG EH Number: 6249 Creation-Date: 1997-10 Order-URL: http://www.nber.org/papers/w6249 File-URL: http://www.nber.org/papers/w6249.pdf File-Format: application/pdf Publication-Status: published as Garber, Alan M., Thomas E. MaCurdy and Mark B. McClellan. "Persistence Of Medicare Expenditures Among Elderly Beneficiaries," Forum for Health Economics and Policy, 1998, v1, Article 6. Publication-Status: published as Persistence of Medicare Expenditures among Elderly Beneficiaries, Alan M. Garber, Thomas E. MaCurdy, Mark B. McClellan. in Frontiers in Health Policy Research, Volume 1, Garber. 1998 Abstract: The highly uneven distribution of Medicare payments among elderly beneficiaries, combined with the predictability of some of the expenditures, poses several challenges to the Medicare program. We present information about the distribution of Medicare expenditures among beneficiaries in specific years, accompanied by new evidence on the extent to which Medicare payments for the care of individual beneficiaries persist over long time periods. Our analysis is based on a longitudinal population of Medicare enrollees during the years from 1987 to 1995. We find that high-cost users accounted for a disproportionate share of the growth of Medicare Part A (hospital) payments during this period, but that an increase in the number of beneficiaries using covered services was largely responsible for the growth of Medicare Part B payments. Few beneficiaries are in the highest-cost categories for multiple years; the high mortality rates of people who use medical services heavily, whether the expenditures occur in one year or repeatedly, limits the extent of expenditure persistence. Even among survivors, it is unusual to remain in the highest-cost categories for multiple years. Nevertheless, individuals with high expenditures in one year are likely to have higher than average expenditures in other years, and expenditures are highly skewed even over a period of nine years. Any policy to reform Medicare will need to accomodate expenditure persistence in order to provide adequate coverage for all beneficiaries. Handle: RePEc:nbr:nberwo:6249 Template-Type: ReDIF-Paper 1.0 Title: Pricing and Hedging Derivative Securities in Incomplete Markets: An E-Aritrage Model Classification-JEL: G13 Author-Name: Dimitris Bertsimas Author-Name: Leonid Kogan Author-Person: pko698 Author-Name: Andrew W. Lo Author-Person: plo171 Note: AP Number: 6250 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6250 File-URL: http://www.nber.org/papers/w6250.pdf File-Format: application/pdf Publication-Status: published as Bertsimas, D., L. Kogan, and A. Lo. “Pricing and Hedging Derivative Securities in Incomplete Markets: An ε-Arbitrage approach." Operations Research 49 (2001): 372-397. Abstract: Given a European derivative security with an arbitrary payoff function and a corresponding set of" underlying securities on which the derivative security is based, we solve the dynamic replication problem: find a" self-financing dynamic portfolio strategy involving only the underlying securities that most closely" approximates the payoff function at maturity. By applying stochastic dynamic programming to the minimization of a" mean-squared-error loss function under Markov state-dynamics, we derive recursive expressions for the optimal-replication strategy that are readily implemented in practice. The approximation error or " " of the optimal-replication strategy is also given recursively and may be used to quantify the "degree" of market incompleteness. " To investigate the practical significance of these -arbitrage strategies examples including path-dependent options and options on assets with stochastic volatility and jumps. " Handle: RePEc:nbr:nberwo:6250 Template-Type: ReDIF-Paper 1.0 Title: On the Superiority of Corrective Taxes to Quantity Regulation Classification-JEL: H23; D62 Author-Name: Louis Kaplow Author-Person: pka44 Author-Name: Steven Shavell Author-Person: psh42 Note: PE Number: 6251 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6251 File-URL: http://www.nber.org/papers/w6251.pdf File-Format: application/pdf Publication-Status: published as Louis Kaplow & Steven Shavell, 2002. "On the Superiority of Corrective Taxes to Quantity Regulation," American Law and Economics Review, Oxford University Press, vol. 4(1), pages 1-17, January. Abstract: The traditional view of economists has been that corrective taxes are superior to direct" regulation of harmful externalities when the state's information about control costs is incomplete. " In recent years, however, many economists seem to have adopted the view that either corrective" taxes or quantity regulation could be superior to the other. One argument for this view with Weitzman (1974), holds only if the state is constrained to use a fixed tax rate (a linear tax" schedule) even when harm is nonlinear. Corrective taxes are indeed superior to quantity" regulation if -- as seems more plausible -- the state can impose a nonlinear tax equal to the" schedule of harm or can adjust the tax rate upon learning that it diverges from marginal harm. " Another argument, associated with Baumol and Oates (1988), is that quantity regulation gains" appeal when the state is uncertain about the harm caused by an externality. In this case however, a corrective tax schedule (equal to the expected harm schedule) is superior to quantity" regulation. Handle: RePEc:nbr:nberwo:6251 Template-Type: ReDIF-Paper 1.0 Title: I Just Ran Four Million Regressions Classification-JEL: O51; O52 Author-Name: Xavier X. Sala-i-Martin Author-Person: psa510 Note: EFG Number: 6252 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6252 File-URL: http://www.nber.org/papers/w6252.pdf File-Format: application/pdf Publication-Status: published as American Economic Review, Vol. 87, no. 2 (May 1997): 178-183. Abstract: In this paper I try to move away from the Extreme Bounds method of identifying" Instead of analyzing the" extreme bounds of the estimates of the coefficient of a particular variable distribution. My claim in this paper is that, if we do this, the picture emerging from the" empirical growth literature is not the pessimistic Robust" that we get with the" extreme bound analysis. Instead, we find that a substantial number of variables can be found" to be strongly related to growth. Handle: RePEc:nbr:nberwo:6252 Template-Type: ReDIF-Paper 1.0 Title: Technology and Bilateral Trade Classification-JEL: F11; F17 Author-Name: Jonathan Eaton Author-Person: pea5 Author-Name: Samuel Kortum Author-Person: pko74 Note: ITI Number: 6253 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6253 File-URL: http://www.nber.org/papers/w6253.pdf File-Format: application/pdf Abstract: We develop a Ricardian model to explore the role of trade in spreading the benefits of" innovation. The theory delivers an equation for bilateral trade that gravity specification, but identifies underlying parameters of technology. We estimate the" equation using trade in manufactures among the OECD. The parameter estimates allow us to" simulate the model to investigate the role of trade in spreading the benefits of innovation and to" examine the effects of lower trade barriers. Typically foreigners benefit by only a tenth as much" as the innovating country, but in some cases the benefits to close neighbors approach those of the" innovator. Handle: RePEc:nbr:nberwo:6253 Template-Type: ReDIF-Paper 1.0 Title: Monetary Policy Rules in Practice: Some International Evidence Classification-JEL: E58; F41 Author-Name: Richard Clarida Author-Person: pcl69 Author-Name: Jordi Gali Author-Person: pga43 Author-Name: Mark Gertler Author-Person: pge11 Note: EFG IFM ME Number: 6254 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6254 File-URL: http://www.nber.org/papers/w6254.pdf File-Format: application/pdf Publication-Status: published as European Economic Review, Vol. 42 (June 1998): 1033-1067. Abstract: This paper reports estimates of monetary policy reaction functions for two sets of" countries: the G3 (Germany, Japan, and the U.S.) and the E3 (UK, France that since 1979 each of the G3 central banks has pursued an implicit form of inflation targeting which may account for the broad success of monetary policy in those countries over this time" period. The evidence also suggests that these central banks have been forward looking: they" respond to anticipated inflation as opposed to lagged inflation. As for the E3 emergence of the influenced by German" monetary policy. Further, using the Bundesbank's policy rule as a benchmark time of the EMS collapse, interest rates in each of the E3 countries were much higher than" domestic macroeconomic conditions warranted. Taken all together, the results lend support to" the view that some form of inflation targeting may under certain circumstances be superior to" fixing exchange rates, as a means to gain a nominal anchor for monetary policy." Handle: RePEc:nbr:nberwo:6254 Template-Type: ReDIF-Paper 1.0 Title: Why is Corruption So Much More Taxing Than Tax? Arbitrariness Kills Classification-JEL: F20; F23 Author-Name: Shang-Jin Wei Author-Person: pwe20 Note: ITI Number: 6255 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6255 File-URL: http://www.nber.org/papers/w6255.pdf File-Format: application/pdf Abstract: This paper examines the effect of corruption-induced uncertainty on foreign direct" investment. The measure of uncertainty is constructed based on unpublished individual survey" responses on levels of corruption in host countries. The result is striking. The effect is negative statistically significant and quantitatively large. An increase in the uncertainty level from that of" Singapore to that of Mexico, at the average level of corruption in the sample raising the tax rate on multinational firms by 32 percentage points. Hence (uncertainty) effect can and does have first-order importance. Handle: RePEc:nbr:nberwo:6255 Template-Type: ReDIF-Paper 1.0 Title: The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise? Classification-JEL: F31 Author-Name: Shang-Jin Wei Author-Person: pwe20 Author-Name: Jungshik Kim Note: IFM Number: 6256 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6256 File-URL: http://www.nber.org/papers/w6256.pdf File-Format: application/pdf Abstract: This paper studies whether there exists private information in the foreign exchange market, and whether speculation reduces or exacerbates volatility. It makes use of a recent data set on foreign currency positions by large market participants that include positions on options and other derivatives. This is the first data set that describes comprehensive currency positions of market participants. There are two main findings. First, not only the absolute value of the options position but also that of spot, forward and futures positions by large participants Granger-causes exchange rate volatility. This suggests that the large participants' currency speculation does not stabilize exchange rate volatility. Second, regression analyses do not find any positive association between large participants' position in a foreign currency with its subsequent appreciation. A non-parametric approach finds some weak support for a positive association but not on a systematic level. This casts doubt on the view that large participants have better information about the future movement of exchange rates. It further strengthens the case that the large players trade on noise rather than on information. Handle: RePEc:nbr:nberwo:6256 Template-Type: ReDIF-Paper 1.0 Title: Econometric Models of Limit-Order Executions Classification-JEL: G23 Author-Name: Andrew W. Lo Author-Person: plo171 Author-Name: A. Craig MacKinlay Author-Name: June Zhang Note: AP Number: 6257 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6257 File-URL: http://www.nber.org/papers/w6257.pdf File-Format: application/pdf Publication-Status: published as Lo, Andrew W., A. Craig MacKinlay and June Zhang. "Econometric Models Of Limit-Order Executives," Journal of Financial Economics, 2002, v65(1,Jul), 31-71. Abstract: This paper attempts to assess whether money can generate persistent economic" fluctuations in dynamic general equilibrium models of the business cycle. We show that a small" nominal friction in the goods market can make the response of output to monetary shocks large" and persistent if it is amplified by real wage rigidity in the labor market. We also argue that" given the level of real wage rigidity that is observed in developed countries nominal stickiness might be sufficient for money to produce economic fluctuations as persistent" as those observed in the data. Handle: RePEc:nbr:nberwo:6257 Template-Type: ReDIF-Paper 1.0 Title: Generating Real Persistent Effects of Monetary Shocks: How Much Nominal Rigidity Do We Really Need? Classification-JEL: E1; E3 Author-Name: Olivier Jeanne Author-Person: pje59 Note: ME Number: 6258 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6258 File-URL: http://www.nber.org/papers/w6258.pdf File-Format: application/pdf Publication-Status: published as European Economic Review, Vol. 42, no. 6 (June 1998): 1009-1032. Abstract: This paper attempts to assess whether money can generate persistent economic" fluctuations in dynamic general equilibrium models of the business cycle. We show that a small" nominal friction in the goods market can make the response of output to monetary shocks large" and persistent if it is amplified by real wage rigidity in the labor market. We also argue that" given the level of real wage rigidity that is observed in developed countries nominal stickiness might be sufficient for money to produce economic fluctuations as persistent" as those observed in the data. Handle: RePEc:nbr:nberwo:6258 Template-Type: ReDIF-Paper 1.0 Title: On the Disutility and Discounting of Imprisonment and the Theory of Deterrence Classification-JEL: K14 Author-Name: A. Mitchell Polinsky Author-Person: ppo94 Author-Name: Steven Shavell Author-Person: psh42 Note: LE Number: 6259 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6259 File-URL: http://www.nber.org/papers/w6259.pdf File-Format: application/pdf Publication-Status: published as Journal of Legal Studies, Vol. 28, no. 1 (January 1999): 1-16. Abstract: This article studies the implications for the theory of deterrence of (a) the manner in" which individuals' disutility from imprisonment varies with the length of the imprisonment" term; and (b) discounting of the future disutility and future public costs of imprisonment. Two" questions are addressed: Is deterrence enhanced more by increasing the length of imprisonment" terms or instead by raising the likelihood of imposing imprisonment? What is the optimal" combination of the severity and probability of imprisonment sanctions?" Handle: RePEc:nbr:nberwo:6259 Template-Type: ReDIF-Paper 1.0 Title: Taxation by Telecommunications Regulation Classification-JEL: H21; L51 Author-Name: Jerry Hausman Author-Person: pha893 Note: IO PE Number: 6260 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6260 File-URL: http://www.nber.org/papers/w6260.pdf File-Format: application/pdf Publication-Status: published as Taxation by Telecommunications Regulation, Jerry Hausman. in Tax Policy and the Economy, Volume 12, Poterba. 1998 Abstract: Telecommunications regulation in the U.S. is replete with a system of subsidies and taxes. Because of budgetary spending limits, Congress is unable to increase general taxes to pay for social programs and thus funds these programs from taxes on specific sectors of the economy. In this paper I consider the Congressional legislation which established a program so that all public schools and libraries in the U.S. will receive subsidized service to the Internet. The cost of the program is estimated to be $2.25 billion per year. Congress passed legislation that directed all users of interstate telephone service to pay for the program. Using analytical methods from public finance, I calculate the efficiency cost to the economy of the higher taxation of interstate telephone services to fund the Internet access discounts. I estimate the cost to the economy of raising the $2.25 billion per year to be at least $2.36 billion (in addition to the $2.25 billion of tax revenue), or the efficiency loss to the economy for every $1 raised to pay for the Internet access discounts is an additional $1.05 to $1.25 beyond the money raised for the Internet discounts. This cost to the economy is extremely high compared to other taxes used by the Federal government to raise revenues. I discuss an alternative method by which the FCC could have raised the revenue for the Internet discounts which would have a near zero cost to the economy. Handle: RePEc:nbr:nberwo:6260 Template-Type: ReDIF-Paper 1.0 Title: The Role of Discretion in the Criminal Justice System Classification-JEL: K41; D73 Author-Name: Daniel P. Kessler Author-Name: Anne Morrison Piehl Author-Person: ppi106 Note: LE Number: 6261 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6261 File-URL: http://www.nber.org/papers/w6261.pdf File-Format: application/pdf Publication-Status: published as Journal of Law, Economics, and Organization, Vol. 14, no. 2 (October 1998): 256-276 Abstract: Although a substantial body of research suggests that the discretion of discretion of actors in the criminal justice system is important, there is disagreement in the existing empirical literature over its role. Studies in this literature generally hypothesize that discretion plays one of two roles: either it serves as the means by which changing broad social norms against crime causes changes in sentencing patterns, or it serves as the means by which internal social norms of the criminal justice system prevent the implementation of formal changes in laws. We reject both of these hypotheses using data on the sentencing of California prisoners before and after Proposition 8, which provided for sentence enhancements for those convicted of certain serious' crimes with qualifying' criminal histories. We find that an increase in the statutory sentence for a given crime can increase sentence length for those who are charged with the crime, and also for those who are charged with factually 'similar' crimes, where a 'similar' crime is defined as one that has legal elements in common with the given crime. These spillovers are consistent with neither broad social norms nor internal social norms, so we conclude that discretion takes a less-well studied form, which we call 'prosecutorial maximization.' Handle: RePEc:nbr:nberwo:6261 Template-Type: ReDIF-Paper 1.0 Title: International Trade and Labor-Demand Elasticities Classification-JEL: F1; J3 Author-Name: Matthew J. Slaughter Note: ITI Number: 6262 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6262 File-URL: http://www.nber.org/papers/w6262.pdf File-Format: application/pdf Publication-Status: published as Slaughter, Matthew J. "International Trade And Labor - Demand Elasticities," Journal of International Economics, 2001, v54(1,Jun), 27-56. Abstract: In this paper I try to determine whether international trade has been increasing the own-price elasticity of demand for U.S. labor in recent years. The empirial work yields three main results. First, from 1960 through 1990 demand for U.S. production labor became more elastic in manufacturing overall and in five of eight industries within manufacturing. Second, during this time U.S. nonproduction-labor demand did not become more elastic in manufacturing overall or in any of the 8 industries within manufacturing. If anything, demand seems to be growing less elastic over time. Third, the hypothesis that trade contributed to increased elasticities has mixed support at best. For production labor many trade variables have the predicted effect for specifications with only industry contols, but these predicted effects disappear when time controls are included as well. For nonproduction labor things are somewhat better, but time continues to be a very strong predictor of elasticity patterns. Thus the time series of labor-demand elasticities are explained largely by a residual, time itself. This result parallels the common finding in studies of rising wage inequality. Just as there appears to be a large unexplained residual for changing factor prices over time, there also appears to be a large unexplained residual for changing factor demand elasticities over time. Handle: RePEc:nbr:nberwo:6262 Template-Type: ReDIF-Paper 1.0 Title: Aggregate Investment Classification-JEL: E2; D9 Author-Name: Ricardo J. Caballero Author-Person: pca44 Note: EFG Number: 6264 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6264 File-URL: http://www.nber.org/papers/w6264.pdf File-Format: application/pdf Publication-Status: published as Handbook of Macroeconomics, Taylor, J.B. and M. Woodford, eds., North Holland, 1999. Abstract: The 90s have witnessed a revival in economists' interest and hope of explaining" aggregate and microeconomic investment behavior. New theories, better econometric" procedures, and more detailed panel data sets are behind this movement. Much of the progress" has occurred at the level of microeconomic theories and evidence; however aggregation and general equilibrium aspects of the investment problem also has been significant. " The concept of sunk costs is at the center of modern theories. The implications of these costs for" investment go well beyond the neoclassical response to the irreversible-technological friction" they represent, for they can also lead to first order inefficiencies when interacting with" informational and contractual problems. Handle: RePEc:nbr:nberwo:6264 Template-Type: ReDIF-Paper 1.0 Title: Does Immigration Hurt African-American Self-Employment? Classification-JEL: F22; J15 Author-Name: Robert W. Fairlie Author-Person: pfa338 Author-Name: Bruce D. Meyer Author-Person: pme273 Note: LS Number: 6265 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6265 File-URL: http://www.nber.org/papers/w6265.pdf File-Format: application/pdf Abstract: Previous studies tend to find that immigration has a weak negative effect on the employment and earnings of native-born workers. These studies overlook the effect of immigration on an important sector of the labor force, the self- employed. Anecdotal evidence suggests that immigrants, especially those from Asian countries, may displace black-owned business owners. We use Census of Population microdata to examine if black self-employment levels are lower in labor markets which have a higher share of immigrants. We define labor markets as metropolitan areas (MAs) and use the variation across 94 MAs in the U.S. to examine the relationship between black self-employment and immigration in both 1980 and 1990. To control for permanent differences across MAs in other we also estimate the effect of the change in immigration from 1980 to 1990 on the change in black self-employment over this period. We generally find that immigration has no effect or only a small negative but statistically insignificant effect on black male or female self-employment. Our findings are similar if we weight immigration rates by the propensity of immigrant groups to be self-employed, if we limit our sample of immigrants to those from only Asian countries, and if we try other alternative estimation techniques and specifications. Handle: RePEc:nbr:nberwo:6265 Template-Type: ReDIF-Paper 1.0 Title: Slowdowns and Meltdowns: Postwar Growth Evidence from 74 Countries Classification-JEL: C22; O1 Author-Name: Dan Ben-David Author-Person: pbe276 Author-Name: David H. Papell Author-Person: ppa73 Note: EFG Number: 6266 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6266 File-URL: http://www.nber.org/papers/w6266.pdf File-Format: application/pdf Publication-Status: published as Review of Economics and Statistics, vol 80, November 1998, pp. 561-71 Abstract: This paper proposes an explicit test for determining the significance and the timing of" slowdowns in economic growth during the postwar period. We examine a large sample of" countries (both industrialized and developing), and find that a majority though not all " exhibit a significant structural break in their postwar growth rates. In nearly all of these cases the break was followed by a growth slowdown. The breaks fall into two primary periods" which delineate countries by developmental and regional characteristics as well as by the" magnitude of the subsequent slowdowns. We find that (a) most industrialized countries" experienced postwar growth slowdowns in the early 1970s, though (b) the United States Canada and the United Kingdom did not, and (c) developing countries (and in particular American countries) tended to experience much more severe slowdowns which with the more developed countries, began nearly a decade later. Handle: RePEc:nbr:nberwo:6266 Template-Type: ReDIF-Paper 1.0 Title: Convergence Clubs and Subsistence Economies Classification-JEL: E1; E2 Author-Name: Dan Ben-David Author-Person: pbe276 Note: EFG Number: 6267 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6267 File-URL: http://www.nber.org/papers/w6267.pdf File-Format: application/pdf Publication-Status: published as Ben-David, Dan, 1998. "Convergence clubs and subsistence economies," Journal of Development Economics, Elsevier, vol. 55(1), pages 155-171, February. Abstract: This paper focuses on one possible explanation for the empirical evidence of (a) income convergence among the world's poorest countries and among its wealthiest countries, and (b) income divergence among most of the remaining countries. The model incorporates the assumption of subsistence consumption into the neoclassical exogenous growth model- yielding outcomes that are consistent with the convergence-divergence empirical evidence. While subsistence consumption can lead to negative saving and disaccumulation of capital, it can also coincide with positive saving and accumulation of capital. The model predicts that the poorer the country, the lower its saving rate, a result that also appears to be borne out by the evidence provided here. Handle: RePEc:nbr:nberwo:6267 Template-Type: ReDIF-Paper 1.0 Title: Demographic Transitions and Economic Miracles in Emerging Asia Classification-JEL: J1; O1 Author-Name: David E. Bloom Author-Person: pbl79 Author-Name: Jeffrey G. Williamson Author-Person: pwi169 Note: EFG Number: 6268 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6268 File-URL: http://www.nber.org/papers/w6268.pdf File-Format: application/pdf Publication-Status: published as World Bank Economic Review, Vol. 12, no. 3 (September 1998): 419-455. Abstract: The demographic transition a change from high to low rates of mortality and fertility has been more dramatic in East Asia during this century than in any other region or historical period. By introducing demographic variables into an empirical model of economic growth, this essay shows that this transition has contributed substantially to East Asia's so-called economic miracle. The 'miracle' occurred in part because East Asia's demographic transition resulted in its working-age population growing at a much faster pace than its dependent population during the period 1965-1990, thereby expanding the per capita productive capacity of East Asian economies. This effect was not inevitable; rather, it occured because East Asian countries had social, economic, and political institutions and policies that allowed them to realize the growth potential created by the transition. The empirical analyses indicate that population growth has a purely transitional effect on economic growth; this effect operates only when the dependent and working-age populations are growing at different rates. An important implication of these results is that future demographic change will tend to depress growth rates in East Asia, while it will promote more rapid economic growth in Southeast and South Asia. Handle: RePEc:nbr:nberwo:6268 Template-Type: ReDIF-Paper 1.0 Title: Strategic Bidding in a Multi-Unit Auction: An Empirical Analysis of Bids to Supply Electricity Classification-JEL: D44; L94 Author-Name: Catherine D. Wolfram Note: IO Number: 6269 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6269 File-URL: http://www.nber.org/papers/w6269.pdf File-Format: application/pdf Publication-Status: published as RAND Journal of Economics, Vol. 29, no. 4 (Winter 1998): 703-725. Abstract: This paper considers the bidding behavior of participants in the daily auction to supply electricity in England and Wales. Every day, owners of generating capacity submit bids reflecting a price for power from their plants. The price bid by the last plant used to meet electricity needs in a given time period is the price paid for capacity from all plants. Theoretical work on uniform-price multi-unit auctions suggests that bidders selling more than one unit of a good have an incentive to increase the prices they bid at high quantities. If a bid sets the equilibrium price, the bidder receives a higher price for that unit as well as for all inframarginal units. I find evidence of strategic bid increases. First, plants that are likely to be used after a number of other plants are already operating bid more. Second, the larger supplier submits higher bids, all else equal. Lastly, there is some evidence that bids for given plants are higher when the suppliers have more available capacity. Handle: RePEc:nbr:nberwo:6269 Template-Type: ReDIF-Paper 1.0 Title: Geographic Concentration as a Dynamic Process Classification-JEL: L60; R11 Author-Name: Guy Dumais Author-Name: Glenn Ellison Author-Person: pel10 Author-Name: Edward Glaeser Author-Person: pgl9 Note: IO Number: 6270 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6270 File-URL: http://www.nber.org/papers/w6270.pdf File-Format: application/pdf Publication-Status: published as Dumais, Guy, Glenn Ellison and Edward L. Glaeser. "Geographic Concentration As A Dynamic Process," Review of Economics and Statistics, 2002, v84(2,May), 193-204. Abstract: The degree of geographic concentration of individual manufacturing industries in the U.S. has declined only slightly in the last twenty years. At the same time, new plant births, plant expansions, contractions and closures have shifted large quantities of employment across plants, firms, and locations. This paper uses data from the Census Bureau's Longitudinal Research Database to examine how relatively stable levels of geographic concentration emerge from this dynamic process. While industries' agglomeration levels tend to remain fairly constant, we find that there is greater variation in the locations of these agglomerations. We then decompose aggregate concentration changes into portions attributable to plant births, expansions, contractions, and closures, and find that the location choices of new firms and differences in growth rates have played the most significant role in reducing levels of geographic concentration, while plant closures have tended to reinforce agglomeration. Finally, we look at coagglomeration patterns to test three of Marshall's theories of industry agglomeration: (1) agglomeration saves transport costs by proximity to input suppliers or final consumers, (2) agglomeration allows for labor market pooling, and (3) agglomeration facilitates intellectual spillovers. While there is some truth behind all three theories, we find that industrial location is far more driven by labor mix than by any of the other explanatory variables. Handle: RePEc:nbr:nberwo:6270 Template-Type: ReDIF-Paper 1.0 Title: Learning in Cities Classification-JEL: J24; O15 Author-Name: Edward Glaeser Author-Person: pgl9 Note: LS Number: 6271 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6271 File-URL: http://www.nber.org/papers/w6271.pdf File-Format: application/pdf Publication-Status: published as Journal of Urban Economics, Vol. 46, no. 2 (September 1999): 254-277 Abstract: Alfred Marshall argues that industrial agglomerations exist in part because individuals can" learn skills from each other when they live and work in close proximity to one another. An" increasing amount of evidence suggests that the informational role of cities is a primary reason for" their continued existence. This paper formalizes Marshall's theory in a model where individuals" acquire skills by interacting with one another, and dense urban areas increase the speed of" interactions. The model predicts that cities will have a higher mean and higher variance of skills." Cities will attract young people who are not too risk averse and who benefit most from learning" (e.g. more patient people). Older, more skilled workers will stay in cities only if they can" internalize some of the benefits that their presence creates for young people. The level of" urbanization will rise when the demand for skills rises, when the ability to learn by imitation rises or when the level of health in the economy rises. Empirical evidence on urban wages supports the" learning view of cities and a variety of other implications of the theory are corroborated" empirically. Handle: RePEc:nbr:nberwo:6271 Template-Type: ReDIF-Paper 1.0 Title: Exceptional Exporter Performance: Cause, Effect, or Both? Classification-JEL: F10; D21 Author-Name: Andrew B. Bernard Author-Name: J. Bradford Jensen Author-Person: pje75 Note: ITI Number: 6272 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6272 File-URL: http://www.nber.org/papers/w6272.pdf File-Format: application/pdf Publication-Status: published as Journal of International Economics, Vol. 47, no. 1 (February 1999): 1-25. Abstract: A growing body of empirical work has documented the superior performance characteristics" of exporting plants and firms relative to non-exporters. Employment, shipments and capital intensity are all higher at exporters at any given moment. This paper asks whether good" firms become exporters or whether exporting improves firm performance. The evidence is quite" clear on one point: good firms become exporters, both growth rates and levels of success measures" are higher ex-ante for exporters. The benefits of exporting for the firm are less clear. Employment" growth and the probability of survival are both higher for exporters; however growth is not superior, particularly over longer horizons. Handle: RePEc:nbr:nberwo:6272 Template-Type: ReDIF-Paper 1.0 Title: Survival of the Fittest or the Fattest? Exit and Financing in the Trucking Industry Author-Name: Luigi Zingales Note: CF IO Number: 6273 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6273 File-URL: http://www.nber.org/papers/w6273.pdf File-Format: application/pdf Publication-Status: published as Journal of Finance, Vol. 53, no. 3 (June 1998): 905-938. Abstract: This paper studies the impact that capital market imperfections have on the natural" selection of the most efficient firms by estimating the effect of the pre-deregulation level of" leverage on the survival of trucking firms after the Carter deregulation. Highly leveraged" carriers are less likely to survive the deregulation shock, even after controlling for various" measures of efficiency. This effect is stronger in the imperfectly competitive segment of the" motor carrier industry. High debt seems to affect survival by curtailing investments and reducing" the price per-ton-mile that a carrier can afford to charge after deregulation. " Handle: RePEc:nbr:nberwo:6273 Template-Type: ReDIF-Paper 1.0 Title: Power in a Theory of the Firm Author-Name: Raghuram G. Rajan Author-Person: pra149 Author-Name: Luigi Zingales Note: CF IO LE Number: 6274 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6274 File-URL: http://www.nber.org/papers/w6274.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics, Vol. 113, no. 2 (May 1998): 387-432. Abstract: Transactions take place in the firm rather than in the market because the firm offers agents" who make specific investments power. Past literature emphasizes the allocation of ownership as the" primary mechanism by which the firm does this. Within the contractibility assumptions of this" literature, we identify a potentially superior mechanism, the regulation of access to critical resources. " Access can be better than ownership because: i) the power agents get from access is more contingent" on them making the right investment; ii) ownership has adverse effects on the incentive to specialize. " The theory explains the importance of internal organization and third party ownership. " Handle: RePEc:nbr:nberwo:6274 Template-Type: ReDIF-Paper 1.0 Title: Job Destruction and Propagation of Shocks Classification-JEL: E24; E32 Author-Name: Wouter J. den Haan Author-Person: pde12 Author-Name: Garey Ramey Author-Person: pra338 Author-Name: Joel Watson Author-Person: pwa36 Note: EFG Number: 6275 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6275 File-URL: http://www.nber.org/papers/w6275.pdf File-Format: application/pdf Publication-Status: published as Wouter J. den Haan & Garey Ramey & Joel Watson, 2000. "Job Destruction and Propagation of Shocks," American Economic Review, American Economic Association, vol. 90(3), pages 482-498, June. Abstract: We develop and quantitatively implement a dynamic general equilibrium model with labor" market matching and endogenous job destruction. The model produces a close match with data on" job creation and destruction. Cyclical fluctuations in the job destruction rate serve to magnify the" effects of productivity shock on output, as well as making the effects much more persistent. " Interactions between household savings decisions and separation decisions in employment" relationships play a key role in propagating shocks. Handle: RePEc:nbr:nberwo:6275 Template-Type: ReDIF-Paper 1.0 Title: Graduation to Health Insurance Coverage: 1981-1996 Author-Name: Sherry Glied Author-Name: Mark Stabile Author-Person: pst179 Note: EH Number: 6276 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6276 File-URL: http://www.nber.org/papers/w6276.pdf File-Format: application/pdf Publication-Status: published as Glied, S., Stabile, M. Explaining the Decline in Health Insurance Coverage among Young Men, Inquiry, 2000, 37, 3, 295-303. Abstract: entrants, provides an early indicator of the strengths and weaknesses of the employer-sponsored health insurance system. Insurance coverage for these men has fallen sharply over the past 15 years. We examine patterns of health insurance coverage for cohorts of young men using successive cross-sectional surveys and longitudinal data. We find that coverage declines persist and are exacerbated as young men age. Not only did cohorts of men born during the 1950s fail to age into employer-sponsored coverage as they reached their 30s and 40s, they actually lost such coverage as they grew older. Furthermore, young men who lacked coverage when they were in their mid-20s were unlikely to gain such coverage later. Declines in coverage are sharpest among the least educated cohorts of young men. We show that most of this decline was due to the substantial increase in health insurance costs during the 1980s. By contrasting young men's pension receipt experience with their health insurance experience, we show that structural changes in the labor market cannot explain any of the decline in coverage within cohorts. Our results suggest that the existing system of employer-sponsored health insurance subsidies did not compensate for the declines in earnings and increases in health insurance costs faced by young men between 1981 and 1996. Handle: RePEc:nbr:nberwo:6276 Template-Type: ReDIF-Paper 1.0 Title: Avoiding Health Insurance Crowd-Out: Evidence from the Medicare as Secondary Payer Legislation Author-Name: Sherry Glied Author-Name: Mark Stabile Author-Person: pst179 Note: EH Number: 6277 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6277 File-URL: http://www.nber.org/papers/w6277.pdf File-Format: application/pdf Publication-Status: published as Glied, Sherry and Mark Stabile. "Avoiding Health Insurance Crowd-Out: Evidence From The Medicare As Secondary Payer Legislation," Journal of Health Economics, 2001, v20(2,Mar), 239-260. Abstract: The cost of efforts to expand health insurance coverage to the currently uninsured increases when people who would otherwise purchase private insurance obtain subsidized public coverage. Legislators are increasingly interested in mechanisms that target insurance benefits to those who need them most. This paper investigates the effects of one of the first such targeting efforts, the 1982 Medicare as Secondary Payer (MSP) provisions. The MSP rules require employers who offer insurance coverage to their employees under 65 to offer coverage on the same terms to their Medicare-eligible employees. This coverage then becomes 'primary' to Medicare. We examine the incidence of this implicit tax, the magnitude of tax avoidance efforts, and the extent of tax compliance. We find little evidence that the MSP rules affected the wages or employment of affected workers. We find weak evidence suggesting that the MSP shifted the composition of employment of older workers toward MSP-exempt jobs. We find strong evidence of low compliance with the MSP rules. Our results cast doubt on the efficacy of provisions designed to reduce crowd-out in new health insurance programs. Handle: RePEc:nbr:nberwo:6277 Template-Type: ReDIF-Paper 1.0 Title: A New Bankruptcy Procedure that Uses Multiple Auctions Classification-JEL: G33; K22 Author-Name: Oliver Hart Author-Person: pha222 Author-Name: Rafael La Porta Drago Author-Person: pla273 Author-Name: Florencio Lopez-de-Silane Author-Person: plo137 Author-Name: John Moore Author-Person: pmo265 Note: CF Number: 6278 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6278 File-URL: http://www.nber.org/papers/w6278.pdf File-Format: application/pdf Publication-Status: published as European Economic Review, Papers and Proceedings, Vol. 41, nos. 3-5(April 1997): 461-473. Abstract: We develop a new bankruptcy procedure that makes use of multiple auctions. The procedure" is designed to work even when capital markets do not function well (for example in developing" economies, or in economies in transition) -- although it can be used in all economies." Handle: RePEc:nbr:nberwo:6278 Template-Type: ReDIF-Paper 1.0 Title: Employer Learning and Statistical Discrimination Classification-JEL: D83; J31 Author-Name: Joseph G. Altonji Author-Person: pal266 Author-Name: Charles R. Pierret Note: LS Number: 6279 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6279 File-URL: http://www.nber.org/papers/w6279.pdf File-Format: application/pdf Publication-Status: published as Altonji, Joseph G. and Charles R. Pierret. "Employer Learning And Statistical Discrimination," Quarterly Journal of Economics, 2001, v116(1,Feb), 313-350. Abstract: We provide a test for statistical discrimination or rational stereotyping in in environments in which agents learn over time. Our application is to the labor market. If profit maximizing firms have limited information about the general productivity of new workers, they may choose to use easily observable characteristics such as years of education to 'statistically discriminate' among workers. As firms acquire more information about a worker, pay will become more dependent on actual productivity and less dependent on easily observable characteristics or credentials that predict productivity. Consider a wage equation that contains both the interaction between experience and a hard to observe variable that is positively related to productivity and the interaction between experience and a variable that firms can easily observe, such as years of education. We show that the wage coefficient on the unobservable productivity variable should rise with time in the labor market and the wage coefficient on education should fall. We investigate this proposition using panel data on education, the AFQT test, father's education, and wages for young men and their siblings from NLSY. We also examine the empirical implications of statistical discrimination on the basis of race. Our results support the hypothesis of statistical discrimination, although they are inconsistent with the hypothesis that firms fully utilize the information in race. Our analysis has wide implications for the analysis of the determinants of wage growth and productivity and the analysis of statistical discrimination in the labor market and elsewhere. Handle: RePEc:nbr:nberwo:6279 Template-Type: ReDIF-Paper 1.0 Title: Discreteness and the Welfare Cost of Labor Supply Tax Distortions Author-Name: Keshab Bhattarai Author-Person: pbh51 Author-Name: John Whalley Author-Person: pwh8 Note: PE Number: 6280 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6280 File-URL: http://www.nber.org/papers/w6280.pdf File-Format: application/pdf Publication-Status: published as Bhattarai, Keshab and John Whalley. "Discreteness And The Welfare Cost Of Labor Supply Tax Distortions," International Economic Review, 2003, v44(3,Aug), 1117-1133. Abstract: We discuss the role played by discrete labor supply (leisure consumption) choice in" affecting measures of the welfare cost of labor supply tax distortions. We construct comparable" continuous and discrete choice models, each calibrated to have similar aggregate" (uncompensated) labor supply elasticities. In the former, there is a single representative" consumer; in the latter there is a distribution of individuals across preference parameters. In the" discrete model, taxes induce a large response from a subset of the population of the population shows unchanged behavior. Welfare costs of similar taxes in continuous" models can substantially exceed those in discrete models or vice versa formulation used. Experiments are also reported for a two labor type household model with one" continuous variable (secondary labor) and one discrete variable (primary labor) are also made using an empirically based model specification calibrated to UK data. Model" results clearly show that discrete choice matters in the assessment of the cost of labor supply tax" distortions. Handle: RePEc:nbr:nberwo:6280 Template-Type: ReDIF-Paper 1.0 Title: The Redistributive Effects of Transfers Author-Name: Keshab Bhattarai Author-Person: pbh51 Author-Name: John Whalley Author-Person: pwh8 Note: PE Number: 6281 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6281 File-URL: http://www.nber.org/papers/w6281.pdf File-Format: application/pdf Abstract: Existing literature assessing the impacts of transfers on low income households assumes that transfer program participants benefit by the full amount of cash transfers received. We argue that because tax-back arrangements accompany such transfer programmes, and endogenous participantion decisions (regime choices) are involved, a money-metric measure of the utility generated by transfers will typically be substantially less than the cash value of transfers received. We use a conditional choice general equilibrium model of the UK, calibrated to literature based labor supply and labor demand elasticities, with a leisure-consumption choice for household and production involving heterogeneous labor inputs. In the model households face non-convex budgets set due to differences in tax rates and tax-back schemes in transfer programmes. Household demands for leisure and consumption goods are evaluated numerically using optimization techniques within a larger equilibrium structure including the production side of the economy since demand are non-analytic. Model results suggest that a money-metric measure of the utility equivalent of transfers received by the bottom deciles of UK households in the early 1990s was only 32 percent of cash transfers received due to the conditionality in these programmes. Handle: RePEc:nbr:nberwo:6281 Template-Type: ReDIF-Paper 1.0 Title: Apocalypse Now? Fundamental Tax Reform and Residential Housing Values Classification-JEL: H24 Author-Name: Donald Bruce Author-Person: pbr91 Author-Name: Douglas Holtz-Eakin Note: PE Number: 6282 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6282 File-URL: http://www.nber.org/papers/w6282.pdf File-Format: application/pdf Abstract: Using a simulation model crafted to integrate the short-run and long-term impacts of tax" reform on the housing market, we find modest impacts from fundamental reform of the Federal" income tax. These results suggest that concerns over the impact of tax reform on housing values" and household net worth are overstated. To the extent that reform is otherwise desirable drastic effects on the housing market should not stand as an impediment to reform." Handle: RePEc:nbr:nberwo:6282 Template-Type: ReDIF-Paper 1.0 Title: The Upcoming Slowdown in U.S. Economic Growth Classification-JEL: O40; O30 Author-Name: Charles I. Jones Author-Person: pjo24 Note: EFG Number: 6284 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6284 File-URL: http://www.nber.org/papers/w6284.pdf File-Format: application/pdf Abstract: At least since 1950, the United States has been stimulated by increases in educational attainment, increases in research intensity, and the increased openness and development of the world economy. Such changes suggest, contrary to the conventional view, that the U.S. economy is far from its steady state balanced growth path. The theoretical framework analyzed here provides a coherent interpretation of this evidence and indicates that when these increases cease and the U.S. economy reaches its steady state, U.S. per capita growth can be expected to fall to a rate of approximately 1/4 its post-war average. Handle: RePEc:nbr:nberwo:6284 Template-Type: ReDIF-Paper 1.0 Title: Population and Ideas: A Theory of Endogenous Growth Classification-JEL: O40; O30 Author-Name: Charles I. Jones Author-Person: pjo24 Note: EFG Number: 6285 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6285 File-URL: http://www.nber.org/papers/w6285.pdf File-Format: application/pdf Publication-Status: Published as "Time Series Tests of Endogenous Growth Models", Quarterly Journal of Economics, Vol. 110, no. 2 (1995): 495-525. Abstract: Why do economies exhibit sustained growth in per capita income? This paper argues that endogenous fertility and increasing returns to scale are the fundamental ingredients in understanding endogenous growth. Endogenous fertility leads the scale of the economy to grow over time. Increasing returns translates this increase in scale into rising per capita income. A justification for increasing returns rather than linearity in the equation for technological progress is the fundamental insight of the idea-based growth literature according to this view. Endogenous fertility together with the increasing returns associated with the nonrivalry of ideas generates endogenous growth. Handle: RePEc:nbr:nberwo:6285 Template-Type: ReDIF-Paper 1.0 Title: Debts and Deficits with Fragmented Fiscal Policymaking Classification-JEL: H3; H6 Author-Name: Andres Velasco Note: PE Number: 6286 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6286 File-URL: http://www.nber.org/papers/w6286.pdf File-Format: application/pdf Publication-Status: published as Velasco, Andres. "Debts And Deficits With Fragmented Fiscal Policymaking," Journal of Public Economics, 2000, v76(1,Apr), 105-125. Abstract: This paper develops a political-economic model of fiscal policy - one in which government resources are a common property' out of which interest groups can finance expenditures on their preferred items. This setup has striking macroeconomic implications. Transfers are higher than a benevolent planner would choose; fiscal deficits emerge even when there are no reasons for intertemporal smoothing, and in the long run government debt tends to be excessively high; peculiar time profiles for transfers can emerge, with high positive net transfers early on giving way to high taxes later on; and multiple dynamic equilibrium paths can occur starting at the same initial level of government debt. Handle: RePEc:nbr:nberwo:6286 Template-Type: ReDIF-Paper 1.0 Title: The Market and the Estimators: Forecasting the Cost of Medicare Catastrophic Coverage Author-Name: Sherry Glied Author-Name: Tama Brooks Note: EH Number: 6287 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6287 File-URL: http://www.nber.org/papers/w6287.pdf File-Format: application/pdf Abstract: As part of the process of enacting the Medicare Catastrophic Coverage Act (MCCA) in 1988, both the Congressional Budget Office (CBO) and the Department of Health and Human Services (HHS) estimated the cost of the pharmaceutical part of the proposal which varied substantially. For some benefit years, cost estimates differed by a factor of more than two. This paper uses data from the stock market to measure how market participants gauged the likely consequences of the MCCA and to compare the market estimate with those of the CBO and HHS estimators. We examine the market response to key events linked to passage and repeal of the MCCA for brand name and generic pharmaceutical producers. We find that on event days associated with passage of the MCCA, generic pharmaceutical firms had positive and significant excess stock market returns. On early event days associated with passage, brand name producers had smaller positive returns and on later days, brand name producers had small negative returns. On event days associated with repeal of the MCCA, brand name makers had small positive excess returns and generic producers had zero or small negative returns. The effect of the MCCA on the stock price of pharmaceutical firms would depend on the elasticity of demand for pharmaceuticals. Differences in assumptions about this elasticity were a key component of the differences between CBO and HHS estimates. Using the market returns to evaluate these elasticities, we find that market participants shared the CBO's view that demand responses to the legislation would be small. We also find that the market anticipated that the MCCA would favor generic manufacturers. Handle: RePEc:nbr:nberwo:6287 Template-Type: ReDIF-Paper 1.0 Title: The Sources of Regional Variation in the Severity of the Great Depression: Evidence from U.S. Manufacturing, 1919-1937 Classification-JEL: N12; N62 Author-Name: Joshua L. Rosenbloom Author-Person: pro664 Author-Name: William A. Sundstrom Note: EFG DAE Number: 6288 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6288 File-URL: http://www.nber.org/papers/w6288.pdf File-Format: application/pdf Publication-Status: published as Rosenbloom, Joshua L. and William A. Sundstrom. "The Sources Of Regional Variation In The Severity Of The Great Depression: Evidence From U.S. Manufacturing, 1919-1937," Journal of Economic History, 1999, v59(3,Sep), 714-747. Abstract: The severity of the Great Depression in the United States varied by region. Most notably compared with the rest of the country, the South Atlantic states experienced a milder contraction while the Mountain states suffered more severely. The impact of the contraction was more" uniform across other regions of the country--surprisingly so, considering the large regional" differences in industrial structure. We employ data from the biennial Census of Manufactures on" 20 individual manufacturing industries disaggregated by state to analyze the relative" contributions of industry mix and location to regional variations in economic performance during" the period 1919-1937. Industrial composition had a significant impact on regional employment" growth, with regions that concentrated on the production of durable goods or inputs to the" construction sector tending to fare worse than others. Long-run regional trends also played an" important role in regional variation, and explain much of the South Atlantic region's more" favorable performance over the cycle. Handle: RePEc:nbr:nberwo:6288 Template-Type: ReDIF-Paper 1.0 Title: "Make Us a King": Anarchy, Predation, and the State Classification-JEL: D60; D70 Author-Name: Herschel I. Grossman Note: EFG PE ME Number: 6289 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6289 File-URL: http://www.nber.org/papers/w6289.pdf File-Format: application/pdf Publication-Status: published as Grossman, Herschel I. "'Make Us A King': Anarchy, Predation, And The State," European Journal of Political Economy, 2002, v18(1,Mar), 31-46. Abstract: In order to enforce a collective choice to allocate resource to guarding against predators producers must subject themselves to the state's sovereign power to tax and to spend. But these sovereign powers in hand the state can exploit the producers by taxing and spending for its" own purposes. Using a general equilibrium model in which people can choose to be either" producers or predators, this paper rationalizes the biblical request, Make us a king. analysis shows that, if the technology of predation is sufficiently good better for everyone, including both producers and potential predators even though a king maximizes the consumption of a ruling elite. Handle: RePEc:nbr:nberwo:6289 Template-Type: ReDIF-Paper 1.0 Title: The Past, Present, and Future of Macroeconomic Forecasting Author-Name: Francis X. Diebold Author-Person: pdi1 Note: EFG Number: 6290 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6290 File-URL: http://www.nber.org/papers/w6290.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic Perspectives, Vol. 12 (1998): 175-192. Abstract: Broadly defined, macroeconomic forecasting is alive and well. Nonstructural forecasting which is based largely on reduced-form correlations, has always been well and continues to" improve. Structural forecasting, which aligns itself with economic theory and hence rises and" falls with theory, receded following the decline of Keynesian theory. In recent years powerful new dynamic stochastic general equilibrium theory has been developed macroeconomic forecasting is poised for resurgence. Handle: RePEc:nbr:nberwo:6290 Template-Type: ReDIF-Paper 1.0 Title: The Alleged Instability of Nominal Income Targeting Classification-JEL: E52; E32 Author-Name: Bennett T. McCallum Note: EFG ME Number: 6291 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6291 File-URL: http://www.nber.org/papers/w6291.pdf File-Format: application/pdf Publication-Status: Published as "Nominal Income Targeting in an Open-Economy Optimizing Model", Journal of Monetary Economics, Vol. 43, no. 3 (June 1999): 553-578. Abstract: Recently it has been argued that a monetary policy of nominal income and targeting" would result in dynamically unstable processes for output and inflation. That results holds in a" theoretical model that includes backward-looking IS an Phillips curve relations rather special and theoretically unattractive. The present paper demonstrates that replacement of" the special Phillips curve with one of several more plausible specifications overturns the" instability result, whether or not the IS equation is replaced with a forward-looking version. " Thus the instability result is quire fragile and therefore provides almost no basis for a negative" judgment regarding nominal income targeting. Handle: RePEc:nbr:nberwo:6291 Template-Type: ReDIF-Paper 1.0 Title: Transition Issues for the European Monetary Union Classification-JEL: F31; F33 Author-Name: Willem H. Buiter Author-Person: pbu137 Author-Name: Anne C. Sibert Author-Person: psi80 Note: IFM Number: 6292 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6292 File-URL: http://www.nber.org/papers/w6292.pdf File-Format: application/pdf Publication-Status: published as DeEmu in Breed Perspectiet; Preadviezen 1997, Koninklijke Vereniging voo rde Stathuishoudkunde, pp. 1-17; Lemma BV, Utrecht, 1997. Abstract: If Stage Three of EMU starts on January 1, 1999, transition issues remain on two time scales. Until July 1, 2002, national currencies and the euro co-exist as legal tender. We argue that intra-EMU currency risk exists in principle during that period, but that no EMU member can be forced out through speculative attacks. Cohabitation of Ins and Outs has an open-ended time scale. We discuss the effect of EMU on incentives for both Ins and Outs to undertake structural reform and the coordination problems associated with the distribution of seigniorage revenue and the Stability and Growth Pact. Handle: RePEc:nbr:nberwo:6292 Template-Type: ReDIF-Paper 1.0 Title: The Competitive Effects of Transmission Capacity in a Deregulated Electricity Industry Author-Name: Severin Borenstein Author-Person: pbo78 Author-Name: James Bushnell Author-Person: pbu181 Author-Name: Steven Stoft Note: IO Number: 6293 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6293 File-URL: http://www.nber.org/papers/w6293.pdf File-Format: application/pdf Publication-Status: published as Borenstein, Severin, James Bushnell and Steven Stoft. "The Competitive Effects Of Transmission Capacity In A Deregulated Electricity Industry," Rand Journal of Economics, 2000, v31(2,Summer), 294-325. Abstract: In an unregulated electricity generation market, the degree to which generators in" different locations compete with one another depends on the capacity to transmit electricity" between the locations. We study the impact of transmission capacity on competition among" generators. We show that there may be no relationship between the effect of a transmission line" in spurring competition and the actual electricity that flows on the line. We then investigate the" equilibria that are likely to result as transmission lines between previously unconnected locations" are built and expanded. We demonstrate that limited transmission capacity can give a firm the" incentive to restrict its output in order to congest transmission into its area of dominance. This" analysis is applied to a model of California's forthcoming deregulated electricity market. Our" results indicate that at least one firm could have an incentive to strategically induce transmission" congestion and that relatively small investments in transmission may yield surprisingly large" payoffs in terms of increased competition. Handle: RePEc:nbr:nberwo:6293 Template-Type: ReDIF-Paper 1.0 Title: Market Access and Welfare Effects of Piecemeal Policy Reform Classification-JEL: F1; F13 Author-Name: Jiandong Ju Author-Person: pju209 Author-Name: Kala Krishna Author-Person: pkr26 Note: ITI Number: 6294 Creation-Date: 1997-11 Order-URL: http://www.nber.org/papers/w6294 File-URL: http://www.nber.org/papers/w6294.pdf File-Format: application/pdf Publication-Status: published as Ju, Jiandong and Kala Krishna. "Welfare And Market Access Effects Of Piecemeal Tariff Reform," Journal of International Economics, 2000, v51(2,Aug), 305-316. Abstract: In a situation where tariff reforms are being negotiated between two parties aims to raise its exports and the other aims to raise its welfare, tariff cuts must be in the interest" of at least one party. It is possible for the interests of the two sides to conflict. Conflict is certain" if the excess demand for exported goods does not respond to changes in the prices of imported" goods. In this case, any policy which raises imports must also reduce welfare." Handle: RePEc:nbr:nberwo:6294 Template-Type: ReDIF-Paper 1.0 Title: The Enforcement of Intellectual Property Rights: A Survey of the Empirical Literature Classification-JEL: K41; O32 Author-Name: Jean O. Lanjouw Author-Name: Josh Lerner Author-Person: ple60 Note: PR Number: 6296 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6296 File-URL: http://www.nber.org/papers/w6296.pdf File-Format: application/pdf Publication-Status: published as The Annales d'Economie et de Statistique, no. 49/50 (July 1998): 223-246. Abstract: This paper examines several recent avenues of empirical research into the enforcement of" intellectual property rights. To frame these issues, we start with a stylized model of the patent" litigation process. The bulk of the paper is devoted to linking the empirical literature on patent" litigation to the parameters of the model. The four major areas we consider are (i) how the" propensity to litigate patents varies with the expected benefits of litigation the cost of litigation affects the willingness to enforce patents, (iii) how the cost of enforcing" patents changes the private value of patent rights, and (iv) the impact of intellectual property" litigation on the innovation process itself. Handle: RePEc:nbr:nberwo:6296 Template-Type: ReDIF-Paper 1.0 Title: Stylized Facts of Patent Litigation: Value, Scope and Ownership Classification-JEL: O32; K41 Author-Name: Jean O. Lanjouw Author-Name: Mark Schankerman Note: LE PR Number: 6297 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6297 File-URL: http://www.nber.org/papers/w6297.pdf File-Format: application/pdf Abstract: This paper investigates the characteristics of litigated patents by combining for the first" time information about patent case filings from the U.S. district courts and detailed data from the" U.S. Patent and Trademark Office. We construct a series of indicators for the factors which the" theoretical literature suggests contribute to litigation: the frequency of disputes asymmetry of stakes, the structure of information, and costs. Compared to a random sample of" U.S. patents from the same cohorts and technology areas, we find that more valuable patents and" those with domestic owners are considerably more likely to be involved in litigation. Patents" owned by individuals are at least as likely to be the subject of a case as corporate patents and" litigation is particularly frequent in new technology areas. We interpret the results with reference" to theoretical models of litigation and settlement and discuss what they suggest about the effect" of patent litigation on the incentives to invest in R&D. Handle: RePEc:nbr:nberwo:6297 Template-Type: ReDIF-Paper 1.0 Title: Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation) Classification-JEL: C6; D91 Author-Name: Christopher D. Carroll Author-Person: pca45 Note: EFG ME Number: 6298 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6298 File-URL: http://www.nber.org/papers/w6298.pdf File-Format: application/pdf Publication-Status: published as Advances in Macroeconomics, (B.E. Journal of Macroeconomics), November 2001, Vol. 1, no. 1, Article 6 Abstract: This paper shows that standard empirical methods for estimating log-linearized consumption Euler equations cannot successfully uncover structural parameters like the coefficient of relative risk aversion from the dataset of simulated consumers behaving exactly according to the standard model. Furthermore, consumption growth for the simulated consumers is very highly statistically related to predictable income growth - and thus standard 'excess sensitivity' tests would reject the hypothesis that consumers are behaving according to the standard model. Results are not much better for the second-order approximation to the Euler equation. The paper concludes that empirical estimation of consumption Euler equations should not be abandoned, and discusses some alternative empirical strategies that are not subject to the problems of Euler equation estimation. Handle: RePEc:nbr:nberwo:6298 Template-Type: ReDIF-Paper 1.0 Title: band Labor Demand: Evidence from the South Coast Air Basin Classification-JEL: C2; C8 Author-Name: Eli Berman Author-Person: pbe188 Author-Name: Linda T. Bui Author-Person: pbu244 Note: LS PR Number: 6299 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6299 File-URL: http://www.nber.org/papers/w6299.pdf File-Format: application/pdf Publication-Status: published as Berman, Eli and Linda T. M. Bui. "Environmental Regulation And Productivity: Evidence From Oil Refineries," Review of Economics and Statistics, 2001, v83(3,Aug), 498-510. Abstract: The devolved nature of environmental regulation provides an excellent opportunity for" estimating the effects of regulation on employment, by generating rich variation in regulation" across regions and over time. We exploit this variation using direct measures of regulation and" plant data. We estimate the employment effects of an unprecedented increase in air quality" regulation in the Los Angeles region, using unregulated plants in other regions years for comparison. While environmental regulation is generally thought to reduce" employment, economic theory is ambiguous on this point, since pollution abatement technologies" may be labor using. We find that air quality regulation induced very expensive investments in" abatement capital for individual plants, especially for oil refineries. Despite these high costs we" find no evidence that environmental regulation decreased labor demand induced plant exit and dissuaded plant entry. If anything, air quality regulation probably inc-" reased employment slightly. Handle: RePEc:nbr:nberwo:6299 Template-Type: ReDIF-Paper 1.0 Title: A Model of Crises in Emerging Markets Classification-JEL: F32; F34 Author-Name: Michael P. Dooley Author-Person: pdo13 Note: IFM Number: 6300 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6300 File-URL: http://www.nber.org/papers/w6300.pdf File-Format: application/pdf Publication-Status: published as Dooley, M. P. "A Model Of Crises In Emerging Markets," Economic Journal, 2000, v110(460,Jan), 256-272. Abstract: First generation models of speculative attacks show that apparently random speculative attacks on policy regimes can be fully consistent with rational and well-informed speculative behavior. Unfortunately, models driven by a conflict between exchange rate policy and other macroeconomic objectives do not seem consistent with important empirical regularities surrounding recent crises in emerging markets. This has generated considerable interest in models that associate crises with self-fulfilling shifts in private expectations. " In this paper we develop a first generation model based on an alternative policy conflict. Credit constrained governments accumulate reserve assets in order to self-insure against shocks to national consumption. Governments also insure poorly regulated domestic financial markets. Given this policy regime, a variety of internal and external shocks generate capital inflows to emerging markets followed by successful and anticipated speculative attacks. We argue that a common external shock generated capital inflows to emerging markets in Asia and Latin America after 1989. Country specific factors determined the timing of speculative attacks. Lending policies of industrial country governments and international organizations account for contagion, that is, a bunching of attacks over time. Handle: RePEc:nbr:nberwo:6300 Template-Type: ReDIF-Paper 1.0 Title: Predation, Efficiency, and Inequality Classification-JEL: D60; D74 Author-Name: Herschel I. Grossman Author-Name: Minseong Kim Author-Person: pki94 Note: PE Number: 6301 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6301 File-URL: http://www.nber.org/papers/w6301.pdf File-Format: application/pdf Publication-Status: published as Herschel I. Grossman & Minseong Kim, 2002. "Predation, Efficiency, and Inequality," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(3), pages 393-, September. Abstract: This paper shows how predation breaks the links between an economy's aggregate resourceendowment and aggregate consumption and between the interpersonal distribution of endowments and the interpersonal distribution of consumption. We construct a general-equilibrium model in which some people (the privileged) are well endowed with resources and other people (the unprivileged) are poorly endowed with resources and in which each person can choose to be either a producer or a predator. Here, the choice by some to be predators decreases decreases aggregate consumption, both because the predators' resources are wasted and because producers sacrifice production by allocating resources to guarding against predators. Analyzing this model we find that the minimum equilibrium ratio of predators to producers depends on the technology of predation. Also, the equilibrium ratio of predators to producers equals its minimum value if and only if the ratio of unprivileged to privileged people is not larger than this minimum value. These properties imply that, in contrast to a model that abstracts from predation, the fully egalitarian distribution of resources does not satisfy the Rawlsian criterion of maximizing the consumption of the person with the lowest consumption. (In fact, the fully egalitarian distribution is not even Pareto efficient). Instead, the Rawlsian criterion selects an unegalitarian distribution of resources in which the ratio of unprivileged to privileged people equals the minimum ratio of predators to producers and in which unprivileged have only the minimum possible endowment of resources. In the resulting Rawlsian equilibrium, only unprivileged people choose to be predators rather than producers and because both the ratio of predators to producers and the amount of resources predators waste are minimized aggregate consumption is maximized. Handle: RePEc:nbr:nberwo:6301 Template-Type: ReDIF-Paper 1.0 Title: Argentina and the World Capital Market: Saving, Investment, and International Capital Mobility in the Twentieth Century Classification-JEL: F41; F43 Author-Name: Alan M. Taylor Author-Person: pta46 Note: IFM DAE Number: 6302 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6302 File-URL: http://www.nber.org/papers/w6302.pdf File-Format: application/pdf Publication-Status: published as Journal of Development Economics, Vol. 57, no. 1 (October 1998): 147-184. Abstract: This paper is concerned with integration in the world capital market between the" economies of the core and periphery in the twentieth century. It proceeds with some general" observations and with a special focus on the case of Argentina. I will argue that understanding" the changing relations in international capital markets offers important insights into the growth" and development process, especially for the countries of the periphery. Moreover extent of market integration in history informs current conditions in the relationship between" capital-scarce economies, like Argentina, and the global capital market as a whole. Looking to" the future, the repercussions of economic reform and demographic change suggest likely" implications for future saving, investment, and international capital flows." Handle: RePEc:nbr:nberwo:6302 Template-Type: ReDIF-Paper 1.0 Title: The Effect of Means-Tested Income Support for the Elderly on Pre-Retirement Saving: Evidence from the SSI Program in the U.S. Classification-JEL: I38; J14 Author-Name: David Neumark Author-Person: pne16 Author-Name: Elizabeth Powers Note: LS Number: 6303 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6303 File-URL: http://www.nber.org/papers/w6303.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics Published as "Is Job Stability Declining in the U.S. Economy?: Comment", Industrial and Labor Relations Review, Vol. 49, no. 2 (January 1996): 348-3 51. Abstract: We attempt to draw inferences about potential behavioral responses to means-tested" income support for the elderly by examining the effects on saving of the Supplemental Security" Income (SSI) program for the aged in the U.S. Part of the SSI program provides payments to the" poor elderly, thus operating as a means-tested public retirement program. The federal" government sets eligibility criteria and benefit levels for the federal component of the program but many states supplement federal SSI benefits substantially. We exploit the state-level" variation in SSI benefits to estimate the effects of SSI on saving. We use data from selected" waves of the 1984 Survey of Income Program Participation (SIPP). We find evidence that high" SSI benefits reduce saving among households with heads who are approaching the SSI eligibility" age and who are likely participants in the program. Handle: RePEc:nbr:nberwo:6303 Template-Type: ReDIF-Paper 1.0 Title: Patent Buy-Outs: A Mechanism for Encouraging Innovation Classification-JEL: O31; O30 Author-Name: Michael Kremer Author-Person: pkr20 Note: PR Number: 6304 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6304 File-URL: http://www.nber.org/papers/w6304.pdf File-Format: application/pdf Publication-Status: published as Quarterly Journal of Economics (November 1998): 1137-1167. Abstract: In 1839, the French government purchased the patent on the Daguerreotype process and" placed it in the public domain. This paper examines a mechanism under which governments" would use an auction to estimate the private value of patents and then offer to buy out patents at" this private value, times a fixed markup. The markup would correspond to the estimated typical" ratio of the social and private values of inventions -- perhaps two. Most patents purchased would" be placed in the public domain, but in order to induce bidders to reveal their valuations patents would be sold to the highest bidder. Such patent buy-outs could eliminate monopoly" price distortions and incentives for wasteful reverse engineering, while raising private incentives" for original research closer to their social value. However, patent buy-outs are potentially" vulnerable to collusion. Patent buy-outs may be particularly appropriate for pharmaceuticals." Handle: RePEc:nbr:nberwo:6304 Template-Type: ReDIF-Paper 1.0 Title: Are Public Housing Projects Good for Kids? Classification-JEL: H5; I3 Author-Name: Janet Currie Author-Person: pcu13 Author-Name: Aaron Yelowitz Author-Person: pye2 Note: CH PE Number: 6305 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6305 File-URL: http://www.nber.org/papers/w6305.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 75, no. 1 (January 2000): 99-124. Abstract: One of the goals of federal housing policy is to improve the prospects of children in poor families. But little research has been conducted into the effects of participation in housing programs on children, perhaps because it is difficult to find data sets with information about both participation and interesting outcome measures. This paper combines data from several sources in order to provide a first look at the effect of public housing projects on housing quality and the educational attainment of children. We first use administrative data from the Department of Housing and Urban Development to impute the probability that a Census household lives in a public housing project. We find that a higher probability of living in a project is associated with poorer outcomes. We then use two-sample instrumental variables (TSIV) techniques to combine information on the probability of living in a project obtained from the 1990 to 1995 Current Population Surveys, with information on outcomes obtained from 1990 Census. The instrument common to both samples is an indicator equal to one if the household is entitled to a larger housing project unit because of the sex composition of the children in the household. Families entitled to a larger unit because of sex composition are 24% more likely to live in projects. When we control for omitted variables bias using TSIV, we find that project households are less likely to suffer from overcrowding and less likely to live in high-density complexes. Project children are also 12 to 17 percentage points less likely to have been held back in school one or more grades, although this effect is confined to boys. Thus, most families do not face a tradeoff between housing quality and child outcomes -- the average project improves both. Handle: RePEc:nbr:nberwo:6305 Template-Type: ReDIF-Paper 1.0 Title: Central Bank Policy Rules: Conceptual Issues and Practical Considerations Classification-JEL: E52; E58 Author-Name: Stephen G. Cecchetti Author-Person: pce4 Note: ME Number: 6306 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6306 File-URL: http://www.nber.org/papers/w6306.pdf File-Format: application/pdf Publication-Status: published as Cecchetti, Stephen G. "Policy Rules And Targets: Framing The Central Banker's Problem," FRB New York- Economic Policy Review, 1998, v4(2,Jun), 1-14. Publication-Status: published as Current Issues in Monetary Economics, Wagner, H., ed., Heidelberg: Physica-Verlag, 1998, pp. 121-140. Abstract: The design of rules for central bank policy has been a subject of increasing interest to many monetary economists. The purpose of this essay is first to present an analytical structure in which a policymaker is presumed to formulate a rule based on the solution to an optimal control problem, and then to examine a number of issues that are germane to the current debate on the nature of such rules. These issues include the implication for policymaking of the slope of the output-inflation variability frontier, the importance of various types of uncertainty, the consequences of a zero nominal interest rate floor, and the possible reasons for interest rate smoothing. Although this essay is intended to raise, rather than resolve, key questions concerning policy rules, it does offer fairly compelling evidence on one point. This concerns the potential consequences of the move by many central banks toward some form of price-level or inflation targeting. In adopting this approach, central banks are implicitly changing the relative importance of output and inflation variability in their objective function. The robustness of the policy rule, however, may depend on the shape of the output-inflation variability trade-off. The data indicate that this trade-off is extremely steep: small decreases in inflation variability are associated with very large increases in output variability. This finding suggests that pure inflation targeting may have very undesirable side effects. Handle: RePEc:nbr:nberwo:6306 Template-Type: ReDIF-Paper 1.0 Title: Welfare and Macroeconomic Interdependence Author-Name: Giancarlo Corsetti Author-Name: Paolo Pesenti Author-Person: ppe152 Note: IFM Number: 6307 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6307 File-URL: http://www.nber.org/papers/w6307.pdf File-Format: application/pdf Publication-Status: published as Corsetti, Giancarlo and Paolo Pesenti. "Welfare And Macroeconomic Interdependence," Quarterly Journal of Economics, 2001, v116(2,May), 421-445. Abstract: The paper develops a simple choice-theoretic model suitable for carrying out welfare" analyses of the international transmission of monetary and fiscal policies. The model can be" solved in closed form and illustrated in terms of the simplest graphical apparatus provide the analysis of macroeconomic interdependence, structural spillovers strategic complementarities with rigorous but intuitive micro-foundations. In contrast with the" traditional literature, our findings emphasize the positive externalities of foreign monetary" expansions and foreign fiscal contractions on domestic welfare, while highlighting the" ambiguous welfare effects of domestic policy shocks. Handle: RePEc:nbr:nberwo:6307 Template-Type: ReDIF-Paper 1.0 Title: Social Security and Retirement in Canada Classification-JEL: J14; J26 Author-Name: Jonathan Gruber Author-Person: pgr20 Note: AG PE LS Number: 6308 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6308 File-URL: http://www.nber.org/papers/w6308.pdf File-Format: application/pdf Publication-Status: Published as "Social Security and Retirement: An International Comparison" , American Economic Review, Vol. 88, no. 2 (May 1998): 158-163. Publication-Status: published as Social Security and Retirement in Canada , Jonathan Gruber. in Social Security and Retirement around the World, Gruber and Wise. 1999 Abstract: Government transfers to older persons in Canada are one of the largest and fastest growing" components of the government budget. I provide an overview of the interaction between these" transfer programs and retirement behavior. I begin by documenting historical trends in labor force" participation and program receipt, and contemporaneous patterns of work and income receipt for the" current cohort of older persons. I then present an overview of the structure of this system of" Canadian transfer programs. Finally, I present results of a simulation model which measures the" implicit tax/subsidy rate on work after age 55 through this system. I find that workers, there are modest taxes on work through age 64, that rise to fairly high levels thereafter. But" these taxes are substantially lower for single workers, since they do not have wives eligible for" means-tested transfers, and for workers with substantial other sources of income is not at all eligible for means-tested transfers. Handle: RePEc:nbr:nberwo:6308 Template-Type: ReDIF-Paper 1.0 Title: Corporate Governance Classification-JEL: G3 Author-Name: Luigi Zingales Note: CF Number: 6309 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6309 File-URL: http://www.nber.org/papers/w6309.pdf File-Format: application/pdf Publication-Status: published as Newman, P. (ed.) The New Palgrave Dictionary of Economics and the Law. New York: Macmillan, 1998. Abstract: This essay summarizes my own personal view of what corporate governance is about. I" argue that it makes sense to discuss corporate governance only in an incomplete contract world. " In this world, the notion of corporate governance is intrinsically related to the definition of the" firm. In this respect, I review the shortcomings of the existing definitions of the firm and the" possible applications of the idea that the firm is a specific investments" introduced by" Rajan and Zingales (1997a and 1997b). I conclude discussing the limitations of the incomplete" contracts approach to corporate governance. Handle: RePEc:nbr:nberwo:6309 Template-Type: ReDIF-Paper 1.0 Title: Sharp Reductions in Current Account Deficits: An Empirical Analyis Classification-JEL: F32; F34 Author-Name: Gian Maria Milesi-Ferretti Author-Person: pmi28 Author-Name: Assaf Razin Author-Person: pra388 Note: IFM Number: 6310 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6310 File-URL: http://www.nber.org/papers/w6310.pdf File-Format: application/pdf Publication-Status: published as European Economic Review, Vol. 42, nos. 3-5 (May 1998): 897-908. Abstract: We study determinants and consequences of sharp reductions in current account" imbalances (reversals) in low- and middle-income countries. We try to answer two questions:" first, what triggers reversals? Second, what factors explain how costly reversals are? We find" that both domestic variables, such as the current account balance, openness and the level of" reserves, and external variables, such as terms of trade shocks, US real interest rates and growth" in industrial countries seem to play an important role in explaining reversals in current account" imbalances. We also find some evidence that countries with a less appreciated real exchange" rate, higher investment and openness prior to the reversal tend to grow faster after a reversal" occurs. Handle: RePEc:nbr:nberwo:6310 Template-Type: ReDIF-Paper 1.0 Title: Managing the Public Debt in Fiscal Stabilizations: The Evidence Classification-JEL: E31; E41 Author-Name: Alessandro Missale Author-Person: pmi118 Author-Name: Francesco Giavazzi Author-Person: pgi18 Author-Name: Pierpaolo Benigno Author-Person: pbe203 Note: IFM Number: 6311 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6311 File-URL: http://www.nber.org/papers/w6311.pdf File-Format: application/pdf Publication-Status: Published as "Managing the Public Debt: The Optimal Taxation Approach", JES, Vol. 11, no. 3 (September 1997): 235-265. Abstract: This paper provides evidence on the behavior of public debt managers during fiscal" stabilizations in OECD countries over the last two decades. We find that debt maturity tends to" lengthen the more credible the program, the lower the long-term interest rate and the higher the" volatility of short-term interest rates. We show that this debt issuing strategy is consistent with" optimal debt management if information between the government and private investors is" asymmetric, as is usually the case at the outset of a stabilization attempt when private investors" may lack full confidence in the announced budget cuts. Handle: RePEc:nbr:nberwo:6311 Template-Type: ReDIF-Paper 1.0 Title: Foreign Speculators and Emerging Equity Markets Classification-JEL: F3; G0 Author-Name: Geert Bekaert Author-Person: pbe52 Author-Name: Campbell R. Harvey Author-Person: pha102 Note: AP Number: 6312 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6312 File-URL: http://www.nber.org/papers/w6312.pdf File-Format: application/pdf Publication-Status: published as Journal of Finance, Vol. 55 (April 2000): 565-613. Abstract: A number of countries have delayed the opening of their capital markets to international" investment because of reservations about the impact of foreign speculators on both expected" returns and market volatility. We propose a cross-sectional time-series model that attempts to" assess the impact of market liberalizations, in the form of the offering of depositary receipts country funds and other financial instruments, in an extranational market and market volatility in emerging equity markets. We also examine the impact of capital market" liberalizations on the correlation of emerging equity market returns and the world market return. " Our empirical approach is designed to control for other economic events which might confound" the impact of foreign speculators on local equity markets. Whatever the empirical specification the cost of capital always decreases after a capital market liberalization but the effect is" economically and statistically weak. The effects on volatility and correlation are less robust." Handle: RePEc:nbr:nberwo:6312 Template-Type: ReDIF-Paper 1.0 Title: NIMBY Taxes Matter: State Taxes and Interstate Hazardous Waste Shipments Classification-JEL: H73; H23 Author-Name: Arik Levinson Author-Person: ple135 Note: PE Number: 6314 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6314 File-URL: http://www.nber.org/papers/w6314.pdf File-Format: application/pdf Publication-Status: published as Arik Levinson. "NIMBY taxes matter: the case of state hazardous waste disposal taxes" Journal of Public Economics. Volume 74, Issue 1, October 1999, Pages 31-51 Abstract: This paper examines the extent to which state taxes have inhibited interstate transport of" hazardous waste for disposal in the United States. It uses panel data from the Toxics Release" Inventory (TRI) and the Resource Conservation and Recovery Act (RCRA) on interstate" shipments of waste, and analyzes them in conjunction with a set of state characteristics hazardous waste disposal taxes and disposal capacity. It employs four approaches to deal with" the potential endogeneity of taxes and unobserved heterogeneity among states: a "natural" experiment fixed-effects model reinterpretation of the coefficient on the distance among" states. The paper concludes that hazardous waste taxes are a statistically and economically" significant deterrent to interstate waste transport, that taxes are being imposed by large-capacity" and large-import states, and that therefore these taxes have had a decentralizing effect on the" national pattern of hazardous waste transport and disposal. Handle: RePEc:nbr:nberwo:6314 Template-Type: ReDIF-Paper 1.0 Title: Inventories Classification-JEL: E22; E32 Author-Name: Valerie A. Ramey Author-Person: pra154 Author-Name: Kenneth D. West Author-Person: pwe16 Note: EFG Number: 6315 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6315 File-URL: http://www.nber.org/papers/w6315.pdf File-Format: application/pdf Publication-Status: published as Ramey, Valerie A. & West, Kenneth D., 1999. "Inventories," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 13, pages 863-923 Elsevier. Publication-Status: published as Handbook of Macroeconomics, Taylor, John and Michael Woodford, eds., Amsterdam: North Holland, 1999, Vol.1B Abstract: We review and interpret recent work on inventories, emphasizing empirical and business cycle aspects. We begin by documenting two empirical regularities about inventories. The first is the well-known one that inventories move procyclically. The second is that inventory movements are quite persistent, even conditional on sales. To consider explanations for the two facts, we present a linear-quadratic model. The model can rationalize the two facts in many ways, but two stylized explanations are simple enough and have support support from a number of papers. Both assume that there are persistent shocks to demand for the good in question, and that marginal production cost slopes up. The first explanation assumes as well that there are highly persistent shocks to the cost of production. The second assumes that there are strong costs of adjusting production and a strong accelerator motive. Research to to date, however, has not reached a consensus on whether one of these two, or some third, alternative provides a satisfactory explanation of inventory behavior. We suggest several directions for future research that promise to improve our understanding of inventory behavior and thus of business cycles. Handle: RePEc:nbr:nberwo:6315 Template-Type: ReDIF-Paper 1.0 Title: After Chile, What? Second-Round Pension Reforms in Latin America Classification-JEL: J26; J14 Author-Name: Olivia S. Mitchell Author-Person: pmi73 Author-Name: Flavio Ataliba Barreto Note: AG PE Number: 6316 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6316 File-URL: http://www.nber.org/papers/w6316.pdf File-Format: application/pdf Publication-Status: published as Revista de Analisis Economico, Vol. 12, no. 2 (November 1997): 3-36. Abstract: The apparent success of Chile's pension reform catalyzed a number of subsequent" reforms in sister Latin American nations, and the Chilean model' has now captivated the" attention of policymakers and researchers in the OECD as well. In this paper we identify six" critical elements of old-age pension reform, and examine how these six elements differ across the" Chilean reform, and several other Latin nations that followed in Chile's footsteps. We" emphasize how these other Latin American nations adopted different mechanisms to restructure" their old-age pension systems, and we highlight available evidence on system performance in" each case. Handle: RePEc:nbr:nberwo:6316 Template-Type: ReDIF-Paper 1.0 Title: Myopia and Inconsistency in the Neoclassical Growth Model Classification-JEL: O40; E21 Author-Name: Robert J. Barro Author-Person: pba251 Note: EFG ME PE Number: 6317 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6317 File-URL: http://www.nber.org/papers/w6317.pdf File-Format: application/pdf Publication-Status: published as Barro, Robert J. "Ramsey Meets Laibson In The Neoclassical Growth Model," Quarterly Journal of Economics, 1999, v114(4,Nov), 1125-1152. Abstract: The neoclassical growth model is modified to allow for a non-constant rate of time" preference. If the household cannot commit future choices of consumption and if utility is" logarithmic, then an equilibrium is found that resembles the standard results of the neoclassical" model. In this solution, the effective rate of time preference is high model has potentially important implications for institutional design and other policies because" households would benefit from an ability to commit future consumption there is a sense in" which the results are observationally equivalent to those of the conventional model. When the" framework is extended to allow for partial commitment ability, some testable hypotheses emerge" concerning the link between this ability and the rates of saving and growth. Steady-state results" are obtained for general concave utility functions, and some properties of the dynamic paths are" worked out for the case of isoelastic utility. Handle: RePEc:nbr:nberwo:6317 Template-Type: ReDIF-Paper 1.0 Title: Unions and Managerial Pay Classification-JEL: J31; J44 Author-Name: John DiNardo Author-Person: pdi178 Author-Name: Kevin Hallock Author-Person: pha176 Author-Name: Jorn-Steffen Pischke Author-Person: ppi29 Note: LS Number: 6318 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6318 File-URL: http://www.nber.org/papers/w6318.pdf File-Format: application/pdf Abstract: Unions compress the wage distribution among workers covered by union contracts. We" ask whether unions also have an effect on the managers of unionized firms. To this end we" collected and assembled data on unionization and managerial pay within firms and industries in" the U.S. and across countries. Generally, we find a negative correlation between executive" compensation and unionization in our cross-section data, but no relationship of changes in" unionization on the growth of compensation of executives over time. Using NLRB elections" data, we find that a loss of union members due to decertification elections is associated with" higher CEO pay, although our estimates are imprecise. With CPS data we consistently find that" where unions are stronger, fewer managers are employed. Handle: RePEc:nbr:nberwo:6318 Template-Type: ReDIF-Paper 1.0 Title: Volatility and Financial Intermediation Classification-JEL: F32; F34 Author-Name: Joshua Aizenman Author-Person: pai8 Author-Name: Andrew Powell Note: IFM Number: 6320 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6320 File-URL: http://www.nber.org/papers/w6320.pdf File-Format: application/pdf Publication-Status: published as Aizenman, Joshua & Powell, Andrew, 2003. "Volatility and financial intermediation," Journal of International Money and Finance, Elsevier, vol. 22(5), pages 657-679, October. Abstract: Following the Tequila period, its after-effects in Latin America and recent events in South East Asia, the effect of volatility on emerging market economies has become an important topic of research with the domestic financial intermediation process being advanced as one of the most important transmission mechanisms. At the same time there has been continued interest in issues related to imperfect information and rationing in credit markets. In this paper, we consider an economy where risk neutral banks provide intermediation services and risk neutral producers demand credit to finance their working capital needs. Our model blends costly state verification with imperfect enforcement power and, in this context of costly financial intermediation, we show that a weak legal system combined with high information verification costs leads to large, first-order effects of volatility on production, employment and welfare. A calibration illustrates that the semi-elasticity of welfare with respect to volatility is less than -1 for reasonable parameter values (i.e., a one percent increase in the coefficient of variation of productivity shocks would reduce welfare by more than one percent). We suggest that legal and information problems in the credit market may then be at the heart of the reason why volatility has profound effects on emerging market economies. Handle: RePEc:nbr:nberwo:6320 Template-Type: ReDIF-Paper 1.0 Title: Market Forces and Sex Discrimination Classification-JEL: J71; J16 Author-Name: Judith K. Hellerstein Author-Person: phe270 Author-Name: David Neumark Author-Person: pne16 Author-Name: Kenneth R. Troske Author-Person: ptr38 Note: LS Number: 6321 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6321 File-URL: http://www.nber.org/papers/w6321.pdf File-Format: application/pdf Publication-Status: published as Hellerstein, Judith K., David Neumark, and Kenneth Troske. “Market Forces and Sex Discrimination." Journal of Human Resources (Spring 2002): 353-380. Abstract: We report new evidence on the existence of sex discrimination in wages and whether competitive market forces act to reduce or eliminate discrimination. Specifically, we use plant- and firm-level data to examine the relationships between profitability, growth and ownership changes, product market power, and the sex composition of a plant's or firm's workforce. Our strongest finding is that among plants with high levels of product market power, those that employ relatively more women are more profitable. No such relationship exists for plants with apparently low levels of market power. This is consistent with sex discrimination in wages in the short run in markets where plants have product market power. We also examine evidence on the longer-run effects of market forces on discrimination, asking whether discriminatory employers with market power are punished over time through lower growth than non-discriminatory employers, or whether discriminatory employers are bought out by non-discriminators. We find little evidence that this occurs over a five-year period, as growth and ownership changes for plants with market power are generally not significantly related to the sex composition of a plant's workforce. Handle: RePEc:nbr:nberwo:6321 Template-Type: ReDIF-Paper 1.0 Title: Regions, Resources, and Economic Geography: Sources of U.S. Regional Comparative Advantage, 1880-1987 Classification-JEL: R12; F1 Author-Name: Sukkoo Kim Note: DAE Number: 6322 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6322 File-URL: http://www.nber.org/papers/w6322.pdf File-Format: application/pdf Publication-Status: published as Sukkoo Kim, 1999. "Regions, resources, and economic geography: Sources of U.S. regional comparative advantage, 1880–1987," Regional Science and Urban Economics, vol 29(1), pages 1-32. Abstract: This paper estimates the Rybczynski equation matrix for the twenty two-digit U.S." manufacturing industries for various years between 1880 and 1987. As predicted by the standard" general equilibrium theory of interregional trade, the regression estimates show that a consistent" set of factor endowments explains a significant amount of the geographic distribution of" manufacturing activities over time. Although these results do not rule out the importance of" increasing returns, they do suggest certain limits on how increasing returns affect U.S. economic" geography. Handle: RePEc:nbr:nberwo:6322 Template-Type: ReDIF-Paper 1.0 Title: How the Changing Market Structure of U.S. Higher Education Explains College Tuition Author-Name: Caroline M. Hoxby Author-Person: pho46 Note: PE Number: 6323 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6323 File-URL: http://www.nber.org/papers/w6323.pdf File-Format: application/pdf Abstract: This paper presents theoretical and empirical evidence demonstrating the ways in which" the changing market structure of American higher education from 1940 to the present affected" college prices and college quality. Over this period, the market for baccalaureate education" became significantly more competitive, as it was transformed from a collection of local autarkies" to a nationally integrated market. I demonstrate that the results of increased competition were" what industrial organization models (with product differentiation and students being both" consumers of and inputs into higher education) would predict: higher average college quality and" tuitions, greater between-college variation in tuition, greater between-college variation in student" quality, less within-college variation in student quality, higher average subsidies to students greater between-college variation in subsidies. Changing market structure can explain real" tuition increases of approximately 50 percent for selective private colleges. Panel data from" 1940 to 1991 on 1121 baccalaureate-granting colleges are employed, including data on students'" home residences. Handle: RePEc:nbr:nberwo:6323 Template-Type: ReDIF-Paper 1.0 Title: A Unified Theory of Underreaction, Momentum Trading and Overreaction in Asset Markets Author-Name: Harrison Hong Author-Person: pho390 Author-Name: Jeremy C. Stein Author-Person: pst43 Note: AP CF Number: 6324 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6324 File-URL: http://www.nber.org/papers/w6324.pdf File-Format: application/pdf Publication-Status: published as Hong, Harrison and Jeremy C. Stein. "A Unified Theory Of Underreaction, Momentum Trading, And Overreaction In Asset Markets," Journal of Finance, 1999, v54(6,Dec), 2143-2184. Abstract: We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was constant. However, since longer-maturity bond prices incorporate information" about the central tendency, longer-maturity bond yields can be used to predict future short-term" rate movements. We develop a two-factor model of the term-structure which implies that a" linear combination of any two rates can be used as a proxy for the central tendency. Based on" this central-tendency proxy, we estimate a model of the one-month rate which performs better" than models which assume the central tendency to be constant. Handle: RePEc:nbr:nberwo:6324 Template-Type: ReDIF-Paper 1.0 Title: The Central Tendency: A Second Factor in Bond Yields Classification-JEL: G12 Author-Name: Pierluigi Balduzzi Author-Name: Sanjiv Ranjan Das Author-Person: pda527 Author-Name: Silverio Foresi Note: AP Number: 6325 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6325 File-URL: http://www.nber.org/papers/w6325.pdf File-Format: application/pdf Publication-Status: published as Review of Economics and Statistics, Vol. 80, no. 1 (February 1998): 62-72. Abstract: We assume that the instantaneous riskless rate reverts towards a central tendency which in turn, is changing stochastically over time. As a result, current short-term rates are not" sufficient to predict future short-term rates movements, as would be the case if the central" tendency was constant. However, since longer-maturity bond prices incorporate information" about the central tendency, longer-maturity bond yields can be used to predict future short-term" rate movements. We develop a two-factor model of the term-structure which implies that a" linear combination of any two rates can be used as a proxy for the central tendency. Based on" this central-tendency proxy, we estimate a model of the one-month rate which performs better" than models which assume the central tendency to be constant. Handle: RePEc:nbr:nberwo:6325 Template-Type: ReDIF-Paper 1.0 Title: Pecuniary Incentives to Work in the U.S. during World War II Author-Name: Casey B. Mulligan Author-Person: pmu64 Note: ME Number: 6326 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6326 File-URL: http://www.nber.org/papers/w6326.pdf File-Format: application/pdf Publication-Status: published as Journal of Political Economy, Vol. 106, no. 5 (October 1998): 1033-1077. Abstract: It is argued that changes in workers' budget sets cannot explain the dramatic increases in" civilian work in the U.S. during World War II. Although money wages grew during the period wartime after-tax real wages were lower than either before or after the war. Evidence from the" 1940's also appears to be inconsistent with other pecuniary explanations such as wealth effects of" government policies, intertemporal substitution induced by asset prices and changes in the nonmarket price of time. Although untested and relatively undeveloped nonpecuniary models of behavior are tempting explanations for wartime work." Handle: RePEc:nbr:nberwo:6326 Template-Type: ReDIF-Paper 1.0 Title: Whither the World Bank and the IMF? Classification-JEL: F33 Author-Name: Anne O. Krueger Note: ITI IFM Number: 6327 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6327 File-URL: http://www.nber.org/papers/w6327.pdf File-Format: application/pdf Publication-Status: published as Journal of Economic Literature, Vol. 36, no. 4 (December 1998): 1983-2020. Abstract: On their fiftieth anniversary, the International Monetary Fund and the World Bank were" extensively reviewed, both to mark the occasion and to consider, often critically roles and performance. This paper reviews the functions of the two institutions in light of their" evolution over the past fifty years and of changes in the international economic system. It then" evaluates and assesses some of the criticisms and proposals for reform of the two institutions." Handle: RePEc:nbr:nberwo:6327 Template-Type: ReDIF-Paper 1.0 Title: The Determinants of Child Care Workers' Wages and Compensation: Sectoral Differences, Human Capital, Race, Insiders and Outsiders Classification-JEL: J13; J31 Author-Name: H. Naci Mocan Author-Person: pmo270 Author-Name: Deborah Viola Note: CH Number: 6328 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6328 File-URL: http://www.nber.org/papers/w6328.pdf File-Format: application/pdf Abstract: This paper investigates the determinants of wages and compensation in child care centers for teachers and aides. Nonprofit status has no across-the-board impact on wages. The extent of the wage premium enjoyed by some nonprofit workers depends on the category of the nonprofit center, occupation of the workers, and their race. The rate of return to an additional year of tenure is 2 percent for both teachers and aides. The return to prior experience is one percent for teachers and zero for aides. An additional year of general education brings about a 5 percent increase in teacher wages, and half of that amount in aide wages. Specialized training influences teacher wages, but has less impact on aide wages. Unionization has a large impact on both wages and compensation of teachers and aides. Alternative wages of the workers are positively related to teacher and aide wages. An increase in local unemployment decreases aides' wages, but has a positive impact on the wages of teachers. There is evidence of profit sharing in the case of aides, but not teachers. An increase in center size positively impacts teacher wages. This body of evidence indicates both teacher and aide remuneration have non-competitive flavors, where the case is more compelling for aides. Handle: RePEc:nbr:nberwo:6328 Template-Type: ReDIF-Paper 1.0 Title: Political Economics and Macroeconomic Policy Classification-JEL: E5; E6 Author-Name: Torsten Persson Author-Person: ppe28 Author-Name: Guido Tabellini Author-Person: pta37 Note: ME Number: 6329 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6329 File-URL: http://www.nber.org/papers/w6329.pdf File-Format: application/pdf Publication-Status: published as Handbook of Macroeconomics, Taylor, J. and M. Woodford, eds., North Holland, Amsterdam: 1999. Abstract: This paper surveys the recent literature on the theory of macroeconomic policy. We study the effect of various incentive constraints on the policy making process, such as lack of credibility, political opportunism, political ideology, and divided government. The survey is organized in three parts. Part I deals with monetary policy in a simply Phillips curve model: it covers credibility issues, political business cycles, and optimal design of monetary institutions. Part II deals with fiscal policy in a dynamic general equilibrium set up: the main topics here are credibility of tax policy, and political determinants of budget deficits. Part III studies economic growth in models with endogenous fiscal policy. Handle: RePEc:nbr:nberwo:6329 Template-Type: ReDIF-Paper 1.0 Title: Has Job Stability Declined Yet? New Evidence for the 1990's Classification-JEL: C80; J21 Author-Name: David Neumark Author-Person: pne16 Author-Name: Daniel Polsky Author-Name: Daniel Hansen Note: LS Number: 6330 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6330 File-URL: http://www.nber.org/papers/w6330.pdf File-Format: application/pdf Publication-Status: published as Journal of Labor Economics, Vol. 17, no. S4 (October 1999): pp. S29-S64 Abstract: In earlier work we examined the temporal evolution of job stability in U.S. labor markets through the 1980's, using data assembled from a sequence of Current Population Survey tenure supplements. We found little or no change in aggregate job stability in the U.S. economy. In addition, older and more-tenured workers experienced increases in job stability in the" latter part of the 1980's. In this paper we update the evidence on changes in job stability through the mid-1990's, using recently-released CPS data for 1995 that parallel the earlier job tenure supplements. Updating the evidence from systematic random samples of the population and workforce through this period is especially important because the media have painted a particularly stark picture of declining job stability in the 1990's. In the aggregate, there is some evidence that job stability declined modestly in the first half of the 1990's. Moreover, the relatively small aggregate changes mask rather sharp declines in stability for workers with more than a few years of tenure. Nonetheless, the data available to this point do not support the conclusion that the downward shift in job stability for more-tenured workers stability, reflect long-term trends. Handle: RePEc:nbr:nberwo:6330 Template-Type: ReDIF-Paper 1.0 Title: The Careers of Modern Artists: Evidence from Auctions of Contemporary Paintings Classification-JEL: J24 Author-Name: David W. Galenson Note: LS Number: 6331 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6331 File-URL: http://www.nber.org/papers/w6331.pdf File-Format: application/pdf Publication-Status: published as David Galenson, 2000. "The Careers of Modern Artists," Journal of Cultural Economics, Springer, vol. 24(2), pages 87-112, May. Abstract: Using transactions from fine art auctions for 42 leading American contemporary artists I estimate the relationship between the value of a painting and the artist's age at the date of its execution. The econometric estimates show that artists born before 1920 were likely to have done their most valuable work late in their careers, while in contrast artists born in the 1920s and 30s were more likely to have done their most valuable work at an early age. Comparison of these results to evidence drawn from art history textbooks and museum exhibitions furthermore indicates that these artists' most valuable work has also been that most highly regarded by scholars. I argue that the shift across generations in the shape of these artists' age-price profiles was a result of both the evolution of modern" painting and a growth in the demand for contemporary American art during the 1950s and 60s. Handle: RePEc:nbr:nberwo:6331 Template-Type: ReDIF-Paper 1.0 Title: Hong Kong's Business Regulation in Transition Classification-JEL: L43; L51 Author-Name: Changqi Wu Author-Name: Leonard K. Cheng Note: ITI Number: 6332 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6332 File-URL: http://www.nber.org/papers/w6332.pdf File-Format: application/pdf Publication-Status: published as Hong Kong's Business Regulation in Transition, Changqi Wu, Leonard K. Cheng. in Deregulation and Interdependence in the Asia-Pacific Region, Ito and Krueger. 2000 Abstract: The transition of Hong Kong's main economic activities from manufacturing to services is accompanied by gradual changes in the regulatory regimes for monopolies. The local telecommunication services industry has been liberalized, deregulation of public transport is taking shape, and the schemes of control for electricity suppliers are candidates for reform. In this paper, we review the evolution of business regulation in Hong Kong, analyze the salient features of its scheme of control regulation and evaluate the impact of transition from regulation to competition. To provide a sharp contrast between the difficulties of the traditional approach to regulation and the benefits of introducing competition, we focus on the cases of electricity and telecommunications. The direction for future changes is also discussed. Handle: RePEc:nbr:nberwo:6332 Template-Type: ReDIF-Paper 1.0 Title: What Happens When You Tax the Rich? Evidence from Executive Compensation Classification-JEL: H24 Author-Name: Austan Goolsbee Author-Person: pgo49 Note: PE Number: 6333 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6333 File-URL: http://www.nber.org/papers/w6333.pdf File-Format: application/pdf Publication-Status: published as Journal of Political Economy, Vol. 108, no. 2 (April 2000): 352-378. Abstract: This paper reexamines the responsiveness of taxable income to changes in in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995. The data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income. This small group of executives can account for as much as 20% of the aggregate change in wage and salary income for the 1 million richest taxpayers and one person alone can account for over 2%. But the decline is almost entirely a short-run shift in the timing of compensation rather than a permanent reduction in taxable income. The short-run elasticitiy of taxable income with respect to the net of tax share exceeds one but the elasticity after one year is at most 0.4 and probably close to 0. The response comes almost entirely from a large increase in the exercise of stock options in the year before the tax change, followed by a decline in the year of the tax change and the change is concentrated among executives at the top of the income distribution. Executives without stock options are 6 times less responsive to taxation. Other types of compensation such as salary and bonus or nontaxed income are either not responsive to tax rates or not large enough to make a difference. The estimated elasticities show that the dead weight loss of recent tax increases was around 15 25 percent of the revenue generated. Handle: RePEc:nbr:nberwo:6333 Template-Type: ReDIF-Paper 1.0 Title: The Mexican Peso Crisis? How Much Did We Know? When Did We Know It? Classification-JEL: F3; F4 Author-Name: Sebastian Edwards Author-Person: ped3 Note: IFM Number: 6334 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6334 File-URL: http://www.nber.org/papers/w6334.pdf File-Format: application/pdf Publication-Status: published as Sebastian Edwards, 1998. "The Mexican Peso Crisis: How Much Did We Know? When Did We Know It?," The World Economy, Blackwell Publishing, vol. 21(1), pages 1-30, 01. Abstract: The Mexican crisis of 1994 raised throughout the world a number of questions about the sustainability -- and even the merits -- of the market oriented reform process in Latin America and other regions. Understanding how events unfolded in Mexico during the early 1990s continues to be fundamentally important to assess the mechanics of currency crises. More importantly, perhaps, the eruption of the East Asian currency crises in the summer and fall 1997 has raised the question of whether the lessons from Mexico have indeed been learned by policy makers, private sector analysts and international civil servants. More specifically, as a result of the recent events in South East Asia many observers have argued that the international financial organizations -- the IMF and the World Bank -- and the governments of the advanced countries have failed to revamp the early warning system that was supposed to prevent a repetition of a Mexico-style crisis. This paper analyzes the causes behind the Mexican crisis, emphasizing the role of capital inflows, inflationary inertia and real exchange rate overvaluation. I also ask a number of questions regarding the predictability of the crisis: Should Wall Street analysts have known that things were getting out of hand? And if they did, why didn't they alert their clients? And, how much did officials at the US Treasury know about the depth of the Mexican problems? And, what was the role of the media? I conclude that although the US Treasury was fully aware of what was going on, most private sector analysts were unaware of the seriousness of the situation. Handle: RePEc:nbr:nberwo:6334 Template-Type: ReDIF-Paper 1.0 Title: Economic Integration and Convergence: U.S. Regions, 1840-1987 Classification-JEL: N31; N32 Author-Name: Sukkoo Kim Note: DAE Number: 6335 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6335 File-URL: http://www.nber.org/papers/w6335.pdf File-Format: application/pdf Publication-Status: published as Sukkoo Kim, 1998. "Economic Integration and Convergence: U.S. Regions, 1840–1987," The Journal of Economic History, vol 58(03), pages 659-683. Abstract: Despite the recent inroads made by models of interregional trade based on external" economies, the analysis of the long-run trends in U.S. regional specialization in agriculture manufacturing, wholesale trade, retail trade, services, and all economic activities indicate that" these trends are more consistent with explanations based on the neoclassical Heckscher-Ohlin" model. Furthermore, while the long-run trends in U.S. regional industrial structures do not" explain all the variations in regional income per capita, they played an important role in causing" U.S. regional incomes to diverge and then converge between the nineteenth and the twentieth" centuries. Handle: RePEc:nbr:nberwo:6335 Template-Type: ReDIF-Paper 1.0 Title: A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms Classification-JEL: E6; H3 Author-Name: Andres Velasco Note: PE Number: 6336 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6336 File-URL: http://www.nber.org/papers/w6336.pdf File-Format: application/pdf Publication-Status: published as Fiscal Institutions and Fiscal Performance. Poterba, James M., and Jurgen von Hagen, eds., Chicago: The University of Chicago Press, 1999,pp. 37-57. Publication-Status: published as A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms, Andres Velasco. in Fiscal Institutions and Fiscal Performance, Poterba and von Hagen. 1999 Abstract: This paper develops a political-economic model of fiscal policy one in which" government resources are a common property' out of which interest groups can finance" expenditures on their preferred items. This setup has striking macroeconomic implications. " First, fiscal deficits and debt accumulation occur even when there are no reasons for intertemporal smoothing. Second deficits can be eliminated through a fiscal reform, but such a reform may only take place after a" delay during which government debt is built up. Handle: RePEc:nbr:nberwo:6336 Template-Type: ReDIF-Paper 1.0 Title: The Estate Tax and After-Tax Investment Returns Classification-JEL: H24; J14 Author-Name: James Poterba Author-Person: ppo19 Note: PE Number: 6337 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6337 File-URL: http://www.nber.org/papers/w6337.pdf File-Format: application/pdf Publication-Status: published as Slemrod, Joel B. (ed.) Does Atlas shrug? The economic consequences of taxing the rich. New York: Russell Sage Foundation; Cambridge and London: Harvard University Press, 2000. Abstract: This paper explores the effect of estate and gift taxes on the after-tax rate of return earned by savers. The estate tax affects only a small fraction of households -- taxable decedents represented only 1.4 percent of all deaths in 1995 -- but the affected households account for a substantial fraction of household net worth. The estate tax can be viewed as a tax on capital income, with the effective rate depending on the statutory tax rate as well as the potential taxpayer's mortality risk. Because mortality rates rise with age, the effective estate tax burden is therefore greater for older than for younger individuals. The estate tax adds approximately 0.3 percentage points to the average tax burden on capital income for households headed by individuals between the ages of 50 and 59. For households headed by individuals between the ages of 70 and 79, however, the estate tax increases the tax burden on capital income by approximately 3 percentage points. The effects are even larger for older households. The paper also explores the fraction of the net worth held by households that are subject to the estate tax that could be transferred to the next generation with a program a per donee exemption from gift tax. While roughly one quarter of potentially taxable assets could be transferred in this way, actual levels of inter vivos giving are much lower than the levels that would one would expect if households were taking full advantage of this tax avoidance strategy. Handle: RePEc:nbr:nberwo:6337 Template-Type: ReDIF-Paper 1.0 Title: Channeling Domestic Savings into Productive Investment Under Asymmetric Information: The Essential Role of Foreign Direct Investment Classification-JEL: F21 Author-Name: Assaf Razin Author-Person: pra388 Author-Name: Efraim Sadka Author-Person: psa492 Author-Name: Chi-Wa Yuen Note: IFM PE Number: 6338 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6338 File-URL: http://www.nber.org/papers/w6338.pdf File-Format: application/pdf Publication-Status: published as European Economic Review (May 1998). Abstract: Foreign direct investment (FDI) is observed to be a predominant form of capital flows to low and middle income countries with insufficiently developed capital markets. This paper analyzes the problem of channeling domestic savings into productive investment in the presence of asymmetric information between the managing owners of firms and other portfolio stakeholders. We emphasize the crucial role played by FDI in sustaining equity-financed capital investment for economies plagued by such information problems. Similar problems also exist for foreign portfolio debt flows. The paper identifies how, in the presence of information asymmetry, different capital market structures may lead to foreign over- or under-investment and to domestic under- or over-saving, and thus to inefficient equilibria. We show how corrective tax-subsidy policies consisting of taxes on corporate income and the capital incomes of both residents and nonresidents can restore efficiency. Handle: RePEc:nbr:nberwo:6338 Template-Type: ReDIF-Paper 1.0 Title: Quantitative Implications of the Home Bias: Foreign Underinvestment, Domestic Oversaving, and Corrective Taxation Classification-JEL: F21 Author-Name: Assaf Razin Author-Person: pra388 Author-Name: Efraim Sadka Author-Person: psa492 Author-Name: Chi-Wa Yuen Note: IFM Number: 6339 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6339 File-URL: http://www.nber.org/papers/w6339.pdf File-Format: application/pdf Abstract: There is strong evidence about a home-court advantage in international portfolio" investment. One explanation for the bias is an information asymmetry between domestic and" foreign investors about the economic performance of domestic firms. This asymmetry causes" two types of distortions: an aggregate production inefficiency and a production-consumption" inefficiency, leading to foreign underinvestment and domestic oversaving respectively. Such" market failures are found to be quite severe, slightly more so with equity flows than with debt" flows. These inefficiencies can nonetheless be corrected by a mix of tax-subsidy instruments consisting of taxes on corporate income and on the capital incomes of both residents and" nonresidents. When only a partial set of instruments is available, however each tax instrument can change radically and may even be reversed although the welfare gains" can be fairly substantial and sometimes close to the first best optimum. This partial set of" instruments appears to be more effective in handling the market failure in the case of equity" flows than in the case of debt flows. Handle: RePEc:nbr:nberwo:6339 Template-Type: ReDIF-Paper 1.0 Title: Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union Classification-JEL: H60; H61 Author-Name: Mark Hallerberg Author-Name: Jurgen von Hagen Author-Person: pvo15 Note: PE Number: 6341 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6341 File-URL: http://www.nber.org/papers/w6341.pdf File-Format: application/pdf Publication-Status: published as Fiscal Institutions and Fiscal Performance. Poterba, James M., and Jurgenvon Hagen, eds., Chicago: The University of Chicago Press, 1999,pp. 209-232. Publication-Status: published as Electoral Institutions, Cabinet Negotiations, and Budget Deficits in the European Union, Mark Hallerberg, Jürgen von Hagen. in Fiscal Institutions and Fiscal Performance, Poterba and von Hagen. 1999 Abstract: A rough consensus has emerged that states with proportional representation systems are" likely to run larger deficits than plurality states. We argue that electoral institutions matter because" they restrict the type of budgetary institution at the governmental phase which a state has at its" disposal. Cabinet members may willingly delegate authority to a finance minister who can monitor" spending ministers and punish those who defect' in a process we label delegation procedure is feasible in states where one-party governments are the norm. Such states usually have" plurality electoral systems. In multi-party governments, which are common in states with" proportional representation, the coalition members are not willing to delegate to one actor the ability" to monitor and punish the others. Negotiated targets in the form of fiscal contracts provide an" alternative in multi-party governments. Pooled time series regression results for the current" European Union states in the period 1981-94 support our contention that it is the presence or absence" of one of these budgetary institutions, rather than the plurality/proportional representation" dichotomy, which has the greatest impact on debt levels. Handle: RePEc:nbr:nberwo:6341 Template-Type: ReDIF-Paper 1.0 Title: Estimating Adjustment Costs with Data on Heterogeneous Capital Goods Classification-JEL: E22 Author-Name: Austan Goolsbee Author-Person: pgo49 Author-Name: David B. Gross Note: PE EFG Number: 6342 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6342 File-URL: http://www.nber.org/papers/w6342.pdf File-Format: application/pdf Abstract: This paper estimates the micro-level costs of adjusting capital using detailed data on" investment decisions in the US airline industry. The data include the capital stock retirement, market values, operating costs, and utilization rates of 16 different types of capital" goods for each airline. This data on heterogeneous capital goods allows us to estimate the" desired stock of capital for each type of plane while controlling for unobserved changes in airline" profitability. The results show clear evidence of non-convex adjustment costs inaction for capital investment and quadratic adjustment costs conditional on positive or negative" investment. The adjustment costs for utilization show similar non-convexities but with smaller" adjustment costs. Aggregating to the firm level or using accounting data obscures the non-convexities and biases the estimated adjustment costs upward." Handle: RePEc:nbr:nberwo:6342 Template-Type: ReDIF-Paper 1.0 Title: What Causes Public Assistance Caseloads to Grow? Classification-JEL: I38 Author-Name: Rebecca M. Blank Author-Person: pbl56 Note: LS Number: 6343 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6343 File-URL: http://www.nber.org/papers/w6343.pdf File-Format: application/pdf Publication-Status: published as Blank, Rebecca. "What Causes Public Assistance Caseloads To Grow?," Journal of Human Resources, 2001, v36(1,Winter), 85-118. Abstract: This paper uses state panel data to investigate changes in public assistance caseloads. Compared to other research, it uses more extensive data, both across states and over time; it utilizes a particularly rich set of control variables; it investigates the different subcomponents of the AFDC program separately; and it investigates the extent to which changes in caseloads are driven by changes in take-up rates versus in eligibility. The results indicate that an unexplained increase in AFDC-Basic caseloads started in the mid-1980s. This trend appears to be driven by three underlying components: a rise in child-only cases, an increase in take-up rates over the early 1990s during the economic slowdown, and a long-term increase in eligibility which is not well explained by a large set of control variables. In contrast, AFDC-UP caseload changes are relatively well-explained by the model in this paper and are far more responsive to economic factors. Recent state policy changes are correlated with caseload declines, but more than half of their affect appears to precede their implementation, suggesting that other changes in client and caseworker behavior was occurring in states that adopted major policy changes. Handle: RePEc:nbr:nberwo:6343 Template-Type: ReDIF-Paper 1.0 Title: Foreign Direct Investment, Trade and Real Exchange Rate Linkages in Developing Countries. Classification-JEL: F21; F14 Author-Name: Linda S. Goldberg Author-Person: pgo256 Author-Name: Michael W. Klein Author-Person: pkl9 Note: ITI IFM Number: 6344 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6344 File-URL: http://www.nber.org/papers/w6344.pdf File-Format: application/pdf Publication-Status: published as Linda S. Goldberg & Michael Klein, 1996. "Foreign direct investment, trade, and real exchange rate linkages in developing countries," Proceedings, Federal Reserve Bank of San Francisco, pages 73-100. Publication-Status: published as Managing Capital Flows and Exchange Rates: Perspectives from the Pacific Basin, Glick, Reuven, ed., Cambridge: Cambridge University Press, 1998,pp. 73-100. Abstract: We investigate the relationships among trade, foreign direct investment and the real exchange rate between a set of Southeast Asian and Latin American countries and both the United States and Japan. Foreign direct investment by both Japan and the United States to the Southeast Asian countries in our sample is significantly affected by bilateral real exchange rates. Also, trade between the countries in our sample and the United States and Japan is significantly affected by foreign direct investment. These sets of relationships, between the real exchange rate and foreign direct investment, and between foreign direct investment and trade, support two channels through which the real exchange rate affects trade: a direct effect on the relative price of goods and an indirect effect through foreign direct investment. Handle: RePEc:nbr:nberwo:6344 Template-Type: ReDIF-Paper 1.0 Title: Inter vivos Transfers and Intended Bequests Author-Name: Kathleen McGarry Author-Person: pmc264 Note: AG Number: 6345 Creation-Date: 1997-12 Order-URL: http://www.nber.org/papers/w6345 File-URL: http://www.nber.org/papers/w6345.pdf File-Format: application/pdf Publication-Status: published as Journal of Public Economics, Vol. 73, no. 3 (September 1999): 321-351. Abstract: Empirical work on intergenerational transfers has focused on distinguishing between altruistic and exchange motivated behavior. However, these two models are unable to explain the strong tendency for estates to be divided equally across children, while inter vivos transfers are made unequally. This paper presents a new framework for analyzing transfers from parents to children that is more consistent with observed behavior than are the altruistic and exchange models alone. In particular the model developed here allows for differing behavior with respect to inter vivos transfers and bequests due to uncertainty about the recipient's permanent income. The empirical work uses data from the Health and Retirement Survey and the Asset and Health Dynamics Survey. The patterns observed in these data are consistent with earlier findings that inter vivos transfers go disproportionately to less well-off children, while bequests are divided equally across children. Further, the results support the prediction of the model in that differences in inter vivos transfers arise from differences in current income, while bequests are unequal when the children's permanent incomes are different. Handle: RePEc:nbr:nberwo:6345