# generated by /homes/nber/adrepec/bin/nbrred running on mysql0
Template-Type: ReDIF-Paper 1.0
Title: Strategies for Controlling Inflation
Classification-JEL: E5
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Note: EFG ME
Number: 6122
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6122
File-URL: http://www.nber.org/papers/w6122.pdf
File-Format: application/pdf
Publication-Status: published as Frederic S Mishkin, 1997. "Strategies for Controlling Inflation," RBA Annual Conference Volume, in: Philip Lowe (ed.), Monetary Policy and Inflation Targeting Reserve Bank of Australia.
Abstract: This paper examines what strategies policymakers have used to both reduce and control inflation. It first outlines why a consensus has emerged that inflation needs to be controlled. Then it examines four basic strategies: exchange rate pegging, monetary targeting, inflation targeting, and the just do it' strategy of preemptive monetary policy with no explicit nominal anchor. The discussion highlights the advantages and disadvantages of each strategy and sheds light not only on how disinflation might best be achieved, but also on how hard won gains in lowering inflation can be locked in.
Handle: RePEc:nbr:nberwo:6122
Template-Type: ReDIF-Paper 1.0
Title: Inflation Targeting: Lessons from Four Countries
Classification-JEL: E5
Author-Name: Frederic S. Mishkin
Author-Person: pmi37
Author-Name: Adam S. Posen
Author-Person: ppo28
Note: EFG ME
Number: 6126
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6126
File-URL: http://www.nber.org/papers/w6126.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy Review - Federal Reserve Bank of New York, Vol. 3, no. 3 (August 1997): 9-110
Abstract: In recent years, a number of central banks have announced numerical inflation targets as the basis for their monetary strategies. After outlining the reasons why such strategies might be adopted in the pursuit of price stability, this study examines the adoption, operational design, and experience of inflation targeting as a framework for monetary policy in the first three countries to undertake such strategies New Zealand, Canada, and the United Kingdom. It also analyzes the operation of the long-standing German monetary targeting regime, which incorporated many of the same features as later inflation-targeting regimes. The key challenge for all these monetary" frameworks has been the appropriate balancing of transparency and flexibility in policymaking. The study finds that all of the targeting countries examined have maintained low rates of inflation and increased the transparency of monetary policymaking without harming the real economy through policy rigidity in the face of economic developments. A convergence of design choices on the part of targeting countries with regard to operational questions emerges from this comparative study, suggesting some lines of best practice for inflation-targeting frameworks.
Handle: RePEc:nbr:nberwo:6126
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of the European Economic and Monetary Union: Political Sources of an Economic Liability
Classification-JEL: F33; F02
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: EFG IFM ITI PE
Number: 6150
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6150
File-URL: http://www.nber.org/papers/w6150.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 11, no. 4 (Fall 1997): 23-42.
Abstract: EMU would be an economic liability. A single currency would cause at most small trade and investment gains but would raise average cyclical unemployment and would probably raise inflation, perpetuate structural unemployment, and increase the risk of protectionism. EMU is nevertheless being pursued in order to create a political union. Fundamental disagreements among member states about economic policies, foreign and military policies, and the sharing of political power are likely to create future intra-European conflicts. A united Europe would be a formidable participant in the 21st century's global balance of power, with uncertain consequences for world stability and peace.
Handle: RePEc:nbr:nberwo:6150
Template-Type: ReDIF-Paper 1.0
Title: Where is the Market Going? Uncertain Facts and Novel Theories
Classification-JEL: G12; E3
Author-Name: John H. Cochrane
Author-Person: pco57
Note: AP EFG
Number: 6207
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6207
File-URL: http://www.nber.org/papers/w6207.pdf
File-Format: application/pdf
Publication-Status: published as Economic Perspectives XXI: 6 (November/December 1997) Federal Reserve Bankof Chicago.
Abstract: Will the stock market provide high returns in the future as it has in the past? The average US stock return in the postwar period has been about 8% above treasury bill rates. But that average is poorly measured: The standard confidence interval extends from 3% to 13%. Furthermore, expected returns are low at times such as the present of high prices. Therefore, the statistical evidence suggests a period of low average returns, followed by a slow reversion to a poorly measured long term average. I turn to a detailed survey of economic theory, to see if models that summarize a vast amount of other information shed light on stock returns. Standard models predict nothing like the historical equity premium. After a decade of effort, a range of drastic modifications to the standard model can account for the historical equity premium. It remains to be seen whether the drastic modifications and a high equity premium, or the standard model and a low equity premium, will triumph in the end. Therefore, economic theory gives one reason to fear that average excess returns will not return to 8% after the period of low returns signaled by today's high prices. I conclude with a warning that low average returns does not imply one should change one's portfolio. Someone has to hold the market portfolio; one should only deviate from that norm if one is different from everyone else.
Handle: RePEc:nbr:nberwo:6207
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Malpractice Pressure and Liability Reforms on Physicians' Perceptions of Medical Care
Author-Name: Daniel P. Kessler
Author-Name: Mark McClellan
Note: AG EH LE
Number: 6346
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6346
File-URL: http://www.nber.org/papers/w6346.pdf
File-Format: application/pdf
Publication-Status: published as Daniel P. Kessler & Mark B. McClellan, 1997. "The Effects of Malpractice Pressure and Liability Reforms on Physicians' Perceptions of Medical Care," Law and Contemporary Problems, vol 60(1).
Abstract: Understanding how and why liability laws and liability reforms alter the medical treatment decision-making process is central to reforming the current U.S. malpractice liability system. Survey methods serve a valuable role in this process because they measure how malpractice pressure affects physician perceptions of appropriate practices, and thereby capture an important determinant of treatment decisions. Based on analysis of the American Medical Association Socioeconomic Monitoring System survey, we present four findings. First, physicians from states enacting liability reforms that directly reduce malpractice pressure experience lower growth over time in malpractice claims rates and in real malpractice insurance premiums. Second, physicians from reforming states report significant relative declines in the perceived impact of malpractice pressure on practice patterns. Third, individual physicians' personal experiences with the malpractice system are a key determinants of the perceived importance of defensive medicine. Fourth, the impact of individual physicians' claims experience on perceptions is smaller in reforming than in nonreforming states. Taken together, these results suggest that reforms in law affect physicians' attitudes, both by reducing the probability of an encounter with the liability system and by changing the nature of the experience of being sued, for those physicians who defend against malpractice claims.
Handle: RePEc:nbr:nberwo:6346
Template-Type: ReDIF-Paper 1.0
Title: The Japanese Open-End Fund Puzzle
Author-Name: Stephen J. Brown
Author-Person: pbr268
Author-Name: William N. Goetzmann
Author-Person: pgo59
Author-Name: Takato Hiraki
Author-Name: Toshiyuki Otsuki
Author-Name: Noriyoshi Shiraishi
Note: AP
Number: 6347
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6347
File-URL: http://www.nber.org/papers/w6347.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Stephen J, et al, 2001. "The Japanese Open-End Fund Puzzle," Journal of Business, University of Chicago Press, vol. 74(1), pages 59-77, January.
Abstract: Recent empirical evidence has suggested that the Japanese mutual fund industry has" underperformed dramatically over the past two decades. Conjectured reasons for" underperformance range from tax-dilution effects to high fees, high turnover and poor asset" management. In this paper, we show that this underperformance is largely due to tax-dilution" effects, and not necessarily to poor management. Using a broad database of funds which" includes investment trusts closed to new investment, we show that once an instrument for the" time-varying tax-dilution exposure is included in a factor model, there is little evidence of poor" risk-adjusted performance. A style analysis of the industry demonstrates that managers appear to" pursue tax-driven dynamic strategies.
Handle: RePEc:nbr:nberwo:6347
Template-Type: ReDIF-Paper 1.0
Title: Adolescent Alcohol and Marijuana Consumption: Is There Really a Gateway Effect?
Classification-JEL: I18
Author-Name: Rosalie Liccardo Pacula
Author-Person: ppa1299
Note: EH
Number: 6348
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6348
File-URL: http://www.nber.org/papers/w6348.pdf
File-Format: application/pdf
Abstract: This research analyzes the contemporaneous and intertemporal relationship between the demands for alcohol and marijuana by youths and young adults. A general theory of multi-commodity habit formation is developed and tested using data from the 1983-1984 waves of the National Longitudinal Survey of Youth. An Adjusted Tobit specification is employed for estimating the empirical model. Habit persistence is distinguished from unobserved heterogeneity through a reduced form instrumental variable technique. The results show that higher beer prices significantly reduce the demand for both alcohol and marijuana, indicating a contemporaneous complementarity between these two substances even after controlling for commodity-specific habit formation. Further, prior use of alcohol and cigarettes significantly increases the likelihood of currently using marijuana, providing evidence in support of the gateway hypothesis.
Handle: RePEc:nbr:nberwo:6348
Template-Type: ReDIF-Paper 1.0
Title: VAT Base Broadening, Self Supply, and The Informal Sector
Author-Name: John Piggott
Author-Person: ppi34
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 6349
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6349
File-URL: http://www.nber.org/papers/w6349.pdf
File-Format: application/pdf
Publication-Status: published as Piggott, John and John Whalley. "VAT Base Broadening, Self Supply, And The Informal Sector," American Economic Review, 2001, v91(4,Sep), 1084-1094.
Abstract: We develop a general equilibrium tax model to evaluate the impacts of equal yield base broadening in indirect taxes from high rate narrow based (typically manufactures) taxes to broad based taxes (including services) such as a VAT. We capture differences in choice of mode of supply between market goods, such as manufactures, which cannot be supplied other than through the market, and self-suppliable services and informal sector supplied products. Using this formulation, we are able to provide numerical examples of welfare worsening VAT base broadening, which expands the tax base from market based manufactures, in which there are few (or no) non taxed supply possibilities, to all goods and services where such possibilities exist. We show that the usual presumption that there are welfare benefits from equal yield VAT base broadening breaks down once tax induced increases in self supply of previously non taxed goods and services and in informal sector activity (in small scale construction and other areas) are taken into account. Moreover, since untaxed informal sector supply is typically from lower income to higher income households, they gain as comparable informal sector activity is taxed under the base broadening change. We provide a calibrated version of the model, which captures Canadian base broadening accompanying the introduction of the Canadian VAT (GST) in 1990. Results show the change to have been welfare worsening in aggregate but progressive; opposite to conventional belief. Aggregate welfare losses increase sharply if pre-existing income taxes enter the analysis, since VAT induced supply side losses compound with the income tax, while consumption side tax rate variance reducing gains do not
Handle: RePEc:nbr:nberwo:6349
Template-Type: ReDIF-Paper 1.0
Title: Where Did All The Growth Go? External Shocks, Social Conflict, and Growth Collapses
Classification-JEL: O40
Author-Name: Dani Rodrik
Author-Person: pro60
Note: EFG ITI IFM
Number: 6350
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6350
File-URL: http://www.nber.org/papers/w6350.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 4 (December 1999): 358-412.
Abstract: This paper argues that domestic social conflicts are a key to understanding why growth rates lack persistence and why so many countries have experienced a growth collapse after the mid-1970s. It emphasizes conflicts interact with external shocks on the one hand, and the domestic institutions of conflict-management on the other. Econometric evidence provides support for this hypothesis. Countries that experienced the sharpest drops in growth after 1975 were those with divided societies (as measured by indicators of inequality, ethnic fragmentation, and the like) and with weak institutions of conflict management (proxied by indicators of the quality of governmental institutions, rule of law, democratic rights, and social safety nets).
Handle: RePEc:nbr:nberwo:6350
Template-Type: ReDIF-Paper 1.0
Title: International Home Bias in International Finance and Business Cycles
Classification-JEL: F3; F4
Author-Name: Karen K. Lewis
Author-Person: ple1119
Note: AP IFM
Number: 6351
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6351
File-URL: http://www.nber.org/papers/w6351.pdf
File-Format: application/pdf
Abstract: Domestic investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest. This phenomenon has been called equity home bias.' In the absence of this home bias, investors would optimally diversify away domestic output risk. Therefore, in a world without investor home bias, consumption growth rates would tend to comove across countries even when output growth rates do not. Empirically, however, consumption growth rates tend to have a lower correlation across countries than do output growth rates. Moreover, consumption growth in each country appears to be highly correlated with its own output growth relative to the world. This phenomenon may be called consumption home bias.' In this paper, I evaluate existing explanations for these two types of home bias.
Handle: RePEc:nbr:nberwo:6351
Template-Type: ReDIF-Paper 1.0
Title: The Dark Side of Internal Capital Markets II: Evidence from Diversified Conglomerates
Classification-JEL: G3; G31
Author-Name: David S. Scharfstein
Author-Person: psc177
Note: CF
Number: 6352
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6352
File-URL: http://www.nber.org/papers/w6352.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: This paper is an empirical examination of capital allocation in a sample of 165 diversified" conglomerates in 1979. I find that divisions in high-Q manufacturing industries tend to invest" less than their stand-alone industry peers, while divisions in low-Q manufacturing industries tend" to invest more than their stand-alone industry peers. This sort of socialism in which investment tends to get equalized across divisions is particularly pronounced in a" conglomerate's smaller divisions. It is also more pronounced in firms in which management has" small equity stakes suggesting that agency problems between corporate headquarters and" investors are at the root of the problem. By 1994, only 53 (32%) of these firms continue to be" free-standing diversified conglomerates. Fifty-five (33%) choose to sell off unrelated divisions" and focus on one core business. These firms tend to sell their smaller divisions do, their investment behavior changes relative to 1979: it more closely resembles that of their" stand-alone industry peers. The remaining 57 (35%) firms were acquired or (in two cases)" liquidated.
Handle: RePEc:nbr:nberwo:6352
Template-Type: ReDIF-Paper 1.0
Title: The Introduction of Crack Cocaine and the Rise in Urban Crime Rates
Classification-JEL: K4
Author-Name: Jeff Grogger
Author-Person: pgr125
Author-Name: Mike Willis
Note: LS
Number: 6353
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6353
File-URL: http://www.nber.org/papers/w6353.pdf
File-Format: application/pdf
Publication-Status: published as Grogger, J. and Michael Willis. “The Emergence of Crack Cocaine and the Rise in Urban Crime Rates.” Review of Economics and Statistics, November 2000.
Abstract: Despite widespread popular accounts linking crack cocaine to inner-city decay systematic research has analyzed the effect of the introduction of crack on urban crime. We" study this question using FBI crime rates for 27 metropolitan areas and two sources of" information on the date at which crack first appeared in those cities. Using methods designed to" control for confounding time trends and unobserved differences among metropolitan areas find that the introduction of crack has substantial effects on violent crime but essentially no effect" on property crime. We explain these results by characterizing crack cocaine as a technological" innovation in the market for cocaine intoxication and by positing that different types of crimes" play different roles in the market for illegal drugs. In a market with incomplete property rights" and inelastic demand, a technological innovation increases violence on the part of distributors but" decreases property crime on the part of consumers. We also find evidence that the increase in" urban crime during the 1980's occurred in two distinct phases: an early phase largely attributable" to the spread of crack and a later phase largely unrelated to it.
Handle: RePEc:nbr:nberwo:6353
Template-Type: ReDIF-Paper 1.0
Title: Asset Pricing with Distorted Beliefs: Are Equity Returns Too Good To Be True?
Classification-JEL: G12
Author-Name: Stephen G. Cecchetti
Author-Person: pce4
Author-Name: Pok-sang Lam
Author-Name: Nelson C. Mark
Author-Person: pma186
Note: AP
Number: 6354
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6354
File-URL: http://www.nber.org/papers/w6354.pdf
File-Format: application/pdf
Publication-Status: published as Cecchetti, Stephen G., Pok-sang Lam and Nelson C. Mark. "Asset Pricing With Distorted Beliefs: Are Equity Returns To Good To Be True?," American Economic Review, 2000, v90(4,Sep), 787-805.
Abstract: We study a Lucas asset pricing model that is standard in all respects representative agent's subjective beliefs about endowment growth are distorted. Using constant-relative-risk-aversion (CRRA) utility a CRRA coefficient below ten that exhibit, on average, excessive pessimism over expansions and excessive optimism over" contractions, our model is able to match the first and second moments of the equity premium and" risk-free rate, as well as the persistence and predictability of excess returns found in the data."
Handle: RePEc:nbr:nberwo:6354
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Employment Subsidies in Optimal Redistribution Programs
Classification-JEL: D82; H21
Author-Name: Paul Beaudry
Author-Person: pbe35
Author-Name: Charles Blackorby
Note: LS PE
Number: 6355
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6355
File-URL: http://www.nber.org/papers/w6355.pdf
File-Format: application/pdf
Publication-Status: published as Paul Beaudry & Charles Blackorby & Dezso Szalay, 2009. "Taxes and Employment Subsidies in Optimal Redistribution Programs," American Economic Review, American Economic Association, vol. 99(1), pages 216-42, March.
Abstract: This paper characterizes an optimal redistribution program when taxation authorities: (1)" are uninformed about individuals' value of time in both market and non-market activities observe both market-income and time allocated to market employment, and (3) are utilitarian. " Formally, the problem is a special case of a multidimensional screening problem with two" dimensions of unobserved attributes. In contrast to much of the optimal income taxation" literature, we show that optimal redistribution in this environment involves distorting market" employment upwards for low net-income individuals (through negative marginal income taxes or" employment subsidies) and distorting employment downward for high net-income individuals" (through positive marginal income taxes). It is also shown that workfare is only part of an" optimal program if certain individuals have not access to market employment."
Handle: RePEc:nbr:nberwo:6355
Template-Type: ReDIF-Paper 1.0
Title: Indexed Units of Account: Theory and Assessment of Historical Experience
Classification-JEL: E42
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: ME
Number: 6356
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6356
File-URL: http://www.nber.org/papers/w6356.pdf
File-Format: application/pdf
Publication-Status: published as Chapter 4 in "Indexation, Inflation, and Monetary Policy," edited by Fernando Lefort and Klaus Schmidt-Hebbel, Volume 2 of the series "Banca Central, Análisis y Políticas Económicas" of the Central Bank of Chile, 2002, pp. 105-134
Abstract: An indexed unit of account is a money analogue, used to express prices; the unit's" purchasing power is defined by an index. Indexed units of account are not true money in that" they are not used as a medium of exchange. The first successful indexed unit of account Unidad de Fomento (UF) has been used in Chile since 1967, and has been copied in Colombia Ecuador, Mexico, and Uruguay. The reasons for creating such units are discussed from the" standpoint of monetary theory. The experience with such units in Chile is discussed. It is argued" that important practical problems in implementing indexation were solved by creating such" indexed units of account. The existing indexed units of accounts may not be ideal for all" purposes, however, and alternative definitions of the units, relating the units to measures of" income, may also be advantageous. The indexed units of account might someday be" monetized,' i.e., institutions such as debit cards may be devised to allow the units to be used for" all transactions, so that the role of conventional money might be reduced to clearing-house" functions only.
Handle: RePEc:nbr:nberwo:6356
Template-Type: ReDIF-Paper 1.0
Title: The Structure of Wages and Investment in General Training
Classification-JEL: J24; J31
Author-Name: Daron Acemoglu
Author-Person: pac16
Author-Name: Jorn-Steffen Pischke
Author-Person: ppi29
Note: LS
Number: 6357
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6357
File-URL: http://www.nber.org/papers/w6357.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy 107 (June 1999): 539-572.
Abstract: In the standard model of human capital with perfect labor markets general training. When labor market frictions compress the structure of wages in the general skills of their employees. The reason is that the distortion in the wage structure" turn technologically' general skills into specific' skills. Labor market frictions and institutions such as minimum wages and union wage setting, are crucial in shaping the wage structure thus have an important impact on training. Our results suggest that the more frictional and" regulated labor markets in Europe and Japan may generate more firm-sponsored general training" than the U.S.
Handle: RePEc:nbr:nberwo:6357
Template-Type: ReDIF-Paper 1.0
Title: Institutional Arrangements and Fiscal Performance: The Latin American Experience
Author-Name: Ernesto Stein
Author-Person: pst501
Author-Name: Ernesto Talvi
Author-Name: Alejandro Grisanti
Note: PE
Number: 6358
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6358
File-URL: http://www.nber.org/papers/w6358.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. 103-133.
Publication-Status: published as Institutional Arrangements and Fiscal Performance: The Latin American Experience, Ernesto Stein, Ernesto Talvi, Alejandro Grisanti. in Fiscal Institutions and Fiscal Performance, Poterba and von Hagen. 1999
Abstract: This paper explores the links between institutional arrangements and fiscal performance in" Latin America. We consider four measures of fiscal performance, namely expenditures, the size of fiscal deficits and debt, and the response of fiscal policy to business" fluctuations; and two institutional dimensions, namely, electoral systems and budgetary processes. " We find evidence that electoral systems characterized by a large degree of proportionality large district magnitude, tend to have larger governments, larger deficits and a more procyclical" response to the business cycle. We also find that more transparent and hierarchical budgetary" procedures lead to lower deficits and debt. Contrary to the findings of Hallerberg and von Hagen" for European countries, we find no evidence that centralized budgetary arrangements neutralize the" potentially adverse impact on fiscal deficits of a larger degree of proportionality of the electoral" system.
Handle: RePEc:nbr:nberwo:6358
Template-Type: ReDIF-Paper 1.0
Title: Capturing Technological Opportunity via Japan's Star Scientists: Evidence from Japanese Firms' Biotech Patents and Products
Classification-JEL: O31
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Note: PR
Number: 6360
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6360
File-URL: http://www.nber.org/papers/w6360.pdf
File-Format: application/pdf
Publication-Status: published as Zucker, Lynne G & Darby, Michael R, 2001. " Capturing Technological Opportunity via Japan's Star Scientists: Evidence from Japanese Firms' Biotech Patents and Products," The Journal of Technology Transfer, Springer, vol. 26(1-2), pages 37-58, January.
Abstract: Using detailed data on biotechnology in Japan, we find that identifiable collaborations" between particular university star scientists and firms have a large positive impact on firms'" research productivity, increasing the average firm's biotech patents by 34 percent development by 27 percent, and products on the market by 8 percent as of 1989-1990. However there is little evidence of geographically localized knowledge spillovers. In early industry" formation, star scientists holding tacit knowledge required to practice recombinant DNA (genetic" engineering) were of great economic value, leading to incentives motivating their participation in" technology transfer. In Japan, the legal and institutional context implies that firm scientists work" in the stars' university laboratories in contrast to America where the stars are more likely to work" in the firm's labs. As a result, star collaborations in Japan are less localized around their research" universities so that the universities' local economic development impact is lessened. Stars'" scientific productivity is increased less during collaborations with firms in Japan as compared to" the U.S.
Handle: RePEc:nbr:nberwo:6360
Template-Type: ReDIF-Paper 1.0
Title: Do Sentencing Guidelines Raise the Cost of Punishment?
Classification-JEL: K14; K40
Author-Name: Jose Meade
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: LE PR
Number: 6361
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6361
File-URL: http://www.nber.org/papers/w6361.pdf
File-Format: application/pdf
Abstract: When judges have discretion over fines and prison terms, sentencing exhibits a tendency" toward efficiency: fines are larger, and prison terms shorter, for offenders with greater ability to" pay. Sentencing guidelines place fairly rigid upper and lower limits on fines and prison terms" and may inhibit the achievement of efficiency in sentencing. Preventing judges from substituting" fines for prison terms may raise the cost of imposing punishment. The objective of this paper is" to measure the efficiency cost of sentencing guidelines using data on federal offenders sentenced" under the Federal Sentencing Guidelines. We find evidence that the guidelines raise the cost of" punishment by nearly 5 percent of the total imprisonment cost of federal offenders. Not" surprisingly, constraints on cost minimization raise costs.
Handle: RePEc:nbr:nberwo:6361
Template-Type: ReDIF-Paper 1.0
Title: School Quality and the Longer-Term Effects of Head Start
Classification-JEL: I21; I38
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Duncan Thomas
Author-Person: pth20
Note: CH
Number: 6362
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6362
File-URL: http://www.nber.org/papers/w6362.pdf
File-Format: application/pdf
Publication-Status: published as Currie, Janet and Duncan Thomas. "School Quality And The Longer-Term Effects Of Head Start," Journal of Human Resources, 2000, v35(4,Fall), 755-774.
Abstract: Recent research on Head Start, an enriched preschool program for poor children that effects on test scores fade out' more quickly for black children than for white children. This" paper uses data from the 1988 wave of the National Educational Longitudinal Survey to show that" black children who attended Head Start go on to attend schools of worse quality' than other black" children, in the sense that they attend schools in which most children have worse test scores. We" do not see any similar pattern among white children, indicating that on average children attend schools similar to those attended by other white children. Moreover stratify by school type, we find that gaps in test scores between Head Start and other children are" very similar for blacks and whites. These patterns suggest that the effects of Head Start may fade" out more rapidly among black students than among whites, at least in part because black Head Start" children are more likely to subsequently attend bad schools.
Handle: RePEc:nbr:nberwo:6362
Template-Type: ReDIF-Paper 1.0
Title: Incentives and Social Capital: Are Homeowners Better Citizens?
Author-Name: Denise DiPasquale
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Note: PE
Number: 6363
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6363
File-URL: http://www.nber.org/papers/w6363.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, Vol. 45, no. 2 (March 1999): 354-384
Abstract: Individuals invest in their local environments by volunteering, getting involved in local government, becoming informed about their political leaders, joining non-professional organizations and even gardening. Homeownership may encourage these investments because homeownership gives individuals an incentive to improve their community and because homeownership creates barriers to mobility. Using the U.S. General Social Survey document that homeowners are more likely to invest in social capital, and a simple instrumental variables strategy suggests that the relationship may be causal. While our results are not conclusive, we find evidence that a large portion of the effect of homeownership on these investments may come from lower mobility rates for homeowners. Using the German Socio-Economic Panel homeownership and citizenship controlling for individual fixed effects. Finally, across cities and counties, areas with more homeowners have lower government spending, but spend a larger share of their government budget on education and highways.
Handle: RePEc:nbr:nberwo:6363
Template-Type: ReDIF-Paper 1.0
Title: Democracies Pay Higher Wages
Classification-JEL: J30; H40
Author-Name: Dani Rodrik
Author-Person: pro60
Note: LS
Number: 6364
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6364
File-URL: http://www.nber.org/papers/w6364.pdf
File-Format: application/pdf
Publication-Status: published as (Revised and expanded version) Quarterly Journal of Economics (August 1999).
Abstract: Controlling for labor productivity, income levels, and other possible determinants, there is a robust and statistically significant association between the extent of democratic rights and wages received by workers. The association exists both across countries and over time within countries. The coefficient estimates suggest that non-negligible wage improvements result from the enhancement of democratic institutions: average wages in a country like Mexico would be expected to increase by 10-30 percent were Mexico to attain a level of democracy comparable to that prevailing in the U.S.
Handle: RePEc:nbr:nberwo:6364
Template-Type: ReDIF-Paper 1.0
Title: Another Look at the Capitalization of Interest Subsidies: Evidence from Sweden
Classification-JEL: G12
Author-Name: Tommy Berger
Author-Name: Peter Englund
Author-Name: Patric H. Hendershott
Author-Name: Bengt Turner
Note: PE
Number: 6365
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6365
File-URL: http://www.nber.org/papers/w6365.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking (May 2000).
Abstract: We analyze by far the most extensive data base yet employed in estimating capitalization" of below-market interest rates into asset prices: nearly 300,000 sales of owner-occupied homes in" Sweden from 1981 to 1993 with 40,000 including government subsidized interest rates. Our" estimates indicates very clearly that interest subsidies are capitalized into house prices. The" below-market financing parameter is consistently significantly negative in all model" specifications, irrespective of assumptions about the degree of foresight structure and interest rate measure for all ten regions that we have studied. In our favored model" specification the estimated capitalization coefficients center on minus unity capitalization.
Handle: RePEc:nbr:nberwo:6365
Template-Type: ReDIF-Paper 1.0
Title: The Introduction of Pharmaceutical Product Patents in India: "Heartless Exploitation of the Poor and Suffering"?
Classification-JEL: O34; L65
Author-Name: Jean O. Lanjouw
Note: PR
Number: 6366
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6366
File-URL: http://www.nber.org/papers/w6366.pdf
File-Format: application/pdf
Abstract: The decision to require that countries grant product patents for pharmaceutical innovations as a condition of membership in the World Trade Organization was very contentious. Almost 50 developing countries were not granting patent monopolies for drugs during the period the Uruguay round of GATT was being debated and these countries fiercely resisted the inclusion of this requirement, claiming that vastly higher drug prices would be associated with such patents. On the other side, business interest in the West urged them to consider the benefits such protection might bring both in terms of focusing more research on tropical diseases and encouraging greater domestic and foreign investment in local research activities. This paper discusses the various theoretical implications for a developing country of introducing product patents for pharmaceuticals. Using India as an example, it then brings together information gathered from both published sources and personal interviews to examine the potential magnitude of these effects. While not arriving at a conclusive answer to the question posed in the title, there are some suggestions about the way events might unfold as the policy is implemented.
Handle: RePEc:nbr:nberwo:6366
Template-Type: ReDIF-Paper 1.0
Title: The Cost of Diversity: The Diversification Discount and Inefficient Investment
Classification-JEL: G31; L22
Author-Name: Raghuram Rajan
Author-Person: pra149
Author-Name: Henri Servaes
Author-Person: pse218
Author-Name: Luigi Zingales
Note: CF
Number: 6368
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6368
File-URL: http://www.nber.org/papers/w6368.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 55, no. 1 (2000): 35-80.
Abstract: In a simple model of capital budgeting in a diversified firm where headquarters has limited power, we show that funds are allocated towards the most inefficient divisions. The distortion is greater the more diverse are the investment opportunities of the firm's divisions. We test these implications on a panel of diversified firms in the U.S. during the period 1979-1993. We find that i) diversified firms mis-allocate investment funds; ii) the extent of mis-allocation is positively related to the diversity of the investment opportunities across divisions; iii) the discount at which these diversified firms trade is positively related to the extent of the investment mis-allocation and to the diversity of the investment opportunities across divisions.
Handle: RePEc:nbr:nberwo:6368
Template-Type: ReDIF-Paper 1.0
Title: The Immediate Challenges for the European Central Bank
Classification-JEL: E44; E58
Author-Name: Rudiger Dornbusch
Author-Name: Carlo A. Favero
Author-Person: pfa12
Author-Name: Francesco Giavazzi
Author-Person: pgi18
Note: IFM ME
Number: 6369
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6369
File-URL: http://www.nber.org/papers/w6369.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, Vol. 28 (April 1998).
Abstract: This paper discusses a number of issues that the newly constituted Board of the ECB will face early on. We show how conducting a European monetary policy is very different from living under the protective umbrella of the Bundesbank. We discuss voting on the ECB Board and argue that the ability to communicate to the public will be a critical factor for the success of the new institution. We also ask how a single monetary policy -- a common change in the interest rate controlled by the ECB -- is transmitted to the economy of the member countries. We show that the monetary process differs significantly inside EMU: initially disinflation episode could thus fall very unequally on a few member countries because they have a combination of financial structure that spreads a monetary contraction widely structure that is relatively inflexible. This process, moreover, is sure to evolve of the financial industry restructuring that is already underway and will be accentuated by the common money. Furthermore, as the Lucas principle suggests, the wage-price process itself will adapt to the changing focus of European monetary policy.
Handle: RePEc:nbr:nberwo:6369
Template-Type: ReDIF-Paper 1.0
Title: Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises
Classification-JEL: F34
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: IFM
Number: 6370
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6370
File-URL: http://www.nber.org/papers/w6370.pdf
File-Format: application/pdf
Publication-Status: published as Calvo, Guillermo, Maurice Obstfeld, and Rudiger Dornbusch (eds.) Money, Capital Mobility, and Trade: Essays in Honor of Robert A. Mundell. Cambridge, MA: The MIT Press, 2004.
Abstract: We analyze banking crises using a panel of macroeconomic and financial data for more than one hundred developing countries from 1975 through 1992. We find that banking crises in emerging markets are strongly associated with adverse external conditions. In particular Northern interest rates are strongly associated with the onset of banking crises in developing countries, even after taking into account a host of internal macroeconomic factors. A one percent increase in Northern interest rates is associated with an increase in the probability of Southern banking crises of around three percent. Our results also seem insensitive to the effects of differing exchange rate regimes, external debt burdens and domestic financial structures.
Handle: RePEc:nbr:nberwo:6370
Template-Type: ReDIF-Paper 1.0
Title: Modeling Money
Classification-JEL: E3; E5
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Charles L. Evans
Author-Person: pev23
Note: EFG ME
Number: 6371
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6371
File-URL: http://www.nber.org/papers/w6371.pdf
File-Format: application/pdf
Abstract: We develop and implement a limited information diagnostic strategy for assessing the plausibility of monetary business cycle models. Our strategy focuses on a model's ability to reproduce empirical estimates of an actual economy's response to monetary policy shocks. A key input to this diagnostic is a univariate time series representation of the response of money to a shock in monetary policy. We find that a monetary policy shock has only a small contemporaneous effect on the monetary base and M1. Its primary effect is to signal future movements in the money supply. We implement our diagnostic strategy on a limited participation model of money which stresses the importance of credit market frictions in the monetary transmission mechanism.
Handle: RePEc:nbr:nberwo:6371
Template-Type: ReDIF-Paper 1.0
Title: Consumption Smoothing through Fiscal Policy in OECD and EU Countries
Classification-JEL: E2; E6
Author-Name: Adriana Arreaza
Author-Name: Bent E. Sorensen
Author-Person: pso113
Author-Name: Oved Yosha
Note: PE
Number: 6372
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6372
File-URL: http://www.nber.org/papers/w6372.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. 59-80.
Publication-Status: published as Consumption Smoothing through Fiscal Policy in OECD and EU Countries, Adriana Arreaza, Bent E. Sgrensen, Oved Yosha. in Fiscal Institutions and Fiscal Performance, Poterba and von Hagen. 1999
Abstract: We measure the amount of smoothing achieved through various components of the government deficit in EU and OECD countries. For EU countries, at the 1-year frequency percent of shocks to GDP are smoothed via government consumption, 18 percent via transfers percent via subsidies, while taxes provide no smoothing. The results for OECD countries are similar. Government transfers provide more smoothing of negative than of positive shocks among EU countries. There seems to be no trade-off between high government deficits in a country and the ability to smooth consumption. We find that in countries where there is delegation' of power or where fiscal targets are negotiated effectively by coalition members consumption smoothing via government consumption and government transfers is considerably higher. We interpret this finding as evidence that effective budgetary institutions can accomplish efficient consumption smoothing via government deficit spending and lower average deficits.
Handle: RePEc:nbr:nberwo:6372
Template-Type: ReDIF-Paper 1.0
Title: Expandability, Reversibility, and Optimal Capacity Choice
Classification-JEL: D92; E22
Author-Name: Avinash K. Dixit
Author-Person: pdi79
Author-Name: Robert S. Pindyck
Author-Person: ppi130
Note: IO
Number: 6373
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6373
File-URL: http://www.nber.org/papers/w6373.pdf
File-Format: application/pdf
Publication-Status: published as Brennan, M. J. and L. Trigeorgis (eds.) Project Flexibility, Agency, and Competition. Oxford University Press, 1999.
Abstract: We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited. Specifically consider costs of investing or disinvesting that vary with time, or with the amount of capacity already installed. The firm's limited opportunities to expand or contract create call and put options on incremental units of capital; we show how the values of these options affect the firm's investment decisions.
Handle: RePEc:nbr:nberwo:6373
Template-Type: ReDIF-Paper 1.0
Title: Entrepreneurs, Income Taxes, and Investment
Classification-JEL: H25; H32
Author-Name: Robert Carroll
Author-Name: Douglas Holtz-Eakin
Author-Name: Mark Rider
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 6374
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6374
File-URL: http://www.nber.org/papers/w6374.pdf
File-Format: application/pdf
Publication-Status: published as Carroll, Robert, Douglas Holtz-Eakin, Mark Rider and Harvey S. Rosen. "Income Taxes And Entrepreneurs' Use Of Labor," Journal of Labor Economics, 2000, v18(2,Apr), 324-351.
Abstract: This paper investigates the effect of entrepreneurs' personal income tax situations on their capital investment decisions. We examine the income tax returns of a sample of sole proprietors before and after the Tax Reform Act of 1986 and determine how the substantial reductions in marginal tax rates for the relatively affluent associated with that law affected their decisions to invest in physical capital. We find that individual income taxes exert a statistically and quantitatively significant influence on investment decisions. In our sample increase in marginal tax rates would reduce the proportion of entrepreneurs who make new capital investments by 10.4 percent, and decrease mean investment expenditures by 9.9 percent.
Handle: RePEc:nbr:nberwo:6374
Template-Type: ReDIF-Paper 1.0
Title: Human Behavior and the Efficiency of the Financial System
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: AP
Number: 6375
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6375
File-URL: http://www.nber.org/papers/w6375.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J., 1999. "Human behavior and the efficiency of the financial system," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 20, pages 1305-1340 Elsevier.
Abstract: Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance mental compartments, overconfidence, over- and underreaction, representativeness heuristic disjunction effect, gambling behavior and speculation, perceived irrelevance of history thinking, quasi-magical thinking, attention anomalies, the availability heuristic contagion, and global culture.
Handle: RePEc:nbr:nberwo:6375
Template-Type: ReDIF-Paper 1.0
Title: Is Trade Policy for Sale? Congressional Voting on Recent Trade Bills
Classification-JEL: F13; D72
Author-Name: Robert E. Baldwin
Author-Name: Christopher S. Magee
Note: ITI
Number: 6376
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6376
File-URL: http://www.nber.org/papers/w6376.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Robert E. and Christopher S. Magee. "Is Trade Policy For Sale? Congressional Voting On Recent Trade Bills," Public Choice, 2000, v105(1/2,Oct), 79-101.
Abstract: This paper examines voting by members of Congress on three trade bills introduced in 1993 and 1994: the North American Free Trade Agreement (NAFTA), the agreements concluded in the Uruguay Round of multilateral trade negotiations (GATT), and most-favored nation status for China. We first review recnet political economy models of trade policy and then presenting a brief legislative history of the three bills, use these models to formulate an empirical specification of political behavior. In our empirical tests, we find evidence that campaign contributions given be political action committees influenced legislators' votes on both the NAFTA and GATT bills. Contributions from labor groups were associated with votes against freer trade, while contributions from business groups were associated with votes in favor of freer trade. We also find that the broad policy views of the legislators, industry employment in each member's state or congressional district, and general economic conditions in the district or state affected voting on the trade bills.
Handle: RePEc:nbr:nberwo:6376
Template-Type: ReDIF-Paper 1.0
Title: Nonprofit Production and Competition
Classification-JEL: I1
Author-Name: Darius Lakdawalla
Author-Person: pla295
Author-Name: Tomas Philipson
Author-Person: pph37
Note: EH
Number: 6377
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6377
File-URL: http://www.nber.org/papers/w6377.pdf
File-Format: application/pdf
Abstract: Industries in which private nonprofit production is present and significant, such as health care and education, account for more than one-fifth of US economic activity. This paper argues that previous analysis of nonprofits has not separated profit-deviating preferences from the state-defined regulatory status of nonprofit production. We argue that this separation is crucial in providing predictions about the underlying forces which allow the coexistence of nonprofit and for-profit production in an industry, as well as predictions about such fundamental matters as the share of nonprofit activity. By separating choice of nonprofit status from profit-deviating preferences, the paper provides predictions about the forces which determine the share of nonprofit production in an industry. We argue that this share falls with the share of the demand that is publicly subsidized, rises with the total number of firms in the industry, and rises with growth in the pace or extent of cost-reductions resulting from learning-by-doing. These predictions stem from a basic aspect of regulatory nonprofit choice which links the degree of competition in a market with the share of nonprofits: the availability of economic profits under for-profit status raises the cost of choosing nonprofit status when such a status is associated with a distribution constraint. Empirical evidence using panel data on US states in the long-term care industry from 1989 to 1994 suggests the presence of the discussed predictions in this industry.
Handle: RePEc:nbr:nberwo:6377
Template-Type: ReDIF-Paper 1.0
Title: Theories of the Distribution of Labor Earnings
Classification-JEL: J2; J3
Author-Name: Derek Neal
Author-Name: Sherwin Rosen
Note: LS
Number: 6378
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6378
File-URL: http://www.nber.org/papers/w6378.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "The Theory of Earnings Distributions") Handbook of Income Distribution, Atkinson, A. and F. Bourgignon, eds., North Holland, 2000.
Abstract: Several empirical regularities motivate most theories of the distribution of labor earnings. Earnings distributions tend to be skewed to the right and display a long right tail. The are leptokurtic (positive fourth cumulant) and have a fat tail. Mean earnings always exceed median earnings and the top percentiles of earners account for a disproportionate share of total earnings. Mean earnings also differ greatly across groups defined by occupation, education, experience, and other observed traits. With respect to the evolution of the distribution of earnings for a given cohort, initial earnings dispersion is smaller than the dispersion observed in prime working years. We explore several classes of models that address these stylized facts. Stochastic theories begin with distributional assumptions about worker endowments and then examine the stochastic structures that might generate observed features of the aggregate distribution of earnings. Selection models describe how workers allocate their skills to tasks. Because workers choose their best option from a menu of careers, these allocation decisions generate earnings distributions which tend to be skewed. Sorting models provide dynamic versions of selection models and illustrate how gradual learning about endowments leads to sorting patterns that amplify dispersiion and generate a skewed distribution of earnings within a cohort of experienced workers. Human capital theory demonstrates that earnings dispersion is a prerequisite for significant skill investments. Without earnings dispersion, workers would not willingly make the investments necessary for high-skill jobs. Human capital model illustrate how endowments of wealth and talent influence the investment decisions that generate observed distributions of earnings.
Handle: RePEc:nbr:nberwo:6378
Template-Type: ReDIF-Paper 1.0
Title: Predictable Changes in Yields and Forward Rates
Classification-JEL: E43; G12
Author-Name: David Backus
Author-Person: pba242
Author-Name: Silverio Foresi
Author-Name: Abon Mozumdar
Author-Name: Liuren Wu
Author-Person: pwu3
Note: AP
Number: 6379
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6379
File-URL: http://www.nber.org/papers/w6379.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Volume: 59 Issue: 3 (March 2001) Pages: 281-311
Abstract: We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the largest discrepancies are at short maturities. (ii) Reasonable estimates of one-factor Cox-Ingersoll-Ross models imply regressions on the opposite side of the EH than we see in the data: regression slopes are greater than one (iii) Multifactore affine models can nevertheless approximate both departures from the EH and other properties of interest rates.
Handle: RePEc:nbr:nberwo:6379
Template-Type: ReDIF-Paper 1.0
Title: Perspectives on the Recent Currency Crisis Literature
Classification-JEL: F32
Author-Name: Robert Flood
Author-Person: pfl25
Author-Name: Nancy Marion
Author-Person: pma1464
Note: IFM
Number: 6380
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6380
File-URL: http://www.nber.org/papers/w6380.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance & Economics, Vol. 4, no. 1 (January 1999): 1-26
Abstract: In the 1990s, currency crises in Europe, Mexico and Southeast Asia have drawn worldwide attention to speculative attacks on government-controlled exchange rates. To improve our understanding of these events, researchers have undertaken new theoretical and empirical work. In this paper, we provide some perspective on this work and relate it to earlier research in the area. Then we derive the optimal commitment to a fixed exchange rate and propose a common framework for analyzing currency crises that draws from both the early first-generation work and the more recent second-generation approach. The cross-generational framework stresses the important role of speculators and also recognizes that the government's commitment to a fixed exchange rate is constrained by other policy goals. In the final section we study the crisis prediction literature and find that some crises may be particularly difficult to predict using currently popular methods.
Handle: RePEc:nbr:nberwo:6380
Template-Type: ReDIF-Paper 1.0
Title: Stock Market Volatility: Ten Years After the Crash
Classification-JEL: G14
Author-Name: G. William Schwert
Author-Person: psc116
Note: AP
Number: 6381
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6381
File-URL: http://www.nber.org/papers/w6381.pdf
File-Format: application/pdf
Publication-Status: published as Schwert, G. William. "Stock Market Volatility: Ten Years after the Crash." Brookings-Wharton Papers on Financial Services (1998): 65-99.
Abstract: Stock volatility has been unusually low since the 1987 stock market crash. The large increase in stock prices since 1987 means that many days during 1996 and 1997 experienced near record changes in the Dow Jones Industrial Average, even though the volatility of stock returns has not been high by historical standards. I compare volatility of returns to U.S. stock indexes at monthly, daily, and intraday intervals, and I also show the volatility of returns to stock indexes implied by traded options contracts. Finally, I compare the volatility of U.S. stock market returns with the volatility of returns to stock markets in the United Kingdom Australia, and Canada. All of the evidence leads to the conclusion that volatility has been very low in the decade since the 1987 crash. The mini-crash of October 27 to reevaluate the current system of circuit breakers so that they are triggered less easily. Part of the problem is caused by trigger points that are expressed as absolute changes in market indexes.
Handle: RePEc:nbr:nberwo:6381
Template-Type: ReDIF-Paper 1.0
Title: International Portfolio Diversification and Labor/Leisure Choice
Classification-JEL: F30; G11
Author-Name: Urban J. Jermann
Author-Person: pje4
Note: AP IFM
Number: 6382
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6382
File-URL: http://www.nber.org/papers/w6382.pdf
File-Format: application/pdf
Publication-Status: published as Jermann, Urban J. "International Portfolio Diversification And Endogenous Labor Supply Choice," European Economic Review, 2002, v46(3,Mar), 507-522.
Abstract: When marginal utility of consumption depends on leisure, investors will take this into account when allocating their wealth among different assets. This paper presents a multi-country general equilibrium model driven by productivity shocks, where labor-leisure and consumption are chosen endogenously. We use this framework to study the effect of leisure for optimal international diversification. We find that in the symmetric case the model's ability to help explain home-bias depends crucially on the level of substitutability between consumption and leisure.
Handle: RePEc:nbr:nberwo:6382
Template-Type: ReDIF-Paper 1.0
Title: Has U.S. Investment Abroad Become More Sensitive to Tax Rates?
Classification-JEL: F23; H25
Author-Name: Rosanne Altshuler
Author-Person: pal34
Author-Name: Harry Grubert
Author-Name: T. Scott Newlon
Note: PE
Number: 6383
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6383
File-URL: http://www.nber.org/papers/w6383.pdf
File-Format: application/pdf
Publication-Status: published as Has U.S. Investment Abroad Become More Sensitive to Tax Rates?, Rosanne Altshuler, Harry Grubert, T. Scott Newlon. in International Taxation and Multinational Activity, Hines. 2000
Abstract: We use data from the U.S. Treasury corporate tax files for 1984 and 1992 to address two related questions concerning the investment decisions of U.S. multinational corporations. How sensitive are investment location decisions to tax rate differences across countries, and have investment location choices become more sensitive to differences in host country tax rates? We regress a measure of the real capital held in the manufacturing affiliates of U.S. manufacturing firms in each of the 58 countries in our sample on tax rate variables and measures of non-tax characteristics of countries. The availability of two years of data allows us to control for unmeasured country fixed effects. We find large estimated tax elasticities for investment abroad. Our basic estimates yield an elasticity of real capital to after-tax rates of return of close to three in 1992 and about 1.5 in 1984; both the elasticities and the difference between them are significant at standard levels. The increase of more than one in the estimated elasticities from 1984 to 1992 suggests that the allocation of real capital abroad may have become more sensitive to differences in host country taxes in recent years. These results are consistent with increasing international mobility of capital and globalization of production.
Handle: RePEc:nbr:nberwo:6383
Template-Type: ReDIF-Paper 1.0
Title: Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labor Earnings with Heterogeneous Agents
Classification-JEL: J24; J31
Author-Name: James J. Heckman
Author-Name: Lance Lochner
Author-Person: plo31
Author-Name: Christopher Taber
Note: LS
Number: 6384
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6384
File-URL: http://www.nber.org/papers/w6384.pdf
File-Format: application/pdf
Publication-Status: published as Heckman, James J., Lance Lochner and Christopher Taber. "Explaining Rising Wage Inequality: Explorations With A Dynamic General Equilibrium Model Of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, 1998, v1(1,Jan), 1-58.
Abstract: This paper develops and estimates an overlapping generations general equilibrium model of labor earnings, skill formation and physical capital accumulation with heterogeneous human capital. The model analyzes both schooling choices and post-school on-the-job investment in skills in a framework in which different schooling levels index different skills. A key insight in the model is that accounting for the distinction between skill prices and measured wages is important for analyzing the changing wage structure, as they often move in different directions. New methods are developed and applied to estimate the demand for unobserved human capital and to determine the substitution relationships in aggregate technology among skills and capital. We estimate skill-specific human capital accumulation equations that are consistent with the general equilibrium predictions of the model. Using our estimates, we find that a model of skill-biased technical change with a trend estimated from our aggregate technology is consistent with the central feature of rising wage equality measured by the college-high school wage differential and by the standard deviation of log earnings over the past 15 years. Immigration of low skill workers contributes little to rising wage inequality. When the model is extended to account for the enlarged cohorts of the Baby Boom, we find that the same parameter estimates of the supply functions for human capital that are used the explain the wage history of the last 15 years also explain the last 35 years of wage inequality as documented by Katz and Murphy (1992).
Handle: RePEc:nbr:nberwo:6384
Template-Type: ReDIF-Paper 1.0
Title: Life Cycle Schooling and Dynamic Selection Bias: Models and Evidence for Five Cohorts
Classification-JEL: I21; I28
Author-Name: Stephen V. Cameron
Author-Name: James J. Heckman
Note: CH LS
Number: 6385
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6385
File-URL: http://www.nber.org/papers/w6385.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 106, no. 2 (April 1998).
Abstract: This paper examines an empirical regularity found in many societies: that family influences on the probability of transiting from one grade level to the next diminish at higher levels of education. We examine the statistical model used to establish the empirical regularity and the intuitive behavioral interpretation often used to rationalize it. We show that the implicit economic model assumes myopia. The intuitive interpretive model is identified only by imposing arbitrary distributional assumptions onto the data. We produce an alternative choice-theoretic model with fewer parameters that rationalizes the same data and is not based on arbitrary distributional assumptions.
Handle: RePEc:nbr:nberwo:6385
Template-Type: ReDIF-Paper 1.0
Title: A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast-Food Industry with Representative Payroll Data
Classification-JEL: J23
Author-Name: David Card
Author-Person: pca271
Author-Name: Alan B. Krueger
Author-Person: pkr63
Note: LS
Number: 6386
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6386
File-URL: http://www.nber.org/papers/w6386.pdf
File-Format: application/pdf
Publication-Status: published as Card, D. and A. B. Krueger. "Minimum Wages And Employment: A Case Study Of The Fast-Food Industry In New Jersey And Pennsylvania: Reply," American Economic Review, 2000, v90(5,Dec), 1397-1420.
Abstract: This paper re-examines the effect of the 1992 New Jersey minimum wage increase on employment in the fast-food industry. We begin by analyzing employment trends using a comprehensive new data set derived from the Bureau of Labor Statistics's (BLS's) ES-202 data file. Both a longitudinal sample and a repeated-cross-section sample drawn from these data indicate similar or slightly faster employment growth in New Jersey relative to eastern Pennsylvania after the rise in New Jersey's minimum wage, consistent with the main findings of our earlier survey. We also use the ES-202 data to measure the effects of the 1996 increase in the federal minimum wage, which raised the minimum wage in Pennsylvania but not in New Jersey. We find no indication of relative employment losses in Pennsylvania. In light of these findings, we re-examine employment trends in the sample of fast-food restaurants assembled by the Employment Policies Institute (EPI) and David Neumark and William Wascher. The differences between this sample and both the BLS data and our earlier sample are attributable to a small set of restaurants owned by a single franchisee who provided the original Pennsylvania data for the 1995 EPI study. We also find that employment trends in the EPI/Neumark-Wascher sample are strikingly different for firms that reported their data on a weekly, biweekly or monthly basis, possibly because of seasonal factors. Controlling for the systematic effects of the varying reporting intervals, the combined EPI/Neumark-Wascher sample shows no difference in hours growth between New Jersey and Pennsylvania.
Handle: RePEc:nbr:nberwo:6386
Template-Type: ReDIF-Paper 1.0
Title: Measuring Market Power in the Ready-to-Eat Cereal Industry
Classification-JEL: L13; L66
Author-Name: Aviv Nevo
Author-Person: pne133
Note: IO
Number: 6387
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6387
File-URL: http://www.nber.org/papers/w6387.pdf
File-Format: application/pdf
Publication-Status: published as Nevo, Aviv. "Measuring Market Power In The Ready-To-Eat Cereal Industry," Econometrica, 2001, v69(2,Mar), 307-342.
Abstract: The ready-to-eat cereal industry is characterized by high concentration margins, large advertising to sales ratios, and numerous introductions of new products. Previous researchers have concluded that the ready-to-eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense non-price competition. This paper empirically examines this conclusion. In particular, I estimate price-cost margins importantly I am able empirically to separate these margins into three parts: (1) that which is due to product differentiation; (2) that which is due to multi-product firm pricing; and (3) that due to potential price collusion. The results suggest that given the demand for different brands of cereal, the first two effects explain most of the observed price-cost markups. I conclude that prices in the industry are consistent with non-collusive pricing behavior to maintain a portfolio of differentiated products influence the perceived quality of these products, and it is these two factors that lead to high price-cost margins.
Handle: RePEc:nbr:nberwo:6387
Template-Type: ReDIF-Paper 1.0
Title: Understanding the Role of Cognitive Ability in Accounting for the Recent Rise in the Economic Return to Education
Classification-JEL: J31
Author-Name: John Cawley
Author-Person: pca6
Author-Name: James Heckman
Author-Name: Edward Vytlacil
Author-Person: pvy2
Note: CH LS
Number: 6388
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6388
File-URL: http://www.nber.org/papers/w6388.pdf
File-Format: application/pdf
Publication-Status: published as Meritocracy and Economic Inequality, Arrow, Kenneth, Samuel Bowles, and Steven Durlauf, eds., Princeton: Princeton University Press, 2000.
Abstract: This paper examines the contribution of the rise in the return to ability to the rise in the economic return to education. All of the evidence on this question comes from panel data sets in which a small collection of adjacent birth cohorts is followed over time. The structure of the data creates an identification problem that makes it impossible to identify main age and time effects and to isolate all possible age-time interactions. In addition, many education-ability cells are empty due to the stratification of ability with educational attainment. These empty cells or identification problems are literature and produce a variety of different estimates. We test and reject widely used linearity assumptions invoked to identify the contribution of the return to ability on the return to schooling. Using nonparametric methods find little evidence that the rise in the return to education is centered among the most able.
Handle: RePEc:nbr:nberwo:6388
Template-Type: ReDIF-Paper 1.0
Title: Owner-Occupied Housing and the Composition of the Household Portfolio Over the Life-Cycle
Classification-JEL: E2; G1
Author-Name: Marjorie Flavin
Author-Name: Takashi Yamashita
Note: EFG
Number: 6389
Creation-Date: 1998-01
Order-URL: http://www.nber.org/papers/w6389
File-URL: http://www.nber.org/papers/w6389.pdf
File-Format: application/pdf
Publication-Status: published as Flavin, Majorie and Takashi Yamashita. "Owner-Occupied Housing And The Composition Of The Household Portfolio," American Economic Review, 2002, v92(1,Mar), 345-362.
Abstract: This paper studies the impact of the portfolio constraint imposed by the consumption demand for housing (the 'housing constraint') on the household's optimal holdings of financial assets. Since the ratio of housing to net worth declines as the household accumulates wealth, the housing constraint induces a life-cycle pattern in the portfolio shares of stocks and bonds. For reasonable degrees of risk aversion, the changes in portfolio composition over the life-cycle can be dramatic. For example, for a coefficient of relative risk aversion of 3, the ratio of stocks to net worth in the optimal portfolio is .09 for the youngest households (ages 18-30) and .60 for the oldest (age 70 and over). Using data from the PSID on home values to construct household level panel data on the real after-tax return to owner-occupied housing, as well as data on the returns to financial assets, the paper estimates the vector of expected returns and the covariance matrix for the set of assets consisting of housing, mortgages, stocks, Treasury bonds, and T-bills. Numerical methods are used to calculate the mean-variance efficient frontier, conditional on different values of the housing constraint, and the optimal portfolios associated with different levels of relative risk aversion.
Handle: RePEc:nbr:nberwo:6389
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Impact of the GED on the Earnings of Young Dropouts Using a Series of Natural Experiments
Classification-JEL: J1
Author-Name: John H. Tyler
Author-Person: pty2
Author-Name: Richard J. Murnane
Author-Person: pmu87
Author-Name: John B. Willett
Note: CH LS
Number: 6391
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6391
File-URL: http://www.nber.org/papers/w6391.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics (May 2000), forthcoming.
Abstract: The General Educational Development (GED) credential has become the primary 'second chance' route to high school certification for school dropouts in the United States. Despite the widespread use of the GED, however, bias due to self-selection has limited our knowledge about the effects of the credential on the labor market outcomes of dropouts. This paper uses a series of natural experiments created by interstate variation in GED passing standards to reduce self-selection bias in estimates of the impact of the GED on the earnings of young dropouts. To exploit the natural experiments, we use a unique merged data set containing the GED test scores and Social Security earnings of a sample of 16-21 year-old dropouts who attempted the GED in 1990. As a result of our research design and the fact that lower-scoring GED candidates receive very little post-secondary education, our results primarily measure the labor market signaling value of the GED. For dropouts who have indicated a desire to acquire the credential and whose skills place them on the margin of passing the GED exams, we find that acquisition of a GED increases the 1995 earnings of young white dropouts by 10-19 percent. These results are robust to experiments that use different treatment and comparison groups, and they withstand sensitivity analyses that explore possible violations of our identifying assumptions. We find no statistically significant evidence that the GED increases the earnings of young nonwhite dropouts, a result that we attribute to a
Handle: RePEc:nbr:nberwo:6391
Template-Type: ReDIF-Paper 1.0
Title: The Business Cycle, Financial Performance, and the Retirement of Capital Goods
Author-Name: Austan Goolsbee
Author-Person: pgo49
Note: EFG
Number: 6392
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6392
File-URL: http://www.nber.org/papers/w6392.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Dynamics, Vol. 1, no. 2 (April 1998): 474-496.
Abstract: The neoclassical investment literature assumes that capital is homogenous, lives forever and has a constant depreciation rate. More recent theories of investment have shown that when there are distinct capital vintages with embodied technologies, depreciation and capital retirement become economic decisions and this raises important problems with existing empirical work. Direct testing of these issues, however, has been rare because of the lack of micro data. This paper uses new data on the service lives of individual capital goods in the airline industry to empirically examine the impact that economic factors have on capital retirement. The results strongly support the view that retirement is fundamentally an economic decision. Retirement is much more likely in recessions, when the cost of capital is low, or when a firm has good financial performance. Factor prices and industry regulation are also important. Since many of these factors also influence capital expenditures, the results imply that estimates from the conventional investment literature such as the effect of the cost of capital or financial performance may substantially overstate the case since their impact on net investment may be much more modest than their impact on gross investment. The results also have implications for the measurement of productivity.
Handle: RePEc:nbr:nberwo:6392
Template-Type: ReDIF-Paper 1.0
Title: Does Schooling Cause Growth or the Other Way Around?
Classification-JEL: E1; J3
Author-Name: Mark Bils
Author-Person: pbi148
Author-Name: Peter J. Klenow
Note: EFG
Number: 6393
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6393
File-URL: http://www.nber.org/papers/w6393.pdf
File-Format: application/pdf
Publication-Status: published as Bils, M. and P. J. Klenow. "Does Schooling Cause Growth?," American Economic Review, 2000, v90(5,Dec), 1160-1183.
Abstract: Barro (1991) and others find that growth and schooling are highly correlated across countries, with each additional year of 1960 enrollment associated with about .6% per year faster growth in per capita GDP from 1960 to 1990. In a model with finite-lived individuals who choose schooling, schooling can influence growth, but also faster technology-driven growth can induce more schooling by raising the effective rate of return on investment in schooling. We consider a variety of evidence to determine the strength of these channels, with two main findings. First, faster-growing countries have at most modestly flatter cross-sectional experience-earnings profiles, consistent with a minority role for the channel from schooling to growth. Second, we calibrate the model using evidence from the labor literature and employ UNESCO attainment data to construct schooling going back well before 1960. We find the channel from schooling to growth to be too weak to generate even half of Barro's coefficient under a range of plausible parameter values. The reverse channel from expected growth to schooling, in contrast, is capable of explaining the empirical relationship. We conclude that the evidence favors a dominant role for the reverse channel from growth to schooling.
Handle: RePEc:nbr:nberwo:6393
Template-Type: ReDIF-Paper 1.0
Title: Career Concerns of Mutual Fund Managers
Classification-JEL: G23; J41
Author-Name: Judith Chevalier
Author-Person: pch151
Author-Name: Glenn Ellison
Author-Person: pel10
Note: CF IO
Number: 6394
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6394
File-URL: http://www.nber.org/papers/w6394.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 114, no. 2 (May 1999):
Abstract: This paper examines the labor market for mutual fund managers and managers' responses to the implicit incentives created by their career concerns. We find that managerial turnover is sensitie to a fund's recent performance. Consistent with the hypothesis that fund companies are learning about managers' abilities, managerial turnover is more performance-sensitive for younger fund managers. Interpreting the separation-performance relationship as an incentive scheme, several of our results suggest that a desire to avoid separation may induce managers at different stages of their careers to behave differently. Younger fund managers appear to be given less discretion in the management of their funds; i.e. they are more likely to lose their jobs if their fund's beta or unsystematic risk level deviates from the mean for their fund's objective group. We also show that the shape of the job separation-performance relationship may provide an incentive for young mutual fund managers to be risk averse in selecting their fund's portfolio. Consistent with these implicit labor market incentives, younger fund managers do take on lower unsystematic risk and deviate less from typical behavior than their older counterparts. Finally, additional results on the flow of investments into mutual funds suggest that rather than just being due to a screening process, firing decisions may also be influenced by a desire to stimulate inflows of investment into the fund.
Handle: RePEc:nbr:nberwo:6394
Template-Type: ReDIF-Paper 1.0
Title: It's Not About the Money: Why Natural Experiments Don't Work on the Rich
Author-Name: Austan Goolsbee
Author-Person: pgo49
Note: PE
Number: 6395
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6395
File-URL: http://www.nber.org/papers/w6395.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.
Abstract: An influential literature on the effects of marginal tax rates on the behavior of the rich has claimed that the elasticity of taxable income with respect to the net of tax share is very high possibly exceeding one. These high estimated elasticities imply that cutting taxes on the rich does not lose much revenue possibly increases it and that progressivity generates a large amount of deadweight loss. To identify this elasticity, these studies have conducted natural experiments' comparing the rich to other income groups and assuming that they are the same except for changes in their tax rates. This paper tests the natural experiment assumption using alternative data on the compensation of a panel of several thousand corporate executives and finds it to be false. Relatively, the very rich have incomes which trend upward at a faster rate are more sensitive to economic conditions, and are more likely to be in a form whose timing can be shifted in the short run. Interpreted broadly, these facts might reduce existing elasticity estimates by as much as 75%. The paper also suggests ways of improving existing methods.
Handle: RePEc:nbr:nberwo:6395
Template-Type: ReDIF-Paper 1.0
Title: The Young Person's Guide to Neutrality, Price Level Indeterminacy, Interest Rate Pegs, and Fiscal Theories of the Price Level
Classification-JEL: E40; E42
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: IFM ME
Number: 6396
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6396
File-URL: http://www.nber.org/papers/w6396.pdf
File-Format: application/pdf
Abstract: The paper establishes the following: First, money is neutral even if there is a non-zero stock of non-monetary nominal public debt, because the government adjusts real taxes to satisfy its intertemporal budget constraint. Second, Woodford's fiscal theory of the price level, according to which for certain fiscal rules the (initial) price level is independent of the nominal money stock, is invalid. It combines an overdetermined fiscal-financial program with an unwarranted weakening of the government's intertemporal budget constraint, requiring it to hold only in equilibrium, and only for arbitrarily restricted configurations of public spending, taxes and initial debt stocks. Third, there is price level determinacy under an exogenous nominal interest rate rule if the transactions technology has cash-in-advance features. The price level is hysteretic in this case. Finally, it is not possible to draw inferences about the historical process of technological improvements in the transactions technology leading to a cashless economy, by studying the limiting behavior, as a transactions efficiency index takes on successively higher values of a sequence of histories, each one of which is indexed for all time by a given level of efficiency.
Handle: RePEc:nbr:nberwo:6396
Template-Type: ReDIF-Paper 1.0
Title: Unit Roots, Postwar Slowdowns and Long-Run Growth: Evidence from Two Structural Breaks
Classification-JEL: C2; O5
Author-Name: Dan Ben-David
Author-Person: pbe276
Author-Name: Robin L. Lumsdaine
Author-Name: David H. Papell
Author-Person: ppa73
Note: EFG
Number: 6397
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6397
File-URL: http://www.nber.org/papers/w6397.pdf
File-Format: application/pdf
Publication-Status: published as Ben-David, Dan, Robin L. Lumsdaine and David H. Papell. "Unit Roots, Postwar Slowdowns And Long-Run Growth: Evidence From Two Structural Breaks," Empirical Economics, 2003, v28(2,Apr), 303-319.
Abstract: This paper provides evidence on the unit root hypothesis and long-term growth by allowing for two structural breaks. We reject the unit root hypothesis for three-quarters of the countries approximately 50% more rejections than in models that allow for only one break. While about half of the countries exhibit slowdowns following their postwar breaks, the others have grown along paths that have become steeper over the past 120 years. The majority of the countries, including most of the slowdown countries, exhibit faster growth after their second breaks than during the decades preceding their first breaks.
Handle: RePEc:nbr:nberwo:6397
Template-Type: ReDIF-Paper 1.0
Title: Did Unilateral Divorce Raise Divorce Rates? Evidence from Panel Data
Classification-JEL: J12; K39
Author-Name: Leora Friedberg
Note: PE
Number: 6398
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6398
File-URL: http://www.nber.org/papers/w6398.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 88, no. 3 (June 1998): 608-627.
Abstract: This paper revisits the evidence on the impact of unilateral divorce laws on divorce rates in the United States. Most states switched from requiring mutual consent to allowing unilateral or no-fault divorce between 1970 and 1985, while the national divorce rate more than doubled after 1965. According to the Coase theorem, however, the legal shift should have had no effect on divorce rates. Recent papers using cross-sectional micro data have disputed the empirical importance of unilateral divorce, disagreeing in particular about controls for state-level heterogeneity in divorce propensities. This paper uses a panel of state-level divorce rates which includes virtually every divorce in the U.S. over the entire period of the law changes. Adding comprehensive controls - year and state fixed effects and state fixed trends - for changing unobservable divorce propensities reveals that the divorce rate would have been about 6% lower if states had not switched to unilateral divorce, accounting for 17% of the increase in the divorce rate between 1968 and 1988. Additional results in this paper demonstrate that the type of unilateral divorce law that states adopted matters. Weaker versions of unilateral divorce, which retain elements of mutual divorce, raised the divorce rate significantly, but by less than the strongest versions of unilateral divorce did.
Handle: RePEc:nbr:nberwo:6398
Template-Type: ReDIF-Paper 1.0
Title: Capital Gains Taxation and Tax Avoidance: New Evidence from Panel Data
Classification-JEL: H24; H31
Author-Name: Alan J. Auerbach
Author-Person: pau33
Author-Name: Leonard E. Burman
Author-Name: Jonathan Siegel
Note: PE
Number: 6399
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6399
File-URL: http://www.nber.org/papers/w6399.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.
Abstract: Previous theoretical analyses of the capital gains tax have suggested that investors have considerable opportunity to avoid the tax. Yet, past empirical work has found relatively little evidence of such activity. Using a previously unavailable panel data set with a very large sample of high-income individuals, this paper aims to bring the theory and evidence closer together by examining the behavior of individual taxpayers over time. Though confirming past findings that avoidance of tax on realized capital gains is not prevalent, we do observe that tax avoidance activity increased after the passage of the Tax Reform Act of 1986, and that high-income, high-wealth and more sophisticated taxpayers were most likely to avoid tax. However, the efficacy of tax avoidance strategies depends on being able to avoid tax for long periods, and we find that most tax avoidance is of relatively short duration. Thus, the effective tax rate on realized capital gains is very close to the statutory rate in all years and tax brackets.
Handle: RePEc:nbr:nberwo:6399
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy Shocks: What Have We Learned and to What End?
Classification-JEL: E3; E4
Author-Name: Lawrence J. Christiano
Author-Person: pch45
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Charles L. Evans
Author-Person: pev23
Note: EFG ME
Number: 6400
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6400
File-URL: http://www.nber.org/papers/w6400.pdf
File-Format: application/pdf
Publication-Status: Published as "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds", Review of Economics and Statistics, Vol. 78, no. 1(February 1996): 16-34.
Publication-Status: published as Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148 Elsevier.
Abstract: This paper reviews recent research that grapples with the question: What happens after an exogenous shock to monetary policy? We argue that this question is interesting because it lies at the center of a particular approach to assessing the empirical plausibility of structural economic models that can be used to think about systematic changes in monetary policy institutions and rules. The literature has not yet converged on a particular set of assumptions for identifying the effects of an exogenous shock to monetary policy. Nevertheless, there is considerable agreement about the qualitative effects of a monetary policy shock in the sense that inference is robust across a large subset of the identification schemes that have been considered in the literature. We document the nature of this agreement as it pertains to key economic aggregates.
Handle: RePEc:nbr:nberwo:6400
Template-Type: ReDIF-Paper 1.0
Title: Are Alcoholics in Bad Jobs?
Author-Name: Don Kenkel
Author-Person: pke44
Author-Name: Ping Wang
Author-Person: pwa22
Note: EH
Number: 6401
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6401
File-URL: http://www.nber.org/papers/w6401.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp.251-278.
Publication-Status: published as Are Alcoholics in Bad Jobs?, Donald S. Kenkel, Ping Wang. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: Alcohol abuse has important implications for the productivity of the US workforce. The lost earnings of workers suffering from alcohol problems have been estimated at $36.6 billion in 1990. After completing schooling, young workers face critical labor market choices with long-ranging consequences for future jobs and lifetime earnings, while many of them also drink alcohol to excess. In this paper, we provide evidence on whether the drinking choices of young adults also have long-ranging consequences for future jobs and lifetime earnings. In doing so we extend previous research on the productivity effects of alcohol to include non-wage job attributes as part of total employee compensation. The goal of this research is to establish benchmark empirical patterns describing relationships between alcoholism and job choice. Our empirical results based on the National Longitudinal Survey of Youth (NLSY) data show that male alcoholics are less likely to receive a variety of fringe benefits, are more likely to be injured on the job, and work for smaller firms. When the conventional methodology is extended to include non-wage job attributes, of an estimated total loss of $2,380 per alcoholic, about $450, or almost 20% or the total, is the value of the lost fringe benefits. The data also show that male alcoholics are less likely to be in a white collar occupation but conditional upon being in a white collar occupation their earnings are similar to their non-alcoholic peers. While alcoholics are more likely to be in a blue collar occupation, conditional upon being in such an occupation they are estimated to earn 15% less than their non-alcoholic peers. These findings help evaluate the potential effects of alcohol, education and income policies and health policy.
Handle: RePEc:nbr:nberwo:6401
Template-Type: ReDIF-Paper 1.0
Title: Employment as a Drug Abuse Treatment Intervention: A Behavioral Economic Analysis
Author-Name: Kenneth Silverman
Author-Name: Elias Robles
Note: EH
Number: 6402
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6402
File-URL: http://www.nber.org/papers/w6402.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 279-299.
Publication-Status: published as Employment as a Drug Abuse Treatment Intervention: A Behavioral Economic Analysis, Kenneth Silverman, Elias Robles. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: Epidemiological data and experimental research in the fields of operant conditioning and behavioral economics suggest that employment may be useful in the treatment of drug abuse. The conditions under which employment should decrease drug use depends on a range of environmental contextual factors, some of which have been classified or suggested by adapting the economic concepts of income, substitutability and complementarity, and opportunity cost to the analysis of behavior. A job can occupy a substantial portion of a person's day with work, thereby reducing the amount of time available for drug consumption (i.e., employment reduces behavioral income for drug use). Because money buys drugs, monetary pay for work may increase or sustain drug use, suggesting a potential undesirable by-product of employment (i.e., money and drugs appear to be complementary reinforcers). Finally, employment may decrease drug use to the extent that drug use results in loss of wages or job (i.e., employment may impose an opportunity cost of drug use). This paper reviews research in these three areas with the goal of identifying an effective employment-based treatment intervention for chronically unemployed methadone patients, a group of individuals sorely in need of effective interventions to reduce their drug use and improve their employment status. Research on behavioral income restrictions, reinforcer substitutability and complementarity, and opportunity cost suggests that the utility of employment as a drug abuse treatment intervention depends, in large part, on the extent to which employment is used to arrange substantial monetary reinforcement for drug abstinence and opportunity cost for drug use.
Handle: RePEc:nbr:nberwo:6402
Template-Type: ReDIF-Paper 1.0
Title: Human Capital and Predation: A Positive Theory of Educational Policy
Classification-JEL: D31; D74
Author-Name: Herschel I. Grossman
Author-Name: Minseong Kim
Author-Person: pki94
Note: EFG
Number: 6403
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6403
File-URL: http://www.nber.org/papers/w6403.pdf
File-Format: application/pdf
Abstract: This paper offers an explanation for observed differences across countries in educational policies and in resulting interpersonal distributions of human capital. We analyze a general-equilibrium model in which, as a result of the apportionment of natural ability, nurturing, and publicly financed education, some people can be well endowed with human capital, while others are poorly endowed. We assume people can choose to be either producers or predators. An An increase in a person's human capital makes predation a less attractive choice for them. As a result, it is possible that by using some of their human capital to educate the poorly endowed people rather than to produce consumables the well endowed people can increase their own consumption. We also find that the nature of the educational policy that maximizes the the consumption of the well endowed depends on the ability of producers to enforce a collective choice of the amount of resources to be allocated to guarding against predators. Our theory predicts that, if producers choose choose the amount of guarding against predators, then the well endowed prefer a relatively egalitarian educational policy that increases the human capital of all the poorly endowed. Such an educational policy either decreases the cost of deterring predation or makes deterrence possible. In contrast, if producers or small subsets of producers individually choose the amount of their resources to allocate to guarding, taking the ratio of predators to producers as given, then the well endowed prefer a more elitist educational policy that decreases the number of poorly endowed, thereby decreasing the number of predators, without increasing the human capital of the remaining poorly endowed people. These implications seem to be consistent with the facts about differences across countries in educational policy.
Handle: RePEc:nbr:nberwo:6403
Template-Type: ReDIF-Paper 1.0
Title: Measuring Real Investment: Trends in the United States and International Comparisons
Classification-JEL: C8; E21
Author-Name: Milka S. Kirova
Author-Name: Robert S. Lipsey
Author-Person: pli259
Note: ITI PR
Number: 6404
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6404
File-URL: http://www.nber.org/papers/w6404.pdf
File-Format: application/pdf
Publication-Status: published as The Federal Reserve Bank of St. Louis Review, Vol. 80, no. 1 (January-February 1998): 3-18
Abstract: The standard measures of nominal capital formation show the United States investing a proportion of GDP much lower than those of other developed countries throughout the last 25 years and falling further behind over time. In contrast, measures we have calculated in real terms across countries and over time indicate that US investment ratios have been rising over time and have been coming closer and closer to those of the other countries. A broader measure of capital formation more consonant with economic concepts shows the United States to have been close to the other countries since 1970 and to have been investing an above average share of total output in the most recent period 1990-1994. Real capital formation per capita and per worker, even conventionally defined, has been consistently between 15 and 25 percent higher than in the other countries and broadly defined real capital formation per capita and per worker has been 30 to 60 percent higher.
Handle: RePEc:nbr:nberwo:6404
Template-Type: ReDIF-Paper 1.0
Title: Internationalized Production in Developed and Developing Countries and in Industry Sectors
Author-Name: Robert E. Lipsey
Author-Person: pli259
Note: ITI
Number: 6405
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6405
File-URL: http://www.nber.org/papers/w6405.pdf
File-Format: application/pdf
Abstract: Internationalized production, that is, production in a country controlled by firms based in another country, grew from about 4.5% of world output in 1970 to over 7% in 1995. The importance of internationalized output fell substantially in developing countries until around 1990 but has been been increasing since then, especially in the 'transition' countries, where it has grown from less than $100 million in 1977 to over $25 billion in 1994. The petroleum sector was the one with the highest share of internationalized production in the 1970s, but that share has declined sharply, especially in the developing countries, where important operations were nationalized. Manufacturing is now the sector in which internationalized production plays the largest role, the internationalized share rising from under 12% to more than 16% in 1990. That share was probably considerably larger in 1995, given the increase in the absolute value of internationalized output by more than a third from 1993 to 1995. Outside of petroleum and manufacturing, internationalized production was of little importance. For the world as a whole, the internationalized share was about 3« percent in 1990. However, if the trend in U.S.-owned production is an indication, the role of internationalized production in this sector may be changing; the share in total production of U.S. foreign affiliates in developing countries of a broad service sector including trade and finance rose from 6% in 1977 to 18% in 1995.
Handle: RePEc:nbr:nberwo:6405
Template-Type: ReDIF-Paper 1.0
Title: Does Drug Use Cause Poverty?
Author-Name: Robert Kaestner
Author-Person: pka42
Note: EH
Number: 6406
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6406
File-URL: http://www.nber.org/papers/w6406.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 327-355.
Publication-Status: published as Does Drug Use Cause Poverty?, Robert Kaestner. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: In this study, I examine the effect of drug use on poverty. The main objective of the paper is to provide descriptive empirical information about the relationship between drug use and poverty, and to explore, in a preliminary fashion, the question of whether drug use causes poverty. Toward this end, I present the results of both descriptive and multivariate analyses of the relationship between drug use and poverty for two national samples of young adults. One sample is drawn from the National Household Survey of Drug Abuse (NHSDA), and the other from the National Longitudinal Survey of Youth (NLSY). The results of the analysis indicate that for both samples, drug use is associated with greater poverty.
Handle: RePEc:nbr:nberwo:6406
Template-Type: ReDIF-Paper 1.0
Title: Income Alters the Relative Reinforcing Effects of Drug and Nondrug Reinforcers
Author-Name: Marilyn E. Carroll
Note: EH
Number: 6407
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6407
File-URL: http://www.nber.org/papers/w6407.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 311-326.
Publication-Status: published as Income Alters the Relative Reinforcing Effects of Drug and Nondrug Reinforcers, Marilyn E. Carroll. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: Income is defined as the amount of funds, resources and/or time allowed to obtain goods over a specified period of time. This review discusses laboratory studies of income using methods of behavior analysis, behavioral pharmacology and behavioral economics. Initially, income was studied with respect to consumption of two types of the same good (e.g., food or drug), and later comparisons were made between food and nonfood rewards as well as drug and nondrug rewards. A consistent finding in these studies is that preferences between two goods change and often reverse as income is changed from low to high. Thus, reinforcing effects are not inherent in the goods, but they depend on the economic context (income, price of good, availability of substitutes). Another economic variable that has shown considerable impact on drug-reinforced behavior is the availability of nondrug alternative reinforcers which seem to function as economic substitutes. The present review also examines the interaction of income variables with price of drug (ethanol and phencyclidine) and availability of nondrug alternatives. It was concluded that price and availability of nondrug alternative are major determinants of drug intake. Changes in income dramatically alter preference between drug and nondrug items; however, income has a greater effect on consumption of nondrug alternatives than on drug intake. It was concluded that the optimal formula for reducing/preventing drug intake would be low income, high drug price and availability of inexpensive alternative nondrug reinforcers.
Handle: RePEc:nbr:nberwo:6407
Template-Type: ReDIF-Paper 1.0
Title: What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?
Classification-JEL: F3
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Ashoka Mody
Note: IFM
Number: 6408
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6408
File-URL: http://www.nber.org/papers/w6408.pdf
File-Format: application/pdf
Publication-Status: published as Barry Eichengreen & Ashoka Mody, 2000. "What Explains Changing Spreads on Emerging Market Debt?," NBER Chapters, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 107-136 National Bureau of Economic Research, Inc.
Abstract: In this paper we analyze data on nearly 1,000 developing-country bonds issued in the years 1991-96 the recent episode of heavy reliance on bonded debt. We analyze both the issue decision of debtors and the pricing decision of investors, minimizing selectivity bias by treating the two issues jointly. Overall, the results confirm that higher credit quality translates into a higher probability of issue and a lower spread. Importantly, however, we find that observed changes in fundamentals explain only a fraction of the spread compression in the period leading up to the recent crisis in emerging markets.
Handle: RePEc:nbr:nberwo:6408
Template-Type: ReDIF-Paper 1.0
Title: Reconciling Asymmetric Information and Divergent Expectations Theories of Litigation
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: LE
Number: 6409
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6409
File-URL: http://www.nber.org/papers/w6409.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law & Economics, Vol. 41, no. 2, part 1 (October 1998): 451-476.
Abstract: Both asymmetric information (AI) and divergent expectations (DE) theories offer possible explanations of the litigation puzzle. Under DE, cases proceed to trial when, by chance, the plaintiff is more optimistic than the defendant. As the fraction of cases tried (T) declines, this leads to a tendency toward 50 percent plaintiff win rates at trial (P), regardless of the fraction of plaintiff winners in the filed population. Under AI, by contrast, informed parties proceed to trial only when they expect to win. Hence, as the fraction of cases tried declines, plaintiff win rates at trial tend toward either 0 or 1. We present evidence that the relationship between T and P generated by the litigation process is consistent with DE and not AI. We also offer evidence of the presence of AI early in litigation in the form of one-sided plaintiff win rates in cases adjudicated prior to trial. We reconcile these two findings with evidence that pretrial adjudication and settlement culls both likely plaintiff winners and likely plaintiff losers from the filed pool, causing a tendency toward central rather than extreme plaintiff win rates at trial.
Handle: RePEc:nbr:nberwo:6409
Template-Type: ReDIF-Paper 1.0
Title: Delayed Reward Discounting in Alcohol Abuse
Author-Name: Rudy E. Vuchinich
Author-Name: Cathy A. Simpson
Note: EH
Number: 6410
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6410
File-URL: http://www.nber.org/papers/w6410.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 103-122.
Publication-Status: published as Delayed-Reward Discounting in Alcohol Abuse, Rudy E. Vuchinich, Cathy A. Simpson. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: This paper summarizes studies that investigated the relation between temporal discounting and alcohol consumption. The first study compared heavy and light social drinkers, and the second study compared problem and light drinkers, on the degree to which they discounted the value of (hypothetical) amounts of money available after a series of delays. Heavy social drinkers and problem drinkers both showed higher rates of temporal discounting than light drinkers, and this difference was stronger in the second study. Both of these laboratory studies found that a hyperbolic function more accurately described temporal discounting than an exponential function. A third study evaluated predictors of relapse and continued resolution in problem drinkers who attempted to quit problem drinking without treatment. The outcome groups were distinguished by the preresolution proportions of discretionary expenditures they allocated to alcohol and savings. The data from these studies are consistent with extending behavioral theories of intertemporal choice to characterizing the determinants of alcohol consumption; they also are consistent with more general behavioral economic and economic theories of addiction that predict a positive relation between temporal discounting and addiction.
Handle: RePEc:nbr:nberwo:6410
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Cocaine and Marijuana by Youth
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Michael Grossman
Author-Person: pgr107
Author-Name: John A. Tauras
Author-Person: pta136
Note: EH
Number: 6411
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6411
File-URL: http://www.nber.org/papers/w6411.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 133-155.
Publication-Status: published as The Demand for Cocaine and Marijuana by Youth, Frank J. Chaloupka, Michael Grossman, John A. Tauras. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: In recent years, the debate over the costs and benefits of legalizing the use of currently illicit drugs has been revived. This paper attempts to inform this debate by providing some evidence on the effects of illicit drug prices and legal sanctions for drug possession and sale on youth drug use. Data on cocaine and marijuana use by high school seniors are taken from the 1982 and 1989 Monitoring the Future surveys. Site-specific data on cocaine prices and legal sanctions for the possession and sale, manufacture or distribution of cocaine and marijuana are added to the survey data. The results indicate that youth cocaine demand is sensitive to price, with average past year and past month cocaine demand elasticities of -1.28 and -1.43, respectively. In addition, the estimates suggest that increased sanctions for the possession of cocaine and marijuana have a negative and statistically significant impact on youth cocaine and marijuana use. However, the magnitude of these estimates implies that very large increases in the monetary fines that can be imposed for first offense possession would be necessary to achieve meaningful reductions in use. Finally, sanctions for the sale, manufacture or distribution of cocaine and marijuana were found to have little impact on youth cocaine and marijuana use.
Handle: RePEc:nbr:nberwo:6411
Template-Type: ReDIF-Paper 1.0
Title: Positive Portfolio Factors
Author-Name: Stephen J. Brown
Author-Person: pbr268
Author-Name: William N. Goetzmann
Author-Person: pgo59
Author-Name: Mark Grinblatt
Author-Person: pgr231
Note: AP
Number: 6412
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6412
File-URL: http://www.nber.org/papers/w6412.pdf
File-Format: application/pdf
Abstract: We use an iterative relocation algorithm to identify factors in common stock returns. The benefit of the approach is that factors are portfolios of assets with non-negative weights. As a result, they are readily interpreted in terms of their characteristics of the underlying securities. The positive portfolio factors have comparatively high explanatory power in sample and out-of-sample. We find evidence of a size factor and factors identified with certain industries. Factors extracted from the mutual fund universe perform marginally better than factors from the universe of equities.
Handle: RePEc:nbr:nberwo:6412
Template-Type: ReDIF-Paper 1.0
Title: High Water Marks
Author-Name: William N. Goetzmann
Author-Person: pgo59
Author-Name: Jonathan Ingersoll, Jr.
Author-Name: Stephen A. Ross
Note: AP
Number: 6413
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6413
File-URL: http://www.nber.org/papers/w6413.pdf
File-Format: application/pdf
Publication-Status: published as William N. Goetzmann & Jonathan E. Ingersoll & Stephen A. Ross, 2003. "High-Water Marks and Hedge Fund Management Contracts," Journal of Finance, American Finance Association, vol. 58(4), pages 1685-1718, 08.
Abstract: Incentive fees for money managers are frequently accompanied by high-water mark provisions that condition the payment of the performance fee upon exceeding the previously achieved maximum share value. In this paper, we show that hedge fund performance fees are valuable to money managers, and conversely, represent a claim on a significant proportion of investor wealth. The high-water mark provisions in these contracts limit the value of the performance fees. We provide a closed-form solution to the cost of the high-water mark contract under certain conditions. Our results provide a framework for valuation of a hedge fund management company.
Handle: RePEc:nbr:nberwo:6413
Template-Type: ReDIF-Paper 1.0
Title: Fundamentals or Population Dynamics and the Geographic Distribution of U.S. Biotechnology Enterprises, 1976-1989
Classification-JEL: R12; O31
Author-Name: Lynne G. Zucker
Author-Person: pzu2
Author-Name: Michael R. Darby
Author-Name: Yusheng Peng
Note: PR
Number: 6414
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6414
File-URL: http://www.nber.org/papers/w6414.pdf
File-Format: application/pdf
Publication-Status: published as Lynne G. Zucker and Michael R. Darby, “Capturing Technological Opportunity Via Japan's Star Scientists: Evidence from Japanese Firms' Biotech Patents and Products,” Journal of Technology Transfer, January 2001, 26(1/2): 37-58.
Abstract: Population ecology models are elegant in form and adequate in describing aggregate data, but poor in telling stories and predicting the location of growth. Fundamentals models emphasizing the variables central to resource mobilization, such as intellectual human capital, can predict where and when biotechnology enterprises emerge and agglomerate. Density dependence and previous founding dependence proxy many underlying processes; the legitimation and competition interpretation is more conjectural than empirically tenable. We argue and demonstrate for biotechnology that an alternative model based on the fundamentals related to resource reallocation and mobilization provides a stronger frame to explore industry formation. Fundamentals models outperform population ecology models in the estimations, while a combined model driven by fundamentals but incorporating weak population dynamics does best. In repeated dynamic simulations, the population ecology model predictions are essentially uncorrelated with the panel data on biotechnology entry by year and region while the combined model has correlation coefficients averaging above 0.8.
Handle: RePEc:nbr:nberwo:6414
Template-Type: ReDIF-Paper 1.0
Title: A Behavioral Economic Analysis of Polydrug Abuse in Heroin Addicts
Author-Name: Nancy M. Petry
Author-Name: Warren K. Bickel
Note: EH
Number: 6415
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6415
File-URL: http://www.nber.org/papers/w6415.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 213-238.
Publication-Status: published as A Behavioral Economic Analysis of Polydrug Abuse in Heroin Addicts, Nancy M. Petry, Warren K. Bickel. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Publication-Status: published as Nancy M. Petry & Warren K Bickel, 1998. "Polydrug abuse in heroin addicts: a behavioral economic analysis," Addiction, vol 93(3), pages 321-335.
Abstract: Polydrug abuse is common among substance abusers, but few empirical or theoretical methods accurately characterize this phenomenon. This chapter describes a simulation paradigm that was developed to apply a behavioral economic analysis to understanding polydrug abuse. Heroin abusers 'purchased' drugs as the price of drugs or income varied. In Experiment 1, heroin price rose while prices of other drugs and income remained constant. Heroin purchases significantly decreased as heroin prices increased. As price of heroin rose, valium and cocaine purchases increased and cross-price elasticity coefficients indicated these drugs substituted for heroin. In Experiment 2, prices of both heroin and valium increased separately to determine symmetry of the substitution effect. While valium substituted for heroin, heroin purchases were independent of valium prices. Marijuana and alcohol purchases were independent of valium price, but both these drugs were weak substitutes for heroin. In Experiment 3, income rose while prices remained constant. At some changes in income, demand for heroin and cocaine was income elastic, with purchases rising in greater proportion than income. Marijuana, alcohol, and valium purchases did not vary significantly as a function of income. Choices in this simulation were reliable both between and within subjects. Moreover, drug choices in the simulation were correlated with drug use as determined by urinanalysis testing. These results are discussed in terms of the utility of a behavioral economics approach for characterizing polydrug abuse.
Handle: RePEc:nbr:nberwo:6415
Template-Type: ReDIF-Paper 1.0
Title: Vintage Capital and Inequality
Classification-JEL: O31
Author-Name: Boyan Jovanovic
Note: PR
Number: 6416
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6416
File-URL: http://www.nber.org/papers/w6416.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Dynamics, Vol. 1, no. 2 (April 1998): 497-530
Abstract: If machines are indivisible, a vintage capital model must give rise to income inequality. If new machines are always better than old ones and if society cannot provide everyone with a new machine all of the time, inequality will result. I explore this mechanism in detail. If technology resides in machines and if a firm or worker must use just one technology at a time, a variety of machines will be in use, and workers' productivities will differ. This is because not everyone can be given the latest vintage machine all of the time. Inequality thus originates in the limited capacity of the capital goods sector. If machine quality and skill are complements, a worker who is paired with the best machine will acquire more skill, and inequality persists indefinitely. Moreover, if the used equipment market or the process of labor turnover function without frictions, a perfect positive assignment between the quality of labor and of capital can be maintained by a process of continual reassignment. This serves to enhance the degree of equilibrium inequality. Paradoxically, in this type of model, free migration of labor across borders raises cross-country inequality instead of lowering it as it does in some other models.
Handle: RePEc:nbr:nberwo:6416
Template-Type: ReDIF-Paper 1.0
Title: Price Indexes for the Treatment of Depression
Classification-JEL: I11; C43
Author-Name: Richard G. Frank
Author-Name: Ernst R. Berndt
Author-Name: Susan H. Busch
Note: EH PR
Number: 6417
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6417
File-URL: http://www.nber.org/papers/w6417.pdf
File-Format: application/pdf
Publication-Status: published as Triplett, Jack E. (ed.) Measuring the prices of medical treatments. Washington, D.C.: Brookings Institution Press, 1999.
Abstract: We construct price indexes for treatment of a specific illness, acute phase major depression, using treatment episodes of care (rather than fixed input bundles) to define quantity. We identify different treatment service bundles that combine varying quantities of prescription drugs, medical management and psychotherapy. We make use of results from clinical research and official government guidelines for standards of care to identify therapeutically similar treatment bundles. We then employ various index number formulae that involve differing assumptions on the extent of ex ante substitutability among these treatment bundles. Rather than using list prices, we utilize actual transactions data based on a MEDSTAT retrospective medical claims data base covering more than 400,000 individuals over the 1991-95 time period. We distinguish between consumers' direct payments (a CPI index) and total payments received by providers (a PPI). Although not directly comparable to BLS indexes indicating 15-25% price growth 1991-95, our CPI and PPI price indexes decline 20-30%, implying an average annual price differential from BLS indexes of about -15%.
Handle: RePEc:nbr:nberwo:6417
Template-Type: ReDIF-Paper 1.0
Title: Social Action, Private Choice, and Philanthropy: Understanding the Sources of Improvements in Black Schooling in Georgia, 1911-1960
Classification-JEL: J70; N32
Author-Name: John Donohue III
Author-Person: pdo40
Author-Name: James J. Heckman
Author-Name: Petra E. Todd
Note: LS
Number: 6418
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6418
File-URL: http://www.nber.org/papers/w6418.pdf
File-Format: application/pdf
Publication-Status: published as Donohue, John J., III, James J. Heckman and Petra E. Todd. "The Schooling Of Southern Blacks: The Roles Of Legal Activism And Private Philanthropy, 1910-1960," Quarterly Journal of Economics, 2002, v107(1,Feb), 225-268.
Abstract: Improvements in educational attainment and in educational quality are universally acknowledged to be major contributors to black economic progress in the twentieth century. The sources of these improvements are less well understood. Many scholars implicitly assume improvements in schooling reflect private choices. In fact, schooling is publicly provided and increases in the quality and availability of black schools in the South occurred at a time when blacks were excluded from the political process. This paper demonstrates the important roles of social action, especially NAACP litigation, and private philanthropy, in improving access and quality of public schooling in Georgia and in the rest of the South in the first half of the century. Analyses that pit rising schooling quality as an alternative to social action in explaining black progress miss the important role of social activism in promoting schooling quality and hence in elevating the economic status of black Americans.
Handle: RePEc:nbr:nberwo:6418
Template-Type: ReDIF-Paper 1.0
Title: The Unequal Work Day: A Long-Term View
Classification-JEL: J22; N30
Author-Name: Dora L. Costa
Author-Person: pco358
Note: DAE LS
Number: 6419
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6419
File-URL: http://www.nber.org/papers/w6419.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol.88, no.2 (May 1998): 330-334.
Abstract: I investigate how the distribution of daily hours worked among prime-aged men has changed since the 1890s by occupational and industrial group and by the hourly wage. I find that although hours of work have fallen for all workers, the decline was disproportionately large among the lowest paid workers. In the past hours worked were very unevenly distributed with the lowest paid workers working the longest day whereas today it is the highest paid workers who work the longest day. I argue that much of the change in the relative length of the work day can be accounted for by changes in the number of daily hours workers are willing to supply. I show that the unequal distribution of work hours in the past equalized income and that in recent times the unequal distribution of hours worked magnifies income disparities, suggesting that wage or wealth data may underestimate long-run improvements in the welfare of the lowest paid workers.
Handle: RePEc:nbr:nberwo:6419
Template-Type: ReDIF-Paper 1.0
Title: Nonlinear Aggregate Investment Dynamics: Theory and Evidence
Classification-JEL: E22; D92
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Note: EFG
Number: 6420
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6420
File-URL: http://www.nber.org/papers/w6420.pdf
File-Format: application/pdf
Abstract: In this paper we derive a model of aggregate investment that builds from the lumpy microeconomic behavior of firms facing stochastic fixed adjustment costs. Instead of the standard sharp (S,s) bands, firms' adjustment policies take the form of a probability of adjustment (adjustment hazard) that responds smoothly to changes in firms' capacity gap. The model has appealing aggregation properties, and yields nonlinear aggregate time series processes. The passivity of normal times is, occasionally, more than offset by the brisk response to large accumulated shocks. Using within and out-of-sample criteria, we find that the model performs substantially better than the standard linear models of investment for postwar sectoral U.S. manufacturing equipment and structures investment data.
Handle: RePEc:nbr:nberwo:6420
Template-Type: ReDIF-Paper 1.0
Title: Cooperatives vs. Outside Ownership
Classification-JEL: D21; G32
Author-Name: Oliver Hart
Author-Person: pha222
Author-Name: John Moore
Author-Person: pmo265
Note: CF
Number: 6421
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6421
File-URL: http://www.nber.org/papers/w6421.pdf
File-Format: application/pdf
Abstract: We are concerned with the design of a constitution for a firm -- an ex ante contract which assigns residual rights of control (and possibly residual income rights) without reference to the issue to be decided. We focus attention on two polar constitutions: nonprofit cooperatives and outside ownership. In the former, ownership is shared among a group of consumers on a one member, one vote basis. In the latter, all control rights and rights to residual income are allocated to an outsider. Ex post, agents are assumed to have asymmetric information, which rules out recontracting. We have two main results. First, in the case of perfect competition, an outside owner achieves the first-best; a cooperative typically does not because the rent from any cost advantage relative to the market is used to shield members from competitive pressure, and the median voter's preferences may not reflect average preferences. Second, in the case where the members of a cooperative have common preference orderings they unanimously vote for the first-best; an outside owner typically makes inefficient decisions, tailored to the marginal rather than to the average customer.
Handle: RePEc:nbr:nberwo:6421
Template-Type: ReDIF-Paper 1.0
Title: The New Empirics of Economic Growth
Classification-JEL: C21; C22
Author-Name: Steven N. Durlauf
Author-Person: pdu117
Author-Name: Danny T. Quah
Author-Person: pqu9
Note: EFG
Number: 6422
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6422
File-URL: http://www.nber.org/papers/w6422.pdf
File-Format: application/pdf
Publication-Status: published as Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
Abstract: We provide an overview of recent empirical research on patterns of cross-country growth. The new empirical regularities considered differ from earlier ones, e.g., the well-known Kaldor stylized facts. The new research no longer makes production function accounting a central part of the analysis. Instead, attention shifts more directly to questions like, Why do some countries grow faster than others? It is this changed focus that, in our view, has motivated going beyond the neoclassical growth model.
Handle: RePEc:nbr:nberwo:6422
Template-Type: ReDIF-Paper 1.0
Title: Does Spending on Medical Services Change as HMOs Grow and Mature?
Classification-JEL: I1; L1
Author-Name: Patricia Born
Author-Name: Rosalie Liccardo Pacula
Author-Person: ppa1299
Note: EH
Number: 6423
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6423
File-URL: http://www.nber.org/papers/w6423.pdf
File-Format: application/pdf
Abstract: This research examines the cost structure of a nationally representative sample of HMOs from 1991-1994 to determine whether cost savings achieved through enrollment growth and age of the plan are shared with any of the factors of production. The data are obtained from Health Care Investment Analysts. A generalized translog cost function is used to derive factor share equations for four intermediate groups of inputs used by an HMO: physician services, other medical provider services, hospital services and administrative services. We estimate the system of annual factor shares using seemingly unrelated regression analysis and find that both plan size and age have a significantly positive effect on the level of plan expenditure on physicians, other medical providers and hospitals. Examination of the changes in factor shares over time, however, indicates that large changes in membership have no significant effect on the amount of resources dedicated to physicians. Only hospitals see a significant increase in the change in factor share at the expense of administrative services.
Handle: RePEc:nbr:nberwo:6423
Template-Type: ReDIF-Paper 1.0
Title: The Emergence of the Euro as an International Currency
Classification-JEL: F3; F4
Author-Name: Richard Portes
Author-Person: ppo132
Author-Name: Helene Rey
Author-Person: pre8
Note: IFM
Number: 6424
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6424
File-URL: http://www.nber.org/papers/w6424.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, Vol. 26, no. 2 (April 1998): 307-332.
Abstract: The European Union will enter Stage Three of Economic and Monetary Union (EMU) in 1999. The development of euro financial markets and thickness externalities in the use of the euro as a means of payment will be the major factors determining the importance of the euro as an international currency. As euro securities markets become deeper and more liquid and transactions costs fall, euro assets will become more attractive, and the use of the euro as a vehicle currency will expand; the two effects interact, as we demonstrate. We use a three-region world model as a framework for alternative steady-state scenarios. With forex and securities market data, we assess the plausibility of those scenarios and the implications for economic efficiency (welfare). We find that the euro may take on some of the current roles of the dollar. The welfare analysis reveals potential quantitatively significant benefits for the euro area, at the cost of the US and (to a lesser degree) Japan.
Handle: RePEc:nbr:nberwo:6424
Template-Type: ReDIF-Paper 1.0
Title: The Rise of Multiunit Firms in U.S. Manufacturing
Classification-JEL: L1; L2
Author-Name: Sukkoo Kim
Note: DAE
Number: 6425
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6425
File-URL: http://www.nber.org/papers/w6425.pdf
File-Format: application/pdf
Publication-Status: published as Sukkoo Kim, 1999. "The Rise of Multiunit Firms in U.S. Manufacturing," Explorations in Economic History, vol 36(4), pages 360-386.
Abstract: The modern multiunit enterprise has been touted by historians and economic historians as a major and important phase of organizational change and a significant source of growth. However, no systematic record of the prevalence and patterns of multiunit activity has yet been established. This paper provides a systematic record of the rise and spread of the multiunit firm and examines the causes of its rise in U.S. manufacturing using data from the census bureau's enterprise statistics and other census sources.
Handle: RePEc:nbr:nberwo:6425
Template-Type: ReDIF-Paper 1.0
Title: General Equilibrium Treatment Effects: A Study of Tuition Policy
Author-Name: James J. Heckman
Author-Name: Lance Lochner
Author-Person: plo31
Author-Name: Christopher Taber
Note: LS PE
Number: 6426
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6426
File-URL: http://www.nber.org/papers/w6426.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 88, no. 2 (May 1998): 381-386. Published as "Human Capital Formation and General Equilibrium Treatment Effects: A Study of Tax and Tuition Policy", FS, Vol. 20, no. 1 (March 1999): 25-40.
Abstract: This paper defines and estimates general equilibrium treatment effects. The conventional approach in the literature on treatment effects ignores interactions among individuals induced by the policy interventions being studied. Focusing on the impact of tuition policy, and using estimates from our dynamic overlapping generations general equilibrium model of capital and human capital formation, we find that general equilibrium impacts of tuition on college enrollment are an order of magnitude smaller than those reported in the literature on microeconomic treatment effects. The assumptions used to justify the LATE parameter in a partial equilibrium setting do not hold in a general equilibrium setting. Policy changes induce two way flows. We extend the LATE concept to a general equilibrium setting. We present a more comprehensive evaluation to program evaluation by considering both the tax and benefit consequences of the program being evaluated and placing the analysis in a market setting.
Handle: RePEc:nbr:nberwo:6426
Template-Type: ReDIF-Paper 1.0
Title: Hedge Funds and the Asian Currency Crisis of 1997
Author-Name: Stephen J. Brown
Author-Person: pbr268
Author-Name: William N. Goetzmann
Author-Person: pgo59
Author-Name: James Park
Note: AP
Number: 6427
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6427
File-URL: http://www.nber.org/papers/w6427.pdf
File-Format: application/pdf
Publication-Status: published as Brown, Stephen J., William N. Goetzmann and James M. Park. "Hedge Funds And The Asian Currency Crisis," Journal of Portfolio Management, 2000, v26(4,Summer), 95-101.
Abstract: We test the hypothesis that hedge funds were responsible for the crash in the Asian currencies in late 1997 . To do so, we develop estimates of the changing positions of the largest ten currency funds in one currency, the Malaysian ringgit and to a basket of Asian currencies. Our methodology is adapted from the Sharpe's (1992) style analysis approach that decomposes fund returns. We find that the net long or short positions in the ringgit or its correlates did fluctuate dramatically over the last four years. However, these fluctuations were not associated with moves in the exchange rates. The estimated net positions of the major funds were not unusual during the crash period, nor were the profits of the funds during the crisis. In sum, we find no empirical evidence to support the hypothesis that George Soros, or any other hedge fund manager was responsible for the crisis.
Handle: RePEc:nbr:nberwo:6427
Template-Type: ReDIF-Paper 1.0
Title: Social Security: Privatization and Progressivity
Classification-JEL: H55
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Kent A. Smetters
Author-Person: psm21
Author-Name: Jan Walliser
Note: PE
Number: 6428
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6428
File-URL: http://www.nber.org/papers/w6428.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 88, no. 2 (May 1998): 137-141.
Abstract: This paper uses a large-scale overlapping generations model that features intragenerational heterogeneity to show that privatizing the U.S. Social Security System could be done on a progressive basis. We start with a close replica of the current system; specifically, we include Social Security's progressive linkages between taxes paid and benefits received. The paper compares achieving progressivity as part of privatization reform by a) providing a pay-as-you-go-financed minimum benefit to all agents at retirement independent of their contributions and b) matching contributions to private retirement accounts on a progressive basis. Although a pay-as-you-go-financed minimum benefit can enhance progressivity, it comes at the cost of substantially smaller long-run macroeconomic and welfare gains. The reasons are two: First, the ongoing unfunded liability to pay for the minimum benefit is roughly half of the unfunded liability of the current Social Security system. Maintaining this liability limits the effect of privatization on saving and capital accumulation. Second, the tax financing the flat minimum benefit is completely distortionary since the benefit one receives is independent of what one contributes. In contrast, matching worker's contributions on a progressive basis can achieve an equally progressive intragenerational distribution of welfare. But it affords much higher long-run levels of capital, labor supply, output and welfare.
Handle: RePEc:nbr:nberwo:6428
Template-Type: ReDIF-Paper 1.0
Title: Market Potential, Increasing Returns, and Geographic Concentration
Classification-JEL: F12
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: ITI
Number: 6429
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6429
File-URL: http://www.nber.org/papers/w6429.pdf
File-Format: application/pdf
Publication-Status: published as Hanson, Gordon H. "Market Potential, Increasing Returns And Geographic Concentration," Journal of International Economics, 2005, v67(1,Sep), 1-24.
Abstract: In this paper, I examine the relationship between increasing returns to scale and the geographic concentration of economic activity. Using data on U.S. counties, I estimate the structural parameters of the Krugman (1991) model of economic geography. The specification I use, which is derived from the equilibrium conditions of the model, resembles a spatial labor demand function as it is proximity to consumer markets tha determines nominal wages and employment in a given location. Parameter estimates show support for small but significant scale economies; the estimated price-marginal cost ratio is 1.1 in 1980 and 1.2 in 1990. The parameter estimatines also suggest that geographic concentration is a stable feature of the spatial distribution of economic activity. As a prelude to the analysis, I estimate a reduced form of the Krugman model which approximates Harris' (1954) market-potential function. The estimation results show how far demand linkages extend across space and how shocks to income in one location affect wages and employment in other locations. Demand linkages between regions are strong and growing over time, but limited in geographic scope. Simulations based on parameter estimates suggest that a 10% fall in personal income for a region the size of Illinois reduces employment by 6.0-6.4% in counties that are 100 km in distance, with effects declining to zero for counties more than 800 km in distance. The results are consistent with a high volume of trade within cities and between proximate cities.
Handle: RePEc:nbr:nberwo:6429
Template-Type: ReDIF-Paper 1.0
Title: Opting Out of Social Security and Adverse Selection
Classification-JEL: H55
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Kent A. Smetters
Author-Person: psm21
Author-Name: Jan Walliser
Note: PE
Number: 6430
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6430
File-URL: http://www.nber.org/papers/w6430.pdf
File-Format: application/pdf
Abstract: This paper compares two general methods of privatization social security: forced participation in the new privatized system vs. letting people choose between the new system or staying in social security (i.e., opting out). Simulations are performed using a large scale perfect-foresight OLG simulation model that incorporates both intra-generational and inter-generational heterogeneity. The decision of any agent to opt out is endogenous and depends on the opting out decisions of all other agents vis-…-vis factor prices. Various tax bases are considered in financing the transition path, as well as the perceived tax-benefit linkage due to the informational problems inherent in many social security systems. We consider two cases: full and no perception Both methods of privatizing social security lead to large long- run gains for all lifetime income classes despite the intra-generational progressivity of social security, but differ in their short run effects due to adverse selection associated with opting out. Adverse selection is a key reason why many economists oppose opting out and why many plans to privatize social security systems mandate participation. This paper, however, shows this wisdom to be wide of the mark. Opting out is better at protecting the welfare of the initial elderly, even though forced participation protects their real value of social security benefits because opting out continues to collect payroll tax revenue from those who stay with social security. Opting out can mean quicker transition paths by reducing social security wealth faster than forced participation, because many will forfeit their accrued claims as the price of opting out. Yet opting out, along with a decrease in the payroll tax rate is better at shifting the burden to future workers who benefit from privatization.
Handle: RePEc:nbr:nberwo:6430
Template-Type: ReDIF-Paper 1.0
Title: Demographic Differentials in the Demand for Alcohol and Illicit Drugs
Author-Name: Henry Saffer
Author-Person: psa935
Author-Name: Frank Chaloupka
Author-Person: pch236
Note: EH
Number: 6432
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6432
File-URL: http://www.nber.org/papers/w6432.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp.187-211.
Publication-Status: published as Saffer, Henry and Frank Chaloupka. "The Demand For Illicit Drugs," Economic Inquiry, 1999, v37(3,Jul), 401-411.
Publication-Status: published as Demographic Differentials in the Demand for Alcohol and Illicit Drugs, Henry Saffer, Frank J. Chaloupka. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: The purpose of this paper is to estimate demographic differentials in alcohol and illicit drug use, participation, own price effects and cross price effects. This paper uses a data set of over 49,000 individuals from the National Household Survey of Drug Abuse and links drug and alcohol prices and policies to the individual records. The size of this data set makes it possible to estimate use, participation and demand curves for specific demographic groups. Public policies designed to reduce substance abuse have been oriented towards increasing the price of alcohol and illicit drugs. Little, however, is known about the relative responsiveness of various demographic groups to these policies. The data show that racial and ethnic minorities consume more cocaine, but consume less or equal amounts of alcohol, marijuana and heroin than the total population. The results also show a consistent pattern of negative own price effects for alcohol and illicit drugs and complimentarity between alcohol and illicit drugs. The own price effects did not differ substantially between demographic groups suggesting that price policies have a similar effect on all demographic groups. The pattern of complimentarity between alcohol and illicit drugs suggest that alcohol taxes also reduce drug use.
Handle: RePEc:nbr:nberwo:6432
Template-Type: ReDIF-Paper 1.0
Title: Fundamental Tax Reform and Corporate Financial Policy
Classification-JEL: H0
Author-Name: William M. Gentry
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Note: CF PE
Number: 6433
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6433
File-URL: http://www.nber.org/papers/w6433.pdf
File-Format: application/pdf
Publication-Status: published as Tax Policy and the Economy (1999).
Abstract: How tax reform affects corporate financial decisions helps determine whether reform will increase capital formation and simplify the tax system. This paper describes the effects of fundamental tax reform on corporate tax planning and summarizes economists' knowledge of the magnitude of these effects. We analyze income tax reform, consisting of integrating corporate and personal income taxes, and moving to a broad-based consumption tax. As prototypes of reform, we use the U.S. Treasury's Comprehensive Business Income Tax proposal for income tax reform and the Flat Tax for consumption tax reform. The critical difference between these reforms is that the consumption tax gives firms immediate deductions for capital outlays instead of the depreciation allowances of the income tax. Tax reform can affect organizational form, capital structure, and timing decisions. Our major theme is that the two types of reform will have similar effects on business financial decisions because they both integrate corporate and personal income taxes. Both reforms eliminate the tax differentials between corporate and noncorporate businesses and between debt and equity financing. Since both reforms eliminate investor-level taxes on financial assets, they reduce the effects of taxes on timing decisions associated with financial assets, such as the timing of corporate dividends. How taxes affect these financial decisions have important implications for the incidence of the corporate tax. These reforms also greatly alter the current incentives for tax-motivated financial planning.
Handle: RePEc:nbr:nberwo:6433
Template-Type: ReDIF-Paper 1.0
Title: Conditional Market Timing with Benchmark Investors
Author-Name: Connie Becker
Author-Name: Wayne Ferson
Author-Person: pfe32
Author-Name: David Myers
Author-Name: Michael Schill
Note: AP
Number: 6434
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6434
File-URL: http://www.nber.org/papers/w6434.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 52, no. 1 (April 1999): 119-148.
Abstract: This paper tests models of mutual fund market timing that (1) allow the manager's utility function to depend on returns in excess of a benchmark; (2) distinguish timing based on lagged, publicly available information variables from timing based on finer information; and (3) simultaneously estimate the parameters which describe the public information environment, the risk aversion and the precision of the fund's market timing signal. Using a sample of more than 400 U.S. mutual funds for 1976-94, the estimates imply that mutual funds behave as risk averse, benchmark investors. Conditioning on public information variables improves the model specification, and after controlling for the public information we find no evidence that funds have significant market timing ability.
Handle: RePEc:nbr:nberwo:6434
Template-Type: ReDIF-Paper 1.0
Title: The Tax Benefits of Not-for-Profit Hospitals
Classification-JEL: H2; I18
Author-Name: William N. Gentry
Author-Name: John R. Penrod
Note: PE
Number: 6435
Creation-Date: 1998-02
Order-URL: http://www.nber.org/papers/w6435
File-URL: http://www.nber.org/papers/w6435.pdf
File-Format: application/pdf
Publication-Status: published as The Tax Benefits of Not-for-Profit Hospitals, William M. Gentry, John Penrod. in The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, Cutler. 2000
Abstract: This paper investigates three special tax provisions for not-for-profit (NFP) hospitals. First taxes -- both income and property taxes. Second, they issue tax-exempt bonds so lenders do not pay income taxes on interest received. Third, donors deduct charitable contributions from their income tax bases. The rationale for these policies is that the NFP hospitals provide community benefits, the definition of which is often loosely-specified. The value of capital tax exemptions depends on the capital intensity of NFP hospitals, and for income taxes, the hospitals' profitability. For 1995, the aggregate value of the exemption from income taxes is $4.6 billion; the median hospital receives benefits of 1.8 percent of total assets. For the property tax exemption, we estimate an aggregate value of $1.7 billion. The value of the property tax exemption varies across hospitals depending on state and local tax policies and the hospital asset mix. Tax-exempt bonds and deductible contributions are concentrated among larger hospitals. Only 19.7 percent of NFP hospitals had outstanding tax-exempt debt in 1994. Almost half of existing bond debt could be replaced by using hospital endowments; we calculate an annual aggregate benefit of $354 million from using tax-exempt bonds. For charitable contributions, roughly four percent of hospitals receive 71 percent of the contributions. We estimate that the lost tax revenue from these contributions is $1.1 billion in 1994.
Handle: RePEc:nbr:nberwo:6435
Template-Type: ReDIF-Paper 1.0
Title: The Rise and Fall of a Barbarous Relic: The Role of Gold in the International Monetary SYstem
Classification-JEL: E58; F33
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: IFM ME
Number: 6436
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6436
File-URL: http://www.nber.org/papers/w6436.pdf
File-Format: application/pdf
Publication-Status: Published as "Is There a Good Case for a New Bretton Woods International Monetary System?", American Economic Review, Vol. 85, no. 2 (1995): 317-322 .
Abstract: In this paper we analyze the changing role of gold in the international monetary system, in particular the persistence of gold holdings by monetary authorities for 20 years following the breakdown of the Brettone Woods system system and the Second Amendment to the Articles of Agreement of the International Monetary Fund which severed the formal link to gold. We stress four points. First, the gold-exchange standard was a recent arrangement that emerged only around 1900 in response to a set of historically-specific factors which also help to account for it smooth operation. How long those factors would have continued to support it will never be known, due to a great war and then a great depression. Second, a system which relied on inelastically supplied precious metal and elastcially suppled foreign exchange to meet the the world economy's demand for reserves was intrinsically fragile, prone to confidence problems, and a transmission belt for policy mistakes. Third, network externalities, statutory restrictions and habit all contributed to the persistence of the practice of holding gold reserves. But the hold of even factors as powerful as these inevitably weakens with time and the effects of their erosion are reinforced by the rise of international capital mobility, which increases the ease of holding other forms of reserves, both unborrowed and borrowed, and by the shift to greater exchange-rate flexibility, which according to our results diminishes the demand for reserves in general. Fourth and finally, network externalities, in conjunction with central bankers' collective sense of responsibility for the stability of the price of what remains an important reserve asset, suggest that the same factors which have long held in place the practice of holding gold reserves, when they come unstuck, may become unstuck all at once.
Handle: RePEc:nbr:nberwo:6436
Template-Type: ReDIF-Paper 1.0
Title: The Induced Innovation Hypothesis and Energy-Saving Technological Change
Author-Name: Richard G. Newell
Author-Person: pne29
Author-Name: Adam B. Jaffe
Author-Person: pja49
Author-Name: Robert N. Stavins
Author-Person: pst167
Note: PR EEE
Number: 6437
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6437
File-URL: http://www.nber.org/papers/w6437.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. 114, no. 458 (August 1999): 907-940.
Abstract: It follows from Hicks' induced innovation hypothesis that rising energy prices in the last two decades should have induced energy-saving innovation. We formulate the hypothesis concretely using a product-characteristics model of energy-using consumer durables, augmenting Hicks' hypothesis to allow for the possibility that government efficiency standards also induce innovation. Through estimation of characteristics transformation surfaces, we find that technological change reduced the total capital and operating costs of air air conditioning by half and water heating by about one-fifth. Although the rate of overall innovation in these products appears to be independent of energy prices and regulations, the evidence suggests that the direction of innovation has been responsive to energy price changes. In particular, energy price increases induced innovation in a direction that lowered the capital cost tradeoffs inherent in producing more energy-efficiency products. In addition, energy price changes induced changes in the subset of technically feasible models that were offered for sale. Our estimates indicate that about one-quarter to one-half of the improvements in mean energy-efficiency of the menu of new models for these products over the last two decades were associated with rising energy prices since 1973. We also find that this responsiveness to price changes increased substantially after product labeling requirements came into effect, and that minimum efficiency standards had a significant positive effect on average efficiency levels. Nonetheless, a sizeable portion of efficiency improvements in these technologies appears to have been autonomous.
Handle: RePEc:nbr:nberwo:6437
Template-Type: ReDIF-Paper 1.0
Title: Understanding the U.S. Export Boom
Classification-JEL: F10; F14
Author-Name: Andrew B. Bernard
Author-Name: J. Bradford Jensen
Author-Person: pje75
Note: ITI
Number: 6438
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6438
File-URL: http://www.nber.org/papers/w6438.pdf
File-Format: application/pdf
Abstract: U.S. exports grew at a rate of 8.2% per year from 1987-1994, far faster than the economy as a whole or even the manufacturing sector. This paper examines the source of this export boom and argues that the boom itself has been less remarkable for the rate of growth of exports than for the striking increase in export intensity. This increase in export intensity has occurred both in the aggregate and for individual plants across a wide range of industries. Competing explanations for the rise in exports are tested with a comprehensive plant level data set. Changes in exchange rates and rises in foreign income are the dominant sources for the export increase, while productivity increases in U.S. plants play a relatively small role. The results suggest that slower growth rates of U.S. trading partners and an appreciation of the dollar will have strong negative effects on the growth rate of U.S. manufacturing exports.
Handle: RePEc:nbr:nberwo:6438
Template-Type: ReDIF-Paper 1.0
Title: Human Capital and Social Capital: The Rise of Secondary Schooling in America, 1910 to 1940
Classification-JEL: I2; J31
Author-Name: Claudia Goldin
Author-Person: pgo601
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: DAE LS
Number: 6439
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6439
File-URL: http://www.nber.org/papers/w6439.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Interdisciplinary History, Vol. 29 (Spring 1999): 683-723.
Abstract: The United States led all other nations in the development of universal and publicly-funded secondary school education and much of the growth occurred from 1910 to 1940. The focus here is on the reasons for the high school movement' in American generally and why it occurred so early and swiftly in America's heartland - a region we dub the 'education belt.' At the center of this belt' was the state of Iowa and we use information from the unique 1915 Iowa State Census to explore the factors, at both the county and individual levels, that propelled states like Iowa to embrace secondary school education very early. Iowa's small towns, as well as those across the nation, were the loci of the high school movement. In an analysis at the national level, we find that greater homogeneity of income or wealth, a higher level of wealth, greater community stability, and more ethnic and religious homogeneity fostered high school expansion from 1910 to 1930. The pecuniary returns to secondary school education were high - on the order of 12 percent per year in 1914 - providing substantial private incentives for high school attendance. State-level measures of social capital today are strongly correlated with economic and schooling variables from 1900 to 1930. The social capital assembled locally in the early part of the century, which apparently fueled part of the high school movement, continues to contribute to human capital formation.
Handle: RePEc:nbr:nberwo:6439
Template-Type: ReDIF-Paper 1.0
Title: Changing the Price of Pork: The Impact of Local Cost Sharing on Legislators' Demand for Distributive Public Goods
Classification-JEL: H4
Author-Name: Alison F. DelRossi
Author-Name: Robert P. Inman
Note: PE
Number: 6440
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6440
File-URL: http://www.nber.org/papers/w6440.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics (1999).
Abstract: The provision of public services through national legislatures gives legislators the chance to fund locally-beneficial public projects using a shared national tax base. Nationally-financed, local public goods will be purchased at a subsidized price below marginal cost and may be inefficiently too large as a consequence. An important assumption behind this conclusion is that national legislators in fact demand more of the locally-beneficial project as the local price for projects declines. This paper provides the first direct test of this important assumption using legislators' project choices following the passage of the Water Resources Development Act of 1986 (WRDA'86). We find legislators' chosen water project sizes do fall as the local cost share rises, with a price elasticity of demand ranging from -1.3 for flood control and shoreline protection projects to perhaps as high as -2.5 for large navigation projects. The requirement of WRDA'86 that local taxpayers contribute a greater share to the funding of local water projects reduced overall project spending in our sample by 35 percent and the federal outlay for project spending by 48 percent.
Handle: RePEc:nbr:nberwo:6440
Template-Type: ReDIF-Paper 1.0
Title: Capital Inflows into Latin America: A Stop-Go Story?
Classification-JEL: F30; F34
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: IFM ITI
Number: 6441
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6441
File-URL: http://www.nber.org/papers/w6441.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, M. (ed.) International Capital Flows, National Bureau of Economic Research Conference Report Series. Chicago: University of Chicago Press, 1999.
Abstract: This paper deals with Latin America's experience with capital flows during the last decade and a half. It concentrates on a number of issues of increasing interest among academics and international observers, including the effect of capital inflows on domestic savings, the way in which capital mobility affects the ability to engage in independent monetary policy, and the effectiveness of capital controls. It also addresses a number of policy dilemmas that have become topical in light of the recent East Asian currency crises, including questions related to capital account sustainability, the role of domestic banks in the intermediation of capital inflows, and the feasibility of fixed nominal exchange rates in a world of capital mobility. Latin America's experience with capital mobility should provide insights to scholars interested in other regions of the world. Indeed, during the last few years the Latin American countries have been a laboratory of sorts, where almost every possible approach towards capital mobility has been tried.
Handle: RePEc:nbr:nberwo:6441
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory
Classification-JEL: E32; E52
Author-Name: Richard Clarida
Author-Person: pcl69
Author-Name: Jordi Gali
Author-Person: pga43
Author-Name: Mark Gertler
Author-Person: pge11
Note: EFG ME
Number: 6442
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6442
File-URL: http://www.nber.org/papers/w6442.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics, Vol. CXV, issue 1 (2000): 147-180.
Abstract: We estimate a forward-looking monetary policy reaction function for the postwar US economy, pre- and post-October 1979. Our results point to substantial differences in the estimated rule across periods. In particular, interest rate policy in the Volcker-Greenspan period appears to have been much more sensitive to changes in expected inflation than in the pre-Volcker period. We then compare some of the implications of the estimated rules for equilibrium properties of inflation and output, using a simple macroeconomic model. The pre-Volcker rule is shown to be consistent with the possibility of persistent, self-fulfilling fluctuations in inflation and output. In contrast, the Volcker-Greenspan rule is stabilizing.
Handle: RePEc:nbr:nberwo:6442
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Price Changes on Alcohol Consumption in Alcohol-Experienced Rats
Author-Name: Jeffrey K. Sarbaum
Author-Name: Solomon W. Polachek
Author-Name: Norman E. Spear
Note: EH
Number: 6443
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6443
File-URL: http://www.nber.org/papers/w6443.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 75-101.
Publication-Status: published as The Effects of Price Changes on Alcohol Consumption in Alcohol-Experienced Rats, Jeffrey K. Sarbaum, Solomon W. Polachek, Norman E. Spear. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: This paper reports results of two experiments designed to measure how addicted rats (i.e. laboratory rats with previous ethanol exposure via a variant of the Samson ethanol fading technique) respond to changes in the price of ethanol. For both experiments, rats facing a budget constraint choose between two alternative non-ethanol commodities in a morning control session and between ethanol and a non-ethanol commodity in an afternoon session. The results from both experiments shows that economic models of consumer choice are a useful tool to study ethanol and non-ethanol consumption in rats, and that a history of ethanol exposure did not interfere with rats' ability to behave according to economic theory. In the first experiment, rats responded only moderately to a 100% price increase (especially when compared to the response for the non-ethanol commodity during the control session), but more dramatically for a 400% ethanol price increase. However, going back to baseline prices after a prolonged duration of high ethanol prices yields some evidence that ethanol consumption declines below its original levels. In the second experiment rats responded to increased ethanol prices but not to a cue signaling future price increases. Thus, the experiments provide evidence supporting habit formation but not rational addiction as an explanation of ethanol consumption in rats.
Handle: RePEc:nbr:nberwo:6443
Template-Type: ReDIF-Paper 1.0
Title: The Behavioral Economics of Smoking
Author-Name: Warren K. Bickel
Author-Name: Gregory J. Madden
Note: EH
Number: 6444
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6444
File-URL: http://www.nber.org/papers/w6444.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 31-61.
Publication-Status: published as The Behavioral Economics of Smoking, Warren K. Bickel, Gregory J. Madden. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: Evidence that economic principles may be employed to predict the rates at which cigarettes are consumed is presented from several laboratory experiments. In these experiments, cigarette-deprived smokers were required to make a effortful response to earn cigarette puffs. Changing the number of responses required per puff is conceptualized as a price manipulation. Our experiments show that these price increases decrease cigarette consumption and that price elasticity of demand increases with increases in price. When from 74 different smokers, participating in 17 different experiments, in our laboratory were analyzed, five demographic variables were related to rates of earning and smoking cigarettes in the lab: 1) males smoked more than females; 2) less-educated individuals tended to smoke more than better-educated smokers; 3) higher rates of smoking were observed in individuals with high Fagerström smoke more than heavy drinkers; and 5) unemployed subjects smoked more than employed individuals. Demographic effects on price elasticity did not accord as well with econometric data. Finally, we discuss the ability of behavioral- economic laboratory experiments to model cigarette smoking in the natural economy, and the validity of using these laboratory results as a means of assessing the likely effects of public-policy initiatives. The results from one such experiment are presented that suggest the economic concept of inferior goods may be informative in understanding nicotine-replacement products and the likely effects of differential pricing of cigarettes and these replacement products.
Handle: RePEc:nbr:nberwo:6444
Template-Type: ReDIF-Paper 1.0
Title: Cyclical Movements in Wages and Consumption in a Bargaining Model of Unemployment
Classification-JEL: E24; E21
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Note: EFG LS ME
Number: 6445
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6445
File-URL: http://www.nber.org/papers/w6445.pdf
File-Format: application/pdf
Abstract: This paper considers a model where individual workers bargain with firms over their wages and where their bargaining power is so strong that some workers are unemployed. The result is that an increase in the elasticity of demand facing individual firms raises employment (as in the case where the labor market clears) but that wages rise only modestly. In fact, consistent with the findings of Wilson (1997), some job-specific wages actually fall. Nonetheless, average wages may rise either because wages of non-rationed workers rise or because there is cyclical upgrading of jobs. Assuming that workers are also rationed in financial markets, the increase in employment that accompanies the increase in the demand elasticity for individual products also increases consumption substantially. Thus, the model rationalizes the finding that real wages rise less in booms than does consumption. At the same time, the model is consistent with a lack of secular movements in hours and unemployment as well as a secular proportionality of consumption and real wages.
Handle: RePEc:nbr:nberwo:6445
Template-Type: ReDIF-Paper 1.0
Title: Meritocracy in America: An Examination of Wages Within and Across Occupations
Author-Name: John Cawley
Author-Person: pca6
Author-Name: James Heckman
Author-Name: Edward Vytlacil
Author-Person: pvy2
Note: LS
Number: 6446
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6446
File-URL: http://www.nber.org/papers/w6446.pdf
File-Format: application/pdf
Publication-Status: published as Cawley, John, James Heckman and Edward Vytlacil. "Meritocracy in America: An Examination of Wages Within and Across Occupations." Industrial Relations, July 1999, 38(3): 250-296.
Abstract: In The Bell Curve, Herrnstein and Murray argue that the U.S. economy is a meritocracy in which differences in wages (including differences across race and gender) are explained by differences in cognitive ability. In this paper we test their claim for wages conditional on occupation using a simultaneous model of occupation choice and wage determination. Our results contradict Herrnstein and Murray's claim that the U.S. labor market operates only on meritocratic principles.
Handle: RePEc:nbr:nberwo:6446
Template-Type: ReDIF-Paper 1.0
Title: An International Comparison of Generational Accounts
Classification-JEL: H22
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Author-Name: Willi Leibfritz
Note: PE
Number: 6447
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6447
File-URL: http://www.nber.org/papers/w6447.pdf
File-Format: application/pdf
Publication-Status: published as Generational Accounting Around the World. Auerbach, Alan J., Laurence J. Kotlikoff, and Willi Leibfritz, eds., Chicago: The University of Chicago Press, 1999, pp. 73-101.
Publication-Status: published as An International Comparison of Generational Accounts, Laurence J. Kotlikoff, Willi Leibfritz, Willi Leibfritz. in Generational Accounting around the World, Auerbach, Kotlikoff, and Leibfritz. 1999
Abstract: This paper summarizes findings reported in a forthcoming NBER volume entitled 'Generational Accounting Around the World.' This volume includes generational accounting studies for 17 countries. The findings are shocking. The world's leading industrial powers - the U.S., Japan, and Germany - all have severe imbalances in their generational policies. Unless currently living members of these countries pay more in net taxes or unless these countries cut their purchases of goods and services, future Americans, Japanese and Germans will face much higher rates of lifetime net taxation. Leaving current Americans untouched and maintaining the current projected time-path of government purchases will leave future Americans collectively facing about 50% higher net tax rates over their lifetimes than those facing a newborn American based on current U.S. tax-transfer policy. For future Germans, the imbalance means they would face lifetime net tax rates that are roughly twice as high as those now in place. And for future Japanese, policy inaction means lifetime net tax rates that are more than 2.5 times are high as current values. Other countries are also running imbalanced policies. Of the 17 countries studied here, five (Japan, Italy, Germany, The Netherlands, and Brazil) have extreme imbalances. Another five (the United States, Norway, Portugal, Argentina and Belgium) have severe imbalances. Three countries - Australia, Denmark and France - have substantial imbalances. Canada's appears to be essentially in generational balance. The remaining countries - New Zealand, Thailand, and Sweden - have negative imbalances; i.e. their policies, if maintained, would leave future generations facing lower lifetime net tax rates than current current newborns.
Handle: RePEc:nbr:nberwo:6447
Template-Type: ReDIF-Paper 1.0
Title: Contracts, Intellectual Property Rights, and Multinational Investment in Developing Countries
Classification-JEL: F12; F23
Author-Name: James R. Markusen
Author-Person: pma528
Note: ITI
Number: 6448
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6448
File-URL: http://www.nber.org/papers/w6448.pdf
File-Format: application/pdf
Publication-Status: published as Markusen, James R. "Intellectual Property Rights, And Multinational Investment In Developing Countries," Journal of International Economics, 2001, v53(1,Feb), 189-204.
Abstract: The institution and enforcement of property rights and contracts have been an important policy issue for the developing countries, the transition economies, and the developed countries in the 1990s. This has led to the development of a literature on technology transfer and how property rights might affect such transfers and host-country welfare. Much of this literature is non-strategic, with large numbers of northern' innovative firms and southern' imitators, and focusses on endogenous R&D and imitation levels. This paper takes a different and complementary approach, developing a strategic model in which local managers learn the multinational's technology and can defect to start a rival firm. If contract enforcement leads the MNE to shift from exporting to producing inside the host country, both the host country and the MNE are better off. If the MNE had established a subsidiary prior to the establishment of enforcement, the host country is indifferent or worse off by enforcement. In the latter case, rents are transferred from the local manager to the MNE.
Handle: RePEc:nbr:nberwo:6448
Template-Type: ReDIF-Paper 1.0
Title: Would Financial Incentives for Leaving Welfare Lead Some People to Stay on Welfare Longer? An Experimental Evaluation of 'Entry Effects' in the SSP
Classification-JEL: I38
Author-Name: David Card
Author-Person: pca271
Author-Name: Philip K. Robins
Author-Person: pro189
Author-Name: Winston Lin
Note: LS
Number: 6449
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6449
File-URL: http://www.nber.org/papers/w6449.pdf
File-Format: application/pdf
Abstract: The Self-Sufficiency Project (SSP) is a large scale social experiment being conducted in Canada to evaluate the effects of an earnings supplement (or subsidy) for long-term welfare recipients who find a full-time job and leave income assistance. The supplement is available to single parents who have received income assistance for a year or more, and typically doubles the gross take-home pay of recipients. A critical issue in the evaluation of SSP is whether the availability of the supplement would lead some new income assistance recipients to prolong their stay on welfare in order to gain eligibility. A separate experiment was conducted to measure the magnitude of this effect. One half of a group of new applicants was informed that they would be eligible to receive SSP if they stayed on income assistance for a year; the other half was randomly assigned to a control group. Our analysis indicates a very modest exit
Handle: RePEc:nbr:nberwo:6449
Template-Type: ReDIF-Paper 1.0
Title: Assessing the Bias in the Consumer Price Index from Survey Data
Classification-JEL: E31
Author-Name: Alan B. Krueger
Author-Person: pkr63
Author-Name: Aaron Siskind
Note: LS
Number: 6450
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6450
File-URL: http://www.nber.org/papers/w6450.pdf
File-Format: application/pdf
Publication-Status: published as Monthly Labor Review, Vol. 121, no. 4 (April 1998): 24-33.
Abstract: This paper compares self-reported changes in families' financial status to actual changes based on annual time-series data calculated from the PSID. The results indicate that the Consumer Price Index does a reasonably accurate job reconciling self-reported changes in financial status with measured changes in real income. Earlier work by Nordhaus (1998) reached a different conclusion because it did not account for changes in the shape of the income distribution.
Handle: RePEc:nbr:nberwo:6450
Template-Type: ReDIF-Paper 1.0
Title: A Contracting-Theory Interpretation of the Origins of Federal Deposit Insurance
Classification-JEL: G2; N2
Author-Name: Edward J. Kane
Author-Person: pka853
Author-Name: Berry K. Wilson
Note: CF
Number: 6451
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6451
File-URL: http://www.nber.org/papers/w6451.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 30 (August 2000): 51-74.
Publication-Status: published as Edward J. Kane & Berry K. Wilson, 1998. "A contracting-theory intepretation of the origins of Federal deposit insurance," Proceedings, Federal Reserve Bank of Cleveland, issue Aug, pages 573-595.
Abstract: Conventional wisdom holds that the enactment of federal deposit insurance helped small rural banks at the expense of large urban institutions. This paper uses asymmetric information, agency-cost paradigms from corporate finance theory and data on bank stock prices to show how deposit insurance could and did help stockholders of large banks. The broadening stockholder distribution of large banks during the stock market bubble of the late 1920s undermined the efficiency of double liability provisions in controlling incentive conflict among large bank stakeholders. Federal deposit insurance restored depositor confidence by asking government officials to take over and bond the task of monitoring managerial performance and solvency at U.S. banks.
Handle: RePEc:nbr:nberwo:6451
Template-Type: ReDIF-Paper 1.0
Title: Transparency and Credibility: Monetary Policy with Unobservable Goals
Classification-JEL: E52; E58
Author-Name: Jon Faust
Author-Person: pfa9
Author-Name: Lars E. O. Svensson
Author-Person: psv2
Note: ME
Number: 6452
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6452
File-URL: http://www.nber.org/papers/w6452.pdf
File-Format: application/pdf
Publication-Status: published as International Economic Review, Vol. 42, no. 2 (May 2001): 369-397
Abstract: We define and study transparency, credibility, and reputation in a model where the central bank's characteristics are unobservable to the private sector and are inferred from the policy outcome. A low-credibility bank optimally conducts a more inflationary policy than a high-credibility bank, in the sense that it induces higher inflation, but a less expansionary policy in the sense that it induces lower inflation and employment than expected. Increased transparency makes the bank's reputation and credibility more sensitive to its actions. This has a moderating influence on the bank's policy. Full transparency of the central bank's intentions is generally socially beneficial, but frequently not in the interest of the bank. Somewhat paradoxically, direct observability of idiosyncratic central bank goals removes the moderating incentive on the bank and leads to the worst equilibrium.
Handle: RePEc:nbr:nberwo:6452
Template-Type: ReDIF-Paper 1.0
Title: Universal Service in the Digital Age: The Commercialization and Geography of U.S. Internet Access
Author-Name: Shane Greenstein
Author-Person: pgr134
Note: PR
Number: 6453
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6453
File-URL: http://www.nber.org/papers/w6453.pdf
File-Format: application/pdf
Publication-Status: published as Greenstein, Shane. "Building And Delivering The Virtual World: Commercializing Services For Internet Access," Journal of Industrial Economics, 2000, v48(4,Dec), 391-411.
Abstract: Many analysts anticipate a need to redefine universal service to account for Internet-related services and other combinations of communication and computing. This concern motivates a study of the geographic spread of the commercial Internet Service Provider (ISP) market suppliers of Internet access in the United States. The paper argues that two business models presently vie to diffuse commercially-oriented Internet-access across the US. One business model emphasizes a standardized national service, the other a customized local service. The paper then characterizes the location of over 14,000 access points, local phone numbers offered by commercial ISPs in the spring of 1997. Markets differ widely in their structure competitive to unserved. Just under three quarters of the US population has easy access to commercial Internet service providers, while approximately fifteen percent of the US population has costly access. Urban/rural coverage must be understood in the context of the different strategies of national/local providers.
Handle: RePEc:nbr:nberwo:6453
Template-Type: ReDIF-Paper 1.0
Title: A Theory of Wage and Promotion Dynamics in Internal Labor Markets
Author-Name: Robert Gibbons
Author-Person: pgi283
Author-Name: Michael Waldman
Author-Person: pwa40
Note: LS
Number: 6454
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6454
File-URL: http://www.nber.org/papers/w6454.pdf
File-Format: application/pdf
Publication-Status: published as Gibbons, Robert and Michael Waldman. "A Theory Of Wages And Promotion Dynamics Inside Firms," Quarterly Journal of Economics, 1999, v114(4,Nov), 1321-1358.
Abstract: We attempt to explain employment practices in internal labor markets using models that combine job assignment, on-the-job human-capital acquisition, and learning. We show that a framework that integrates these familiar ideas captures a number of recent empirical findings concerning wage and promotion dynamics in internal labor markets, including the following. First, real wage decreases are a minority of the observations, but are not rare, while demotions are very rare. Second, there is significant serial correlation in wage increases. Third, promotions are associated with particularly large wage increases, but these wage increases are small relative to the difference between average wages across levels of a job ladder. Fourth, on average, workers who receive large wage increases early in their stay at one level of a job ladder are promoted more quickly to the next level. Fifth, individuals promoted from one level of a job ladder to the next come disproportionately, but not exclusively, from the top of the lower job's wage distribution (and arrive disproportionately, but not exclusively, at the bottom of the higher job's wage distribution).
Handle: RePEc:nbr:nberwo:6454
Template-Type: ReDIF-Paper 1.0
Title: The Financial Accelerator in a Quantitative Business Cycle Framework
Classification-JEL: E30; E44
Author-Name: Ben Bernanke
Author-Person: pbe55
Author-Name: Mark Gertler
Author-Person: pge11
Author-Name: Simon Gilchrist
Author-Person: pgi28
Note: ME EFG
Number: 6455
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6455
File-URL: http://www.nber.org/papers/w6455.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 78, no. 1 (February 1996): 1-15.
Publication-Status: published as Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
Abstract: This paper develops a dynamic general equilibrium model that is intended to help clarify the role of credit market frictions in business fluctuations, from both a qualitative and a quantitative standpoint. The model is a synthesis of the leading approaches in the literature. In particular, the framework exhibits a financial accelerator,' in that endogenous developments in credit markets work to amplify and propagate shocks to the macroeconomy. In addition, we add several features to the model that are designed to enhance the empirical relevance. First, we incorporate money and price stickiness, which allows us to study how credit market frictions may influence the transmission of monetary policy. In addition, we allow for lags in investment which enables the model to generate both hump-shaped output dynamics and a lead-lag relation between asset prices and investment, as is consistent with the data. Finally, we allow for heterogeneity among firms to capture the fact that borrowers have differential access to capital markets. Under reasonable parametrizations of the model, the financial accelerator has a significant influence on business cycle dynamics.
Handle: RePEc:nbr:nberwo:6455
Template-Type: ReDIF-Paper 1.0
Title: Indeterminacy, Bubbles, and the Fiscal Theory of Price Level Determination
Classification-JEL: E5; E6
Author-Name: Bennett T. McCallum
Note: EFG ME
Number: 6456
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6456
File-URL: http://www.nber.org/papers/w6456.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 47, no. 1 (February 2001): 19-30
Abstract: The recently-developed fiscal theory of price level determination contends that there is an important class of policy rules in which there exists a unique rational expectations solution that shows the price level to be dependent upon fiscal policy and independent of monetary variables. The present paper argues, however, that there is an alternative solution to these models that has entirely traditional (or monetarist') properties. This latter solution is perhaps the more plausible since it is the solution that is typically regarded as the bubble-free fundamentals' solution. The argument involves a respecification of feasible instrument variables.
Handle: RePEc:nbr:nberwo:6456
Template-Type: ReDIF-Paper 1.0
Title: Household Savings in Transition Economies
Author-Name: Cevdet Denizer
Author-Name: Holger C. Wolf
Note: IFM
Number: 6457
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6457
File-URL: http://www.nber.org/papers/w6457.pdf
File-Format: application/pdf
Publication-Status: Published as "Large-Scale Privatization in Transition Economies", American Economic Review, Vol. 83, no. 5 (1993): 1199-1210.
Abstract: Based on matching household surveys for three central European countries, Bulgaria, Hungary and Poland, we explore the determinants of household saving rates in transition economies. We find savings rates to increase strongly in relative income and to be significantly higher for households owning few of the standard consumer durables, consistent with anticipatory savings prior to durable purchases in the absence of retail credit markets. The influence of demographic factors broadly matches earlier findings for developing countries. Perhaps surprisingly, variables associated with the position of the household in the transition process, notably the sector of employment, plays no significant role in determining savings rates.
Handle: RePEc:nbr:nberwo:6457
Template-Type: ReDIF-Paper 1.0
Title: Global Income Divergence, Trade and Industrialization: The Geography of Growth Take-Offs
Author-Name: Richard E. Baldwin
Author-Person: pba124
Author-Name: Philippe Martin
Author-Person: pma588
Author-Name: Gianmarco I. P. Ottaviano
Author-Person: pot15
Note: ITI
Number: 6458
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6458
File-URL: http://www.nber.org/papers/w6458.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Richard E., Philippe Martin and Gianmarco I. P. Ottaviano. "Global Income Divergence, Trade, And Industrialization: The Geography Of Growth Take-Offs," Journal of Economic Growth, 2001, v6(1,Mar), 5-37.
Abstract: This paper takes a step towards formalizing the theoretical interconnections among four post-Industrial Revolution phenomena - the industrialization and growth take-off of rich northern' nations, massive global income divergence, and rapid trade expansion. Specifically, we present a stages-of-growth model in which the four phenomena are jointly endogenous and all are triggered by a gradual fall in the cost of doing business internationally. In the first stage, while trade costs are high, industry is dispersed and growth is low. In the second stage, the north industrializes rapidly, growth takes off and the south diverges. In the third stage, high growth becomes self sustaining. The model shows under which conditions, in a fourth stage, the south can quickly industrialize and converge.
Handle: RePEc:nbr:nberwo:6458
Template-Type: ReDIF-Paper 1.0
Title: Agglomeration and Endogenous Capital
Author-Name: Richard E. Baldwin
Author-Person: pba124
Note: ITI
Number: 6459
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6459
File-URL: http://www.nber.org/papers/w6459.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol.43, no.2 (1999): 253-280.
Abstract: The new' economic geography focuses on the footloose-labor and the vertically-linked-industries models. Both are complex since they feature demand-linked and cost-linked agglomeration forces. I present a simpler model where agglomeration stems from demand-linked forces arising from endogenous capital with forward-looking agents. The model's simplicity permits many analytic results (rare in economic geography). Trade-cost levels that trigger catastrophic agglomeration are identified analytically, liberalization between almost equal-sized nations is shown to entail near-catastrophic' agglomeration, and Krugman's informal stability test is shown to be equivalent to formal tests in a fully specified dynamic model.
Handle: RePEc:nbr:nberwo:6459
Template-Type: ReDIF-Paper 1.0
Title: The Institutional Context and Manufacturing Performance: The Case of the U.S. Defense Industrial Network
Author-Name: Maryellen R. Kelley
Author-Name: Cynthia R. Cook
Note: PR
Number: 6460
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6460
File-URL: http://www.nber.org/papers/w6460.pdf
File-Format: application/pdf
Abstract: U.S. manufacturing firms that make sophisticated weapons systems for the Pentagon are subject to an unusual regulatory regime that obligates them to volunteer' information on their business practices to the government and to prime contractors as a condition of their special relationship with the government. Within this organizational community information sharing with and assistance to other firms have come to be viewed as an ordinary obligation - i.e., a condition of citizenship. This cooperative learning environment is indicative of a collaborative manufacturing network that enables member organizations to learn quickly about relevant process technology innovations and to implement them effectively. We find that defense contractors learn about information technology applications more quickly than enterprises outside the network. Moreover, learning advantages are not confined to transactions specific to the Pentagon, but benefit the non-military operations of the networked enterprises as well.
Handle: RePEc:nbr:nberwo:6460
Template-Type: ReDIF-Paper 1.0
Title: The Value of MFN Treatment
Author-Name: Madanmohan Ghosh
Author-Name: Carlo Perroni
Author-Person: ppe298
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI
Number: 6461
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6461
File-URL: http://www.nber.org/papers/w6461.pdf
File-Format: application/pdf
Abstract: We discuss most favoured nation (MFN) treatment in trade agreements, suggesting that its value to individual countries depends critically on the relevant model solution concept used to evaluate it. We analyze both rights to MFN treatment in foreign markets, and the obligation to grant MFN treatment in home markets; the heart of the post-war GATT/WTO multilateral trading system. In a traditional competitive equilibrium framework, MFN gives benefits to small countries in being able to free ride on bilateral tariff concessions exchanged between larger countries in GATT/WTO negotiating rounds. In a non-cooperative Nash equilibrium framework, MFN restrains retaliatory actions to be non-discriminatory. In a co-operative bargaining framework in which trade policies are jointly set, MFN changes the threat point and hence affects the bargaining solution. We use a calibrated numerical model of global trade in which we compute all three solution concepts and compare MFN and non MFN equilibria for each. We use the GTAP (1992) data base, concluding that quantitatively the most significant effect of MFN seems to be in its impact on bargaining rather than on competitive and Nash equilibrium solutions; being beneficial to smaller countries.
Handle: RePEc:nbr:nberwo:6461
Template-Type: ReDIF-Paper 1.0
Title: Tax Policy and Human Capital Formation
Author-Name: James J. Heckman
Author-Name: Lance Lochner
Author-Person: plo31
Author-Name: Christopher Taber
Note: PE
Number: 6462
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6462
File-URL: http://www.nber.org/papers/w6462.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 88, no. 2 (May 1998): 293-297. Published as "Human Capital Formation and General Equilibrium Treatment Effects: A Study of Tax and Tuition Policy", FS, Vol. 20, no. 1 (March 1999): 25-40.
Abstract: Missing from recent discussions of tax reform is any systematic analysis of the effects of various tax proposals on skill formation. This gap in the literature in empirical public finance is due to the absence of any empirically based general equilibrium models with both human capital formation and physical capital formation that are consistent with observations on modern labor markets. This paper is a progress report on our ongoing research on formulating and estimating dynamic general equilibrium models with endogenous heterogeneous human capital accumulation. Our model explains many features of rising wage inequality in the U.S. economy (James Heckman, Lance Lochner and Christopher Taber, 1998). In this paper, we use our model to study the impacts on skill formation of proposals to switch from progressive taxes to flat income and consumption taxes. For the sake of brevity, we focus on steady states in this paper, although we study both transitions and steady states in our research.
Handle: RePEc:nbr:nberwo:6462
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Analysis of the Potential for Market Power in California's Electricity Industry
Author-Name: Severin Borenstein
Author-Person: pbo78
Author-Name: James Bushnell
Author-Person: pbu181
Note: IO
Number: 6463
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6463
File-URL: http://www.nber.org/papers/w6463.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Industrial Economics, Vol. 47 (September 1999).
Abstract: We use demand and plant-level cost data to simulate competition in a restructured California electricity market. This approach recognizes that firms might have an incentive to restrict output in order to raise price and enables us to explicitly analyze each firm's ability to do so. We find that, under the current structure of generation ownership, there is potential for significant market power in high demand hours. During some months, congestion over Path 15, the primary in-state north-south transmission line, exacerbates the market power potential in northern California. While these results make deregulation of generation less attractive than if there were no market power, they do not suggest that deregulation would be a mistake. Nearly all markets exhibit some degree of market power. We find that the levels of hydroelectric production and the elasticity of demand are two of the most important factors in determining the severity of market power, having greater impact on equilibrium prices than the proposed divestitures of California's largest producers. These results indicate that policies promoting the responsiveness of both consumers and producers to price fluctuations can have a significant effect on reducing the market power problem.
Handle: RePEc:nbr:nberwo:6463
Template-Type: ReDIF-Paper 1.0
Title: The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting
Author-Name: Lawrence H. Goulder
Author-Name: Ian W. H. Parry
Author-Person: ppa261
Author-Name: Roberton C. Williams III
Author-Person: pwi38
Author-Name: Dallas Burtraw
Author-Person: pbu91
Note: PE
Number: 6464
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6464
File-URL: http://www.nber.org/papers/w6464.pdf
File-Format: application/pdf
Publication-Status: published as Goulder, Lawrence H., Ian W. H. Parry, Roberton C. Williams, III and Dallas Burtraw. "The Cost-Effectiveness Of Alternative Instruments For Environmental Protection In A Second-Best Setting," Journal of Public Economics, 1999, v72(3,Jun), 329-360.
Abstract: This paper uses analytical and numerical general equilibrium models to study the costs of achieving pollution reductions under a range of environmental policy instruments in a second-best setting with pre-existing factor taxes. We compare the costs and efficiency impacts of emissions taxes, emissions quotas, fuels taxes, performance standards, and mandated technologies, and explore how costs change with the magnitude of pre-existing taxes and the extent of pollution abatement. We find that the presence of distortionary taxes raises the costs of pollution abatement under each instrument relative to its costs in a first-best world. This extra cost is an increasing function of the magnitude of pre-existing tax rates. For plausible values of pre-existing tax rates and other parameters, the cost increase for all policies is substantial (35 % or more). The impact of pre-existing taxes is large for non-auctioned emissions quotas, the cost increase can be several hundred percent. Earlier work on instrument choice emphasized the potential reduction in compliance cost from converting fixed emissions quotas into tradeable emissions permits. Our results show the regulator's decision to auction or grandfather emissions rights can have important cost impacts. Similarly, the choice of how to recycle revenues from environmentally motivated taxes can be as important to cost as whether the tax takes the form of an emissions tax or fuel tax, particularly when modest emissions reductions are involved. In both first- and second-best settings, the cost differences across instruments depend on the extent of pollution abatement under consideration. Total abatement costs differ markedly at low levels of abatement. Strikingly, for all instruments except the fuel tax these costs converge to the same value as abatement levels approach 100 percent.
Handle: RePEc:nbr:nberwo:6464
Template-Type: ReDIF-Paper 1.0
Title: Transition to and Tax Rate Flexibility in a Cash-Flow Type Tax
Author-Name: David F. Bradford
Note: PE
Number: 6465
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6465
File-URL: http://www.nber.org/papers/w6465.pdf
File-Format: application/pdf
Publication-Status: published as Transition to and Tax-Rate Flexibility in a Cash-Flow-Type Tax, David F. Bradford. in Tax Policy and the Economy, Volume 12, Poterba. 1998
Abstract: The difficulty of making a transition from an income-type to a consumption-type tax is often cited as an obstacle to such a change in policy. The problem is the double taxation of 'old savings' or 'old capital.' A person who has accumulated wealth under an income tax will be hit with an extra tax on the consumption financed by that accumulation with a shift to a consumption tax. Such a transition effect raises issues of equity, political feasibility and efficiency. In the typical implementation of a consumption tax, the same sorts of transition phenomena associated with a shift from an income tax come from any change in the rate of tax. Introduction of a consumption tax is the same as raising the rate of consumption tax from zero to whatever positive rate is envisioned for the new system. Consequently, the problem of transition to a consumption tax generalizes to the problem of changing the rate of consumption tax. In this paper I consider the design of rules that render consumption taxes in the family of business cash-flow taxes immune to the incentive and incidence effects of changes in rate of tax. I show that two relatively simple approaches are available to deal with it: grandfathering the tax rate applicable to a given period's investment or substituting depreciation allowances for the usual expending of investment, coupled with a credit for the equivalent of interest on the undepreciated investment stock. A cost of this approach is its requirement to identify tru depreciation and, in the second case, the real rate of interest.
Handle: RePEc:nbr:nberwo:6465
Template-Type: ReDIF-Paper 1.0
Title: Consumption Demand
Classification-JEL: E2
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Note: EFG
Number: 6466
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6466
File-URL: http://www.nber.org/papers/w6466.pdf
File-Format: application/pdf
Abstract: Consumption is the largest component of GDP. Since the 1950s, the life cycle and the permanent income models have constituted the main analytical tools to the study of consumption behavior, both at the micro and at the aggregate levels. Since the late 1970s the literature has focused on versions of the model that incorporate the hypothesis of Rational Expectations and a rigorous treatment of uncertainty. In this paper, I survey the most recent contribution and assess where the life cycle model stands. My reading of the evidence and of recent developments leads me to stress two points: (i) the model can only be tested and estimated using a flexible specification of preferences and individual level data; (ii) it is possible to construct versions of the model that are not rejected by the data. One of the main problems of the approach used in the literature to estimate preferences is the lack of a consumption function.' A challenge for future research is to use preference parameter estimates to construct such functions.
Handle: RePEc:nbr:nberwo:6466
Template-Type: ReDIF-Paper 1.0
Title: Stock Repurchases and Incentive Compensation
Classification-JEL: G35; G30
Author-Name: Christine Jolls
Note: CF
Number: 6467
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6467
File-URL: http://www.nber.org/papers/w6467.pdf
File-Format: application/pdf
Abstract: A longstanding puzzle in corporate finance is the rise of stock repurchases as a means of distributing earnings to shareholders. While most attempts to explain repurchase behavior focus on the incentives of firms, this paper focuses on the incentives of the agents who run firms, as determined by those agents' compensation packages. The increased use of repurchases coincided with an increasing reliance on stock options to compensate top managers, and stock options encourage managers to choose repurchases over conventional dividend payments because repurchases, unlike dividends, do not dilute the per-share value of the stock. Consistent with the stock option hypothesis, I find that firms which rely heavily on stock-option-based compensation are significantly more likely to repurchase their stock than firms which rely less heavily on stock options to compensate their top executives. I find no such relationship between repurchases and restricted stock, an alternative form of stock-based compensation that, unlike stock options, is not diluted by dividend payments. These findings have implications for the study of other puzzles concerning firms' payout behavior, and for the study of the effects of executive compensation packages on managerial incentives.
Handle: RePEc:nbr:nberwo:6467
Template-Type: ReDIF-Paper 1.0
Title: Current Account Sustainability in Transition Economies
Classification-JEL: F32; F34
Author-Name: Nouriel Roubini
Author-Person: pro145
Author-Name: Paul Wachtel
Author-Person: pwa884
Note: IFM
Number: 6468
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6468
File-URL: http://www.nber.org/papers/w6468.pdf
File-Format: application/pdf
Publication-Status: published as Skreb, M. and M. Blejer (eds.) Balance of Payments, Exchange Rates and Competitiveness in Transition Economies. 1999.
Abstract: This paper presents an analysis of the sustainability of current account deficits in transition economies in Central and Eastern Europe. These countries have experienced large current account imbalances in the transition to a market economy. We consider a wide range of macroeconomic factors that may indicate whether such imbalances are sustainable. We find that capital inflows and the choice of regimes of fixed exchange rates have led to a real exchange rate appreciation in many countries; this in turn has led to a significant loss of competitiveness and a worsening of the current account. In several countries there are a number of other indicators that point to a fragility of the external balance: weak banking and financial systems, large fiscal imbalances, low foreign reserves, increasing foreign debt and foreign debt-burden ratios. However, short-term portfolio investments (so-called hot money' inflows) are still relatively small in the transition economies examined, thus limiting the possibility of sudden speculative capital outflows.
Handle: RePEc:nbr:nberwo:6468
Template-Type: ReDIF-Paper 1.0
Title: Financial Fragility and the Exchange Rate Regime
Classification-JEL: F3; E5
Author-Name: Roberto Chang
Author-Person: pch80
Author-Name: Andres Velasco
Note: IFM
Number: 6469
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6469
File-URL: http://www.nber.org/papers/w6469.pdf
File-Format: application/pdf
Publication-Status: published as Chang, Roberto and Andres Velasco. "Financial Fragility And The Exchange Rate Regime," Journal of Economic Theory, 2000, v92(1,May), 1-34.
Abstract: We study financial fragility, exchange rate crises and monetary policy in an open economy model in which banks are maturity transformers as in Diamond-Dybvig. The banking system, the exchange rate regime, and central bank credit policy are seen as parts of a mechanism intended to maximize social welfare; if the mechanism fails, banking crises and speculative attacks become possible. We compare currency boards, fixed rate and flexible rates, with and without a lender of last resort. A currency board cannot implement a socially optimal allocation; in addition, under a currency board bank runs are possible. A fixed exchange rate system may implement the social optimum but is more prone to bank runs and exchange rate crises than a currency board. Larger capital inflows enhance welfare if the no-run equilibrium occurs, but may also render the economy more vulnerable to self-fulfilling runs. A flexible exchange rate system implements the social optimum and eliminates runs, provided the exchange rate and central bank lending policies of the central bank are appropriately designed.
Handle: RePEc:nbr:nberwo:6469
Template-Type: ReDIF-Paper 1.0
Title: Government Debt
Classification-JEL: E6; H6
Author-Name: Douglas W. Elmendorf
Author-Person: pel79
Author-Name: N. Gregory Mankiw
Note: PE EFG
Number: 6470
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6470
File-URL: http://www.nber.org/papers/w6470.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of Macroeconomics, Vol. 1, Taylor, J.B. and M. Woodford, eds., Elsevier Science, B.V., 1999, pp. 1615-1699.
Abstract: This paper surveys the literature on the macroeconomic effects of government debt. It begins by discussing the data on debt and deficits, including the historical time series, measurement issues, and projections of future fiscal policy. The paper then presents the conventional theory of government debt, which emphasizes aggregate demand in the short run and crowding out in the long run. It next examines the theoretical and empirical debate over the theory of debt neutrality called Ricardian equivalence. Finally, the paper considers the various normative perspectives about how the government should use its ability to borrow.
Handle: RePEc:nbr:nberwo:6470
Template-Type: ReDIF-Paper 1.0
Title: Is the Price Level Determined by the Needs of Fiscal Solvency?
Classification-JEL: E31; E42
Author-Name: Matthew B. Canzoneri
Author-Person: pca260
Author-Name: Robert E. Cumby
Author-Person: pcu115
Author-Name: Behzad T. Diba
Author-Person: pdi273
Note: ME
Number: 6471
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6471
File-URL: http://www.nber.org/papers/w6471.pdf
File-Format: application/pdf
Publication-Status: published as Canzoneri, Matthew B., Robert E. Cumby and Behzad T. Diba. "Is The Price Level Determined By The Needs Of Fiscal Solvency?," American Economic Review, 2001, v91(5,Dec), 1221-1238.
Abstract: A new theory of price determination suggests that if primary surpluses are independent of the level of debt, the price level has to jump' to assure fiscal solvency. In this regime (which we call Fiscal Dominant), monetary policy has to work through seignorage to control the price level. If on the other hand primary surpluses are expected to respond to the level of debt in a way that assures fiscal solvency (a regime we call Money Dominant), then the price level is determined in more conventional ways. In this paper we develop testable restrictions that differentiate between the two regimes. Using post war data, we present what we think is overwhelming evidence that the United States is in a Money Dominant regime; even the post Reagan data (1980 to 1995) seem to support that contention.
Handle: RePEc:nbr:nberwo:6471
Template-Type: ReDIF-Paper 1.0
Title: The Uneasy Case for the Priority of Secured Claims in Bankruptcy: Further Thoughts and a Reply to Critics
Classification-JEL: G33; K22
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Author-Name: Jesse Fried
Note: LE
Number: 6472
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6472
File-URL: http://www.nber.org/papers/w6472.pdf
File-Format: application/pdf
Publication-Status: published as Cornell Law Review Vol. 82, No. 6, pp. 1279-1348 (1997)
Publication-Status: published as Lucian Arye Bebchuk & Jesse M. Fried, 1996. "The Uneasy Case for the Priority of Secured Claims in Bankruptcy," The Yale Law Journal, vol 105(4).
Abstract: In an earlier article, The Uneasy Case for the Priority of Secured Claims in Bankruptcy,' 105 Yale Law Journal 857 (1996), we suggested that the case for a full priority of secured claims in bankruptcy is an uneasy one. In this paper, we address various reactions and objections to our analysis that have been offered by subsequent work. We also further develop some of the main elements of the analysis in our earlier article with respect to both our analysis of the comparative merits of full and partial priority and our analysis of how a partial priority regime could be implemented. The analysis confirms our earlier conclusion that the case for a full priority of secured claims in bankruptcy is an uneasy one.
Handle: RePEc:nbr:nberwo:6472
Template-Type: ReDIF-Paper 1.0
Title: Chapter 11
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Note: CF LE
Number: 6473
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6473
File-URL: http://www.nber.org/papers/w6473.pdf
File-Format: application/pdf
Publication-Status: published as The New Palgrave Dictionary of Economics and the Law (1998), pp. 219-224
Abstract: This essay surveys the literature on Chapter 11. I start by discussing the objectives by which the performance of corporate reorganization rules is to be judged and then consider the fundamental problem of valuation that arises in corporate reorganization. I next turn to examine the performance of the prevailing bargaining-based approach to reorganization, both in terms of its effect on total reorganization value and in terms of its effect on the division of this value. Finally, I examine the two alternative approaches that have been put forward to the approach of existing rules -- that of auctioning the reorganized company's asset (put forward by Baird (1986) and Jensen (1991)) and that of using options to reorganize the company's ownership (put forward by Bebchuk (1988)).
Handle: RePEc:nbr:nberwo:6473
Template-Type: ReDIF-Paper 1.0
Title: Negative Expected Value Suits
Author-Name: Lucian Arye Bebchuk
Author-Person: pbe72
Note: LE
Number: 6474
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6474
File-URL: http://www.nber.org/papers/w6474.pdf
File-Format: application/pdf
Publication-Status: published as The New Palgrave Dictionary of Economics and the Law (1998), pp. 551-554
Abstract: When the cost of a suit exceeds the expected judgment, will a potential plaintiff be able to extract any amount in settlement from the defendant? If so, what is the source of the plaintiff's ability to extract a settlement? This essay discusses existing theories as to why (and when) plaintiffs with negative-expected-value (NEV) suits can extract a settlement amount from the defendant. Among the theories discussed are ones that focus on informational issues and ones that focus on the way in which the parties' litigation costs are expected to be distributed over time.
Handle: RePEc:nbr:nberwo:6474
Template-Type: ReDIF-Paper 1.0
Title: Total Factor Productivity Growth in the Canadian Life Insurance Industry: 1979-1989
Classification-JEL: D24; G22
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Note: PR
Number: 6475
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6475
File-URL: http://www.nber.org/papers/w6475.pdf
File-Format: application/pdf
Publication-Status: published as Jeffrey I. Bernstein, 1999. "Total Factor Productivity Growth in the Canadian Life Insurance Industry: 1979-1989," The Canadian Journal of Economics / Revue canadienne d'Economique, vol 32(2).
Abstract: This is the first paper to directly measure and decompose total factor productivity growth (TFPG) for the Canadian life insurance industry. TFPG averaged 1.0 percent per year over the period from 1979 to 1989, thereby outperforming many manufacturing industries. The rate of TFPG was 0.2 percent in the first half of the 1980's due to the depressed economy and 1.9 percent in the last half of the decade. Technological change was the major element contributing to TFPG. There was a large residual element in the decomposition of TFPG, reflecting possible adjustment costs associated with new information processing technologies.
Handle: RePEc:nbr:nberwo:6475
Template-Type: ReDIF-Paper 1.0
Title: Asset Pricing when Risk Sharing is Limited by Default
Classification-JEL: G12; D50
Author-Name: Fernando Alvarez
Author-Name: Urban J. Jermann
Author-Person: pje4
Note: AP
Number: 6476
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6476
File-URL: http://www.nber.org/papers/w6476.pdf
File-Format: application/pdf
Publication-Status: published as Alvarez, Fernando and Urban J. Jermann. "Efficiency, Equilibrium, And Asset Pricing With Risk Of Default," Econometrica, 2000, v68(4,Jul), 775-797.
Abstract: We study the asset pricing implications of a multi-agent endowment economy where agents can default on contracts that would leave them otherwise worse off. We specialize and extend the environment studied by Kocherlakota (1995) and Kehoe and Levine (1993) to make it comparable to standard studies of asset pricing. We make contributions along two fronts. First, we extend the characterization of efficient allocations. Second, we present an equilibrium concept with complete markets and with endogenous solvency constraints. These solvency constraints are such as to prevent default at the cost of reduced risk sharing. We show a version of the classical welfare theorems for this equilibrium definition. We characterize the pricing kernel, and compare it to the one for economies without participation constraints: interest rates are lower and risk premia can be bigger depending on the covariance of the idiosyncratic and aggregate shocks. We show that those agents whose endowment is very similar to the aggregate endowment are irrelevant for asset pricing. In a quantitative example, for reasonable parameter values, the relevant marginal rates of substitution fall within the Hansen-Jagannathan bounds.
Handle: RePEc:nbr:nberwo:6476
Template-Type: ReDIF-Paper 1.0
Title: Incremental Trade and Endogenous Growth: A q-Theory Approach
Classification-JEL: F43; F13
Author-Name: Richard E. Baldwin
Author-Person: pba124
Author-Name: Rikard Forslid
Note: ITI
Number: 6477
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6477
File-URL: http://www.nber.org/papers/w6477.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Richard E. and Rikard Forslid. "Incremental Trade Policy And Endogenous Growth," Journal of Economic Dynamics and Control, 1999, v23(5-6,Apr), 797-822.
Abstract: Most trade-and-growth studies focus on the growth effects of autarky-to-free-trade changes, rather than those of incremental liberalizations. This paper characterizes how the strength and sign of openness-and-growth links depend upon the nature and level of trade barriers. For most types of trade barriers, we find that liberalization raises or lowers growth depending upon the initial level of the barrier. This suggests empirical studies that pool data from high and low protection nations are mis-specified, and that policy lessons based on autarky-to-free-trade results are of limited use to policymakers.
Handle: RePEc:nbr:nberwo:6477
Template-Type: ReDIF-Paper 1.0
Title: Social Security Benefits of Immigrants and U.S. Born
Classification-JEL: J14; J26
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 6478
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6478
File-URL: http://www.nber.org/papers/w6478.pdf
File-Format: application/pdf
Publication-Status: published as Issues in The Economics Immigration, Borjas, George, ed., Chicago: University of Chicago Press, 2000, pp. 309-350.
Publication-Status: published as Social Security Benefits of Immigrants and U.S. Born, Alan L. Gustman, Thomas L. Steinmeier . in Issues in the Economics of Immigration, Borjas. 2000
Abstract: For each year of work under the Social Security System, immigrants realize higher benefits than U.S. born, even when their earnings are identical in all years the immigrant has been in the U.S.. Two features of the social security benefit calculation are responsible: the social security benefit formula transfers benefits toward those with low lifetime covered earnings, and all years an immigrant spends outside the US are treated as years of zero income. Immigrants with high earnings who have worked in the U.S. for only a 10-20 years benefit most from these procedures. If instead earnings were averaged only over the years an immigrant resides in the U.S., and benefits prorated immigrants would receive the same return on their social security taxes as US born who have the same earnings in each year. It is difficult to justify the current procedures determining benefits for immigrants on the basis of income or wealth differences between US and foreign born. Among HHRS respondents, mean total wealth of immigrants is 92% of the mean total wealth of US born, while the mean income of immigrants exceeds the mean income of US born by 3%. But income and wealth are less evenly distributed among foreign born than US born. Depending on whether the appropriate period for calculating benefits is taken to be 35 or 40 years, prorating would reduce the present value of benefit payments to the cohort of immigrants born from 1932-1941 (91% of the HRS cohort) by $7.5 billion or $15 billion respectively. The 1932-1941 cohort represents 1/7 of all foreign born who are now 25-64. We also ask whether, from a selfish financial viewpoint, US born participants would have preferred to have immigrants from the HRS cohort included in social security. The answer is yes. Despite their better deal, most immigrants in the HRS cohort will pay more in taxes than they will receive in benefits, although just barely.
Handle: RePEc:nbr:nberwo:6478
Template-Type: ReDIF-Paper 1.0
Title: Illegal Child Labor in the United States: Prevalence and Characteristics
Classification-JEL: J13; J18
Author-Name: Douglas Kruse
Author-Person: pkr335
Author-Name: Douglas Mahony
Note: LS
Number: 6479
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6479
File-URL: http://www.nber.org/papers/w6479.pdf
File-Format: application/pdf
Publication-Status: published as Kruse, Douglas L. and Douglas Mahony. "Illegal Child Labor In The United States: Prevalence And Characteristics," International Labor Relations Review, 2000, v54(1,Oct), 17-40.
Abstract: This study provides the first comprehensive estimates of children and youth working under conditions that violate federal and state child labor laws. Using the CPS, NLS, and other sources, it is estimated that 148,000 minors are employed illegally in an average week working too many hours or in hazardous occupations and 290,000 are employed illegally at some point during a year. The total number of hours worked illegally is about 113 million per year, for which these minors are paid over $560 million. Whites, males, and 15-year-olds are the most likely to be working in violation of child labor laws. Youths working illegally in hazardous jobs earn on average $1.38 per hour less than legal young adults in the same occupations, which combined with the savings from employing youths for excessive hours adds up to a total employer cost savings of roughly $155 million per year. In addition to raising important policy concerns about the health and well-being of these youths, the findings make a case for the development of high-quality employment data on children and youths, to improve estimates of illegal employment and study its effects.
Handle: RePEc:nbr:nberwo:6479
Template-Type: ReDIF-Paper 1.0
Title: Thresholds and Context Dependence in Growth
Author-Name: Atish R. Ghosh
Author-Person: pgh16
Author-Name: Holger Wolf
Note: EFG
Number: 6480
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6480
File-URL: http://www.nber.org/papers/w6480.pdf
File-Format: application/pdf
Abstract: Is there a single recipe for fast growth? Much of the recent cross-section empirical growth literature implicitly assumes there is. Yet both development and growth theory as well as casual empiricism suggest pervasive non-linearities in the growth process. Low inflation may grease the wheels of commerce' while high inflation may arrest them, secondary education may be crucial for promoting growth in open economies, but be largely ineffective in war-ravaged countries, etc. Such threshold effects and context dependence are difficult to capture in standard multivariate regressions, but are readily identified by classification tree analysis, undertaken here. Our results suggest that both types of non-linearities are indeed pervasive. The findings go some way towards explaining the limited robustness of cross-country growth regressions, and argue against the existence of a universal growth recipe.
Handle: RePEc:nbr:nberwo:6480
Template-Type: ReDIF-Paper 1.0
Title: Differentiated Products Demand Systems from a Combination of Micro and Macro Data: The New Car Market
Classification-JEL: D4; L9
Author-Name: Steven Berry
Author-Person: pbe18
Author-Name: James Levinsohn
Author-Person: ple386
Author-Name: Ariel Pakes
Author-Person: ppa20
Note: IO
Number: 6481
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6481
File-URL: http://www.nber.org/papers/w6481.pdf
File-Format: application/pdf
Publication-Status: published as Berry, Steven, James Levinsohn and Ariel Pakes. "Differentiated Products Demand Systems From A Combination Of Micro And Macro Data: The New Car Market," Journal of Political Economy, 2004, v112(1,Feb), 68-105.
Abstract: In this paper, we exploit new sources of cross-sectional data to estimate a detailed product-level demand system for new passenger vehicles. We use four data sources: on the characteristics of products, on the attributes of the U.S. population of households, on the match between the first and second vehicle choices of the household, and on the match between households attributes and first choice vehicles. We show that these data solve some, but not all, of the traditional problems in estimating differentiated products demand systems and indicate which data sources are important for which problem. The data is rich enough to reveal a rather complex substitution pattern, requiring a quite general modeling framework. Together the data and model make a detailed analysis of industry demand possible.
Handle: RePEc:nbr:nberwo:6481
Template-Type: ReDIF-Paper 1.0
Title: Why Are Process Monitoring Technologies Valuable? The Use of On-Board Information Technology in the Trucking Industry
Classification-JEL: L22; L92
Author-Name: Thomas N. Hubbard
Note: IO
Number: 6482
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6482
File-URL: http://www.nber.org/papers/w6482.pdf
File-Format: application/pdf
Publication-Status: published as Hubbard, Thomas N. "The Demand For Monitoring Technologies: The Case Of Trucking," Quarterly Journal of Economics, 2000, v115(2,May), 533-560.
Abstract: Recent advances in information technology (IT) have enabled firms in many industries to give middle managers new access to timely production data. Process monitoring' technologies give distant managers a window to production which can both lower their cost of monitoring subordinates and provide them better information toward allocating their firms' resources in the short term. This paper investigates where and why IT-based process monitoring is valuable within the trucking industry, distinguishing between its incentive- and coordination-related benefits. Using truck-level data, it examines how the use of on-board computers varies with characteristics of carriers, shippers, and hauls. It then analyzes these patterns in light of existing theory and relates them to how supply chains are organized.
Handle: RePEc:nbr:nberwo:6482
Template-Type: ReDIF-Paper 1.0
Title: Multiproduct Multinationals and Reciprocal FDI Dumping
Classification-JEL: F23; F12
Author-Name: Richard E. Baldwin
Author-Person: pba124
Author-Name: Gianmarco I. P. Ottaviano
Author-Person: pot15
Note: ITI
Number: 6483
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6483
File-URL: http://www.nber.org/papers/w6483.pdf
File-Format: application/pdf
Publication-Status: published as Baldwin, Richard and Gianmarco I. P. Ottaviano. "Multiproduct Multinationals And Reciprocal," Journal of International Economics, 2001, v54(2,Aug), 429-448.
Abstract: The global pattern of foreign direct investment (FDI) is quite similar to the world trade pattern. In particular, intraindustry FDI between rich nations is almost as pervasive as intraindustry trade among rich nations. In the standard' MNC model (of Markusen, Venables, Brainard, and others), FDI is driven by a tradeoff between proximity and scale, so firms typically supply the foreign market via exports or via FDI. The close correlation of two-way trade and investment flows is therefore difficult to explain with the standard model. We propose a model of multiproduct MNCs where firms simultaneously engage in intraindustry FDI and intraindustry trade.
Handle: RePEc:nbr:nberwo:6483
Template-Type: ReDIF-Paper 1.0
Title: Using Sentence Enhancements to Distinguish between Deterrence and Incapacitation
Author-Name: Daniel Kessler
Author-Name: Steven D. Levitt
Author-Person: ple59
Note: LE PE
Number: 6484
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6484
File-URL: http://www.nber.org/papers/w6484.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, Vol. 42, no. 1, part 2 (April 1999):343-363.
Abstract: It is typically difficult to differentiate empirically between deterrence and incapacitation since both are a function of expected punishment. In this paper we demonstrate that the introduction of sentence enhancements (i.e. increased punishments that are added on to prison sentences that would have been served anyway) provides a direct means of measuring deterrence. Because the criminal would have been sentenced to prison anyway, there is no additional incapacitation effect from the sentence enhancement in the short-run. Therefore, any immediate decrease in crime must be due to deterrence. We test the model using California's Proposition 8 which imposed sentence enhancements for a selected group of crimes. In the year following its passage, crimes covered by Proposition 8 fell by more than 10 percent relative to similar crimes not affected by the law, suggesting a large deterrent effect. Three years after the law comes into effect, eligible crimes have fallen roughly 20-40 percent compared to non-eligible crimes. This large deterrent effect suggests that sentence enhancements, and may be more cost-effective than is generally thought.
Handle: RePEc:nbr:nberwo:6484
Template-Type: ReDIF-Paper 1.0
Title: Asset Prices, Consumption, and the Business Cycle
Classification-JEL: G12
Author-Name: John Y. Campbell
Author-Person: pca54
Note: AP EFG
Number: 6485
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6485
File-URL: http://www.nber.org/papers/w6485.pdf
File-Format: application/pdf
Publication-Status: published as Handbook of Macroeconomics Vol.1, Taylor, John B., and Michael Woodford,eds., Amsterdam: North Holland Press, 1999, Chapter 19, pp. 1231-1303.
Abstract: This paper reviews the behavior of financial asset prices in relation to consumption. The paper lists some important stylized facts that characterize US data, and relates them to recent developments in equilibrium asset pricing theory. Data from other countries are examined to see which features of the US experience apply more generally. The paper argues that to make sense of asset market behavior one needs a model in which the market price of risk is high, time-varying, and correlated with the state of the economy. Models that have this feature, including models with habit-formation in utility, heterogeneous investors, and irrational expectations, are discussed. The main focus is on stock returns and short-term real interest rates, but bond returns are also considered.
Handle: RePEc:nbr:nberwo:6485
Template-Type: ReDIF-Paper 1.0
Title: Tobacco Taxes, Smoking Restrictions, and Tobacco Use
Author-Name: Robert L. Ohsfeldt
Author-Name: Raymond G. Boyle
Author-Name: Eli L. Capilouto
Note: EH
Number: 6486
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6486
File-URL: http://www.nber.org/papers/w6486.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 15-29.
Publication-Status: published as Tobacco Taxes, Smoking Restrictions, and Tobacco Use, Raymond G. Boyle, Robert L. Ohsfeldt, Eli I. Capilouto. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: Tobacco researchers have focused considerable attention on the evaluation of various mechanisms to control cigarette use, including regulation of economic availability through increases in cigarette excise taxes. In contrast, the effects of mechanisms to control the availability of ST product on ST use have not been as extensively studied. This paper presents estimates of the effects of tobacco excise taxes and laws restricting public smoking on the likelihood of current use of different forms of tobacco (moist snuff and cigarettes) obtained from tobacco use data in the Current Population Surveys (CPS) for September 1992, January 1993, and May 1993. The full sample is restricted to males age 16 or older who self identify as either white or black (i.e., other' is excluded), which yields a usable sample of 165,653 individuals. This large sample is particularly useful given the relative rarity of self-reported snuff use (about 18% of those in the sample report current use but only 1.2% report current snuff use). The results indicate that individuals living in areas with higher snuff tax rates are to be less likely to use snuff. A 1% increase in the snuff tax rate is estimated to reduce the probability of snuff use by -0.10%. Consistent with numerous prior studies, individuals in areas with higher cigarette ta rates are less likely to smoke cigarettes. In terms of cross-tax effects, higher cigarette tax rates are associated with a higher probability of snuff use. This is consistent with substitution of snuff for cigarettes when the price of cigarettes increases relative to the price of snuff. However, higher snuff tax rates are not associated with greater cigarette use. Finally, laws restricting smoking in workplaces or other public places appear to discourage both cigarette and snuff use, though less consistently so for snuff.
Handle: RePEc:nbr:nberwo:6486
Template-Type: ReDIF-Paper 1.0
Title: Applying Behavioral Economics to the Challenge of Reducing Cocaine Abuse
Author-Name: Stephen T. Higgins
Note: EH
Number: 6487
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6487
File-URL: http://www.nber.org/papers/w6487.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Analysis of Substance Use and Abuse. Chaloupka, Frank J., Michael Grossman, Warren K. Bickel, and Henry Saffer, eds., Chicago: The University of Chicago Press, 1999, pp. 157-174.
Publication-Status: published as Applying Behavioral Economics to the Challenge of Reducing Cocaine Abuse, Stephen T. Higgins. in The Economic Analysis of Substance Use and Abuse: An Integration of Econometric and Behavioral Economic Research, Chaloupka, Grossman, Bickel, and Saffer. 1999
Abstract: This paper focuses on potential contributions of behavioral economics to reducing cocaine abuse. More specifically, this paper underscores the fundamental role of reinforcement in the genesis and maintenance of cocaine use and explores how reinforcement and consumer-demand theory might be translated into effective strategies for reducing cocaine use. A broad range of relevant research findings are discussed, including preclinical studies conducted with laboratory animals, laboratory and treatment-outcome studies conducted with cocaine abusers, and large epidemiological studies conducted with national samples of the U.S. population.
Handle: RePEc:nbr:nberwo:6487
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Price Advertising and Prices: Evidence in the Wake of 44 Liquormart
Classification-JEL: K20; L15
Author-Name: Jeffrey Milyo
Author-Person: pmi134
Author-Name: Joel Waldfogel
Author-Person: pwa46
Note: LE IO
Number: 6488
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6488
File-URL: http://www.nber.org/papers/w6488.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 89, no. 5 (December 1999): 1081-1096.
Abstract: In May 1996 the U.S. Supreme Court struck down Rhode Island's ban on advertising prices of alcoholic beverages, making Rhode Island the subject of a natural experiment for measuring the impact of advertising on prices. Using Massachusetts prices as controls, we find that while advertising stores substantially cut prices of advertised products, prices of other products, at both advertising and non-advertising stores, rise under the advertising regime. We investigate stores' pricing responses to rivals' price advertising and find that small, non-advertising stores raise their prices of products advertised by rivals beyond their baseline price increase, while larger, advertising stores raise by less their prices of rival-advertised products. We find no reductions in price dispersion across stores with the introduction of price advertising. However, those stores that choose to advertise do have lower average prices both before and after the law change. Indirect information on quantities sold, based on Rhode Island Lottery ticket sales, indicate that newspaper-advertising stores draw a higher share of customers after they advertise than before.
Handle: RePEc:nbr:nberwo:6488
Template-Type: ReDIF-Paper 1.0
Title: Less-Skilled Workers, Welfare Reform, and the Unemployment Insurance System
Classification-JEL: I38; J65
Author-Name: Cynthia K. Gustafson
Author-Name: Phillip B. Levine
Author-Person: ple553
Note: LS
Number: 6489
Creation-Date: 1998-03
Order-URL: http://www.nber.org/papers/w6489
File-URL: http://www.nber.org/papers/w6489.pdf
File-Format: application/pdf
Publication-Status: published as Polachek, Solomon W. (ed.) Worker wellbeing in a changing labor market, Research in Labor Economics, vol. 20. Amsterdam; London and New York: Elsevier Science, JAI, 2001.
Abstract: The declining economic position over the past two decades of those workers with less skill increases the importance of the unemployment insurance (UI) system in providing a safety net during periods of unemployment. Recent welfare reform legislation, designed to encourage labor market entry of typically very low-skilled workers who are likely to have unstable work patterns at best, potentially makes the UI system an even more critical component of the safety net. This paper seeks to determine how less-skilled workers typically fare in the UI system, estimating their likelihood of becoming eligible for and collecting benefits. We find that many workers who separate from a job, and particularly those with lower levels of skill, will not be compensated by the UI system. Although minimum earnings requirements keep some less-skilled job losers from receiving UI, it is the provision mandating that separations be involuntary' that prevents most workers from gaining UI eligibility. These findings suggest that the UI system will provide little additional support to the safety net following welfare reform.
Handle: RePEc:nbr:nberwo:6489
Template-Type: ReDIF-Paper 1.0
Title: Costs of Equity Capital and Model Mispricing
Classification-JEL: G12; G31
Author-Name: Lubos Pastor
Author-Person: ppa276
Author-Name: Robert F. Stambaugh
Author-Person: pst282
Note: AP
Number: 6490
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6490
File-URL: http://www.nber.org/papers/w6490.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 54 (1999): 67-121.
Abstract: Costs of equity for individual firms are estimated in a Bayesian framework using several factor-based pricing models. Substantial prior uncertainty about mispricing often produces an estimated cost of equity close to that obtained with mispricing precluded, even for a stock whose average return departs significantly from the pricing model's prediction. Uncertainty about which pricing model to use is less important, on average, than within-model parameter uncertainty. In the absence of mispricing uncertainty, uncertainty about factor premiums is generally the largest source of overall uncertainty about a firm's cost of equity, although uncertainty about betas is nearly as important.
Handle: RePEc:nbr:nberwo:6490
Template-Type: ReDIF-Paper 1.0
Title: Before the Fall: Were East Asian Currencies Overvalued?
Classification-JEL: F31; F41
Author-Name: Menzie D. Chinn
Author-Person: pch129
Note: IFM
Number: 6491
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6491
File-URL: http://www.nber.org/papers/w6491.pdf
File-Format: application/pdf
Publication-Status: published as Emerging Markets Review, Vol. 1, no. 2 (September 2000): 101-126
Abstract: I implement two major approaches to identifying the equilibrium exchange rate. First, the concept of purchasing power parity is tested and used to define the equilibrium real exchange rate for the Indonesian rupiah, Korean won, Malaysian ringgit, Philippine peso, Singapore dollar, Taiwanese dollar and the Thai baht. The calculated PPP rates are then used to evaluate whether these seven East Asian currencies were overvalued. The purchasing power parity calculations are performed on broad price indices, price indices of tradable goods, and price indices of export goods using the Johansen and Horvath-Watson cointegration test procedures. As of May 1997, the baht, ringgit and peso were overvalued according to this criterion. While the overvaluations are not large, they do appear to be persistent. Robustness checks for sensitivity to deflator, sample period, and numeraire currency are undertaken. Second, I calculate the implied equilibrium rates from a monetary model augmented by a proxy variable for productivity trends. The monetary models imply less substantial deviations from equilibrium. Furthermore, the results do not closely correspond to those obtained from the PPP calculations. Interestingly, both methods indicate that the Korean won was undervalued even before its recent discrete drop in value.
Handle: RePEc:nbr:nberwo:6491
Template-Type: ReDIF-Paper 1.0
Title: Staggered Price Setting and Endogenous Persistence
Classification-JEL: E3; E5
Author-Name: Paul R. Bergin
Author-Person: pbe249
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Note: ME
Number: 6492
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6492
File-URL: http://www.nber.org/papers/w6492.pdf
File-Format: application/pdf
Publication-Status: published as Bergin, Paul R. and Robert C. Feenstra. "Staggered Price Setting, Translog Preferences, And Endogenous Persistence," Journal of Monetary Economics, 2000, v45(3,Jun), 657-680.
Abstract: This paper generates persistent effects of a monetary disturbance in the context of staggered price-setters. Previous research has been restricted by the CES functional form to price-setting rules that are constant markups over marginal costs. The present paper considers a translog form for preferences and an input-output structure for production in the context of a dynamic general equilibrium model of monopolistically competitive staggered price-setters. We derive a price-setting rule that is a function of marginal cost and also competitors' prices. This rule better captures the interaction of price-setters envisioned in Taylor (1980) and Blanchard (1983) in their early work on staggered contracts. The model is able to generate reasonable persistence, and also confirms the conjecture of Taylor and Blanchard that increasing the number of contracting groups increases the degree of persistence.
Handle: RePEc:nbr:nberwo:6492
Template-Type: ReDIF-Paper 1.0
Title: Effects of Information Provision in an Vertically Differentiated Market
Classification-JEL: L15; L5
Author-Name: Tasneem Chipty
Author-Name: Ann Dryden Witte
Note: CH PE
Number: 6493
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6493
File-URL: http://www.nber.org/papers/w6493.pdf
File-Format: application/pdf
Abstract: We study the effects of consumer information on equlibrium market prices and observable product quality in the market for child care. Child care markets offer a unique opportunity to study these effects because of the existence of resource and referral agencies (R&Rs) in some markets. R&Rs provide consumers with information on availability, price, and observable characteristics of care. To understand the effects of information provision in markets like child care, we examine the effects of information provision in a model of vertical differentiation. We show conditions in which increased consumer information reduces price dispersion, maximum price, and average price. With this model we examine empirically the effects of R&Rs on the distribution of child care prices and on the distribution of staff-child ratios. We estimate separate models for the distribution of prices and staff-child ratios for infants, toddlers, preschoolers and school age children because of regulatory and care differences across age groups. We find that R&Rs have economically large and statistically significant effects on the distribution of prices for the care infants and toddlers. Geographic markets with R&Rs have significantly less price dispersion and lower maximum prices. There is also some evidence that markets with R&Rs have lower average prices.Information provision via R&Rs has no significant effects on staff-child ratios. These findings are generally consistent with search theory and support the contention that information provision can intensify price competition.
Handle: RePEc:nbr:nberwo:6493
Template-Type: ReDIF-Paper 1.0
Title: Optimal CO2 Abatement in the Presence of Induced Technological Change
Classification-JEL: H21; D99
Author-Name: Lawrence H. Goulder
Author-Name: Koshy Mathai
Note: PE
Number: 6494
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6494
File-URL: http://www.nber.org/papers/w6494.pdf
File-Format: application/pdf
Publication-Status: published as REECON, Vol. 21, nos. 3-4 (August 1999): 211-253.
Publication-Status: published as Lawrence H. Goulder & Koshy Mathai, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, vol 39(1), pages 1-38.
Abstract: This paper explores the significance of policy-induced technological change for the design of carbon-abatement policies. We derive analytical expressions characterizing optimal CO2 abatement and carbon tax profiles under different specifications for the channels through which technological progress occurs. We consider both R&D-based and learning-by-doing-based knowledge accumulation, and examine each specification under both a cost-effectiveness and a benefit-cost policy criterion. We show analytically that the presence of induced technological change (ITC) implies a lower time profile of optimal carbon taxes. The impact of ITC on the optimal abatement path varies. When knowledge is gained through R&D investments, the presence of ITC justifies shifting some abatement from the present to the future. However, when knowledge is generated through learning-by-doing, the impact on the timing of abatement is analytically ambiguous. Illustrative numerical simulations indicate that the impact of ITC upon overall costs and optimal carbon taxes can be quite large in a cost-effectiveness setting but typically is much smaller under a benefit-cost policy criterion. The impact of ITC on the timing of abatement is very weak, and the effect (applicable in the benefit-cost case) on total abatement over time is generally small as well, especially when knowledge is accumulated via R&D.
Handle: RePEc:nbr:nberwo:6494
Template-Type: ReDIF-Paper 1.0
Title: The Current Account and the Real Exchange Rate: A Structural VAR Analysis of Major Currencies
Classification-JEL: F31; F41
Author-Name: Jaewoo Lee
Author-Person: ple103
Author-Name: Menzie D. Chinn
Author-Person: pch129
Note: IFM
Number: 6495
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6495
File-URL: http://www.nber.org/papers/w6495.pdf
File-Format: application/pdf
Publication-Status: published as Lee, Jaewoo and Menzie D. Chinn. "Current Account And Real Exchange Rate Dynamics In The G7 Countries," Journal of International Money and Finance, 2006, v25(2,Mar), 257-274.
Abstract: A sticky-price model is used to motivate a structural VAR analysis of the current account and the real exchange rate for seven major industrialized countries (the US, Canada, the UK, Japan, Germany, France and Italy). The analysis is distinguished from previous work in that it adopts minimal assumptions for identification. The empirical results are consistent with the theoretical model, as well as the sticky price intertemporal model of Obstfeld and Rogoff (1995). Permanent shocks to productivity have large long term effects on the real exchange rate, but relatively small effects on the current account; money shocks have large effects on the current account and exchange rate in the short run, but not on either variable in the long run.
Handle: RePEc:nbr:nberwo:6495
Template-Type: ReDIF-Paper 1.0
Title: Mentoring and Diversity
Classification-JEL: J71; J41
Author-Name: Susan Athey
Author-Person: pat6
Author-Name: Christopher Avery
Author-Person: pav7
Author-Name: Peter Zemsky
Note: LS
Number: 6496
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6496
File-URL: http://www.nber.org/papers/w6496.pdf
File-Format: application/pdf
Publication-Status: published as Athey, Susan, Christopher Avery and Peter Zemsky. "Mentoring And Diversity," American Economic Review, 2000, v90(4,Sep), 765-786.
Abstract: This paper studies the forces which determine how diversity at a firm evolves over time. We consider a dynamic model o a single firm with two levels of employees, the entry level and the upper level. In each period, the firm selects a subset of the entry-level workers for promotion to the upper level. The members of the entry-level worker pool vary in their initial ability as well as in their type,' where type could refer to gender or cultural background. Employees augment their initial ability by acquiring specific human capital in mentoring interactions with upper level employees. We assume that an entry-level worker receives more mentoring when a greater proportion of upper-level workers match the entry-level worker's type. In this model, it is optimal for the firm to consider type in addition to ability in making promotion decisions, so as to maximize the effectiveness of future mentoring. We derived conditions under which firms attain full diversity, as well as conditions under which there are multiple steady states, so that the level of diversity depends on the firm's initial conditions. With multiple steady states, temporary affirmative action policies can have a long-run impact on diversity levels.
Handle: RePEc:nbr:nberwo:6496
Template-Type: ReDIF-Paper 1.0
Title: Reform from Within
Classification-JEL: C73; D90
Author-Name: Aaron Tornell
Author-Person: pto157
Note: IFM
Number: 6497
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6497
File-URL: http://www.nber.org/papers/w6497.pdf
File-Format: application/pdf
Abstract: We present a model of endogenous institutional change that rationalizes reforms that have taken place in the context of economic crisis and drastic political change. Most of the reforms have been initiated by powerholders, even though they have ended worse off relative to the status quo. The first point we make is that reform is the tool used by some powerful groups to limit the power of their political opponents. The second point is that groups with common access' to the economy's resources find it individually rational to overappropriate resources. As a result the economy deteriorates. When the economy reaches a crisis conflict among groups erupts. Reform is the result of this conflict.
Handle: RePEc:nbr:nberwo:6497
Template-Type: ReDIF-Paper 1.0
Title: Voracity and Growth
Classification-JEL: F43; O10
Author-Name: Aaron Tornell
Author-Person: pto157
Author-Name: Philip R. Lane
Author-Person: pla15
Number: 6498
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6498
File-URL: http://www.nber.org/papers/w6498.pdf
File-Format: application/pdf
Publication-Status: Published as "Voracity and Growth in Discrete Time", EL, Vol. 62, no. 1(January 1999): 139-145.
Abstract: We analyze an economy that lacks a strong legal-political institutional infrastructure an dis populated by multiple powerful groups. Powerful groups dynamically interact via fiscal process that effectively allows open access to the aggregate capital stock. In equilibrium, this leads to slow economic growth and a voracity effect,' by which a shock, such as a terms of trade windfall, perversely generates a more than proportionate increase in fiscal redistribution and reduces growth. We also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks.
Handle: RePEc:nbr:nberwo:6498
Template-Type: ReDIF-Paper 1.0
Title: It'll Only Hurt a Second? Microeconomic Determinants of Who Gets Flu Shots
Classification-JEL: I1
Author-Name: John Mullahy
Note: EH
Number: 6500
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6500
File-URL: http://www.nber.org/papers/w6500.pdf
File-Format: application/pdf
Publication-Status: published as John Mullahy, 1999. "It'll only hurt a second? Microeconomic determinants of who gets flu shots," Health Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 9-24.
Abstract: Appreciating how propensities to be immunized against the flu depend on individual characteristics and environments is essential if policies regarding influenza control are to be sensibly formulated. Beyond epidemiology, there are some important economic issues that must be addressed if the determinants of this form of preventive care are to be comprehensively understood. One concerns the relationship between labor supply and the propensity to be immunized: While it is costly (in terms of time costs) for workers to obtain immunizations, it is also workers who are likely to have relatively most to lose from being ill with the flu. Another concern not generally appreciated is the extent to which individuals' perceived risks of infection may affect their propensities to be immunized. The analysis is based on data from the 1991 National Health Interview Survey. Immunization propensity displays the expected patterns by age and health status, while the results with respect to race, household structure, income and insurance are somewhat more surprising and/or novel. The estimated labor supply and perceived risk effects suggest that some aspects of the economics of preventive care generally not considered in empirical work are -- at least in this application -- important and merit further consideration.
Handle: RePEc:nbr:nberwo:6500
Template-Type: ReDIF-Paper 1.0
Title: Labor-Market Frictions and Employment Fluctuations
Classification-JEL: E24
Author-Name: Robert E. Hall
Note: EFG
Number: 6501
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6501
File-URL: http://www.nber.org/papers/w6501.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Robert E., 1999. "Labor-market frictions and employment fluctuations," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 17, pages 1137-1170 Elsevier.
Abstract: The labor market occupies center stage in modern theories of fluctuations. The most important phenomenon to explain and understand in a recession is the sharp decline in employment and jump in unemployment. This chapter for the Handbook of Macroeconomics considers explanations based on frictions in the labor market. Earlier research within the real business cycle paradigm considered frictionless labor markets where fluctuations in the volume of work effort represented substitution by households between work in the market and activities at home. A preliminary section of the chapter discusses why frictionless models are incomplete they fail to account for either the magnitude or persistence of fluctuations in employment. And the frictionless models fail completely to describe unemployment. The evidence suggests strongly that consideration of unemployment as a third use of time is critical for a realistic model. The two elements of a theory of unemployment are a mechanism for workers to lose or leave their jobs and an explanation for the time required for them to find new jobs. Theories of mechanism design or of continuous re-bargaining of employment terms provide the first. The theory of job search together with efficiency wages and related issues provides the second. Modern macro models incorporating these features come much closer than their predecessors to realistic and rigorous explanations of the magnitude and persistence of fluctuations.
Handle: RePEc:nbr:nberwo:6501
Template-Type: ReDIF-Paper 1.0
Title: Why Aren't Savings Rates in Latin America Procyclical?
Classification-JEL: O40; Q33
Author-Name: Philip R. Lane
Author-Person: pla15
Author-Name: Aaron Tornell
Author-Person: pto157
Note: IFM
Number: 6502
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6502
File-URL: http://www.nber.org/papers/w6502.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 57, no. 1 (October 1998): 185-199.
Abstract: We document a striking empirical regularity: Latin American savings rates are as a rule substantially less procyclical than for OECD countries and in some cases are actually countercyclical. We build a non-representative agent intertemporal macroeconomic model that rationalizes this phenomenon as the equilibrium outcome of interaction between multiple groups that have common access to aggregate income. We conclude by suggesting that institutional reform may hold the key to improving the cyclical behavior of savings in Latin America.
Handle: RePEc:nbr:nberwo:6502
Template-Type: ReDIF-Paper 1.0
Title: Health Problems as Determinants of Retirement: Are Self-Rated Measures Endogenous?
Classification-JEL: I19; J26
Author-Name: Debra Sabatini Dwyer
Author-Person: pdw3
Author-Name: Olivia S. Mitchell
Author-Person: pmi73
Note: AG LS
Number: 6503
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6503
File-URL: http://www.nber.org/papers/w6503.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 18 (1999): 173-193.
Abstract: We explore alternative measures of unobserved health status in order to identify effects of mental and physical capacity for work on older men's retirement. Traditional self-ratings of poor health are tested against more objectively measured instruments. Using the Health and Retirement Study (HRS), we find that health problems influence retirement plans more strongly than do economic variables. Specifically, men in poor overall health expected to retire one to two years earlier, an effect that persists after correcting for potential endogeneity of self-rated health problems. The effects of detailed health problems are also examined in depth.
Handle: RePEc:nbr:nberwo:6503
Template-Type: ReDIF-Paper 1.0
Title: The Wage and the Length of the Work Day: From the 1890s to 1991
Classification-JEL: J22; N30
Author-Name: Dora L. Costa
Author-Person: pco358
Note: DAE
Number: 6504
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6504
File-URL: http://www.nber.org/papers/w6504.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 18, no. 1 (January 2000): 156-181.
Abstract: I investigate how the relationship between the wage and the length of the work day has changed since the 1890s among prime-aged men and women. I find that across wage deciles deciles, and within industry and occupation groups the most highly paid worked fewer hours than the lowest paid in the 1890s, but that by 1973 differences in hours worked were small and by 1991 the highest paid worked the longest day. Changing labor supply elasticities explain the compression in the distribution of the length of the work day. In the 1890s the labor supply curve was strongly backwards bending, perhaps because men preferred to smooth hours over their work lives rather than bunch them as they do today. In fact, the intertemporal elasticity of substitution was slightly negative in the 1890s, but by 1973 was positive. I show that the unequal distribution of work hours in the past equalized income, but that between 1973 and 1991 it magnified weekly earnings inequality, accounting for 26 percent of earnings inequality between the top and bottom declines among men, more than all of the earnings inequality among women, and 17 percent of the increase in total household earnings inequality among husband and wife households.
Handle: RePEc:nbr:nberwo:6504
Template-Type: ReDIF-Paper 1.0
Title: Valuing the Futures Market Clearinghouse's Default Exposure During the 1987 Crash
Classification-JEL: G23
Author-Name: David Bates
Author-Name: Roger Craine
Note: AP
Number: 6505
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6505
File-URL: http://www.nber.org/papers/w6505.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Money, Credit and Banking, Vol. 31, no. 2 (1999): 248-272.
Abstract: Futures market clearinghouses are intermediaries that make large volume trading between anonymous parties feasible. During the October 1987 market crash rumors spread that a major clearinghouse might fail. This paper presents estimates of three measures of the default exposure on the popular S&P500 futures contract traded on the Chicago Mercantile Exchange. We estimate the traditional summary statistic for risk exposure: the tail probabilities that the change in the futures price exceeds the margin. And we estimate two economic measures of the risk--the expected value of the payoffs in the tails and expected value of the payoffs in the tails conditional on landing in the tail. The economic measures of risk reveal exposure from low probability large payoff events--like a crash--that does not show up tail probabilities. The tail probabilities only capture the likelihood of a crash, not the expected loss. The estimated measures of risk follow directly from estimates of the conditional distribution of futures price changes. We infer a jump-diffusion process and a log-normal rocess from the prices of traded options and we estimate a jump-diffusion process from time-series data on futures prices. After the crash the forward-looking jump-diffusion model inferred from traded options reflects the fears of another crash voiced by market participants. The model indicates another jump is unlikely, but if it occurred it would be big and negative. The tail probabilities are small, less than 2%. But, the day after the crash the model estimates the expected value of payoffs in the tails conditional on landing in the tail equals of 55% of the S&P500 futures price. According to this estimate roughly $10.5 billion in liquid reserves would be required to weather another crash. On October 20 the Federal Reserve announced it stood ready to supply the necessary liquidity.
Handle: RePEc:nbr:nberwo:6505
Template-Type: ReDIF-Paper 1.0
Title: The Economic Progress of Immigrants
Classification-JEL: J6
Author-Name: George J. Borjas
Author-Person: pbo44
Note: LS
Number: 6506
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6506
File-URL: http://www.nber.org/papers/w6506.pdf
File-Format: application/pdf
Publication-Status: published as The Economic Progress of Immigrants, George J. Borjas. in Issues in the Economics of Immigration, Borjas. 2000
Abstract: This paper presents a theoretical and empirical study of the economic progress experienced by immigrants in the U.S. labor market. The theoretical framework illustrates that the relationship between the entry wage of immigrants and the subsequent rate of wage growth depends on the technology of the human capital production function, particularly the extent of substitution or complementarity between pre-existing' human capital and post-migration investments. The empirical analysis uses the 1970-1990 decennial Census data. The evidence indicates that the correlation between the log entry wage and the rate of wage growth is positive but this correlation is weakened and perhaps turns negative when we compare immigrants who start out in the United States with similar human capital endowments. The empirical analysis also indicates that the same source country characteristics that lead to high wages at the time of entry also lead to faster wage growth.
Handle: RePEc:nbr:nberwo:6506
Template-Type: ReDIF-Paper 1.0
Title: International Knowledge Flows: Evidence from Patent Citations
Classification-JEL: O31
Author-Name: Adam B. Jaffe
Author-Person: pja49
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: PR
Number: 6507
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6507
File-URL: http://www.nber.org/papers/w6507.pdf
File-Format: application/pdf
Publication-Status: published as Economics of Innovation and New Technology, Vol. 8 (1999): 105-136.
Abstract: This paper explores the patterns of citations among patents taken out by inventors in the U.S., the U.K., France, Germany and Japan. We find (1) patents assigned to the same firm are more likely to cite each other, and come sooner than other citations; (2) patents in the same patent class are approximately 100 times as likely to cite each other as patents from different patent classes there is not a strong time pattern to this effect; (3) patents whose inventors reside in the same country are typically 30 to 80% more likely to cite each other than inventors from other countries, and these citations come sooner; and (4) there are clear country-specific citation tendencies; e.g., Japanese citations typically come sooner than those of other countries.
Handle: RePEc:nbr:nberwo:6507
Template-Type: ReDIF-Paper 1.0
Title: Regime Switches in Interest Rates
Classification-JEL: C32; C53
Author-Name: Andrew Ang
Author-Person: pan374
Author-Name: Geert Bekaert
Author-Person: pbe52
Note: AP
Number: 6508
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6508
File-URL: http://www.nber.org/papers/w6508.pdf
File-Format: application/pdf
Publication-Status: published as Ang, Andrew and Geert Bekaert. "Regime Switches In Interest Rates," Journal of Business and Economic Statistics, 2002, v20(2,Apr), 163-182.
Abstract: Regime-switching models are well suited to capture the non-linearities in interest rates. This paper examines the econometric performance of regime-switching models for interest rate data from the US, Germany and the UK. There is strong evidence supporting the presence of regime switches but univariate models are unlikely to yield consistent estimates of the model parameters. Regime-switching models incorporating international short rate and term spread information forecast better, match sample moments better, and classify regimes better than univariate models. We show that the regimes in interest rates correspond reasonably well with business cycles, at least in the US. This may explain why regime-switching models forecast interest rates better than single regime models. Finally, the non-linear interest rate dynamics implied by regime-switching models have potentially important implications for the macroeconomic literature documenting the effects of monetary policy shocks on economic aggregates. Moreover, the implied volatility and drift functions are rich enough to resemble those recently estimated using non-parametric techniques.
Handle: RePEc:nbr:nberwo:6508
Template-Type: ReDIF-Paper 1.0
Title: The Political Economy of Unilateral Trade Liberalization: The Case of Chile
Classification-JEL: F13; F14
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Daniel Lederman
Author-Person: ple321
Note: ITI
Number: 6510
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6510
File-URL: http://www.nber.org/papers/w6510.pdf
File-Format: application/pdf
Publication-Status: published as in Jagdish Bhagwati (ed), "Going Alone: The Case for Relaxed Reciprocity in Freeing Trade." MIT Press, September 2002, pp. 337-3394.
Abstract: Chile has become a model for reforming economies throughout the world. The purpose of this paper is to analyze the political and economic circumstances surrounding Chile's unilateral trade liberalization during five stages (covering the period 1974-1990s),each being characterized by different combinations of compensation schemes that were used to raise support and reduce opposition to the reforms. In less than 4 years (1975-1979) Chile eliminated all quantitative restrictions and exchange controls and reduced import tariffs from an average in excess of 100% to a uniform 10% tariff. Later the tariff was temporarily raised to 35% in the aftermath of a severe economic crisis (1983-1984), but was then reduced to 11% by 1991. This liberalization was implemented simultaneously with other reforms, including an effort to eliminate a stubborn inflationary process, financial reforms that ended decades of financial repression, and a massive privatization program. We investigate the role played by ideas, interests and institutions. More specifically, we examine the role played by the 'reform team' investigate some of the distributive consequences of the reforms, and analyze the ways the government used to maintain a minimum level of support for the liberalization process. A recurrent question is whether authoritarian governments are sensitive to political considerations when implementing major policy changes. We also present econometric results obtained by using household-level survey data to analyze the effects of trade liberalization on Chile's unemployment. We conclude that during the 1970s and afterwards the Chilean authorities relied heavily on coalition building and on compensation mechanisms in order to increase the political support for the reforms.
Handle: RePEc:nbr:nberwo:6510
Template-Type: ReDIF-Paper 1.0
Title: Social Security, Economic Growth, and the Rise in Independence of Elderly Widows in the 20th Century
Classification-JEL: J1; N32
Author-Name: Kathleen McGarry
Author-Person: pmc264
Author-Name: Robert F. Schoeni
Author-Person: psc101
Note: AG
Number: 6511
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6511
File-URL: http://www.nber.org/papers/w6511.pdf
File-Format: application/pdf
Publication-Status: published as Demography (2000), forthcoming.
Abstract: The share of elderly widows living alone rose from 18 percent in 1940 to 62 percent in 1990, while the share living with adult children declined from 59 percent to 20 percent. This study analyzes the causes of this change and finds that income growth, in particular increased Social Security benefits, was the single most important factor causing the change in living arrangements accounting for nearly two-thirds of the rise in the share of elderly widows living alone. Changes in benefits from the mean-tested OAA/SSI programs had a lesser impact on the decision to live alone but were a significant factor in explaining changes in the living arrangements of the poorest widows. Furthermore, contrary to recent work, we find no evidence that the effect of income on living arrangements became stronger over the period; income had a substantial positive effect on the propensity to live alone as early as the 1940s and 1950s. Finally, the substantial changes observed in the composition of the population with respect to age, race, immigrant status, schooling, and completed fertility explain a relatively small share of the changes in living arrangements.
Handle: RePEc:nbr:nberwo:6511
Template-Type: ReDIF-Paper 1.0
Title: Policy Rules for Inflation Targeting
Classification-JEL: E52; E58
Author-Name: Glenn D. Rudebusch
Author-Person: pru10
Author-Name: Lars E. O. Svensson
Author-Person: psv2
Note: IFM ME
Number: 6512
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6512
File-URL: http://www.nber.org/papers/w6512.pdf
File-Format: application/pdf
Publication-Status: published as Glenn D. Rudebusch & Lars E. O. Svensson, 1998. "Policy rules for inflation targeting," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
Publication-Status: published as Monetary Policy Rules, Taylor, John B., ed., Chicago: University of Chicago Press, 1999.
Publication-Status: published as Policy Rules for Inflation Targeting, Glenn Rudebusch, Lars E.O. Svensson. in Monetary Policy Rules, Taylor. 1999
Abstract: Policy rules that are consistent with inflation targeting are examined in a small macroeconomic model of the US economy. We compare the properties and outcomes of explicit instrument rules' as well as targeting rules.' The latter, which imply implicit instrument rules, may be closer to actual operating procedures of inflation-targeting central banks. We find that inflation forecasts are central for good policy rules under inflation targeting. Some simple instrument and targeting rules do remarkably well relative to the optimal rule; others, including some that are often used as representing inflation targeting, do less well.
Handle: RePEc:nbr:nberwo:6512
Template-Type: ReDIF-Paper 1.0
Title: How Much is Enough? Efficiency and Medicare Spending in the Last Six Months of Life
Classification-JEL: I1
Author-Name: Jonathan Skinner
Author-Person: psk23
Author-Name: John E. Wennberg
Note: AG EH PE
Number: 6513
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6513
File-URL: http://www.nber.org/papers/w6513.pdf
File-Format: application/pdf
Publication-Status: published as How Much Is Enough? Efficiency and Medicare Spending in the Last Six Months of Life, Jonathan S. Skinner, John Wennberg. in The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, Cutler. 2000
Abstract: In Miami, average inpatient Medicare spending on people in their last six months of life was about double Medicare spending in Minneapolis; average ICU days were nearly four times higher. What are the implications of such differences for the efficiency of health care? In this paper, we used Medicare claims data to document the extent of these variations across 306 hospital referral regions in the U.S. We did not find strong evidence that the spending differences were due to underlying variation in health levels across regions. Nor did we find evidence of any benefits from higher spending levels; regional survival rates following acute conditions like AMI (heart attacks), stroke, and gastrointestinal bleeding were not correlated with more intensive health care spending. Finally, a number of recent studies suggest that people prefer less, rather than more intensive treatment. In sum, our results suggest that (i) regions providing more intensive care are not gaining net health benefits over regions providing less care, and (ii) allocative inefficiency may be present, in that patients are not necessarily matched with the treatment they prefer.
Handle: RePEc:nbr:nberwo:6513
Template-Type: ReDIF-Paper 1.0
Title: The Costs and Benefits of Intensive Treatment for Cardiovascular Disease
Author-Name: David Cutler
Author-Person: pcu64
Author-Name: Mark McClellan
Author-Name: Joseph Newhouse
Note: AG EH
Number: 6514
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6514
File-URL: http://www.nber.org/papers/w6514.pdf
File-Format: application/pdf
Publication-Status: published as Triplett, Jack (ed.) Measuring the Prices of Medical Treatments. Washington, D.C.: The Brookings Institution, 1999.
Abstract: This paper examines the causes and consequences of reductions in cardiovascular disease mortality, and in particular heart attack mortality, over the past several decades. Analysis of data from Medicare and review of the clinical literature indicate that a large share of the recent decline in heart attack mortality is a result of new medical interventions and increased use of existing interventions. Much of the mortality improvement appears to be the result of changes in the use of pharmaceuticals such as aspirin and clot-busting (thrombolytic) drugs. Greater use of these and other intensive medical procedures have increased the cost of treating heart attacks but have also lead to health improvements. We estimate that the value of improved health is greater than the increased cost of heart attack care, so that the cost of living for people with a heart attack is falling. We present preliminary evidence that patients in managed care receive nearly similar treatment for heart attacks compared to patients with traditional indemnity insurance, but that managed care insurers pay less for the same treatments than do traditional insurers.
Handle: RePEc:nbr:nberwo:6514
Template-Type: ReDIF-Paper 1.0
Title: Changing Inequality in Markets for Workplace Amenities
Classification-JEL: J31; J28
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 6515
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6515
File-URL: http://www.nber.org/papers/w6515.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. "Changing Inequality In Markets For Workplace Amenities," Quarterly Journal of Economics, 1999, v114(4,Nov), 1085-1123.
Abstract: We know that earnings inequality has increased sharply in the United States since the late 1970s, but there has been no evidence on the changing inequality of nonmonetary aspects of work nor on how any such changes are related to changes in earnings. I begin by studying patterns of interindustry differences in occupational injuries during 1979-95, breaking the total burden of injuries into its components, risk of injury and injury duration. In those industries where earnings rose relatively, we observed a relative drop in injury rates and in the total burden of injuries. Obversely, during the 1960s interindustry wage differentials narrowed, a decline that was associated with an increase in the relative risk of injury in high-wage industries. Evidence for large sectors of Dutch industry from 1974-92 suggests that injury rates there fell most in sectors where wages grew most rapidly. Examination of another workplace disamenity, working evenings or nights, shows analogous results for the period 1973-91: This disamenity was increasingly borne by low-wage male workers. Changes in earnings inequality thus have understated absolute changes in inequality in the returns to work. All the outcomes are readily explicable as income effects of exogenous shocks to the distribution of full earnings in the presence of skill-neutral changes in the cost of reducing workplace disamenities. Under reasonable assumptions we can infer from the estimates that the demand for the amenities, workplace safety and desirable work times, is highly income-elastic.
Handle: RePEc:nbr:nberwo:6515
Template-Type: ReDIF-Paper 1.0
Title: The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis
Classification-JEL: F31; F32
Author-Name: Sebastian Edwards
Author-Person: ped3
Author-Name: Miguel A. Savastano
Note: IFM
Number: 6516
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6516
File-URL: http://www.nber.org/papers/w6516.pdf
File-Format: application/pdf
Abstract: The Mexican peso crisis of December 1994 shocked politicians, analysits, and pundits. Shock was followed by panic, as investors flew the country. It took a massive bail-out package put together by the IMF and the US Treasury to generate some tranquility in the markets in mid to late 1995. From early on the Mexican authorities stated that stabilizing the value of the peso, within the context of a freely floating exchange rate regime, was one of their most important objectives. During most of 1995 this objective seemed to be highly elusive. Starting in 1996, however, the peso began to exhibit an impressive degree of stability. So much so that a number of analysts began to wonder whether this stability was consistent with a freely floating regime. Some even argued that it was d‚j… vu' all over again, and that the Bank of Mexico was manipulating monetary policy in order to artificially maintain a strong peso. In this paper we try to explain the relative stability exhibited by the peso/dollar nominal exchange rate since late 1995. Specifically, we approach this issue from two main angles: First, we ask whether the behavior of the peso/dollar rate since 1995 is broadly comparable or consistent with the behavior of a 'typical' floating exchange rate. Our answer to this question was a qualified yes. Second, we explore whether during 1996-97 the Bank of Mexico followed some sort of feedback rule from the exchange rate to monetary policy. Our answer to this question was another qualified yes, but perhaps more strongly qualified than the first one.
Handle: RePEc:nbr:nberwo:6516
Template-Type: ReDIF-Paper 1.0
Title: The More Things Change: Immigrants and the Children of Immigrants in the 1940s, the 1970s, and the 1990s
Author-Name: David Card
Author-Person: pca271
Author-Name: John DiNardo
Author-Person: pdi178
Author-Name: Eugena Estes
Note: LS
Number: 6519
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6519
File-URL: http://www.nber.org/papers/w6519.pdf
File-Format: application/pdf
Publication-Status: published as The More Things Change: Immigrants and the Children of Immigrants in the 1940s, the 1970s, and the 1990s, David Card, John DiNardo, Eugena Estes. in Issues in the Economics of Immigration, Borjas. 2000
Abstract: Rising immigrant inflows have substantially affected the size and composition of the U.S. workforce. They are also exerting an even bigger intergenerational effect: at present one-in-ten native born children are in the 'second generation' born to immigrant parents. In this paper we present a comparative perspective on the economic performance of immigrants and their children, utilizing data from the 1940 and 1970 Censuses, and from recent (1994-96) Current Population Surveys. We find important intergenerational links between the economic status of immigrant fathers and the economic status and marriage patterns of their native born sons and daughters. Much of this linkage works through education: children of better-educated immigrants have higher education, earn higher wages, and are more likely to marry outside of their father's ethnic group. Despite the dramatic shift in the country-of-origin composition of U.S. immigrants since 1940, we find that the rate of intergenerational assimilation has changed little. As in the past, native born children of immigrants can expect to close 50-60 percent of the gap in relative economic performance experienced by their father's ethnic group.
Handle: RePEc:nbr:nberwo:6519
Template-Type: ReDIF-Paper 1.0
Title: Falling Union Membership and Rising Wage Inequality: What's the Connection?
Classification-JEL: J31; J51
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 6520
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6520
File-URL: http://www.nber.org/papers/w6520.pdf
File-Format: application/pdf
Abstract: This paper presents new evidence on the effects of changing union membership on trends in wage dispersion in the U.S. labor market. I use data from the mid-1970s and early 1990s to compare union membership rates for workers in different deciles of the wage distribution, and to calculate the effects of shifting unionism on wage inequality. Among men, union rates have fallen for most groups, with larger declines among the lowest-wage workers. I estimate that the decline in unions explains 10-20 percent of the rise in male wage inequality over the past 25 years. Among women, union membership has fallen for low-wage workers but risen for high-wage workers, with little change overall. Shifting union patterns have therefore had little effect on female inequality, and may have actually accentuated the rise in inequality. Economy-wide trends in union membership mask a sharp divergence between the private sector, where unions have been declining, and the public sector, where union membership rates have actually risen for most groups. Calculations by sector suggest that unions have been a significant force in forestalling the rise in wage inequality among public sector workers of both genders.
Handle: RePEc:nbr:nberwo:6520
Template-Type: ReDIF-Paper 1.0
Title: Notes on "A Code for Fiscal Stability"
Classification-JEL: E62; H62
Author-Name: Willem H. Buiter
Author-Person: pbu137
Note: ME
Number: 6522
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6522
File-URL: http://www.nber.org/papers/w6522.pdf
File-Format: application/pdf
Publication-Status: published as Buiter, Willem H. "Notes On 'A Code For Fiscal Stability'," Oxford Economic Papers, 2001, v53(1,Jan), 1-19.
Abstract: This note comments on two central issues for fiscal policy design in the UK, highlighted in the recent Code for Fiscal Stability' proposed by the new Labour government. The first concerns the merits of the so-called golden rule of public sector investment' -- the proposition that, over the cycle, government borrowing should not exceed government capital formation. The second concerns the case for attempting to construct a more comprehensive balance sheet of public sector assets and liabilities, including tangible public sector assets and certain contingent claims. The two main conclusions are that the golden rule is without merit but that, subject to some important caveats, the construction of a more comprehensive government balance sheet is a worthwhile enterprise.
Handle: RePEc:nbr:nberwo:6522
Template-Type: ReDIF-Paper 1.0
Title: Managed Care Provider Volume
Classification-JEL: I11
Author-Name: Sarah Feldman
Author-Name: David Scharfstein
Author-Person: psc177
Note: EH
Number: 6523
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6523
File-URL: http://www.nber.org/papers/w6523.pdf
File-Format: application/pdf
Publication-Status: published as The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, Cutler, David M., pp. 229-248, (Chicago: The University ogo, 2000).
Abstract: There is considerable evidence that patients that are treated by high volume physicians and hospitals have better health outcomes than patients treated by low volume physicians and hospitals. Thus, as an indirect measure of quality differences between managed care and traditional fee-for-service insurance, we compare the average provider volume of cancer patients covered by these two types of plans. We find that managed care patients tend to be treated by lower volume providers and that the magnitude of the differences varies by the particular cancer and managed care plan.
Handle: RePEc:nbr:nberwo:6523
Template-Type: ReDIF-Paper 1.0
Title: Privatization in Emerging Markets
Classification-JEL: F13; H21
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI PE
Number: 6524
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6524
File-URL: http://www.nber.org/papers/w6524.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Integration, Vol. 15, no. 1 (March 2000): 145-161.
Abstract: This paper evaluates the welfare implications of privatization in emerging market economies, in countries where policies are determined by the median voter. We show that privatization may lead to large efficiency gains by changing the menu of taxes. We illustrate this point with two examples. First, we consider privatization of import competing public enterprises. Reducing the public sector involvement in import competing activities is shown to lower the public sector's benefits from protection, reducing thereby the equilibrium tariff rate. The second example deals with social security privatization in an economy characterized by imperfect capital mobility, where the private sector may engage in capital flight. A small share of the capital owned by the middle class implies that the median voter would impose a tax on capital income that exceeds the efficient tax by a large margin, reflecting the beggar my (capitalist) neighbor' attitude. Social security privatization increases the equity position of the middle class, inducing the median voter to internalize a higher fraction of the costs of high taxes on capital, thereby reducing the capital tax rate. The indirect effects of privatization described in the paper are external to the privatized activity. Hence, these benefits are not accounted for in a conventional cost benefit assessment of the privatized projects. Our examples illustrate that ignoring these effects may lead one to underestimate the potential gains of privatization.
Handle: RePEc:nbr:nberwo:6524
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Investment in Annuities
Classification-JEL: H2; H3
Author-Name: William M. Gentry
Author-Name: Joseph Milano
Note: PE
Number: 6525
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6525
File-URL: http://www.nber.org/papers/w6525.pdf
File-Format: application/pdf
Abstract: dramatically with aggregate annuity purchases reaching $159.3 billion in 1995. While many annuities are job-related, by 1994 individual annuity purchases outside of job-related retirement plans had grown to $51 billion. This paper uses state-level data on annuity premiums for 1984-93 to explore the expansion of the annuity market and how taxes have affected this market. Annuities are tax-advantaged investments because income taxes are deferred. Higher tax rates can affect annuity purchases by affecting the overall level of saving, by inducing a switch towards tax-advantaged investments, or by encouraging investors to buy annuities at younger ages to increase the value of tax deferral. Both state-level variation in income tax rates and time-series variation in federal tax policy help identify differences in tax incentives to buy annuities. In our benchmark econometric specification using year and state fixed effects, a one percentage point increase in the marginal tax rate increases per capita individual annuity purchases by 4.3 percent. However, this result is somewhat sensitive to the econometric specification. Estimates controlling for year fixed effects but not state fixed effects suggest the overall effect of taxes on annuity purchases is negative and statistically significant. Furthermore, the effect of tax rates on annuity purchases depends on the age composition within the state. The effect of tax rates on annuity purchases increases with the fraction of the population between the ages 50 and 59.
Handle: RePEc:nbr:nberwo:6525
Template-Type: ReDIF-Paper 1.0
Title: Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?
Classification-JEL: H22; J31
Author-Name: Austan Goolsbee
Author-Person: pgo49
Note: PE
Number: 6526
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6526
File-URL: http://www.nber.org/papers/w6526.pdf
File-Format: application/pdf
Publication-Status: published as Goolsbee, Austan. "Investment Tax Incentives, Prices, And The Supply Of Capital Goods," Quarterly Journal of Economics, 1998, v108(1,Feb), 121-148.
Publication-Status: published as Austan Goolsbee, 2003. "Investment Subsidies and Wages in Capital Goods Industries: To the Workers Go the Spoils?," National Tax Journal, vol 56(1, Part 2), pages 153-165.
Abstract: This paper looks at the impact of investment tax subsidies on the labor market for capital goods workers using data from the 1979-88 Current Population Survey. The results show that investment subsidies drive up the wages of workers who produce capital goods relative to other manufacturing workers. A 10% investment tax credit, for example, raises the relative wage of capital goods workers by 2.5%-3.0% on average and up to around 10%, depending on the workers' characteristics. The evidence is consistent with an existing literature on the cyclicality of manufacturing wages as is the evidence that the wage increases are largest for workers with low education, workers with less tenure, and workers in non-management occupations. The evidence is also consistent with the literature on rent-sharing in profitable industries as are the results indicating the importance of unions for the wage increases. Either way, the evidence of rising wages is an important part of the upward sloping supply of capital goods identified in previous work and means that much of the benefit of investment subsidies is passed to capital suppliers and their employees.
Handle: RePEc:nbr:nberwo:6526
Template-Type: ReDIF-Paper 1.0
Title: Medicaid Expansions and The Crowding Out of Private Health Insurance
Classification-JEL: I38; H42
Author-Name: Esel Y. Yazici
Author-Name: Robert Kaestner
Author-Person: pka42
Note: EH
Number: 6527
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6527
File-URL: http://www.nber.org/papers/w6527.pdf
File-Format: application/pdf
Publication-Status: published as Yazici, Esel Y. and Robert Kaestner. "Medicaid Expansions And The Crowding Out Of Private Health Insurance Among Children," Inquiry - Excellus Health Plan, 2000, v37(1,Spring), 23-32.
Abstract: In this paper, we re-examine the question of crowd out among children. Our primary contribution is the use of longitudinal data. These data allow us to identify several groups of children depending on whether their eligibility for Medicaid was affected by the eligibility expansions, and to investigate whether changes in insurance coverage of children affected by the expansions differed from changes in insurance coverage of children unaffected by the expansions. For example, we directly measure whether children who became eligible for Medicaid due to the expansions decreased their enrollment in private insurance plans faster than children whose eligibility for Medicaid was unaffected by the expansions. Our results suggest that there was relatively little crowd out among children. We estimate that 14.5 percent of the recent increase in Medicaid enrollment came from private insurance.
Handle: RePEc:nbr:nberwo:6527
Template-Type: ReDIF-Paper 1.0
Title: Business Cycle Fluctuations in U.S. Macroeconomic Time Series
Classification-JEL: E30
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: EFG ME
Number: 6528
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6528
File-URL: http://www.nber.org/papers/w6528.pdf
File-Format: application/pdf
Publication-Status: Published as "Evidence on Structural Instability in Macroeconomic Time Series Relations", JBES, Vol. 14, no. 1 (January 1996): 11-30.
Publication-Status: published as Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64 Elsevier.
Abstract: This paper examines the empirical relationship in the postwar United States between the aggregate business cycle and various aspects of the macroeconomy, such as production, interest rates, prices, productivity, sectoral employment, investment, income, and consumption. This is done by examining the strength of the relationship between the aggregate cycle and the cyclical components of individual time series, whether individual series lead or lag the cycle, and whether individual series are useful in predicting aggregate fluctuations. The paper also reviews some additional empirical regularities in the U.S. economy, including the Phillips curve and some long-run relationships, in particular long-run money demand, long-run properties of interest rates and the yield curve, and the long-run properties of the shares in output of consumption, investment and government spending.
Handle: RePEc:nbr:nberwo:6528
Template-Type: ReDIF-Paper 1.0
Title: On Theories Explaining the Success of the Gravity Equation
Classification-JEL: F11; F12
Author-Name: Simon J. Evenett
Author-Name: Wolfgang Keller
Author-Person: pke8
Note: ITI
Number: 6529
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6529
File-URL: http://www.nber.org/papers/w6529.pdf
File-Format: application/pdf
Publication-Status: published as Evenett, Simon J. and Wolfgang Keller. "On Theories Explaining The Success Of The Gravity Equation," Journal of Political Economy, 2002, v110(2,Apr), 281-316.
Abstract: We analyze two main theories of international trade, the Heckscher-Ohlin theory and the Increasing Returns trade theory, by examining whether they can account for the empirical success of the so-called Gravity Equation. Since versions of both models can generate this prediction, we tackle the model identification problem by conditioning bilateral trade relations on factor endowment differences and the share of intra-industry trade, because only for large factor endowment differences does the Heckscher-Ohlin model generate specialization of production and the Gravity Equation, and it predicts inter-, not intra-industry trade. There are three major findings: First, little production is perfectly specialized due to factor endowment differences, making the perfect specialization version of the Heckscher-Ohlin model an unlikely candidate to explain the empirical success of the Gravity Equation. Second, increasing returns are important causes for perfect product specialization and the Gravity Equation, especially among industrialized countries. Third, to the extent that production is not perfectly specialized across countries, we find support for both Heckscher-Ohlin and Increasing Returns models. Based on these findings, we argue that both models explain different components of the international variation of production patterns and trade volumes, with important implications for productivity growth, labor and macroeconomics.
Handle: RePEc:nbr:nberwo:6529
Template-Type: ReDIF-Paper 1.0
Title: Capital Flows to Emerging Markets: Liberalization, Overshooting, and Volatility
Classification-JEL: F21; F32
Author-Name: Philippe Bacchetta
Author-Person: pba111
Author-Name: Eric van Wincoop
Author-Person: pva387
Note: IFM
Number: 6530
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6530
File-URL: http://www.nber.org/papers/w6530.pdf
File-Format: application/pdf
Publication-Status: published as Capital Flows to Emerging Markets: Liberalization, Overshooting, and Volatility, Philippe Bacchetta, Eric van Wincoop. in Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, Edwards. 2000
Abstract: The paper analyzes the impact of financial liberalizations and reforms in emerging markets on the dynamics of capital flows to these markets, using a simple model of international investors' behavior. We first show that the gradual nature of liberalizations, combined with the cost of absorbing large inflows in emerging economies, leads to rich dynamics of capital flows and often implies an initial period of overshooting as portfolios adjust. Asset prices will overshoot as well. Second, we show that if investors have incomplete information about new emerging markets, and learn over time, there can be high volatility of capital flows as well as contagion. Finally, we provide numerical estimates of long run capital inflows to emerging market economies and compare them to actual inflows. This gives a good indicator of upcoming crisis situations.
Handle: RePEc:nbr:nberwo:6530
Template-Type: ReDIF-Paper 1.0
Title: What Determines Individual Trade Policy Preferences?
Classification-JEL: F13
Author-Name: Kenneth F. Scheve
Author-Name: Matthew J. Slaughter
Note: ITI
Number: 6531
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6531
File-URL: http://www.nber.org/papers/w6531.pdf
File-Format: application/pdf
Publication-Status: published as Scheve, Kenneth F. and Matthew J. Slaughter. "What Determines Individual Trade-Policy Preferences?," Journal of International Economics, 2001, v54(2,Aug), 267-292.
Abstract: This paper provides new evidence on the determinants of individual trade policy preferences using an individual-level data set identifying both stated trade policy preferences and potential trade exposure through several channels for the United States in 1992. There are two main empirical results. First, we find that factor type dominates industry of employment in explaining support for trade barriers. This result is consistent with a Heckscher-Ohlin model of the United States in which the country is well endowed with skilled labor relative to the rest of the world. The result suggests that there is high intersectoral labor mobility in the United States over the time horizons relevant to individuals when evaluating trade policy. Second, we find that home ownership also matters for individuals' trade policy preferences. Independent of factor type, home ownership in counties with a manufacturing mix concentrated in comparative disadvantage industries is strongly correlated with support for trade barriers. This finding suggests that in addition to current factor incomes driving preferences as in standard trade models, in reality preferences also depend on asset values. To the extent that trade policy is like other government policies which affect citizens by changing relative product prices, our findings have implications for how individuals form preferences over a wide range of economic policies.
Handle: RePEc:nbr:nberwo:6531
Template-Type: ReDIF-Paper 1.0
Title: Does Government R&D Policy Mainly Benefit Scientists and Engineers?
Classification-JEL: O32; H56
Author-Name: Austan Goolsbee
Author-Person: pgo49
Note: PE
Number: 6532
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6532
File-URL: http://www.nber.org/papers/w6532.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 88, no. 2 (May 1998): 298-302.
Abstract: Conventional wisdom holds that the social rate of return to R&D significantly exceeds the private rate of return and, therefore, R&D should be subsidized. In the U.S., the government has directly funded a large fraction of total R&D spending. This paper shows that there is a serious problem with such government efforts to increase inventive activity. The majority of R&D spending is actually just salary payments for R&D workers. Their labor supply, however, is quite inelastic so when the government funds R&D, a significant fraction of the increased spending goes directly into higher wages. Using CPS data on wages of scientific personnel, this paper shows that government R&D spending raises wages significantly, particularly for scientists related to defense such as physicists and aeronautical engineers. Because of the higher wages, conventional estimates of the effectiveness of R&D policy may be 30 to 50% too high. The results also imply that by altering the wages of scientists and engineers even for firms not receiving federal support, government funding directly crowds out private inventive activity.
Handle: RePEc:nbr:nberwo:6532
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Sources of Growth: Estimates from United States Multinational Corporations
Classification-JEL: C14; D24
Author-Name: Jason G. Cummins
Author-Person: pcu10
Note: PE
Number: 6533
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6533
File-URL: http://www.nber.org/papers/w6533.pdf
File-Format: application/pdf
Publication-Status: published as Jason G. Cummins, 2000. "Taxation and the Sources of Growth: Estimates from U.S. Multinational Corporations," NBER Chapters, in: International Taxation and Multinational Activity, pages 231-264 National Bureau of Economic Research, Inc.
Abstract: Capital income tax policy affects investment by the parent and affiliates of multinational corporations (MNCs). In a model in which technical advances are embodied in new capital, investment will translate directly into productivity gains. In this paper, I use this framework to guide the growth accounting decomposition and clarify the relationship between capital growth and overall firm growth. A semiparametric technique is used to correct for the usual bias that afflicts production function parameter estimates. These estimates are used to analyze the sources of MNC's growth. Three findings stand out: (1) growth in parent and affiliate capital are the most important sources of growth, with FDI contributing more to growth than the sum of the contributions of parent and affiliate employment, and materials; (2) productivity has boomed since 1992, due to productivity growth in MNCs with Canadian affiliates; (3) the investment elasticity of productivity growth is large and adjustment costs of investment are small, suggesting that changes in the after-tax price of capital result in robust investment which translates directly into productivity gains.
Handle: RePEc:nbr:nberwo:6533
Template-Type: ReDIF-Paper 1.0
Title: New Evidence on Pensions, Social Security, and the Timing of Retirement
Classification-JEL: H55; J26
Author-Name: Andrew A. Samwick
Author-Person: psa395
Note: AG PE
Number: 6534
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6534
File-URL: http://www.nber.org/papers/w6534.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 70 (November 1998): 207-236.
Abstract: Using a unique dataset that links the economic and demographic information of households with the details of their pension formulas, I estimate the combined effect of Social Security and pension benefits on the probability of retirement in a cross-section of the population near retirement age. The accrual rate of retirement wealth is shown to be a significant determinant of the probability of retirement. Simulations of extensions in pension coverage comparable to those that occurred in the early postwar period can account for one fourth of the contemporaneous decline in labor force participation rates.
Handle: RePEc:nbr:nberwo:6534
Template-Type: ReDIF-Paper 1.0
Title: Diversity and Immigration
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 6535
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6535
File-URL: http://www.nber.org/papers/w6535.pdf
File-Format: application/pdf
Publication-Status: published as Diversity and Immigration, Edward P. Lazear. in Issues in the Economics of Immigration, Borjas. 2000
Abstract: One of the economic benefits of immigration is that the diversity of the population is enhanced. Diversity, it is argued, enriches the environment in which individuals live and trade and may contribute to greater creativity. What does diversity mean? Do current immigration policies enhance diversity? To the extent that there are gains from diversity, they come through the interaction of individuals from one culture or background with individuals from another. A good partner in the interaction has different skills, has skills that are relevant to one's own activity, and is a person with whom one can communicate. The argument in favor of diversity is evaluated both theoretically and empirically using the 1990 Census. Diversity cannot be the justification of U.S. immigration policy. Indeed, current immigration policy fails to promote diversity. Further, the results suggest that our immigration policy has resulted in differences in the characteristics of immigrants that reflect the effects of selection as much as they do the underlying characteristics of the populations from which the immigrants are drawn. Balanced immigration, perhaps implemented through the sale of immigration slots, would do more to enrich the diversity of the US population.
Handle: RePEc:nbr:nberwo:6535
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Minimum Wages on the Distribution of Family Incomes: A Non-Parametric Analysis
Classification-JEL: J18; I3
Author-Name: David Neumark
Author-Person: pne16
Author-Name: Mark Schweitzer
Author-Person: psc593
Author-Name: William Wascher
Note: LS
Number: 6536
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6536
File-URL: http://www.nber.org/papers/w6536.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Human Resources, Vol. 40, no. 4 (Autumn 2005): 867-894
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 relatively little about whether minimum wages are likely to achieve this goal; even if the disemployment effects of minimum wages are modest, minimum wage increases could result in net income losses for poor and low-income families. In this paper, we present evidence on the effects of minimum wages on family incomes from matched March CPS surveys. Using non-parametric estimates of the distributions of family income relative to needs in states and years with an without minimum wage increases, we examine the effects of minimum wages on this distribution, and on the distribution of the changes in income that families experience. Although minimum wages do increase the incomes of some poor families, the evidence indicates that the overall effects are to increase the proportion of families that are poor and near-poor, and to decrease the proportion of families with incomes between 1.5 and 3 times the poverty level.
Handle: RePEc:nbr:nberwo:6536
Template-Type: ReDIF-Paper 1.0
Title: The Shaping of Higher Education: The Formative Years in the United States, 1890 to 1940
Classification-JEL: I2; N3
Author-Name: Claudia Goldin
Author-Person: pgo601
Author-Name: Lawrence F. Katz
Author-Person: pka266
Note: LS PE
Number: 6537
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6537
File-URL: http://www.nber.org/papers/w6537.pdf
File-Format: application/pdf
Publication-Status: published as (Shortened version) Journal of Economic Perspectives, Vol. 13, no. 1 (Winter 1999): 37-62
Abstract: The American university was shaped in a formative period from 1890 to 1940 long before the rise of federal funding, the G.I. Bill, and mass higher education. Both the scale and scope of institutions of higher education were greatly increased, the research university blossomed, states vastly increased their funding of higher education, and the public sector greatly expanded relative to the private sector. Independent professional institutions declined, as did theological institutes and denominational colleges in general. Increases in the scale and scope of institutions of higher education were generated by exogenous changes in the that affected the professions generally and that of the clergy in particular. The increase in the share of students in the public sector may also have been prompted by these exogenous changes for they gave advantages to institutions, such as those in the public sector, that had research facilities, reputation, and a long purse. The high school movement, which swept parts of the country from 1910 to 1940, brought students from less privileged backgrounds to college and thus also buoyed enrollments in the public sector. States differed widely in their funding of higher education per capita and we find that greater generosity in 1929 was positively associated with later statehood, lower private college enrollments in 1900, greater shares of employment in mining and manufacturing, higher income, and a proxy for greater and more equally distributed wealth.
Handle: RePEc:nbr:nberwo:6537
Template-Type: ReDIF-Paper 1.0
Title: Export Entry and Exit by German Firms
Classification-JEL: F20; D21
Author-Name: Andrew B. Bernard
Author-Name: Joachim Wagner
Note: ITI
Number: 6538
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6538
File-URL: http://www.nber.org/papers/w6538.pdf
File-Format: application/pdf
Publication-Status: published as Andrew Bernard & Joachim Wagner, 2001. "Export entry and exit by German firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 137(1), pages 105-123, March.
Abstract: This paper examines the decision to enter the export market by German firms. While exports have played an important role in recent German business cycle movements, little is known about the export supply response of German firms. This paper presents a dynamic model of the export decision by a profit-maximizing firm. Using a panel of German manufacturing plants, we test for the role of plant characteristics and sunk costs in the entry decision. We find evidence for substantial sunk costs in export entry; exporting today by a plant increases the probability that the plant will export tomorrow by 50%. This advantage depreciates quickly, falling by two thirds in a year. We also find evidence that plant success, as measured by size and productivity, increases the likelihood of exporting.
Handle: RePEc:nbr:nberwo:6538
Template-Type: ReDIF-Paper 1.0
Title: A Re-Examination of the Conglomerate Merger Wave in the 1960s: An Internal Capital Markets View
Classification-JEL: G3
Author-Name: R. Glenn Hubbard
Author-Person: phu97
Author-Name: Darius Palia
Note: CF
Number: 6539
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6539
File-URL: http://www.nber.org/papers/w6539.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance (June 1999).
Abstract: One possible explanation that bidding firms earned positive abnormal returns in diversifying acquisitions in the 1960s is that internal capital markets were expected to overcome the information deficiencies of the less developed capital markets. Examining 392 bidder firms during the 1960s, we find the highest bidder returns when financially unconstrained' buyers acquire constrained' targets. This result holds while controlling for merger terms and for different proxies used to classify firms facing costly external financing. We also find that bidders generally retain target management, suggesting that management may have provided company-specific operational information, while the bidder provided capital-budgeting expertise.
Handle: RePEc:nbr:nberwo:6539
Template-Type: ReDIF-Paper 1.0
Title: An Examination of Gender and Race Differences in Youth Smoking Responsiveness to Price and Tobacco Control Policies
Author-Name: Frank J. Chaloupka
Author-Person: pch236
Author-Name: Rosalie Liccardo Pacula
Author-Person: ppa1299
Note: EH
Number: 6541
Creation-Date: 1998-04
Order-URL: http://www.nber.org/papers/w6541
File-URL: http://www.nber.org/papers/w6541.pdf
File-Format: application/pdf
Publication-Status: published as Frank J Chaloupka and Rosalie Liccardo Pacula "Sex and race differences in young people's responsiveness to price and tobacco control policies," Tobacco Control 1999; 8: 373-377.
Abstract: Nationally representative studies consistently report significant gender and racial differences in youth smoking rates, although little research has been done to explain why. In this paper we examine one possible source for this variation: differences in youth responsiveness to changes in price or tobacco control policies. Using data from the 1992-1994 Monitoring the Future surveys, we find that young men are much more responsive to changes in the price of cigarettes than young women. The participation elasticity for men is almost twice as large as that for women. Further, we find that smoking rates of young black men are significantly more responsive to changes in price than young white men. In addition, we find significant differences in responsiveness to particular tobacco control policies. Smoking rates among white youths are responsive to anti-tobacco activities and clean indoor air restrictions, while smoking rates among black youths are significantly influenced by smoker protection laws and restrictions on youth access.
Handle: RePEc:nbr:nberwo:6541
Template-Type: ReDIF-Paper 1.0
Title: Evaluating the Welfare State
Classification-JEL: H43; C93
Author-Name: James J. Heckman
Author-Name: Jeffrey A. Smith
Author-Person: psm73
Note: PE
Number: 6542
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6542
File-URL: http://www.nber.org/papers/w6542.pdf
File-Format: application/pdf
Publication-Status: published as Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial, Strom, Steiner, ed., Cambridge: Cambridge University Press, 1998, pp. 241-318.
Abstract: A variety of criteria are relevant for evaluating alternative policies in democratic societies composed of persons with diverse values and perspectives. In this paper, we consider alternative criteria for evaluating the welfare state, and the data required to operationalize them. We examine sets of identifying assumptions that bound, or exactly produce, these alternative criteria given the availability of various types of data. We consider the economic questions addressed by two widely-used econometric evaluation estimators and relate them to the requirements of a comprehensive cost-benefit analysis. We present evidence on how the inference from the most commonly used econometric evaluation estimator is modified when the direct costs of a program are fully assessed, including the welfare costs of the taxes required to support the program. Finally, we present evidence of the empirical inconsistency of alternative criteria derived from evaluations based on on self-selection and attrition decisions, and on self-reported evaluations from questionnaires when applied to a prototypical job training program.
Handle: RePEc:nbr:nberwo:6542
Template-Type: ReDIF-Paper 1.0
Title: Forward-Looking Rules for Monetary Policy
Author-Name: Andrew G. Haldane
Author-Person: pha1042
Author-Name: Nicoletta Batini
Author-Person: pba203
Note: ME
Number: 6543
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6543
File-URL: http://www.nber.org/papers/w6543.pdf
File-Format: application/pdf
Publication-Status: published as Forward-Looking Rules for Monetary Policy, Nicoletta Batini, Andrew Haldane. in Monetary Policy Rules, Taylor. 1999
Abstract: This paper evaluates a class of simple monetary policy rules which feed back from explicit forecasts of future inflation - inflation forecast-based (IFB) rules. These rules aim to mimic current monetary policy practices among the inflation-targeting countries, where policy decisions are based on inflation forecasts. The rules themselves are evaluated using simulations from a small, rational expectations, open-economy macro-model. IFB rules are found to perform well in comparison with other simple rules, such as the Taylor rule. The reasons for this are: first, because they embody the lags in monetary transmission, aligning explicitly the control and the feedback variables of the policymaker; second, because IFB rules are capable of smoothing output by as much as is possible with rules which target output directly - for example, through variations in the forecast horizon; and third, because IFB rules implicitly condition on all state variables, and thus are information-efficient. For these reasons, inflation-targeting rules with an explicitly forward-looking dimension are found to take us within reach of the fully-optimal rule.
Handle: RePEc:nbr:nberwo:6543
Template-Type: ReDIF-Paper 1.0
Title: Incentive Contracting and the Franchise Decision
Classification-JEL: L2; L8
Author-Name: Francine Lafontaine
Author-Person: pla92
Author-Name: Margaret E. Slade
Author-Person: psl6
Note: IO
Number: 6544
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6544
File-URL: http://www.nber.org/papers/w6544.pdf
File-Format: application/pdf
Publication-Status: published as Advances in Business Applications of Game Theory, Chatterjee, K. and W. Samuelson, eds., Kluwer Academic Press, 2000.
Abstract: We examine theoretical predictions and econometric evidence concerning franchise contracting and sales-force compensation and suggest a number of factors that ought to influence the contracts that are written between principles and agents. For each factor, we construct the simplest theoretical model that is capable of capturing what we feel to be its essence. The comparative statics from the theoretical exercise are then used to organize our discussion of the empirical evidence, where the evidence is taken from published studies that have attempted to assess each factor's effect on the power of agent incentives. We also discuss theoretical issues and empirical results pertaining to a few topics that have been addressed in the literature but that do not fit easily into our simple modeling framework. A surprising finding of our survey of retail contracting under exclusive marks is the robust nature of the evidence: although researchers assess different industries over different time periods using a number of proxies for a given factor, their empirical findings are usually consistent with one another.
Handle: RePEc:nbr:nberwo:6544
Template-Type: ReDIF-Paper 1.0
Title: A Distributional Analysis of an Environmental Tax Shift
Classification-JEL: H22; H23
Author-Name: Gilbert E. Metcalf
Note: PE
Number: 6546
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6546
File-URL: http://www.nber.org/papers/w6546.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Vol. 52, no. 4 (1999): 655-681.
Abstract: I use data from the 1994 Consumer Expenditure Survey as well as other sources to measure the distributional impact of green tax reforms and consumption tax reforms using both annual income and lifetime income approaches to rank households. A modest tax reform in which environmental taxes equal to 10% of federal receipts are collected has a negligible impact on the income distribution when the funds are rebated to households through reductions in the payroll tax and personal income tax. The degree of income shifting can be adjusted with changes in how the revenues are returned to households and it is possible to increase the progressivity of the tax system with an environmental tax reform. I then compare these reforms to a reform that shifts the tax base from income to consumption. In this case, it is difficult to maintain the level of progressivity that exists under the current income tax although ways exist by which the regressivity of the reform could be blunted. Whether the long term growth gains from consumption tax reform would offset the initial increase in regressivity remains to be determined. A shift to greater reliance on environmental taxes would reduce the progressivity of the tax system. This analysis indicates that reforms can be designed to preserve the existing income distribution. In fact, it appears to be easier to maintain distributional neutrality with a Green tax reform than with a comprehensive consumption tax reform.
Handle: RePEc:nbr:nberwo:6546
Template-Type: ReDIF-Paper 1.0
Title: The Rise in Old Age Longevity and the Market for Long-Term Care
Classification-JEL: I1
Author-Name: Darius Lakdawalla
Author-Person: pla295
Author-Name: Tomas Philipson
Author-Person: pph37
Note: AG
Number: 6547
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6547
File-URL: http://www.nber.org/papers/w6547.pdf
File-Format: application/pdf
Publication-Status: published as Lakdawalla, Darius and Tomas Philipson. "The Rise Of Old-Age Longevity And The Market For Long-Term Care," American Economic Review, 2002, v92(1,Mar), 295-306.
Abstract: This paper analyzes how markets for old-age care respond to the aging of populations. We consider how the biological forces, which govern the stocks of frail and healthy persons in a population, interacct with economic forces, which govern the demand and suppoly for labor-intensive care. Many economists have argued that aging will raise the market demand for long-term care, and hence price and quantity through classic market effects. We argue that the direct effect of aging is to lower the demand for market care by incresing the supply of home production. By influencing the length of frail lifetimes, aging may also have a further indirect demand effect, which may reinforce or counteract the direct negative demand effect. By providing healthy spouses, the marriage market provides care-givers for home production of long-term care; therefore, growth in old-age longevity may lower the demand for market production. Growth of elderly males serves to contract the long-term care market becuase it eases the scarcity of men in the old-age marriage market; growth of females serves to expand market care because it worsens the scarcity of men. These predictions lend themselves to an interpretation of the rapid deceleration in output growth that has taken place in the US over the last two decades, despite a constant rate of longevity growth and enormous growth in demand subsidies: since growth in elderly males has risen dramatically relative to growth in elderly females, the rate of long-term care growth has slowed significantly. We test our predictions empirically using state- and county-level evidence on the US market for long-term care in nursing homes over the last three decades. The evidence provides support for our predictions concerning the response in output growth to aging and the contraction of output due to the aging of males.
Handle: RePEc:nbr:nberwo:6547
Template-Type: ReDIF-Paper 1.0
Title: The Effect of Old Age Assistance on Retirement
Classification-JEL: H53; J14
Author-Name: Leora Friedberg
Note: AG PE
Number: 6548
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6548
File-URL: http://www.nber.org/papers/w6548.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 71, no. 2 (February 1999): 213-252.
Abstract: Researchers have devoted considerable attention to analyzing the impact of Social Security on retirement, with mixed findings. However, Old Age Assistance (OAA), a means-tested program established at the same time, dwarfed Social Security until the 1950s and coincided with the early decline in elderly participation. In addition, OAA benefit levels were determined by the states - a key source of policy variation that is missing in the case of Social Security. I estimate the relationship between OAA benefit levels and elderly labor force participation using individual data from the 1940 and 1950 Censuses. The effect of OAA is found to be strong and implies that participation would have risen slightly instead of falling if benefits had not been raised during the 1940s. I also present evidence against the endogeneity of state benefit levels.
Handle: RePEc:nbr:nberwo:6548
Template-Type: ReDIF-Paper 1.0
Title: Why Do the Rich Save So Much?
Classification-JEL: D11; D12
Author-Name: Christopher D. Carroll
Author-Person: pca45
Note: ME
Number: 6549
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6549
File-URL: http://www.nber.org/papers/w6549.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.
Abstract: This paper considers several alternative explanations for the fact that households with higher levels of lifetime income ( the rich') have higher lifetime saving rates (Dynan, Skinner, and Zeldes (1996); Lillard and Karoly (1997)). The paper argues that the saving behavior of the richest households cannot be explained by models in which the only purpose of wealth accumulation is to finance future consumption, either their own or that of heirs. The paper concludes that the simplest model that explains the relevant facts is one in which either consumers regard the accumulation of wealth as an end in itself, or unspent wealth yields a flow of services (such as power or social status) which have the same practical effect on behavior as if wealth were intrinsically desirable.
Handle: RePEc:nbr:nberwo:6549
Template-Type: ReDIF-Paper 1.0
Title: Were the Good Old Days That Good? Changes in Managerial Stock Ownership Since the Great Depression
Classification-JEL: G32; G34
Author-Name: Clifford G. Holderness
Author-Name: Randall S. Kroszner
Author-Name: Dennis P. Sheehan
Note: DAE CF
Number: 6550
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6550
File-URL: http://www.nber.org/papers/w6550.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance (April 1999): 435-469.
Abstract: We document that ownership by officers and directors of publicly-traded firms is on average higher today than earlier in the century. Managerial ownership rises from 13 percent for the universe of exchange-listed corporations in 1935, the earliest year for which such data exist, to 21 percent in 1995. We examine in detail the robustness of the increase and explore hypotheses to explain it. Higher managerial ownership has not substituted for alternative corporate governance mechanisms. Lower volatility and greater hedging opportunities associated with the development of financial markets appear to be important factors explaining the increase in managerial ownership.
Handle: RePEc:nbr:nberwo:6550
Template-Type: ReDIF-Paper 1.0
Title: Adjusting to a New Technology: Experience and Training
Classification-JEL: O30
Author-Name: Elhanan Helpman
Author-Person: phe205
Author-Name: Antonio Rangel
Author-Person: pra69
Note: EFG
Number: 6551
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6551
File-URL: http://www.nber.org/papers/w6551.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 4, no. 4 (December 1999): 359-383
Abstract: In this paper we study how aggregate output responds to the arrival of a new General Purpose Technology (GPT) by looking at adjustment mechanisms that operate through labor markets. We show that under a wide set of circumstances the arrival of a new GPT that raises long-run output can trigger a recession in the short-run. Furthermore, we characterize features of the GPT that produce a cyclical adjustment path. An initial recession occurs whenever a higher education level is required to operate the new GPT. But a recession can also occur when the new GPT has lower educational requirements. A cyclical adjustment path is more likely when inexperienced workers are less productive with the new technology and the faster productivity rises with experience in the new sector.
Handle: RePEc:nbr:nberwo:6551
Template-Type: ReDIF-Paper 1.0
Title: Moral Hazard in Home Equity Conversion
Classification-JEL: G21
Author-Name: Robert J. Shiller
Author-Person: psh69
Author-Name: Allan N. Weiss
Note: AP
Number: 6552
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6552
File-URL: http://www.nber.org/papers/w6552.pdf
File-Format: application/pdf
Publication-Status: published as Shiller, Robert J. and Alan N. Weiss. "Moral Hazard In Home Equity Conversion," Real Estate Economics, 2000, v28(1,Spring), 1-31.
Abstract: Home equity conversion as presently constituted or proposed usually does not deal well with the potential problem of moral hazard. Once home-owners know that the risk of poor market performance of their homes is borne by investors, they have an incentive to neglect to take steps to maintain the homes' values. They may thus create serious future losses for the investors. A calibrated model for assessing this moral hazard risk is presented that is suitable for a number of home equity conversion forms: 1) reverse mortgages, 2) home equity insurance, 3) shared appreciation mortgages, 4) housing partnerships, 5) shared equity mortgages and 6) sale of remainder interest. Modifications of these forms involving real estate price indices are proposed that might deal better with the problem of moral hazard.
Handle: RePEc:nbr:nberwo:6552
Template-Type: ReDIF-Paper 1.0
Title: Bad News Travels Slowly: Size, Analyst Coverage and the Profitability of Momentum Strategies
Author-Name: Harrison Hong
Author-Person: pho390
Author-Name: Terence Lim
Author-Name: Jeremy C. Stein
Author-Person: pst43
Note: AP CF
Number: 6553
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6553
File-URL: http://www.nber.org/papers/w6553.pdf
File-Format: application/pdf
Publication-Status: published as Hong, Harrison, Terence Lim and Jeremy C. Stein. "Bad News Travels Slowly: Size, Analyst Coverage, And The Profitability Of Momentum Strategies," Journal of Finance, 2000, v55(1,Feb), 265-295.
Abstract: A number of theories have been proposed to explain the medium-term momentum in stock returns identified by Jegadeesh and Titman (1993). We test one such theory--based on the gradual-information-diffusion model of Hong and Stein (1997)--and establish three key results. First, once one moves past the very smallest stocks (where thin market-making capacity appears to be an issue) the profitability of momentum strategies declines sharply with firm size. Second, holding size fixed, momentum strategies work particularly well among stocks which have low analyst coverage. Finally, there is a strong asymmetry: the effect of analyst coverage is much more pronounced for stocks that are past losers than for stocks that are past winners. These findings are consistent with the hypothesis that firm-specific information only gradually across the investing public.
Handle: RePEc:nbr:nberwo:6553
Template-Type: ReDIF-Paper 1.0
Title: Parental Leave and Child Health
Classification-JEL: I12; I18
Author-Name: Christopher J. Ruhm
Author-Person: pru7
Note: CH EH LS
Number: 6554
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6554
File-URL: http://www.nber.org/papers/w6554.pdf
File-Format: application/pdf
Publication-Status: published as Ruhm, Christopher J. "Parental Leave And Child Health," Journal of Health Economics, 2000, v19(6,Nov), 931-960.
Abstract: This study investigates whether rights to paid parental leave improve pediatric health, as measured by birth weights and infant or child mortality. Aggregate data are used for nine European countries over the 1969 through 1994 period. Year and country fixed-effects are held constant and most specifications include additional covariates or control for country-specific time trends. Much of the analysis incorporates a natural experiments comparing changes in pediatric outcomes to those of senior citizens, whose health is not expected to be affected by parental leave. More generous leave rights are found to reduce deaths of infants and young children. The magnitudes of the estimated effects are substantial, especially for those outcomes where a causal effect of parental leave is most plausible. In particular, there is a much stronger negative relationship between leave durations and post-neonatal mortality or fatalities between the first and fifth birthday than for perinatal mortality, neonatal deaths, or the incidence of low birth weight. The evidence further suggests that parental leave may be a cost-effective method of bettering child health.
Handle: RePEc:nbr:nberwo:6554
Template-Type: ReDIF-Paper 1.0
Title: Macroeconomic Policy and Institutions During the Transition to European Union Membership
Classification-JEL: E61; F32
Author-Name: William H. Branson
Author-Name: Jorge Braga de Macedo
Author-Person: pbr373
Author-Name: Jurgen von Hagen
Author-Person: pvo15
Note: IFM
Number: 6555
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6555
File-URL: http://www.nber.org/papers/w6555.pdf
File-Format: application/pdf
Abstract: A framework is developed for macroeconomic policy analysis in four countries of Central Europe (CE) in transition to EU membership (Czech Republic, Hungary, Poland, and Slovakia). A Multi-Annual Fiscal Adjustment Strategy (MAFAS) and a Pre-Pegging Exchange Rate Regime (PPERR) appropriate for maintaining internal and external balance are described and evidence on budgetary procedures is presented, in comparison with those prevailing in EU member states. The comparison suggests that the four CE countries are better fit for fiscal stabilization than Greece, Spain and Portugal were in the 1970s. Nevertheless, there is still much room for institutional improvement. A stronger commitment mechanism to fiscal targets at the preparatory stage would improve fiscal performance in all four countries. The adoption of a kind of convergence program would also be made easier if some group procedures can be adopted among them. The four countries also appear to have moved closer to sustainability in their external and internal balance in the last few years so that a MAFAS and a PPERR become credible. The fact that they established CEFTA (which Slovenia since joined) also helps set them apart from other EU associates in the region.
Handle: RePEc:nbr:nberwo:6555
Template-Type: ReDIF-Paper 1.0
Title: Subsidiarity and the European Union
Classification-JEL: H1; H7
Author-Name: Robert P. Inman
Author-Name: Daniel L. Rubinfeld
Note: IFM
Number: 6556
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6556
File-URL: http://www.nber.org/papers/w6556.pdf
File-Format: application/pdf
Abstract: The European Union is at a crossroads. At issue will be each of the three decisions which define a federal constitution: the number of participating governments, the assignment of policy responsibilities to the new EMU, and the representation of local interests in, and the decision-making rules for, the Union. Subsidiarity is to be the guiding principle. This essay reviews three alternative models of subsidiarity -- decentralized federalism, centralized federalism, and democratic federalism -- and argues the current European Economic Community has evolved from decentralized to centralized to a fully democratic federalist state. The structure of EMU governance is in place and it closely resembles that of the United States: an institutionally weak executive, a country-specific Council of Ministers and a locally representative Parliament. The remaining issues to be decided are the number of participating members and the assignment of policy responsibilities to levels of government. A large Union with significant fiscal policy responsibilities is likely to replicate U.S. economic policy performance.
Handle: RePEc:nbr:nberwo:6556
Template-Type: ReDIF-Paper 1.0
Title: International Trade and Per Capita Income Convergence: A Difference-in-Differences Analysis
Classification-JEL: F1; F4
Author-Name: Matthew J. Slaughter
Note: ITI
Number: 6557
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6557
File-URL: http://www.nber.org/papers/w6557.pdf
File-Format: application/pdf
Publication-Status: published as Slaughter, Matthew J. "Trade Liberalization And Per Capita Income Convergence: A Difference-In-Differences Analysis," Journal of International Economics, 2001, v55(1,Oct), 203-228.
Abstract: In this paper I analyze whether international trade contributes to per capita income convergence across countries. The analysis focuses on four important post-1945 multilateral trade liberalizations. To identify trade's effect on income dispersion, in each case I use a difference-in-differences' approach which compares the convergence pattern among the liberalizing countries before and after liberalization with the convergence pattern among randomly chosen control countries before and after liberalization. My main empirical result is that trade liberalization did not trigger convergence in any of the four cases. If anything, trade seems to have caused income divergence.
Handle: RePEc:nbr:nberwo:6557
Template-Type: ReDIF-Paper 1.0
Title: Productivity and the Decision to Export: Micro Evidence from Taiwan and South Korea
Classification-JEL: F14; O12
Author-Name: Bee Yan Aw
Author-Name: Sukkyun Chung
Author-Name: Mark J. Roberts
Author-Person: pro190
Note: ITI
Number: 6558
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6558
File-URL: http://www.nber.org/papers/w6558.pdf
File-Format: application/pdf
Publication-Status: published as World Bank Economic Review, Vol. 14, no. 1 (January 2000): 65-90.
Abstract: While there is widespread empirical evidence indicating exporting producers have higher productivity than nonexporters, the mechanisms that generate this pattern are less clear. One view is that exporters acquire knowledge of new production methods, inputs, and product designs from their international contacts, and this learning results in higher productivity for exporters relative to their more insulated domestic counterparts. Alternatively, the higher productivity of exporters may simply reflect the self-selection of more efficient producers into a highly competitive export market. In this paper we use micro data collected in the manufacturing censuses in South Korea and Taiwan to study the linkages between a producer's total factor productivity and choice to participate in the export market. We find differences between the countries in the importance of selection and learning forces. In Taiwan, transitions of firms in and out of the export market reflect systematic variations in productivity as predicted by self-selection models. Firms with higher productivity, ex ante, tend to enter the export market and exporters with low productivity tend to exit. Moreover, in several industries, entry into the export market is followed by relative productivity improvements, a result consistent with learning-by-exporting forces. In South Korea, the evidence of self-selection on the basis of productivity is much weaker. In addition, unlike Taiwan, we find no significant productivity changes following entry or exit from the export market that are consistent with learning from exporting. Comparison of the two countries suggests that in Korea factors other than production efficiency play a more prominent role as determinants determinants of the export decision.
Handle: RePEc:nbr:nberwo:6558
Template-Type: ReDIF-Paper 1.0
Title: The Global Capital Market: Benefactor or Menace?
Classification-JEL: F31; F41
Author-Name: Maurice Obstfeld
Author-Person: pob13
Note: IFM ITI
Number: 6559
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6559
File-URL: http://www.nber.org/papers/w6559.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 12 (Fall 1998): 9-30.
Abstract: This paper reviews the theoretical functions, history, and policy problems raised by the international capital market. The goal is to offer a perspective on both the considerable advantages the market offers and on the genuine hazards it poses, as well as on the avenues through which it constrains national policy choices. A duality of benefits and risks is inescapable in the real world of asymmetric information and imperfect contract enforcement. I argue, however, that in confronting the global capital market there is no reason to depart from conventional economic wisdom. The way to maximize net benefits is to encourage economic integration while attacking concomitant distortions and other unwanted side-effects at, or close to, their sources.
Handle: RePEc:nbr:nberwo:6559
Template-Type: ReDIF-Paper 1.0
Title: Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility
Classification-JEL: E21
Author-Name: Orazio P. Attanasio
Author-Person: pat7
Author-Name: Tullio Jappelli
Author-Person: pja11
Note: EFG
Number: 6560
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6560
File-URL: http://www.nber.org/papers/w6560.pdf
File-Format: application/pdf
Publication-Status: published as Attanasio, Orazio P. and Tullio Jappelli. "Intertemporal Choice And The Cross-Sectional Variance Of Marginal Utility," Review of Economics and Statistics, 2001, v83(1,Feb), 13-27.
Abstract: The theory of intertemporal choice predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach circumvents the necessity to identify a pure age profile of the cross-sectional variance of consumption and yields a well-specified statistical test. This test is applied to data from the United States, the United Kingdom and Italy. The results are remarkably consistent with the restrictions implied by the theory of intertemporal consumption choices.
Handle: RePEc:nbr:nberwo:6560
Template-Type: ReDIF-Paper 1.0
Title: Outside Equity Financing
Classification-JEL: G32
Author-Name: Stewart C. Myers
Note: CF
Number: 6561
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6561
File-URL: http://www.nber.org/papers/w6561.pdf
File-Format: application/pdf
Publication-Status: published as The Journal of Finance, Vol.55, No.3, June 2000.
Abstract: This paper explores the necessary conditions for outside equity financing when insiders, that is managers or entrepreneurs, are self-interested and cash flows are not verifiable. Two control mechanisms are contrasted: a partnership,' in which outside investors can commit assets for a specified period, and a corporation,' in which assets are committed for an indefinite period but insiders can be ejected at any time. The paper also shows how going public to reduce outsiders' power can be efficient if it preserves appropriate incentives for insiders. The concluding section explains how the difficulty of verifying the act of investment leads to monitoring costs and insiders' pursuit of private benefits of control.
Handle: RePEc:nbr:nberwo:6561
Template-Type: ReDIF-Paper 1.0
Title: Trade Policy and Economic Performance in Sub-Saharan Africa
Classification-JEL: F13; F43
Author-Name: Dani Rodrik
Author-Person: pro60
Note: ITI
Number: 6562
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6562
File-URL: http://www.nber.org/papers/w6562.pdf
File-Format: application/pdf
Publication-Status: published as Rodrik, Dani. Stockholm: Expert Group on Development Issues. Almqvist and Wiksell International, 1999.
Abstract: This study focuses on the role of trade and trade policy in achieving sustained long-term growth in Africa. One major conclusion is that trade policy in Sub-Saharan Africa works much the same way that it does elsewhere. High levels of trade restrictions have been an important obstacle to exports in the past, and their reduction can be expected to result in significantly improved trade performance in the region. There is little ground for pessimism in this respect, or for concern that Africa's different conditions poor infrastructure, geography, or dependence on a limited number of primary products make it a special case in which exports are not responsive to prices or to the traditional instruments of commercial policy. At the same time, the effects of trade policy on economic growth seem to be indirect and much more modest. The fundamentals for long-term growth are human resources, physical infrastructure, macroeconomic stability, and the rule of law.
Handle: RePEc:nbr:nberwo:6562
Template-Type: ReDIF-Paper 1.0
Title: Currency Crisis and Unemployment: Sterling in 1931
Classification-JEL: F2; F3
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Olivier Jeanne
Author-Person: pje59
Note: IFM
Number: 6563
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6563
File-URL: http://www.nber.org/papers/w6563.pdf
File-Format: application/pdf
Publication-Status: published as Currency Crisis and Unemployment: Sterling in 1931, Barry Eichengreen, Olivier Jeanne. in Currency Crises, Krugman. 2000
Abstract: This paper studies the role of unemployment in sterling's interwar experience. According to most narrative accounts, the proximate cause of the 1931 sterling crisis was a high and rising unemployment rate that placed pressure on British governments to pursue reflationary policies. We present a model which, in the spirit of the second generation' approach to currency crises, highlights the conflict between the objective of low unemployment and defense of the currency and show that it can reproduce the main features of sterling's interwar experience. Econometric evidence lends further support to the view that the proximate cause of the sterling crisis was the dramatic rise in unemployment brought about by external deflationary forces.
Handle: RePEc:nbr:nberwo:6563
Template-Type: ReDIF-Paper 1.0
Title: Does the Sector Bias of Skill-Biased Technical Change Explain Changing Wage Inequality?
Classification-JEL: F1; J3
Author-Name: Jonathan E. Haskel
Author-Person: pha161
Author-Name: Matthew J. Slaughter
Note: LS ITI
Number: 6565
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6565
File-URL: http://www.nber.org/papers/w6565.pdf
File-Format: application/pdf
Publication-Status: published as Haskel, Jonathan E. and Matthew J. Slaughter. "Does The Sector Bias Of Skill-biased Technical Change Explain Changing Skill Premia?," European Economic Review, 2002, v46(10,Dec), 1757-1783.
Abstract: This paper examines whether the sector bias of skill-biased technical change (sbtc) explains changing skill premia within countries in recent decades. First, using a two-factor, two-sector, two-country model we demonstrate that in many cases it is the sector bias of sbtc that determines sbtc's effect on relative factor prices, not its factor bias. Thus, rising (falling) skill premia are caused by more extensive sbtc in skill-intensive (unskill-intensive) sectors. Second, we test the sector-bias hypothesis using industry data for many countries in recent decades. An initial consistency check strongly supports the hypothesis. Among ten countries we find a strong correlation between changes in skill premia and the sector bias of sbtc during the 1970s and 1980s. The hypothesis is also strongly supported by more structural estimation on U.S. and U.K. data of the economy-wide wage changes mandated' to maintain zero profits in all sectors in response to the sector bias of sbtc. The suggestive mandated-wage estimates match the direction of actual wage changes in both countries during both the 1970s and the 1980s. Thus, the empirical evidence strongly suggests that the sector bias of sbtc can help explain changing skill premia.
Handle: RePEc:nbr:nberwo:6565
Template-Type: ReDIF-Paper 1.0
Title: Revisiting European Unemployment: Unemployment, Capital Accumulation, and Factor Prices
Classification-JEL: E10; E29
Author-Name: Olivier Blanchard
Author-Person: pbl2
Note: EFG
Number: 6566
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6566
File-URL: http://www.nber.org/papers/w6566.pdf
File-Format: application/pdf
Publication-Status: published as Geary Lecture, ESRI, June 1998.
Publication-Status: published as Blanchard, Olivier, 1998. "Revisiting European Unemployment : Unemployment, Capital Accumulation and Factor Prices," Research Series, Economic and Social Research Institute (ESRI), number 28.
Abstract: This paper starts from two sets of facts about Continental Europe.The first is the steady increase in unemployment since the early 1970s. The second is the evolution of the capital share, an initial decline in the 1970s, followed by a much larger increase since the mid-1980s. The paper then develops a model of capital accumulation, unemployment and factor prices. Using this model to look at the data, it reaches two main conclusions: The initial increase in unemployment, from the mid-1970s to the mid-1980s, was mostly due to a failure of wages to adjust to the slowdown in underlying factor productivity growth. The initial effect was to decrease profit rates and capital shares. Over time, the reaction of firms was to reduce capital accumulation and move away from labor, leading to a steady increase in unemployment, and a recovery of the capital share. The reason why wage moderation, clearly evident in the data since the mid-1980s, has not led to a decrease in unemployment is that another type of shift has been at work, this time on the labor demand side. At a given wage and a given capital stock firms have steadily decreased employment. The effect of this adverse shift in labor demand has been to lead to both continued high unemployment, and increasing capital shares. What lies behind this shift in labor demand? There are two potential lines of explanation. The first is shifts in the distribution of rents away from workers, for example, the elimination of chronic excess employment by firms. The second explanation points to technological bias: firms in Continental Europe are introducing technologies biased against labor and towards capital.
Handle: RePEc:nbr:nberwo:6566
Template-Type: ReDIF-Paper 1.0
Title: Asset Holding and Consumption Volatility
Classification-JEL: E21; G12
Author-Name: Orazio Attanasio
Author-Person: pat7
Author-Name: James Banks
Author-Person: pba509
Author-Name: Sarah Tanner
Note: EFG
Number: 6567
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6567
File-URL: http://www.nber.org/papers/w6567.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 110, no. 4 (August 2002): 771-792
Abstract: Recent studies have explored the possibility that limited participation in asset markets, and the stock market in particular, might explain the lack of correspondence between the sample moments of the Intertemporal Marginal Rate of Substitution and asset returns. We estimate ownership probabilities to separate likely' shareholders from non-shareholders, enabling us to control for changing composition effects as well as selection into the group. We then construct estimates of the IMRS for each of these different groups and consider their time series properties. We find that the consumption growth of shareholders is more volatile than that of non-shareholders, and more highly correlated with excess returns to shares. In particular, one cannot reject the predictions of the Consumption CAPM for the group of households predicted to own both assets. This is in contrast to the failure of the model when estimated on data for all households.
Handle: RePEc:nbr:nberwo:6567
Template-Type: ReDIF-Paper 1.0
Title: Does Cultural Origin Affect Saving Behavior? Evidence from Immigrants
Classification-JEL: D1; D8
Author-Name: Christopher D. Carroll
Author-Person: pca45
Author-Name: Byung-Kun Rhee
Author-Name: Changyong Rhee
Note: ME
Number: 6568
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6568
File-URL: http://www.nber.org/papers/w6568.pdf
File-Format: application/pdf
Publication-Status: published as Economic Development and Cultural Change, Vol. 48, no. 1 (1999): 33-50.
Abstract: Because efforts to explain international saving differentials using traditional economic variables have not been very successful (Bosworth, 1993), some economists have proposed that national saving differences reflect cultural differences. We attempt to test that hypothesis by using data from the US Census to examine whether immigrants to the US from high-saving countries tend to save more than immigrants from low-saving countries. While we do find highly statistically significant differences in immigrants' saving behavior by country of origin, those differences do not match up with the differences in national saving rates. In particular, immigrants from high-saving Asian countries do not save more than other immigrants.
Handle: RePEc:nbr:nberwo:6568
Template-Type: ReDIF-Paper 1.0
Title: Pharmaceutical Innovation, Mortality Reduction, and Economic Growth
Classification-JEL: I1; L6
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: EH PR
Number: 6569
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6569
File-URL: http://www.nber.org/papers/w6569.pdf
File-Format: application/pdf
Publication-Status: published as Murphy, Kevin M. and Robert H. Topel (eds.) Measuring the Gains from Medical Research: An Economic Approach. Chicago: University of Chicago Press, 2003.
Abstract: We perform an econometric investigation of the contribution of pharmaceutical innovation to mortality reduction and growth in lifetime per capita income. In both of the periods studied (1970-80 and 1980-91), there is a highly significant positive relationship across diseases between the increase in mean age at death (which is closely related to life expectancy) and rates of introduction of new, priority' (as defined by the FDA) drugs. The estimates imply that in the absence of pharmaceutical innovation, there would have been no increase and perhaps even a small decrease in mean age at death, and that new drugs have increased life expectancy, and lifetime income, by about 0.75-1.0% per annum. The drug innovation measures are also strongly positively related to the reduction in life-years lost in both periods. Some of the more conservative estimates imply that a one-time R&D expenditure of about $15 billion subsequently saves 1.6 million life-years per year, whose annual value is about $27 billion. All age groups benefited from the arrival of new drugs in at least one of the two periods. Controlling for growth in inpatient and ambulatory care utilization either has no effect on the drug coefficient or significantly increases it.
Handle: RePEc:nbr:nberwo:6569
Template-Type: ReDIF-Paper 1.0
Title: Robustness of Simple Monetary Policy Rules under Model Uncertainty
Author-Name: Andrew Levin
Author-Person: ple143
Author-Name: Volker Wieland
Author-Person: pwi9
Author-Name: John C. Williams
Author-Person: pwi23
Note: ME
Number: 6570
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6570
File-URL: http://www.nber.org/papers/w6570.pdf
File-Format: application/pdf
Publication-Status: published as Levin, Andrew, Volker Wieland and John C. Williams. "The Performance Of Forecast-Based Monetary Policy Rules Under Model Uncertainty," American Economic Review, 2003, v93(3,Jun), 622-645.
Publication-Status: published as Robustness of Simple Monetary Policy Rules under Model Uncertainty, Andrew T.. Levin, Volker Wieland, John Williams. in Monetary Policy Rules, Taylor. 1999
Abstract: In this paper, we investigate the properties of alternative monetary policy rules using four structural macroeconometric models: the Fuhrer-Moore model, Taylor's Multi-Country Model, the MSR model of Orphanides and Wieland, and the FRB staff model. All four models incorporate the assumptions of rational expectations, short-run nominal inertia, and long-run monetary neutrality, but differ in many other respects (e.g., the dynamics of prices and real expenditures). We compute the output-inflation volatility frontier of each model for alternative specifications of the interest rate rule, subject to an upper bound on nominal interest rate volatility. Our analysis provides strong support for rules in which the first-difference of the federal funds rate responds to the current output gap and the deviaition of the 1-year average inflation rate from a specified target. In all 4 models, first-difference rules perform much better than rules of the type proposed by Taylor (1993) and Henderson and McKibbin (1993), in which the level of the federal funds rate responds to the output gap and inflation deviation fromt target. Furthermore, first-difference rules generate essentially the same policy frontier as more complicated rules (i.e. rules that respond to a larger number of variables and/or additional lags of output and inflation). Finally, this class of rules is robust to model uncertainty, in the sense that a first-difference rule taken from the policy frontier of one model is very close to the policy frontier of each of the other three models. In contrast, more complicated rules are less robust to model uncertainty: rules with additional parameters can be fine-tuned to the dynamics of a specified model, but typically perform poorly in the other models.
Handle: RePEc:nbr:nberwo:6570
Template-Type: ReDIF-Paper 1.0
Title: Understanding Increasing and Decreasing Wage Inequality
Classification-JEL: F16; J31
Author-Name: Andrew B. Bernard
Author-Name: J. Bradford Jensen
Author-Person: pje75
Note: LS
Number: 6571
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6571
File-URL: http://www.nber.org/papers/w6571.pdf
File-Format: application/pdf
Publication-Status: published as Understanding Increasing and Decreasing Wage Inequality, Andrew B. Bernard, J. Bradford Jensen. in The Impact of International Trade on Wages, Feenstra. 2000
Abstract: This paper uses data on inequality within U.S. states to test hypotheses about the sources of rising wage inequality during the 1970s and 1980s. State labor markets are found to respond to local demand shocks in the short and medium run and to national (industry) demand shocks only after long intervals. The measure of wage inequality employed in the paper is the (log) ratio of the weekly wage at the 90th percentile to that at the 10th percentile in the state after controlling for observable characteristics of the workers. Individual states are found to have very different levels and changes of inequality. For example, Pennsylvania and Georgia had the second lowest and ninth highest 90-10 ratios respectively in 1970. By 1990, Georgia's 90-10 ratio had fallen 4% while Pennsylvania's had risen 21%. This paper finds that changes in industrial composition, in particular the loss of durable manufacturing jobs, are strongly correlated with inequality increases.
Handle: RePEc:nbr:nberwo:6571
Template-Type: ReDIF-Paper 1.0
Title: How are Stock Prices Affected by the Location of Trade?
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Emil Dabora
Note: AP CF
Number: 6572
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6572
File-URL: http://www.nber.org/papers/w6572.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 53, no. 2 (August 1999): 189-216.
Abstract: We examine pairs of large, Siamese twin' companies whose stocks are traded around the world but have different trading and ownership habitats. Twins pool their cashflows so, with integrated markets, twin stocks should move together. In contrast, the relative prices of twin stocks appear correlated with the markets where they are traded most, i.e., a twin's relative price rises when the market on which it is relatively intensively traded rises. We examine several explanations for this phenomenon: discretionary uses of dividend income by parent companies; differences in parent expenditures; voting rights issues; currency fluctuations; ex-dividend-date timing issues; and tax-induced investor heterogeneity. Only that latter hypothesis can explain some (but not all) of the facts. Other possible explanations include: i) country-specific sentiment shocks affect share price movements of locally-traded stocks in proportion to their local trading/ownership intensity, and ii) investors are rational, but markets are segmented by frictions other than international transactions costs, such as agency problems.
Handle: RePEc:nbr:nberwo:6572
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Information and Wage Differentials by Race and Sex
Classification-JEL: J15; J16
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 6573
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6573
File-URL: http://www.nber.org/papers/w6573.pdf
File-Format: application/pdf
Publication-Status: Published as "Wage Differentials by Race and Sex: The Roles of Taste Discrimination and Labor Market Information", Industrial Relations, Vol. 38 , no. 3 (July 1999): 414-445.
Abstract: This paper attempts to test whether information problems in labor markets can explain why minority or female workers are sometimes paid less than equally-qualified white male workers. In particular, the relationship between starting wages, current performance, and race and sex is studied. OLS regressions of starting wages on current performance--which is measured some time after the beginning of employment--indicate that minority workers are paid lower starting wages than white workers with the same eventual performance, among both men and women. This may reflect taste discrimination. However, if employers base starting wages on expected productivity or performance, and average performance is lower for minority workers (as it is in these data), then these estimated differentials could reflect simple statistical discrimination. A test of statistical versus taste discrimination and a test of statistical discrimination versus pure measurement error provide some evidence for both men and women that statistical discrimination is partly to blame for these differences in starting wages between minority and white workers, although the evidence is not very strong statistically. Average performance of women is if anything higher than that of men, so simple statistical discrimination cannot explain the lower starting wages that women receive. However, more complex models of statistical discrimination suggest that worse labor market information about a particular group can generate lower wages for that group. A test of the quality of labor market information suggests that employers have better information about male workers, which may explain the lower starting wages paid to women. Together, this evidence suggests that better labor market information might boost starting wages of minorities and women.
Handle: RePEc:nbr:nberwo:6573
Template-Type: ReDIF-Paper 1.0
Title: Hedonic Analysis of Arthritis Drugs
Classification-JEL: I11; L51
Author-Name: Iain M. Cockburn
Author-Person: pco166
Author-Name: Aslam H. Anis
Note: PR
Number: 6574
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6574
File-URL: http://www.nber.org/papers/w6574.pdf
File-Format: application/pdf
Publication-Status: published as Hedonic Analysis of Arthritis Drugs, Iain M. Cockburn, Aslam H. Anis. in Medical Care Output and Productivity, Cutler and Berndt. 2001
Abstract: We examine the relationship between quality'' and market outcomes for a group of drugs used to treat rheumatoid arthritis. Though this is a widespread and debilitating disease with very substantial impacts on the health of patients and on the economy, currently available drugs have limited efficacy and serious side effects. Clinical research conducted since these products were approved has resulted in substantial revisions to the body of scientific information available to physicians. The relative quality' of these drugs (as captured by efficacy and toxicity measurements reported in peer-reviewed clinical trials) has changed markedly over the past 15 years. Yet in our analysis of US wholesale prices we find that relative prices appear to be only weakly related to quality. We do however find a relationship between changes in reported efficacy and toxicity and the evolution of quantity shares in this market.
Handle: RePEc:nbr:nberwo:6574
Template-Type: ReDIF-Paper 1.0
Title: The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota
Classification-JEL: H26
Author-Name: Marsha Blumenthal
Author-Name: Charles Christian
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 6575
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6575
File-URL: http://www.nber.org/papers/w6575.pdf
File-Format: application/pdf
Publication-Status: published as Blumenthal, Marsha, Charles Christian and Joel Slemrod. "Do Normative Appeals Affect Tax Compliance? Evidence From A Controlled Experiment In Minnesota," National Tax Journal, 2001, v54(1,Mar), 125-136.
Abstract: This paper reports on the results of a controlled experiment in Minnesota in which a random sample of taxpayers was informed that their income tax returns would certainly be closely examined. We analyze reported income of this sample of taxpayers, reported income on their previous year's returns, and reported income from the two corresponding years' returns of a control group of taxpayers that did not receive the letter. We find that the treatment effect varies depending on the level of income. Low and middle income taxpayers increased reported income and tax liability relative to the control group, which we interpret as indicating the presence of noncompliance. The effect was much stronger for those with more opportunity' to evade, as measured by their source of income. However, the reported income of the high-income treatment group fell sharply relative to the control group. We suggest a model based on tax audits as a negotiation that can explain this apparently perverse result.
Handle: RePEc:nbr:nberwo:6575
Template-Type: ReDIF-Paper 1.0
Title: Are "Real" Responses to Taxes Simply Income Shifting Between Corporate and Personal Tax Bases?
Classification-JEL: H20
Author-Name: Roger H. Gordon
Author-Person: pgo95
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 6576
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6576
File-URL: http://www.nber.org/papers/w6576.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.
Abstract: Two well-noted phenomena of recent decades are the increasing concentration of personal income and the declining rate of corporate profitability. This paper investigates to what extent these two trends have a common explanation extent these two trends have a common explanation-shifting of income to the personal tax base from the corporate tax base caused by the generally declining difference between personal tax rates and corporation income tax rates. This paper presents evidence that a substantial amount of income shifting has in fact occured since 1965, based on time-series regression analyses that reveal that an increase in corporate tax rates relative to personal rates resulted in an increase in reported personal income and a drop in reported corporate income, even after controlling for corproate use of debt finance and for the amount of corporate assets. We focus on one mechanism for shifting--changing the form of compensation for executives and other workers, such as between wage compensation and greater use of stock options. The potential importance of income shifting requires a reinterpretation of both the efficiency and distributional consequences of of changes in the tax structure.
Handle: RePEc:nbr:nberwo:6576
Template-Type: ReDIF-Paper 1.0
Title: The Role of Leasing under Adverse Selection
Classification-JEL: D82; L15
Author-Name: Igal Hendel
Author-Name: Alessandro Lizzeri
Author-Person: pli177
Note: IO
Number: 6577
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6577
File-URL: http://www.nber.org/papers/w6577.pdf
File-Format: application/pdf
Publication-Status: published as Hendel, Igal and Alessandro Lizzeri. "The Role Of Leasing Under Adverse Selection," Journal of Political Economy, 2002, v110(1,Feb), 113-143.
Abstract: Leasing contracts specify a rental rate and an option price at which the used good can be bought at the termination of the lease. This option price cannot be controlled when the car is sold. We show that in a world with symmetric information this additional control variable is useless; equilibrium allocations and profits to lessors are unaffected by the option prices. In contrast, under adverse selection, leasing contracts affect equilibrium allocations in a way that matches observed behavior in the car market. We show that a social planner can use leasing contracts to improve welfare but they are imperfect tools; they cannot generally achieve first best while other mechanisms can. We also show that a producer with market power can benefit from leasing contracts for two reasons: better pricing of the option of keeping the used good, and market segmentation. Moreover, despite the fact that lessors could structure contracts to prevent adverse selection (by raising the option price so high that no lessee keeps the used good) we show that this is not in their interest; a keeping option will always be included in some contracts.
Handle: RePEc:nbr:nberwo:6577
Template-Type: ReDIF-Paper 1.0
Title: Globalization and the Market for Teammates
Author-Name: Edward P. Lazear
Author-Person: pla64
Note: LS
Number: 6579
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6579
File-URL: http://www.nber.org/papers/w6579.pdf
File-Format: application/pdf
Publication-Status: published as Lazear, Edward P, 1999. "Globalisation and the Market for Team-Mates," Economic Journal, Royal Economic Society, vol. 109(454), pages C15-40, March.
Abstract: The globalization of firms is explored at theoretical and empirical levels. The idea is that a global firm is a multi-cultural team. The existence of a global firm is somewhat puzzling. Combining workers who have different cultures, legal systems, and languages imposes costs on the firm that would not be present were all workers to conform to one standard. In order to offset the costs of cross-cultural dealing, there must be complementarities between the workers that are sufficiently important to overcome the costs. Disjoint and relevant skills create an environment where the gains from complementarities can be significant. It is also necessary that teammates be able to communicate with one another. The search for the best practice' is analyzed and empirical support from an examination of trading patterns is provided.
Handle: RePEc:nbr:nberwo:6579
Template-Type: ReDIF-Paper 1.0
Title: A New Model of Quality
Classification-JEL: D4; D6
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Tor Winston
Note: ITI
Number: 6580
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6580
File-URL: http://www.nber.org/papers/w6580.pdf
File-Format: application/pdf
Publication-Status: published as Krishna, Kala and Tor Winston. "If At First You Don't Succeed...: Profits, Prices, And Market Structure In A Model Of Quality With Unknowable Consumer Heterogeneity," International Economic Review, 2003, v44(2,May), 573-597.
Abstract: We develop a new model of quality to capture the idea that even if a customer chooses to purchase a product, it may fail to deliver.' In this event, the customer may wish to choose some other product. We model this as a two stage game where firms first choose quality and then price. We find that in equilibrium, the high quality firm (the one with a higher probability of being able to deliver') will always make higher profits than the low quality one even if costs of quality are sharply increasing. Our work thus provides a reason for high quality niches to be inherently more profitable. The implications for welfare and equilibrium under free entry are also studied.
Handle: RePEc:nbr:nberwo:6580
Template-Type: ReDIF-Paper 1.0
Title: Youth Labor Markets in the U.S.: Shopping Around vs. Staying Put
Classification-JEL: J61; J31
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 6581
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6581
File-URL: http://www.nber.org/papers/w6581.pdf
File-Format: application/pdf
Publication-Status: published as Neumark, David. "Youth Labor Markets In The United States: Shopping Around Vs. Staying Put," Review of Economics and Statistics, 2002, v84(3,Aug), 462-482.
Abstract: The need for school-to-work programs or other means of increasing early job market stability is predicated on the view that the chaotic' nature of youth labor markets in the U.S. is costly because workers drift from one job to another without developing skills, behavior, or other characteristics that in turn lead to higher adult earnings. However, there is also ample evidence that workers receive positive returns to job shopping. This paper asks whether youths in unstable or dead-end jobs early in their careers suffer adverse labor market consequences as adults. In particular, it accounts for the endogenous determination of early job stability as a response to job match quality which may also influence adult wages using labor market conditions in the early years in the labor market as instrumental variables for the job stability experienced during those years. The instrumental variables estimates generally point to substantial positive effects of early job stability on adult wages.
Handle: RePEc:nbr:nberwo:6581
Template-Type: ReDIF-Paper 1.0
Title: A General Model of the Behavioral Response to Taxation
Classification-JEL: H20
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 6582
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6582
File-URL: http://www.nber.org/papers/w6582.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, Joel. "A General Model Of The Behavioral Response To Taxation," International Tax and Public Finance, 2001, v8(2,Mar), 119-128.
Abstract: This paper generalizes the standard model of how taxes affect the labor-leisure choice by allowing individuals to change both their labor supply and avoidance effort in response to tax changes. Doing so reveals that both the income and substitution effect of taxes depend on both preferences and the avoidance technology, and econometric analysis will not in general allow one to separately identify the two influences, unless one can specify observable determinants of the cost of avoidance. The effective marginal tax rate on working must be modified by the addition of an avoidance-facilitating effect, which measures how much the cost of avoidance declines with higher true income. In an extreme case in which the cost of avoidance depends only on reported income, taxation has no compensated effect on labor supply regardless of preferences. This model provides a conceptual structure for evaluating to what extent, and in what situations, the opportunities for avoidance mitigate the real substitution response to tax reform.
Handle: RePEc:nbr:nberwo:6582
Template-Type: ReDIF-Paper 1.0
Title: Did Steve Forbes Scare the Municipal Bond Market?
Classification-JEL: H24
Author-Name: Joel Slemrod
Author-Person: psl10
Author-Name: Timothy Greimel
Note: AP PE
Number: 6583
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6583
File-URL: http://www.nber.org/papers/w6583.pdf
File-Format: application/pdf
Publication-Status: published as Joel Slemrod & Timothy Greimel, 1999. "Did Steve Forbes scare the US municipal bond market?," Journal of Public Economics, vol 74(1), pages 81-96.
Abstract: Evidence from daily market data is consistent with the view that the implicit tax rate on 5-year municipal bonds was affected by the chance of a flat tax becoming law, as proxied by the price of Steve Forbes' shares on the Iowa Electronic Market for political candidates; the spread was also affected by the likelihood of a Republican president and the impact of deficit reduction. No similar evidence for the impact of the flat tax could be found for the 30-year municipal market, although that spread does seem to be affected by the probability of a Republican winning the White House, and the lower taxes on capital income that presumably implies. These findings are consistent with market participants taking the flat tax seriously as a short-run possibility, but believing that over a three-decade period the taxation of capital is more likely to be influenced by the party in power than the tax reform fad of the moment. Alternatively it may reflect the fact that, due to several features of 30-year bonds, the changing likelihood of a flat tax is not clearly reflected in that market.
Handle: RePEc:nbr:nberwo:6583
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Taxing the Rich
Classification-JEL: H20
Author-Name: Joel Slemrod
Author-Person: psl10
Note: PE
Number: 6584
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6584
File-URL: http://www.nber.org/papers/w6584.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, J. (ed.) Does Atlas Shrug? The Economic Consequences of Taxing the Rich. Cambridge: Harvard University Press, 2002.
Abstract: How much and how to tax high-income individuals is at the core of many recent proposals for incremental as well as fundamental tax reform. This paper critically reviews the economics literature and concludes that the right answer to these questions depends in part on value judgments about which economics has little to contribute, but also depends on standard economics concerns such as the process generating income and wealth, and whether wealth individuals' economic activities have positive (or negative) externalities. How much and how to tax the rich also depends critically on how they will respond to attempts to tax them because, other things equal, it is wise to limit the extent to which they are induced to pursue less socially productive activities in order to avoid taxes.
Handle: RePEc:nbr:nberwo:6584
Template-Type: ReDIF-Paper 1.0
Title: Substitution over Time: Another Look at Life Cycle Labor Supply
Classification-JEL: J22; E24
Author-Name: Casey B. Mulligan
Author-Person: pmu64
Note: PE LS
Number: 6585
Creation-Date: 1998-05
Order-URL: http://www.nber.org/papers/w6585
File-URL: http://www.nber.org/papers/w6585.pdf
File-Format: application/pdf
Publication-Status: published as Bernanke, Ben S. and Julio J. Rotemberg (eds.) NBER Macroeconomics Annual 1998, Vol. 13. Cambridge: MIT Press, 1999.
Publication-Status: published as Substitution over Time: Another Look at Life-Cycle Labor Supply, Casey B. Mulligan. in NBER Macroeconomics Annual 1998, volume 13, Bernanke and Rotemberg. 1999
Abstract: Most studies of the intertemporal substitution of work use life cycle data and, from those studies, many have concluded that intertemporal labor substitution is unimportant for macroeconomics. This paper takes another look at life cycle data and argues that a consideration of measurement errors, taxes, on-the-job training the margins' composing aggregate labor supply over the life cycle suggests that substitution over time may be very important for macro fluctuations. The life cycle data used includes fairly standard male cross-section and panel data samples as well as a sample of women experiencing the termination of AFDC benefits as their youngest child turns 18 years old.
Handle: RePEc:nbr:nberwo:6585
Template-Type: ReDIF-Paper 1.0
Title: Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs
Classification-JEL: C81; C14
Author-Name: Rajeev H. Dehejia
Author-Person: pde179
Author-Name: Sadek Wahba
Note: LS
Number: 6586
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6586
File-URL: http://www.nber.org/papers/w6586.pdf
File-Format: application/pdf
Publication-Status: published as Journal of the American Statistical Association, Vol. 94, no. 448 (December 1999): 1053-1062.
Abstract: This paper uses propensity score methods to address the question: how well can an observational study estimate the treatment impact of a program? Using data from Lalonde's (1986) influential evaluation of non-experimental methods, we demonstrate that propensity score methods succeed in estimating the treatment impact of the National Supported Work Demonstration. Propensity score methods reduce the task of controlling for differences in pre-intervention variables between the treatment and the non-experimental comparison groups to controlling for differences in the estimated propensity score (the probability of assignment to treatment, conditional on covariates). It is difficult to control for differences in pre-intervention variables when they are numerous and when the treatment and comparison groups are dissimilar, whereas controlling for the estimated propensity score, a single variable on the unit interval, is a straightforward task. We apply several methods, such as stratification on the propensity score and matching on the propensity score, and show that they result in accurate estimates of the treatment impact.
Handle: RePEc:nbr:nberwo:6586
Template-Type: ReDIF-Paper 1.0
Title: North American Economic Integration and Industry Location
Classification-JEL: F16; R12
Author-Name: Gordon H. Hanson
Author-Person: pha80
Note: ITI
Number: 6587
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6587
File-URL: http://www.nber.org/papers/w6587.pdf
File-Format: application/pdf
Publication-Status: published as Oxford Review of Economic Policy, Vol. 14 (1998): 30-44.
Abstract: Does regional economic integration affect the location of economic activity inside countries? In this paper, I discuss recent academic literature on whether the movement towards free trade in North America has influenced the spatial organization of production in Canada, Mexico, or the United States. In Mexico, closer economic ties with the United States appear to have contributed to a contraction of employment in the Mexico City manufacturing belt, a rapid expansion of manufacturing employment in northern Mexico, and an increase in the wage premia paid to skilled workers. The effects of economic integration on industry location in Canada and the United States seem to have been much weaker. On exception to this finding is U.S. cities on the Mexican border, whose employment growth is strongly positively correlated with export production in neighboring Mexican regions. I also discuss implications of a possible hemispheric free trade agreement.
Handle: RePEc:nbr:nberwo:6587
Template-Type: ReDIF-Paper 1.0
Title: Education and Borrowing Constraints: Tests vs. Prices
Classification-JEL: D52; E44
Author-Name: Raquel Fernandez
Author-Person: pfe17
Note: PE
Number: 6588
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6588
File-URL: http://www.nber.org/papers/w6588.pdf
File-Format: application/pdf
Abstract: This paper examines the properties of exams and markets as alternative allocation devices under borrowing constraints. Exams dominate markets in terms of matching efficiency. Whether aggregate consumption is greater under exams than under markets depends on the power of the exam technology; for a sufficiently powerful test, exams dominate markets in terms of aggregate consumption as well. The positive effects of income taxation are analyzed and the optimal allocation scheme when wealth is observable is derived. The latter consists of a fellowship scheme in which markets set school prices but the government gives out fellowships based on need and the ability to obtain a given exam score.
Handle: RePEc:nbr:nberwo:6588
Template-Type: ReDIF-Paper 1.0
Title: Lobbying and Legislative Bargaining
Classification-JEL: D7
Author-Name: Elhanan Helpman
Author-Person: phe205
Author-Name: Torsten Persson
Author-Person: ppe28
Note: ITI
Number: 6589
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6589
File-URL: http://www.nber.org/papers/w6589.pdf
File-Format: application/pdf
Publication-Status: published as Advances in Economic Analysis & Policy, (B.E. Journal of Economic Analysis & Policy) Vol. 1: Iss. 1, Article 3
Abstract: We examine the effects of the interaction between lobbying and legislative bargaining on policy formation. Two systems are considered: a US-style congressional system and a European-style parliamentary system. First, we show that the policies generated are not intermediate between policies that would result from pure lobbying or from pure legislative bargaining. Second, we show that in congressional systems the resulting policies are strongly skewed in favor of the agenda-setter. In parliamentary systems they are skewed in favor of the coalition, but within the coalition there are many possible outcomes (there are multiple equilibria) with the agenda-setter having no particular advantage. Third, we show that equilibrium contributions are very small, despite the fact that lobbying has a marked effect on policies.
Handle: RePEc:nbr:nberwo:6589
Template-Type: ReDIF-Paper 1.0
Title: Managing Annual Accounting Reports to Avoid State Taxes: An Analysis of Property-Casualty Insurers
Classification-JEL: H25; H73
Author-Name: Kathy R. Petroni
Author-Name: Douglas A. Shackelford
Author-Person: psh631
Note: PE
Number: 6590
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6590
File-URL: http://www.nber.org/papers/w6590.pdf
File-Format: application/pdf
Publication-Status: published as Accounting Review, Vol. 74, no. 3 (1999): 371-393.
Abstract: We hypothesize that, in their annual accounting reports, insurers allocate premiums and losses from multistate policies to reduce total state taxes. To test this prediction, we examine firm-level data, collected from the publicly-available statutory reports used to compute tax bases and filed with each state government. If insurers manage allocations to avoid taxes, we anticipate an inverse relation between the tax rate and the premium-to-loss ratio, which is the industry's standard measure of the price of a unit of coverage. Firm-specific prices are computed using premium and loss information from the annual regulatory reports filed with each state in which an insurer underwrites. Primary analysis is conducted on 12,573 insurer-state observations from 1993. We find the premium-to-loss ratio is decreasing in state tax rates, consistent with multistate insurers managing their annual accounting reports to shift premiums (losses) to more (less) favorably taxed states.
Handle: RePEc:nbr:nberwo:6590
Template-Type: ReDIF-Paper 1.0
Title: What Are the Results of Product-Price Studies and What Can We Learn From Their Differences?
Classification-JEL: F16; J31
Author-Name: Matthew J. Slaughter
Note: ITI
Number: 6591
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6591
File-URL: http://www.nber.org/papers/w6591.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and Wages, NBER Conference Volume, Feenstra, Robert C.,ed., 2000, forthcoming.
Publication-Status: published as What Are the Results of Product-Price Studies and What Can We Learn from Their Differences?, Matthew J. Slaughter. in The Impact of International Trade on Wages, Feenstra. 2000
Abstract: In recent years many economists have analyzed whether international trade has contributed to rising U.S. wage inequality by changing relative product prices. In this paper I survey the findings of nine product-price' studies which together demonstrate how the methodology of product-price studies has evolved. I then synthesize the findings of these nine studies and draw two main conclusions. The first conclusion is that this literature has a refined set of empirical strategies for applying the Stolper-Samuelson theorem to the data from which important methodological lessons can be learned. The second main conclusion is that despite the methodological progress that has been made, research to date still has fundamental limitations regarding the key question of how much international trade has contributed to rising wage inequality. Most importantly, more work needs to link exogenous forces attributable to international trade to actual product-price changes.
Handle: RePEc:nbr:nberwo:6591
Template-Type: ReDIF-Paper 1.0
Title: An Economic Analysis of a Drug-Selling Gang's Finances
Classification-JEL: K42
Author-Name: Steven D. Levitt
Author-Person: ple59
Author-Name: Sudhir Alladi Venkatesh
Note: LE PE
Number: 6592
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6592
File-URL: http://www.nber.org/papers/w6592.pdf
File-Format: application/pdf
Publication-Status: published as Levitt, Steven D. and Sudhir Alladi Venkatesh. "An Economic Analysis Of A Drug-Selling Gang's Finances," Quarterly Journal of Economics, 2000, v115(3,Aug), 755-789.
Abstract: We analyze a unique data set detailing the financial activities of a drug-selling street gang on a monthly basis over a four-year period in the recent past. The data, originally compiled by the gang leader to aid in managing the organization, contain detailed information on both the sources of revenues (e.g. drug sales, extortion) and expenditrues (e.g. costs of drugs sold, weapons, tribute to the central gang organization, wages paid to various levels of the gang). Street-level drug dealing appears to be less lucrative than is generally though. We estimate the average wage in the organization to rise from roughly $6 per hour to $11 per hour over the time period studied. The distribution of wages, however, is extremely skewed. Gang leaders earn far more than they could in the legitimate sector, but the actual street-level dealers appear to earn less than the minimum wage throughout most of our sample, in spite of the substantial risks associated with such activities (the annual violent death rate in our sample is 0.07), There is some evidence consistent both with compensating differentials and efficiency wages. The markup on drugs suggests that the gang has substantial local market power. Gang wars appear to have an important strategic component: violence on another gang's turf shifts demand away from that area. The gang we observe responds to such attacks by pricing below marginal cost, suggesting either economic punishment for the rival gang or the presence of switching for users that makes market share maintenance valuable. We investigate a range of alternative methods for estimating the willingness of gang members to accept risks of death, all of which suggest that the implicit value that gang members place on their own lives is very low.
Handle: RePEc:nbr:nberwo:6592
Template-Type: ReDIF-Paper 1.0
Title: The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data
Classification-JEL: E41
Author-Name: Orazio Attanasio
Author-Person: pat7
Author-Name: Luigi Guiso
Author-Person: pgu58
Author-Name: Tuillo Jappelli
Note: EFG
Number: 6593
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6593
File-URL: http://www.nber.org/papers/w6593.pdf
File-Format: application/pdf
Publication-Status: published as Orazio P. Attanasio & Luigi Guiso & Tullio Jappelli, 2002. "The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 317-351, April.
Abstract: How far can shoe-leather go in explaining the welfare cost of inflation? Using a unique set of microeconomic data on households, we estimate the parameters of the demand for money derived from the generalized Baumol-Tobin model. Our data set contains information on average holdings of cash, on deposits and other interest bearing accounts, on the number of trips to the bank, on the size of withdrawals and on the ownership and use of ATM cards. We model the adoption of new transaction technologies and use these estimates to correct for the selectivity bias induced by some households choosing to hold no interest bearing assets and some to use an ATM card. The interest rate and expenditureflow elasticities of the demand for cash are close to the tehoretical values implied by standard inventory models. However, we find significant differences between the individuals with an ATM card and those without. The estimates of the demand for cash allow us to calculate a measure of the welfare cost of inflation analogous to Bailey's triangle, but based on a rigorous microeconomic framework. The welfare cost of inflation varies considerably within the population, but never turns out to be very large (about 0.1 percent of consumption or less). Our results are robust to various changes in the specification. In addition tot eh main results based on the average stock of cash held, we provide some evidence based on the number of trips to the bank and on the average withdrawals that confirm our basic findings.
Handle: RePEc:nbr:nberwo:6593
Template-Type: ReDIF-Paper 1.0
Title: Agency Problems and Dividend Policies Around the World
Classification-JEL: 632; 635; L
Author-Name: Rafael La Porta
Author-Person: pla273
Author-Name: Florencio Lopez-de-Silane
Author-Person: plo137
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert Vishny
Author-Person: pvi218
Note: CF
Number: 6594
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6594
File-URL: http://www.nber.org/papers/w6594.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 55, no. 1 (February 2000): 1-34.
Abstract: This paper addresses the question of why firms pay dividends, the so-called outline two agency models of dividends. On what we call outcome minority shareholders to force corporate outsiders to disgorge cash. Under this model, stronger minority shareholder rights should be associated with higher dividends. On what we call substitute a reputation for decent treatment of minority shareholders so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and so should be associated with lower dividends. We compare these models on a cross-section of 4,000 companies from around the world, which operate in 33 countries with different levels of shareholder protection, and therefore different strength of minority shareholder rights. The findings on payout levels and other results support the outcome agency model of dividends.
Handle: RePEc:nbr:nberwo:6594
Template-Type: ReDIF-Paper 1.0
Title: The Adoption and Impact of Advanced Emergency Response Services
Classification-JEL: I12; I18
Author-Name: Susan Athey
Author-Person: pat6
Author-Name: Scott Stern
Note: EH
Number: 6595
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6595
File-URL: http://www.nber.org/papers/w6595.pdf
File-Format: application/pdf
Publication-Status: published as The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, Cutler, David M., pp. 113-155, (Chicago: The University of Chicago, 2000).
Publication-Status: published as The Adoption and Impact of Advanced Emergency Response Services, Susan Athey, Scott Stern. in The Changing Hospital Industry: Comparing Not-for-Profit and For-Profit Institutions, Cutler. 2000
Abstract: This paper studies the causes and consequences of the adoption of technology by hospitals and public emergency response systems, focusing on Basic and Enhanced 911 services. Basic 911 allows people within a given locality to access specialized call-takers and ambulance dispatchers using the single telephone number 911. Enhanced 911 is characterized by telecommunications equipment and information technology which identifies the location of emergency callers. We begin by exploring the distribution of 911 systems among counties in the U.S., showing that this locally provided service responds to income and political factors as well as population and density of a county. Then, using a database of cardiac patients in Pennsylvania in 1995, we are able to characterize some of the productivity efforts of 911 services. We show that Enhanced 911 reduces response times, which in turn reduce mortality. Further, we find that the pre-hospital system interacts with the allocation of patients to hospitals in several ways. First, patient severity affect the allocation of patients to high-technology hospitals. Second, conditional on the availability of advanced cardiac care facilities, counties with 911 systems allocate cardiac patients to hospitals with better technology. Finally, hospitals with more advanced emergency and cardiac technology treat a higher share of cardiac patients who make use of the pre- hospital system.
Handle: RePEc:nbr:nberwo:6595
Template-Type: ReDIF-Paper 1.0
Title: Medicare from the Perspective of Generational Accounting
Classification-JEL: H51
Author-Name: Jagadeesh Gokhale
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: ME EFG
Number: 6596
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6596
File-URL: http://www.nber.org/papers/w6596.pdf
File-Format: application/pdf
Publication-Status: published as Rettenmaier, Andrew J. and Tom Saving (eds.) Medicare Reform: Issues and Answers. University of Chicago Press, 1999.
Abstract: U.S. policy changes and more optimistic fiscal forecasts have significantly improved the long-term fiscal prospects of the country. Nevertheless, these prospects remain dismal. Unless U.S. fiscal policy changes by a lot and very soon, our descendants will face rates of lifetime net taxation that are 70 percent higher than those we now face. They will, on average, find themselves paying 1 of every 2 dollars they earn to a local, state, or federal government in net taxes. A number of factors, besides current and projected Medicare spending, are responsible for the imbalance in U.S. generational policy. But the ongoing excessive growth of Medicare benefits is certainly a key culprit. Achieving generational balance solely by cutting Medicare benefits is feasible but would require cutting over two-thirds of the program's expenditures assuming the cuts were made today. If one waits five years before cutting Medicare, four-fifths of the programs would have to be slashed. Clearly, Medicare cuts of this magnitude are unlikely to happen, but however we resolve our sever crisis in U.S. generational policy, it's clear that significant reductions in Medicare spending will be a major part of the story.
Handle: RePEc:nbr:nberwo:6596
Template-Type: ReDIF-Paper 1.0
Title: Another Look at Long-Run Money Demand
Classification-JEL: E41
Author-Name: Laurence Ball
Author-Person: pba605
Note: EFG ME
Number: 6597
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6597
File-URL: http://www.nber.org/papers/w6597.pdf
File-Format: application/pdf
Publication-Status: published as Ball, Laurence. "Another Look At The Long-Run Money Demand," Journal of Monetary Economics, 2001, v47(1,Feb), 31-44.
Abstract: This paper investigates the long-run demand for M1 in the postwar United States. Previous studies, based on data ending in the late 1980's, are inconclusive about the parameters of postwar money demand. This paper obtains precise estimates of these parameters by extending the data through 1996. The income elasticity of money demand is approximately 0.5, and the interest semi-elasticity is approximately -0.05. These parameters are significantly smaller in absolute value than the corresponding parameters for the prewar period.
Handle: RePEc:nbr:nberwo:6597
Template-Type: ReDIF-Paper 1.0
Title: The US-China Bilateral Trade Balance: Its Size and Determinants
Classification-JEL: F14
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: Wen Hai
Author-Name: Wing T. Woo
Author-Person: pwo41
Author-Name: Shunli Yao
Note: ITI PR
Number: 6598
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6598
File-URL: http://www.nber.org/papers/w6598.pdf
File-Format: application/pdf
Abstract: This paper has two aims. The first is to reduce the range within which the true U.S.-China bilateral trade deficit lies. The second is to identify the determinants of the bilateral trade deficit and offer an assessment of their relative importance. We calculate a smaller range of values for the bilateral trade deficit than in previous studies, due to a new estimation method that takes advantage of our access to detailed Chinese Customs data at the commodity level. For example, the revised US-China bilateral trade deficit is $15 billion to $20 billion in 1994, and $16 billion to $22 billion in 1995, compared to the official range of $8 billion to $30 billion, and $9 billion to $34 billion, respectively. The widening of the US-CHINA bilateral trade deficit in recent years reflected many factors. In our opinion, the two chief factors are (i) macroeconomic forces in the US and China moving in opposite direction, causing their respective overall trade balance to move in opposite directions; and (ii) the accelerated relocation of production of US imports from East Asia to China.
Handle: RePEc:nbr:nberwo:6598
Template-Type: ReDIF-Paper 1.0
Title: Performance of Operational Policy Rules in an Estimated Semi-Classical Structural Model
Classification-JEL: E37; E42
Author-Name: Bennett T. McCallum
Author-Name: Edward Nelson
Author-Person: pne58
Note: EFG ME
Number: 6599
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6599
File-URL: http://www.nber.org/papers/w6599.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings, Federal Reserve Bank of San Francisco, March 1998
Publication-Status: published as Performance of Operational Policy Rules in an Estimated Semiclassical Structural Model, Bennett T. McCallum, Edward Nelson. in Monetary Policy Rules, Taylor. 1999
Abstract: This paper reports results of simulation exercises that explore several questions relating to the design of rules for monetary policy. Emphasis is given to issues raised by the concept of rule operationality, i.e., reliance on feasible instrument variables and information sets. Many of the results pertain to rules of the Taylor type -- i.e., with an interest rate instrument set in response to inflation and output-gap measures -- but some are reported for rules using a nominal income target and/or a monetary base instrument. The macroeconomic model utilized is small in scale but features a specification designed to represent rational dynamic optimizing choices by the economy's private agents. Saving and portfolio-balance behavior are expressed by optimizing versions of exceptional IS and LM functions, with gradual price adjustments specified differently in two variants of the model. One variant uses the well-known Calvo-Rotemberg price adjustment relation, whereas the second employs a newly-rationalized version of the Mussa-McCallum-Barro-Grossman P-bar model. Parameter values are estimated by instrumental variables on U.S. quarterly data for 1995-1996.
Handle: RePEc:nbr:nberwo:6599
Template-Type: ReDIF-Paper 1.0
Title: An Empirical Framework for Testing Theories About Complimentarity in Organizational Design
Classification-JEL: L23; D2
Author-Name: Susan Athey
Author-Person: pat6
Author-Name: Scott Stern
Note: PR
Number: 6600
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6600
File-URL: http://www.nber.org/papers/w6600.pdf
File-Format: application/pdf
Abstract: This paper studies alternative empirical strategies for estimating the effects of organization design practices on performance, as well as the factors which determine organizational design, in a cross-section of firms. Our economic model is based on a firm where multiple organizational design practices are en endogenously determined, and these organizational design practices affect output through an 'organizational design production function.' The econometric model includes unobserved exogenous variation in the costs and returns to each of the individual practices. The model is used to evaluate how different econometric strategies for testing theories about complementarity can be interpreted under alternative assumptions about the economic and statistical environment. We identify plausible hypotheses about the joint distribution of the unobservables under which several different approaches from the existing literature will yield biased and inconsistent estimates. We show that the sign of the bias depends on two factors: whether the organzational design practices are complements, and the correlation between the unobserved returns to each practice. We find several sets of conditions under which the sign of the bias can be determined, and we provide economic interpretations. Our analysis shows that for a particular set of hypotheses, a variety of different procedures may all yield qualitatively similar biases, presenting a challenge for the identification of complementarity. We then propose a structural approach, which is based on a system of simultaneous equations describing productivity and the demand for organizational design practices. As long as exogenous variables are observed which are uncorrelated with the unobserved returns to practices, the structural parameters are identified, yielding consistent tests for complementarity as well as the cross-equation restrictions implied by static optimization of the organizatin's profit function.
Handle: RePEc:nbr:nberwo:6600
Template-Type: ReDIF-Paper 1.0
Title: The Allocation of Publicly-Funded Biomedical Research
Classification-JEL: H5; I1
Author-Name: Frank R. Lichtenberg
Author-Person: pli76
Note: PR EH
Number: 6601
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6601
File-URL: http://www.nber.org/papers/w6601.pdf
File-Format: application/pdf
Publication-Status: published as The Allocation of Publicly Funded Biomedical Research, Frank R. Lichtenberg. in Medical Care Output and Productivity, Cutler and Berndt. 2001
Abstract: We develop a simple theoretical model of the allocation of public biomedical research expenditure, and present some empirical evidence about the determinants of this allocation. The structure of expenditure should depend on the relative costs as well as the relative benefits of different kinds of research. Analysts of technical change typically have data on neither of these, but the measures of disease burden we use are indicative of the benefit of achieving advances against different diseases. We calculate distributions of government-funded biomedical research expenditure, by disease, from records of all research projects supported by the US Public Health Service: to obtain a reasonably complete accounting of disease burden, we utilize data on both the dying (from the Vital Statistics-Mortality Detail file) and the living (from the National Health Interview Survey). We find a very strong positive relationship across diseases between total life-years lost before age 65 and public R&D expenditure. But the amount of publicly-funded research on a disease decreases with the share of life-years before age 65 lost to the deases by non-whites, perhaps because lack of scientific knowledge is a less important cause of premature mortality among non-whites than it is among whites. The number of research grants mentioning a chronic condition is completely uncorrelated with the number of people with the condition but very strongly positively related to the number of people whose activities are limited by that condition. There tends to be more research about chronic conditions that are prevalent among people living in low-income households, and that are prevalent among the young (under age 18) and the old (above age 75).
Handle: RePEc:nbr:nberwo:6601
Template-Type: ReDIF-Paper 1.0
Title: What Do Prosecutors Maximize? An Analysis of Drug Offenders and Concurrent Jurisdiction
Classification-JEL: H11; K42
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: Daniel P. Kessler
Author-Name: Anne Morrison Piehl
Author-Person: ppi106
Note: LE
Number: 6602
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6602
File-URL: http://www.nber.org/papers/w6602.pdf
File-Format: application/pdf
Publication-Status: published as American Law and Economics Review, Fall 2000; issue 2: 259 - 290.
Abstract: This paper presents a model of prosecutors' decision-making processes in which prosecutors (both federal and state) internalize some of the benefits of reducing crime, but also care about developing their own human capital. Since U.S. attorneys make their decision first, they have the opportunity to take the cases that will further their human capital development, knowing that the local district attorneys will handle the other cases. Using two surveys on prison admissions, we find that defendants who are better educated, richer, married, white, have higher-paying occupations more likely to be incarcerated in the federal system. Conversely, state prisons are more likely to incarcerate individuals who are particularly likely to be difficult prisoners, despite the supposed advantages of federal prisons in dealing with the most dangerous criminals.
Handle: RePEc:nbr:nberwo:6602
Template-Type: ReDIF-Paper 1.0
Title: Social Security's Treatment of Postwar Americans
Classification-JEL: H55
Author-Name: Steven Caldwell
Author-Name: Melissa Favreault
Author-Name: Alla Gantman
Author-Name: Jagadeesh Gokhale
Author-Name: Thomas Johnson
Note: PE
Number: 6603
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6603
File-URL: http://www.nber.org/papers/w6603.pdf
File-Format: application/pdf
Publication-Status: published as Social Security's Treatment of Postwar Americans, Steven Caldwell, Melissa Favreault, Alla Gantman, Jagadeesh Gokhale, Thomas Johnson, Laurence J. Kotlikoff. in Tax Policy and the Economy, Volume 13, Poterba. 1999
Abstract: Social Security faces a major long-term funding crisis. A 38 or greater percentage increase in the systems' tax rate is needed to meet current benefit payments on an ongoing basis. Tax increases of this magnitude or comparable benefit cuts would significantly worsen what is already a very bad deal for postwar Americans. This paper uses CORSIM -- a dynamic micro simulation model -- and SOCSIM -- a detailed Social Security benefit calculator -- to study this deal. The study finds that baby boomers will, under current law, lose roughly 5 cents of every dollar they earn to the OASI program in taxes net of benefits. For today's children the figure is 7 cents. Measured as a proportion of their lifetime labor incomes, the middle class are the biggest losers, but measured in absolute dollars, the rich lose the most. Out of every dollar that postwar Americans contribute to the OASI system, 74 cents represent a pure tax. The system treats women better than men, whites better than non-whites, and the college educated better than the non-college educated. While the system has been partially effective in pooling risk across households, it offers postwar cohorts internal rates of return on their contributions that are quite low. Those born right after World War II will earn, on average, a 2.4 percent real rate of return. Those born in the early 1970's will average about a 1 percent real rate of return, and those born at the end of this decade will average essentially a zero rate of return.
Handle: RePEc:nbr:nberwo:6603
Template-Type: ReDIF-Paper 1.0
Title: The Simple Economics of Labor Standards and the GATT
Classification-JEL: F02; F13
Author-Name: Kyle Bagwell
Author-Person: pba409
Author-Name: Robert W. Staiger
Author-Person: pst85
Note: ITI
Number: 6604
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6604
File-URL: http://www.nber.org/papers/w6604.pdf
File-Format: application/pdf
Publication-Status: published as Social Dimensions of the U.S. Trade Policies, Deardorff, Alan V. and Robert M. Stern, eds.: University of Michigan Press, 1999.
Abstract: How should the issue of domestic labor standards be handled in the GATT/ WTO? This question is part of a broader debate over the appropriate scope of international economic institutions such as the GATT, where member-countries are considering proposals for a new round of n3 negotiations that would move beyond GATT's focus on trade barriers and cover domestic' issues such as labor and environmental standards and regulatory reform which have traditionally been treated with benign neglect' within GATT. Such proposals encroach on traditional limits of national sovereignty, and they raise fundamental challenges to the existing structure of international economics relations among sovereign states. In this paper we consider several approaches to the treatment of domestic labor standards within a trade agreement. We use simple economic arguments to show that, while the benign neglect of labor standards within a trade agreement will result in inefficient choices for both trade barriers and labor standards, direct negotiations over labor standards are not required to reach efficient outcomes. Specifically, we describe two tafiff negotiating structures that deliver efficient outcomes while preserving varying degrees of national sovereignty over policy choices. A first approach combines tariff negotiations with subsequent Kemp-Wan adjustments, under which each government is free to alter unilaterally its policy mix so long as trade volumes are not affected. A second approach adds to the first, under which afte tariff negotiations each governement can alter unilaterally its tariff, but its trading partner is then free to issue a tariff response to stabilize export prices. We show that both approaches deliver govts. to the efficiency frontier but that the second approach provides govts. with greater sovereignty over policy choices and bears a strong resemblance to the negotiating procedures in G
Handle: RePEc:nbr:nberwo:6604
Template-Type: ReDIF-Paper 1.0
Title: What Does Affirmative Action Do?
Classification-JEL: J15; J16
Author-Name: Harry J. Holzer
Author-Person: pho162
Author-Name: David Neumark
Author-Person: pne16
Note: LS
Number: 6605
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6605
File-URL: http://www.nber.org/papers/w6605.pdf
File-Format: application/pdf
Publication-Status: published as Harry J. Holzer & David Neumark, 2000. "What Does Affirmative Action Do?," ILR Review, Cornell University, ILR School, vol. 53(2), pages 240-271, January.
Abstract: We use data from a survey of employers to investigate how Affirmative Action in recruiting and hiring influences hiring practices, personnel policies, and ultimately employment outcomes. Our results show that Affirmative Action increases the number of recruitment and screening practices used by employers, raises their willingness to hire stigmatized applicants, increases the number of minority or female applicants as well as employees, and increases employers' tendencies to provide training and to formally evaluate employees. When Affirmative Action is used in recruiting, it does not lead to lower credentials or performance of women and minorities hired. When it is also used in hiring, it yields female and minority employees whose credentials are somewhat weaker, though performance generally is not. Over than, the more intensive search, evaluation, and training that accompany Affirmative Action appear to offset any tendencies of the policy to lead to hiring of less-qualified or less-productive women and minorities.
Handle: RePEc:nbr:nberwo:6605
Template-Type: ReDIF-Paper 1.0
Title: Financial Crises in Emerging Markets
Classification-JEL: F3; E5
Author-Name: Roberto Chang
Author-Person: pch80
Author-Name: Andres Velasco
Note: IFM
Number: 6606
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6606
File-URL: http://www.nber.org/papers/w6606.pdf
File-Format: application/pdf
Publication-Status: published as FRBA, Vol. 84, no. 2 (Second Quarter, 1999): 4-17.
Publication-Status: published as R. Chang & A. Velasco, 2001. "A Model of Financial Crises in Emerging Markets," The Quarterly Journal of Economics, vol 116(2), pages 489-517.
Abstract: We present a simple model that can account for the main features of recent financial crises in emerging markets. The international illiquidity of the domestic financial system is at the center of the problem. Illiquid banks are a necessary and a sufficient condition for financial crises to occur. Domestic financial liberalization and capital flows from abroad (especially if short term) can aggravate the illiquidity of banks and increase their vulnerability to exogenous shocks and shifts in expectations. A bank collapse multiplies the harmful effects of an initial shock, as a credit squeeze and costly liquidation of investment projects cause real output drops and collapses in asset prices. Under fixed exchange rates, a run on banks becomes a run on the currency if the Central Bank attempts to act as a lender of last resort.
Handle: RePEc:nbr:nberwo:6606
Template-Type: ReDIF-Paper 1.0
Title: A Comparison of Linear and Nonlinear Univariate Models for Forecasting Macroeconomic Time Series
Classification-JEL: C22; C32
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: EFG ME
Number: 6607
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6607
File-URL: http://www.nber.org/papers/w6607.pdf
File-Format: application/pdf
Publication-Status: Published as "Evidence on Structural Instability in Macroeconomic Time Series Relations", JBES, Vol. 14, no. 1 (January 1996): 11-30.
Abstract: A forecasting comparison is undertaken in which 49 univariate forecasting methods, plus various forecast pooling procedures, are used to forecast 215 U.S. monthly macroeconomic time series at three forecasting horizons over the period 1959 - 1996. All forecasts simulate real time implementation, that is, they are fully recursive. The forecasting methods are based on four classes of models: autoregressions (with and without unit root pretests), exponential smoothing, artificial neural networks, and smooth transition autoregressions. The best overall performance of a single method is achieved by autoregressions with unit root pretests, but this performance can be improved when it is combined with the forecasts from other methods.
Handle: RePEc:nbr:nberwo:6607
Template-Type: ReDIF-Paper 1.0
Title: The Liquidity Effect and Long-Run Neutrality
Classification-JEL: E5; E52
Author-Name: Ben S. Bernanke
Author-Person: pbe55
Author-Name: Ilian Mihov
Author-Person: pmi131
Note: EFG ME
Number: 6608
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6608
File-URL: http://www.nber.org/papers/w6608.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 49, no. 1(December 1998): 149-194.
Abstract: The propositions that monetary expansion lowers short-term nominal interest rates (the liquidity effect), and that monetary policy does not have long-run real effects (long-run neutrality), are widely accepted, yet to date the empirical evidence for both is mixed. We reconsider both propositions simultaneously in a structural VAR context, using a model of the market for bank reserves due to Bernanke and Mihov (forthcoming). We find little basis for rejecting either the liquidity effect or long-run neutrality. Our results are robust over the space of admissible model parameter values, and to the use of long-run rather than short-run identifying restrictions.
Handle: RePEc:nbr:nberwo:6608
Template-Type: ReDIF-Paper 1.0
Title: International Trade and American Wages in General Equilibrium, 1967 - 1995
Classification-JEL: F1; F16
Author-Name: James Harrigan
Author-Person: pha151
Note: ITI
Number: 6609
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6609
File-URL: http://www.nber.org/papers/w6609.pdf
File-Format: application/pdf
Publication-Status: published as International Trade and American Wages in General Equilibrium, 1967-1995, James Harrigan . in The Impact of International Trade on Wages, Feenstra. 2000
Abstract: In the last quarter century, wage inequality has increased dramatically in the United States. At the same time, the US has become more integrated into the world economy prices of final goods have changed, the capital stock has more than doubled has become steadily more educated. This paper estimates a flexible, empirical equilibrium model of wage determination in an attempt to sort out the connections between these trends. Aggregate data on prices and quantities of imports, outputs, and factor supplies are constructed from disaggregate sources. The econometric analysis concludes that wage inequality has been partly driven by changes in relative factor supplies and relative final goods prices. In contrast, imports have played a negligible direct role.
Handle: RePEc:nbr:nberwo:6609
Template-Type: ReDIF-Paper 1.0
Title: The Pay-As-You-Go Pension System as a Fertility Insurance and Enforcement Device
Classification-JEL: H55; J61
Author-Name: Hans-Werner Sinn
Author-Person: psi146
Note: PE
Number: 6610
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6610
File-URL: http://www.nber.org/papers/w6610.pdf
File-Format: application/pdf
Publication-Status: published as Sinn, Hans-Werner. "The Pay-as-You-Go Pension System As Fertility Insurance And An Enforcement Device," Journal of Public Economics, 2004, v88(7-8,Jul), 1335-1357.
Abstract: It is argued that a PAYGO system may have useful allocative functions in that it serves as an insurance against not having children and as an enforcement device for rotten kid' who are unwilling to pay their parents a pension. It is true that the system has amoral hazard effect in terms of reducing the investment in human capital, but, if it is run on a sufficiently small scale this effect will not strong enough to prevent a welfare improvement. If scale of the system is so large that parents bequeath some of their pensions to their children overdrawn and creates unnecessarily strong disincentives for human capital investment.
Handle: RePEc:nbr:nberwo:6610
Template-Type: ReDIF-Paper 1.0
Title: Approximate Equilibrium Asset Prices
Classification-JEL: E2; G0
Author-Name: Fernando Restoy
Author-Name: Philippe Weil
Author-Person: pwe97
Note: AP
Number: 6611
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6611
File-URL: http://www.nber.org/papers/w6611.pdf
File-Format: application/pdf
Publication-Status: published as Fernando Restoy & Philippe Weil, 2011. "Approximate Equilibrium Asset Prices," Review of Finance, European Finance Association, vol. 15(1), pages 1-28.
Abstract: This paper reconsiders the determination of asset returns in a model with Kreps-Porteus generalized isoelastic preferences where returns appear governed on the basis of Euler equations, by a combination of the two most common measures of risk -- covariance with the market return and covariance with consumption. To go beyond Euler equations and to take into account the links that the consumers' optimal behavior establishes, through a budge connstraint, between market returns and consumption, we derive an approximate consumption function (obtained, as in Campbell (1994), by log-linear approximation). Arguing that total consumer wealth is unobservable, we use this consumption function to reconstruct from observed consumption data i) the wealth that supports the agents' consumption optimal income, and ii) the rate of retun on the consumers' wealth portfolio. This procedure enables us to derive formulas that (approximately) price, in the tradition of Lucas (1978), all assets as a function of their payoffs and of consumption. The generalized consumption CAPM that we obtain is derived for both homoskedastic and heteroskedastic consumption processes. We also use our approximate pricing kernel to highlight the crucial role of temporal risk aversion in the determination of the equilibrium term structure of real interest rates.
Handle: RePEc:nbr:nberwo:6611
Template-Type: ReDIF-Paper 1.0
Title: Who Gives Foreign Aid to Whom and Why?
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: David Dollar
Author-Person: pdo54
Note: IFM
Number: 6612
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6612
File-URL: http://www.nber.org/papers/w6612.pdf
File-Format: application/pdf
Publication-Status: published as Alesina, Alberto and David Dollar. "Who Gives Foreign Aid To Whom And Why?," Journal of Economic Growth, 2000, v5(1,Mar), 33-63.
Abstract: This paper studies the pattern of allocation of foreign aid from various donors to receiving countries. We find considerable evidence that the direction of foreign aid is dictated by political and strategic considerations, much more than by the economic needs and policy performance of the recipients. Colonial past and political alliances are the major determinants of foreign aid. At the margin, however, countries that democratize receive more aid, ceteris paribus. While foreign aid flows respond more to political variables, foreign direct investments are more sensitive to economic incentives, particularly property rights in the receiving countries. We also uncover significant differences in the behavior of different donors.
Handle: RePEc:nbr:nberwo:6612
Template-Type: ReDIF-Paper 1.0
Title: Crime and the Timing of Work
Classification-JEL: J22; K42
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Note: LS
Number: 6613
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6613
File-URL: http://www.nber.org/papers/w6613.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Urban Economics, Vol. 45, no. 2 (March 1999): 311-330
Abstract: Two striking facts describe work timing in the United States: a lower propensity to work evenings and nights in large metropolitan areas, and a secular decline in such work since 1973. One explanation is higher and possibly increasing crime in large areas. I link Current Population Survey data on work timing to FBI crime reports. Neither fact is explained by changes in nor inter-area differences in crime rates, but higher homicide rates do reduce such work. This reduction implicitly costs the economy between $4 and $10 billion. This negative externality illustrates a larger class of previously unmeasured costs of social pathologies.
Handle: RePEc:nbr:nberwo:6613
Template-Type: ReDIF-Paper 1.0
Title: Coveting Thy Neighbor's Manuafacturing: The Dilemma of State Income Apportionment
Author-Name: Austan Goolsbee
Author-Person: pgo49
Author-Name: Edward L. Maydew
Note: PE
Number: 6614
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6614
File-URL: http://www.nber.org/papers/w6614.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 75, no. 1 (January 2000): 125-143.
Abstract: This paper investigates the economic impact of the apportionment formulae used to divide corporate income taxes among the states. Most apportionment formulae, by including payroll, turn the state corporate income tax at least partially into a payroll tax. Using panel data from 1978 - 1994, the results show that this distortion has an important effect on state-level employment. For the average state, reducing the payroll weight from one-third to one-quarter increases manufacturing employment around 3% and the result is highly robust. The results also indicate that apportionment changes have important negative externalities on other states in that the effects of the apportionment formula on aggregate employment is zero. Every job gained within a state from an apportionment change is taken from another state. This externality suggests that the U.S. would be better off if the apportionment formula were set at a federal level. The paper also shows that because the payroll component of the tax is administered on top of the existing payroll tax, the deadweight loss from this component of state corporate income taxation may be significant, despite the low tax rates.
Handle: RePEc:nbr:nberwo:6614
Template-Type: ReDIF-Paper 1.0
Title: Investment Ramifications of Distortionary Tax Subsidies
Classification-JEL: H25; G31
Author-Name: James R. Hines Jr.
Author-Person: phi111
Note: PE
Number: 6615
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6615
File-URL: http://www.nber.org/papers/w6615.pdf
File-Format: application/pdf
Publication-Status: published as Investment Ramifications of Distortionary Tax Subsidies, James R. Hines Jr., Jongsang Park. in Business Taxation (Trans-Atlantic Public Economics Seminar), Devereux and Gordon. 2014
Publication-Status: published as Hines, James R. & Park, Jongsang, 2019. "Investment ramifications of distortionary tax subsidies," Journal of Public Economics, Elsevier, vol. 172(C), pages 36-51.
Abstract: This paper examines the investment effects of tax subsidies for which some assets and not others are eligible. Distortionary tax subsidies encourage firms to concentrate investments in tax-favored assets profitability of investment and reducing payoffs to bondholders in the event of default. Anticipation of asset substitution makes borrowing more expensive, which in turn discourages investment. Borrowing rates react so strongly that aggregate investment may rise very little, or even fall, in response to higher tax credits. Observed positive corporate bond market reactions to events surrounding passage of the U.S. Tax Reform Act of 1986 are consistent with the model's implications.
Handle: RePEc:nbr:nberwo:6615
Template-Type: ReDIF-Paper 1.0
Title: Capital Gains Tax Rules, Tax Loss Trading and Turn-of-the-Year Returns
Classification-JEL: H24; G12
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Scott J. Weisbenner
Note: AP PE
Number: 6616
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6616
File-URL: http://www.nber.org/papers/w6616.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James M. and Scott J. Weisbenner. "Capital Gains Tax Rules, Tax-Loss Trading, And Turn-Of-The-Year Returns," Journal of Finance, 2001, v56(1,Feb), 353-368.
Abstract: This paper investigates the effect of specific features of the U.S. capital gains tax on turn-of-the-year stock returns. It focuses on two tax changes. The first, enacted in 1969, reduced the fraction of long-term losses that were deductible from Adjusted Gross Income from 100 percent to 50 percent. The second, part of the Tax Reform Act of 1976, raised the required holding period for long-term gains and losses from six months to one year. This paper describes how each of these tax changes should have affected incentives for year-end capital loss realization and the potential magnitude of the turn of the year effect in stock returns. We present evidence that is consistent with the hypothesis that detailed provisions of the capital gains tax, such as the short-term holding period, affect the link between past capital losses and turn-of-the-year stock returns. These findings provide support for the role of tax-loss trading in contributing to turn-of-the-year return patterns.
Handle: RePEc:nbr:nberwo:6616
Template-Type: ReDIF-Paper 1.0
Title: Junior Can't Borrow: A New Perspective on the Equity Premium Puzzle
Author-Name: George M. Constantinidies
Author-Person: pco144
Author-Name: John B. Donaldson
Author-Name: Rajnish Mehra
Author-Person: pme56
Note: AP
Number: 6617
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6617
File-URL: http://www.nber.org/papers/w6617.pdf
File-Format: application/pdf
Publication-Status: published as Constantinides, George M., John B. Donaldson and Rajnish Mehra. "Junior Can't Borrow: A New Perspective On The Equity Premium Puzzle," Quarterly Journal of Economics, 2002, v107(1,Feb), 269-296.
Abstract: Ongoing questions on the historical mean and standard deviation of the return on equities and bonds and on the equilibrium demand for these securities are addressed in the context of a stationary, overlapping-generations economy in which consumers are subject to a borrowing constraint. The key feature captured by the OLG economy is that the bulk of the future income of the young agents is derived from their wages forthcoming in their middle age, while the bulk of the future income of the middle-aged agents is derived from their savings in equity and bonds. The young would like to borrow and invest in equity, but the borrowing constraint prevents them from doing so. The middle-aged choose to hold a diversified portfolio that includes positive holdings of bonds, and this explains the demand for bonds. Without the borrowing constraint, the young borrow and invest in equity, thereby decreasing the mean equity premium and increasing the rate of interest.
Handle: RePEc:nbr:nberwo:6617
Template-Type: ReDIF-Paper 1.0
Title: Interest-Rate Rules in an Estimated Sticky Price Model
Classification-JEL: E52
Author-Name: Julio J. Rotemberg
Author-Person: pro30
Author-Name: Michael Woodford
Author-Person: pwo3
Note: ME EFG
Number: 6618
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6618
File-URL: http://www.nber.org/papers/w6618.pdf
File-Format: application/pdf
Publication-Status: published as Monetary Policy Rules, Taylor, J.B., ed., Chicago: The University of Chicago Press, 1999.
Publication-Status: published as Interest Rate Rules in an Estimated Sticky Price Model, Julio J. Rotemberg, Michael Woodford. in Monetary Policy Rules, Taylor. 1999
Abstract: This paper evaluates alternative rules by which the Fed may set interest rates using the small model of the U.S. economy estimated in Rotemberg and Woodford (1997). Our main substantive finding is that low and stable inflation together with stable interest rates can be achieved by letting the funds rate respond positively to inflation while also responding, with a coefficient bigger than one, to the lagged funds rate itself. A rule in which the interest rate is set in this extremely simple way does almost as well as a more complicated rule which is optimal in our setting, in the sense of maximizing expected utility to the representative household. Furthermore, when the funds rate responds to inflation only with a delay, due to delay in the availability of inflation data, performance under the rule is only slightly reduced.
Handle: RePEc:nbr:nberwo:6618
Template-Type: ReDIF-Paper 1.0
Title: Notes on the Role of TARGET in a Stage III Crisis
Author-Name: Peter M. Garber
Author-Person: pga124
Note: IFM
Number: 6619
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6619
File-URL: http://www.nber.org/papers/w6619.pdf
File-Format: application/pdf
Publication-Status: published as Garber, Peter M. "The TARGET Mechanism: Will It Propagate Or Stifle A Stage III Crisis?," Carnegic-Rochester Conference Series on Public PolicyP, 1999, v51(1,Dec), 195-220.
Abstract: When Stage III of EMU begins on January 1, 1999, member countries will irrevocably lock exchange rates, and interbank payments in euros will commence. Will the ensuing respite from Stage II instabilities be permanent or only the eye of the storm? Can Stage III itself be subject to an attack that forces a realignment of the of the system? The key question for this paper is how the infrastructural arrangements designed to underpin the monetary union will emerge to determine capital flow dynamics in a crisis and accentuate potential cross-border flows. The answer lies in the details of the TARGET payment system, which can provide the inter-central bank credit necessary to fund an attack.
Handle: RePEc:nbr:nberwo:6619
Template-Type: ReDIF-Paper 1.0
Title: Current Account Reversals and Currency Crises: Empirical Regularities
Classification-JEL: F31; F32
Author-Name: Gian Maria Milesi-Ferretti
Author-Person: pmi28
Author-Name: Assaf Razin
Author-Person: pra388
Note: PE
Number: 6620
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6620
File-URL: http://www.nber.org/papers/w6620.pdf
File-Format: application/pdf
Publication-Status: published as Current Account Reversals and Currency Crises: Empirical Regularities, Gian Maria Milesi Ferretti, Assaf Razin. in Currency Crises, Krugman. 2000
Abstract: This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds that both domestic factors, such as the low reserves, and external factors, such as unfavorable terms of trade and high interest rates in industrial countries, trigger reversals and currency crises. The two types of events are, however, distinct; indeed, current account imbalances are not sharply reduced in the years following a currency crisis. Economic performance around these events is also quite different. An exchange rate crash is associated with a fall in output growth and a recovery thereafter, while for reversal events there is no systematic evidence of a growth slowdown.
Handle: RePEc:nbr:nberwo:6620
Template-Type: ReDIF-Paper 1.0
Title: Taxation and the Labor Supply: Decisions of the Affluent
Classification-JEL: H2; J22
Author-Name: Robert A. Moffitt
Author-Person: pmo48
Author-Name: Mark Wilhelm
Author-Person: pwi112
Note: PE
Number: 6621
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6621
File-URL: http://www.nber.org/papers/w6621.pdf
File-Format: application/pdf
Publication-Status: published as Slemrod, J. (ed.) Does Atlas Shrug? Economic Consequences of Taxing the Rich. Russell Sage Foundation and Harvard University Press, 2000.
Abstract: We examine the effect of the 1996 Tax Reform Act on the labor supply of affluent men. The Act reduced marginal tax rates for the affluent more than for other taxpayers. Using instrumental-variables methods with a variety of identifying variables, we find essentially no responsiveness of the hours of work of high-income men to the tax reduction. However, we do find hourly wage rates of such men to have increased over the period.
Handle: RePEc:nbr:nberwo:6621
Template-Type: ReDIF-Paper 1.0
Title: Setting the X Factor in Price Cap Regulation Plans
Classification-JEL: L51; D24
Author-Name: Jeffrey I. Bernstein
Author-Person: pbe327
Author-Name: David E. M. Sappington
Author-Person: psa323
Note: PR
Number: 6622
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6622
File-URL: http://www.nber.org/papers/w6622.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Regulatory Economics, Vol. 16 (1999): 5-25.
Abstract: Despite the popularity of price cap regulation in practice, the economic literature provides relatively little guidance on how to determine the X factor, which is the rate at which inflation -adjusted output prices must fall under price cap plans. We review the standard principles that inform the choice of the X factor, and then consider important extensions. We analyze appropriate modifications of the X factor: (1) when only a subset of the firm's products are subject to price cap regulation, and when product-specific costs and productivity cannot be measured; (2) when the pricing decisions of the regulated firm affect the economy-wide inflation rate; and (3) in the presence of structural changes in the industry, such as a strengthening of competitive forces.
Handle: RePEc:nbr:nberwo:6622
Template-Type: ReDIF-Paper 1.0
Title: Derivatives in International Capital Flows
Author-Name: Peter M. Garber
Author-Person: pga124
Note: IFM
Number: 6623
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6623
File-URL: http://www.nber.org/papers/w6623.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin (ed.) International capital flows, National Bureau of Economic Research Conference Report series. Chicago and London: University of Chicago Press, 1999.
Abstract: This paper will discuss the role of derivative products in international capital flows, especially in providing a means of both reducing and enhancing market risks associated with given net flows. It will emphasize how derivatives can be used to evade risk-control or prudential regulation, circumvent capital controls, drive the dynamics of currency instabilities, and obscure true risk positions and thereby undermine the usefulness of balance of payments capital account categories.
Handle: RePEc:nbr:nberwo:6623
Template-Type: ReDIF-Paper 1.0
Title: Comparing Capital Mobility Across Provincial and National Borders
Classification-JEL: F02; F21
Author-Name: John F. Helliwell
Author-Person: phe368
Author-Name: Ross McKitrick
Note: IFM
Number: 6624
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6624
File-URL: http://www.nber.org/papers/w6624.pdf
File-Format: application/pdf
Publication-Status: published as John F. Helliwell & Ross McKitrick, 1999. "Comparing Capital Mobility across Provincial and National Borders," The Canadian Journal of Economics / Revue canadienne d'Economique, vol 32(5).
Abstract: The persistence of high savings-investment correlations and home-country bias in portfolio construction at the national level is contrasted with new evidence of savings behaviour in Canadian provinces. We confirm that national borders clearly divert flows of capital to domestic investments, but provincial borders have no such effect. In particular, while there is a significant correlation between national savings and investment, among provinces that effect disappears. We discuss the implications for interpreting the distinction between provincial and national borders.
Handle: RePEc:nbr:nberwo:6624
Template-Type: ReDIF-Paper 1.0
Title: Corporate Ownership Around the World
Classification-JEL: G30; G32
Author-Name: Rafael La Porta
Author-Person: pla273
Author-Name: Florencio Lopez-de-Silane
Author-Person: plo137
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: CF
Number: 6625
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6625
File-URL: http://www.nber.org/papers/w6625.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 54, no. 2 (1999): 471-517.
Abstract: We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely-held, in contrast to the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely-held corporations is less common. The controlling shareholders typically have the power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management. The results suggest that the principal agency problem in large corporations around the world is that of restricting expropriation of minority shareholders by the controlling shareholders, rather than that of restricting empire building by professional managers unaccountable to shareholders.
Handle: RePEc:nbr:nberwo:6625
Template-Type: ReDIF-Paper 1.0
Title: Efforts and Wages: A New Look at the Inter-Industry Wage Differentials
Classification-JEL: J31; J41
Author-Name: Edward E. Leamer
Author-Person: ple440
Author-Name: Christopher Thornberg
Note: LS
Number: 6626
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6626
File-URL: http://www.nber.org/papers/w6626.pdf
File-Format: application/pdf
Publication-Status: published as Effort and Wages: A New Look at the Interindustry Wage Differentials , Edward E. Leamer, Christopher F. Thornberg. in The Impact of International Trade on Wages, Feenstra. 2000
Abstract: We provide evidence that US workers face a wage-effort offer curve with the high-wage high-effort jobs occurring in the capital intensive sectors. We find that real wage offers rose at every level of effort during the 1960's, a shift which is consistent with a decline in the rental cost of capital. During the 1970's, when relative prices of labor-intensive goods declined, the wage-effort offer curve twisted, offering lower pay for the low-paid jobs in the labor-intensive sectors but higher pay for the high-paid jobs in the capital-intensive sectors. In the 1980's, workers at every wage level began to work more hours for the same weekly wage. This we loosely attribute either to the increasing cost of non-wage benefits, especially health care, or to the introduction of new equipment. In studying the wage-effort offer curve rate of unionization, education, and rent sharing.
Handle: RePEc:nbr:nberwo:6626
Template-Type: ReDIF-Paper 1.0
Title: Optimal Investment, Growth Options, and Security Returns
Classification-JEL: G12; G13
Author-Name: Jonathan Berk
Author-Name: Richard C. Green
Author-Name: Vasant Naik
Note: AP
Number: 6627
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6627
File-URL: http://www.nber.org/papers/w6627.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 54 (1999): 1553-1608.
Abstract: As a consequence of optimal investment choices, firms' assets and growth options change in predictable ways. Using a dynamic model, we show that this imparts predictability to changes in a firm's systematic risk, and its expected return. Simulations show that the model simultaneously reproduces: (i) the time series relation between the book-to-market ratio and asset returns, (ii) the cross-sectional relation between book to market, market value and return, (iii) contrarian effects at short horizons, (iv) momentum effects at longer horizons, and (v) the inverse relation between interest rates and the market risk premium.
Handle: RePEc:nbr:nberwo:6627
Template-Type: ReDIF-Paper 1.0
Title: Overcoming Informational Barriers to International Resource Allocation: Prices and Group Ties
Classification-JEL: F10
Author-Name: James E. Rauch
Author-Person: pra166
Author-Name: Alessandra Casella
Author-Person: pca496
Note: ITI
Number: 6628
Creation-Date: 1998-06
Order-URL: http://www.nber.org/papers/w6628
File-URL: http://www.nber.org/papers/w6628.pdf
File-Format: application/pdf
Publication-Status: published as "Overcoming Informational Barriers to International Resource Allocation: Prices and Ties" , Economic Journal, Vol. 113 (January 2003), pp. 21-42.
Abstract: Incomplete information in the international market creates difficulty in matching agents with productive opportunities and interferes with the ability of prices to allocate scarce resources across countries. Resource-price differentials may not be eliminated and domestic resource supplies may have excessive influence on domestic resource prices. Information-sharing networks among internationally dispersed ethnic minorities or business groups can improve the allocation of resources, though at the same time they may hurt those excluded from the preferential information channels. However, when ties are denser between countries with small resource price differences than between countries with large resource price differences, such networks can worsen the allocation of resources and reduce the value of world output.
Handle: RePEc:nbr:nberwo:6628
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Alcohol Regulation on Physical Child Abuse
Classification-JEL: I10; J13
Author-Name: Sara Markowitz
Author-Person: pma138
Author-Name: Michael Grossman
Author-Person: pgr107
Note: EH CH
Number: 6629
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6629
File-URL: http://www.nber.org/papers/w6629.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 19, no. 2 (March 2000): 271-282.
Abstract: The purpose of this paper is to examine the effects of alcohol regulation on physical child abuse. Given the established relationship between alcohol consumption and violence, the principal hypothesis to be tested is that an increase in the price of alcohol will lead to a reduction in the incidence of violence. We also examine the effects of measures of the ease of obtaining alcohol, illegal drug prices, and the socio-demographic characteristics of the parent on the incidence of child abuse. Data on violence come from the 1976 and 1985 Physical Violence in American Families surveys. We estimate a reduced form model where violence is affected by the state excise tax rate on beer and other regulatory variables, and a structural model where violence is determined partly by consumption. Both equations are estimated separately for mothers and fathers. Results indicate that increases in the beer tax may decrease the incidence of violence committed by females but not by males. This is consistent with our second finding that violence by females increases with alcohol consumption while violence by males is not sensitive to changes in consumption.
Handle: RePEc:nbr:nberwo:6629
Template-Type: ReDIF-Paper 1.0
Title: The Immigrant and Native-born Wage Distributions: Evidence from United States Censuses
Classification-JEL: J31; J61
Author-Name: Kristin F. Butcher
Author-Person: pbu245
Author-Name: John DiNardo
Author-Person: pdi178
Note: LS
Number: 6630
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6630
File-URL: http://www.nber.org/papers/w6630.pdf
File-Format: application/pdf
Publication-Status: published as Kristin F. Butcher & John DiNardo, 2002. "The Immigrant and native-born wage distributions: Evidence from United States censuses," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 56(1), pages 97-121, October.
Abstract: Over the past thirty years, immigration has increased, immigrant characteristics have changed, and the relative mean wages of immigrants vis … vis the native born have declined. Using data from four U.S. Censuses (1960 - 1990) we examine changes in the wage structure and their role in explaining comparisons between immigrants and the native-born in mean wages. Inter alia, we document that patterns of comparison between the immigrants and the native-born are not the same for men and for women, and that these differences in immigrant/native-born comparisons among men and women are a consequence of different evolutions in the wage structure. Although virtually ignored in the immigration literature, we return to a well-understood aspect of Blinder/Oaxaca differentials: the extent of measured discrimination depends on the base' prices used for comparison. Contrary to previous work which finds little impact of the wage structure on immigrant/native-born wage differentials, we observe that if the wage structure' had remained as it was in 1970, for example, the decline in immigrant wages relative to the native-born would generally be much smaller than has been observed.
Handle: RePEc:nbr:nberwo:6630
Template-Type: ReDIF-Paper 1.0
Title: Poisson-Guassian Processes and the Bond Markets
Author-Name: Sanjiv R. Das
Author-Person: pda527
Note: AP
Number: 6631
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6631
File-URL: http://www.nber.org/papers/w6631.pdf
File-Format: application/pdf
Abstract: That interest rates move in a discontinuous manner is no surprise to participants in the bond markets. This paper proposes and estimates a class of Poisson-Gaussian processes that allow for jumps in interest rates. Estimation is undertaken using exact continuous-time and discrete-time estimators. Analytical derivations of the characteristic functions, moments and density functions of jump-diffusion stochastic process are developed and employed in empirical estimation. These derivations are general enough to accommodate any jump distribution. We find that jump processes capture empirical features of the data which would not be captured by diffusion models. The models in the paper enable an assessment of the impact of Fed activity and day-of-week effects on the stochastic process for interest rates. There is strong evidence that existing diffusion models would be well-enhanced by jump processes.
Handle: RePEc:nbr:nberwo:6631
Template-Type: ReDIF-Paper 1.0
Title: What Do Technology Shocks Do?
Classification-JEL: E32; O33
Author-Name: John Shea
Author-Person: psh560
Note: ME
Number: 6632
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6632
File-URL: http://www.nber.org/papers/w6632.pdf
File-Format: application/pdf
Publication-Status: published as NBER Macro Annual 1998, Bernanke, Ben and Julio Rotemberg, eds., Cambridge: MIT Press, pp. 275-310.
Publication-Status: published as What Do Technology Shocks Do?, John Shea. in NBER Macroeconomics Annual 1998, volume 13, Bernanke and Rotemberg. 1999
Abstract: The real business cycle literature has largely ignored the empirical question of what role technology shocks actually play in business cycles. The observed procyclicality of total factor productivity (TFP) does not prove that technology shocks are important to business cycles, since demand shocks could generate procyclical TFP due to increasing returns or other reasons. I address the role of technology by investigating the dynamic interactions of inputs, TFP and two observable indicators of technology shocks: R+D spending and patent applications. Using annual panel data on 19 US manufacturing industries from 1959 -1991, I find that favorable R+D or patent shocks tend to increase inputs, especially labor, in the short run, but to decrease inputs in the long run, while tilting the mix of inputs towards capital and nonproduction labor. Favorable technology shocks do not significantly increase measured TFP at any horizon, except for a subset of industries dominated by process innovations, suggesting that available price data do not capture productivity improvements due to product innovations. Technology shocks explain only a small fraction of input and TFP volatility at business cycle horizons.
Handle: RePEc:nbr:nberwo:6632
Template-Type: ReDIF-Paper 1.0
Title: Capital Movements, Asset Values, and Banking Policy in Globalized Markets
Classification-JEL: G2; K2
Author-Name: Edward J. Kane
Author-Person: pka853
Note: CF
Number: 6633
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6633
File-URL: http://www.nber.org/papers/w6633.pdf
File-Format: application/pdf
Publication-Status: published as Kane, Edward J. "Capital Movements, Banking Insolvency, And Silent Runs In The Asian Financial Crisis," Pacific Basin Finance Journal, 2000, v8(2,May), 153-175.
Abstract: Weaknesses in banking systems are rooted in government credit-allocation preferences that prove unsupportable in private markets. Losses that preferential loans impose on lending banks and on the governmental safety net can be covered up for awhile, but not indefinitely. A silent run begins when sophisticated depositors recognize that assets in the country's combined banking and deposit-insurance system cannot cover the claims of bank depositors without being supplemented by substantial injections of funds from domestic or foreign taxpayers. Longstanding banking-system weakness devolves into a countrywide economic crisis when and as doubts about the government's willingness to force taxpayers to support an economically insolvent banking system are spread by an escalating silent run.' Financial crises become more frequent, but also shallower when foreign-bank presence and activities are expanded. Offshore banks put the supervisory systems and safety-net guarantees of their homelands into competition with those of host countries. Intensified offshore banking competition provides substitutes for deposits in local banks. These substitutes make it easier for host-country depositors to test the local guarantee system by quietly fleeing to quality. In effect, banking crises discipline inefficient and unfair regulatory systems and push the social burdens created by weak supervisory systems toward the levels found in best-practices countries.
Handle: RePEc:nbr:nberwo:6633
Template-Type: ReDIF-Paper 1.0
Title: The Other Side of the Tradeoff: The Impact of Risk on Executive Compensation
Classification-JEL: G30; J33
Author-Name: Rajesh Aggarwal
Author-Person: pag94
Author-Name: Andrew A. Samwick
Author-Person: psa395
Note: AP CF LS
Number: 6634
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6634
File-URL: http://www.nber.org/papers/w6634.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 107 (February 1999): 65-105.
Abstract: The principal-agent model of executive compensation is of central importance to the modern theory of the firm and corporate governance, yet the existing empirical evidence supporting it is quite weak. The key predication of the model is that the executive's pay-performance sensitivity is decreasing in the variance of the firm's performance. We demonstrate strong empirical confirmation of this prediction using a comprehensive sample of executives at large corporations. In general, the pay-performance sensitivity for executives at firms with the least volatile stock prices is an order of magnitude greater than the pay-performance sensitivity for executives at firms with the most volatile stock prices. This result holds for both chief executive officers and for other highly compensated executives. We further show that estimates of the pay-performance sensitivity that do not explicitly account for the effect of the variance of firm performance are biased toward zero. We also test for relative performance evaluation of executives against the performance of other firms. We find little support for the relative performance evaluation model. Our findings suggest that executive compensation contracts incorporate the benefits of risk-sharing but do not incorporate the potential informational advantages of relative performance evaluation.
Handle: RePEc:nbr:nberwo:6634
Template-Type: ReDIF-Paper 1.0
Title: A Direct Approach to Arbitrage-Free Pricing of Credit Derivatives
Author-Name: Sanjiv R. Das
Author-Person: pda527
Author-Name: Rangarajan K. Sundaram
Note: AP
Number: 6635
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6635
File-URL: http://www.nber.org/papers/w6635.pdf
File-Format: application/pdf
Abstract: This paper develops a model for the pricing of credit derivatives using observables. The model (i) is arbitrage-free, (ii) accommodates path-dependence, and (iii) handles a range of securities, even with American features. The computer implementation uses a recursive scheme that is convenient and seamlessly processes forward induction and backward recursion, needed to compute more complicated derivative securities.
Handle: RePEc:nbr:nberwo:6635
Template-Type: ReDIF-Paper 1.0
Title: What Hides Behind an Umemployment Rate: Comparing Portuguese and U.S. Unemployment
Author-Name: Olivier Blanchard
Author-Person: pbl2
Author-Name: Pedro Portugal
Note: ME EFG
Number: 6636
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6636
File-URL: http://www.nber.org/papers/w6636.pdf
File-Format: application/pdf
Publication-Status: published as Blanchard, Olivier and Pedro Portugal. "What Hides Behind An Unemployment Rate: Comparing Portuguese And U.S. Labor Markets," American Economic Review, 2001, v91(1,Mar), 187-207.
Abstract: Over the last 15 years, Portugal and the United States have had the same average unemployment rate, about 6.5%. But behind these similar rates hide two very different labor markets. Unemployment duration in Portugal is more than three times that of the United States. Symmetrically, the flow of workers into unemployment in Portugal is, in proportion to the labor force, less than a third of what it is in the United States. Relying on evidence from Portuguese and U.S. micro data sets, we show that these lower flows come in roughly equal proportions from lower job flows, and from lower worker flows relative to job flows. We then argue that these differences plausibly come from high employment protection in Portugal. We finally show how, looking across countries, higher employment protection is associated with lower flows and higher unemployment duration. In short, high employment protection makes economics more sclerotic; but because it affects unemployment duration and flows in opposite directions, it has an ambiguous effect on the unemployment rate.
Handle: RePEc:nbr:nberwo:6636
Template-Type: ReDIF-Paper 1.0
Title: What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions
Classification-JEL: D78; G21
Author-Name: Randall S. Kroszner
Author-Name: Philip E. Strahan
Note: DAE
Number: 6637
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6637
File-URL: http://www.nber.org/papers/w6637.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics (November 1999): 1437-1467.
Abstract: This paper examines the key forces behind deregulation in order to assess the relative importance of alternative theories of regulatory entry and exit. We focus on bank branching deregulation across the states which began a quarter century ago and cumulated in federal deregulation in 1994. The cross-sectional and time-series variation of branching deregulation allows us to develop a hazard model to explain the timing of deregulation across the states using proxies motivated by private-interest, public-interest, and political-institutional theories, the public interest approach cannot easily explain our findings that deregulation occurs later in states with relatively more small banks and with a relatively large insurance sector in states where banks can sell insurance. We also find that the ex post consequences of deregulation for the different interest groups are consistent with the ex ante lobbying patterns we infer from the hazard model. Some political-institutional factors also play a role in the process of regulatory change. The same forces that explain the timing of deregulation across the states also explain the pattern of voting in Congress on interstate branching deregulation. We conclude by considering the implications of our results for tyhe future path of deregulation and applications of our research design to other episodes of regulatory entry and exit.
Handle: RePEc:nbr:nberwo:6637
Template-Type: ReDIF-Paper 1.0
Title: Wages, Skills, and Technology in the United States and Canada
Classification-JEL: J3; O3
Author-Name: Kevin M. Murphy
Author-Person: pmu108
Author-Name: W. Craig Riddell
Author-Person: pri20
Author-Name: Paul M. Romer
Author-Person: pro45
Note: LS
Number: 6638
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6638
File-URL: http://www.nber.org/papers/w6638.pdf
File-Format: application/pdf
Publication-Status: published as General Purpose Technologies and Economic Growth, Helpman, Elhanen, ed., Cambridge: MIT Press, 1998.
Abstract: Wages for more- and less-educated workers have followed strikingly different paths in the U.S. and Canada. During the 1980's and 1990's, the ratio of earnings of university graduates to high school graduates increased sharply in the U.S. but fell slightly in Canada. Katz and Murphy (1992) found that for the U.S. a simple supply-demand model fit the pattern of variation in the premium over time. We find that the same model and parameter estimates explain the variation between the U.S. and Canada. In both instances, the relative demand for more-educated labor shifts out at the same, consistent rate. Both over time and between countries, the variation in rate of growth of relative wages can be explained by variation in the relative supply of more-educated workers. Many economists suspect that technological change is causing the steady increases in the relative demand for more-educated labor. If so, these data provide independent evidence on the spatial and temporal variation in the pattern of technological change. Whatever is causing this increased demand for skill, the evidence from Canada suggest that increases in educational attainment and skills can reduce the rate at which relative wages diverge.
Handle: RePEc:nbr:nberwo:6638
Template-Type: ReDIF-Paper 1.0
Title: On the Regulation of Fee Structures in Mutual Funds
Author-Name: Sanjiv Ranjan Das
Author-Person: pda527
Author-Name: Rangarajan K. Sundaram
Note: AP
Number: 6639
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6639
File-URL: http://www.nber.org/papers/w6639.pdf
File-Format: application/pdf
Abstract: We offer an alternative framework for the analysis of mutual funds and use it to examine the rationale behind existing regulations that require mutual fund advisor fees to be of the fulcrum' variety. We find little justification for the regulations. Indeed, we find that asymmetric incentive fees' in which the advisor receives a flat fee plus a bonus for exceeding a benchmark index provide Pareto-dominant outcomes with a lower level of equilibrium volatility. Our model also offers some insight into fee structures actually in use in the asset-management industry. We find that when leveraging is not permitted and the fee structure must be of the fulcrum variety, the equilibrium fee in our model is a flat fee with no performance component; if asymmetric incentive fees are allowed and leveraging is permitted the equilibrium fee is an incentive fee with a large performance component. These predictions match observed fee structures in the mutual fund industry and the hedge fund industry, respectively.
Handle: RePEc:nbr:nberwo:6639
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and Target Savings
Classification-JEL: H31; E21
Author-Name: Andrew A. Samwick
Author-Person: psa395
Note: PE
Number: 6640
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6640
File-URL: http://www.nber.org/papers/w6640.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Vol. 51 (September 1998): 621-635.
Abstract: If the United States switched to a broad-based consumption tax, than all forms of saving would enjoy the tax-preferred status reserved primarily for retirement saving vehicles under the current income tax system. Because pensions have other unique characteristics besides their tax advantage, current results on the effect of pensions on saving may provide an unreliable guide to the saving response to fundamental tax reform. The net effect of reform on saving depends critically on household motives for saving. This paper documents the considerable variation in the reasons why households save and presents a buffer stock model of saving that allows for both life cycle and target saving. To the extent that specific targets that are not currently tax-favored motivate the saving of households in their preretirement years, fundamental tax reform that results in the elimination of current pension plans will reduce saving.
Handle: RePEc:nbr:nberwo:6640
Template-Type: ReDIF-Paper 1.0
Title: Social Security and Institutions for Intergenerational, Intragenerational, and International Risk Sharing
Classification-JEL: H55
Author-Name: Robert J. Shiller
Author-Person: psh69
Note: AP ME EFG
Number: 6641
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6641
File-URL: http://www.nber.org/papers/w6641.pdf
File-Format: application/pdf
Publication-Status: published as Carnegie-Rochester Conference Series on Public Policy, Vol. 50, no. 1(June 1999): 165-204.
Abstract: Social security system old age insurance systems are devices for the sharing of income risks of elderly people with others. Risks can be shared intergenerationally (with the young of the same country), intragenerationally (with other elderly of the same country), or internationally (with foreigners). Barriers to individuals themselves sharing their risks intergenerationally, intragenerationally, or internationally are described. Optimal design of government-sponsored social security systems is considered in light of these barriers. Alternative benefits and contributions formulas for pay-as-you-go social security systems are defined and compared with existing and proposed formulas in terms of their ability to fulfill the government's role in promoting risk sharing. Benefits for each retired person may be tied to that person's lifetime income without causing (as with the US benefits formula today) aggregate benefits for all elderly today to be tied to their past aggregate income.
Handle: RePEc:nbr:nberwo:6641
Template-Type: ReDIF-Paper 1.0
Title: Provide, Provide: The Economics of Aging
Classification-JEL: I18; J14
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: AG
Number: 6642
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6642
File-URL: http://www.nber.org/papers/w6642.pdf
File-Format: application/pdf
Publication-Status: published as Rettenmaier, Andrew J. and Thomas R. Saving (eds.) Medicare reform: Issues and answers, Bush School Series in the Economics of Public Policy, vol. 1. Chicago and London: University of Chicago Press, 1999.
Abstract: Data from the Bureau of the Census, the Health Care Financing Administration, the NBER Tax File and the Current Population Survey are used to estimate for the elderly (ages 65 and above) consumption of health care and income available for other goods and services in 1975, 1985, and 1995. Extrapolation of 1975-1995 and 1985-1995 trends are used to obtain projections for 2020. Even the more conservative projection shows that in 2020 health care for the elderly would consume 10 percent of the GDP, and income available for other goods and services would show an absolute decline from the 1995 level. Changes in age-specific consumption of health care are found to be much more important than demographic changes. Income inequality among the elderly in 1995 is found to be much less than at younger ages.
Handle: RePEc:nbr:nberwo:6642
Template-Type: ReDIF-Paper 1.0
Title: Labor Market Integration Before the Civil War
Classification-JEL: N31
Author-Name: Robert A. Margo
Author-Person: pma319
Note: DAE
Number: 6643
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6643
File-URL: http://www.nber.org/papers/w6643.pdf
File-Format: application/pdf
Publication-Status: Published as "Wages and Labor Markets Before the Civil War", American Economic Review, Vol. 88, no. 2 (May 1998): 51-56.
Abstract: This paper uses newly collected archival evidence to examine various aspects of the geographic performance of American labor markets before the Civil War. Much of the paper addresses the evolution of regional differences in real wages, of interest to economic historians because they speak to the formation of a national labor market.' In the North, real wages followed a pattern of convergence: wages were highest initially on the frontier -- the Midwest -- but tended to decline relative to real wages in settled regions -- the Northeast -- as labor migrated to the frontier. In the South, regional wage gaps were generally smaller than in the North, but real wages in the South fell significantly below Northern levels beginning in the 1830's. In addition to regional differences, I also examine wage convergence at the level of local labor markets, proxied by counties, using manuscript census data for 1850 and 1860. I find strong evidence of regression to the mean: high wage counties in 1850 were far less likely to be high wage in 1860. Such evidence is consistent with the view that antebellum local labor markets were spatially integrated.
Handle: RePEc:nbr:nberwo:6643
Template-Type: ReDIF-Paper 1.0
Title: Fee Speech: Adverse Selection and the Regulation of Mutual Funds
Author-Name: Sanjiv Ranjan Das
Author-Person: pda527
Author-Name: Rangarajan K. Sundaram
Note: AP
Number: 6644
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6644
File-URL: http://www.nber.org/papers/w6644.pdf
File-Format: application/pdf
Abstract: The Investment Advisors Act of 1940 (as amended in 1970) prohibits mutual funds in the US from offering their advisers asymmetric incentive fee' contracts in which the advisers are rewarded for superior performance via-a-vis a chosen index but are not correspondingly penalized for underperforming it. The rationale offered in defense of the regulation by both the SEC and Congress is that incentive fee structures of this sort encourage excessive' risk-taking by advisers. This paper uses an adverse selection model with multiple funds and multiple risky securities to study this issue. We find that incentive funds do, as alleged, lead to more (and suboptimal) risk-taking than do symmetric fulcrum fees.' Nevertheless, from the more important welfare angle, we find that investors may be strictly better off under asymmetric incentive fee structures. Thus, there appears to be little justification for this legislation.
Handle: RePEc:nbr:nberwo:6644
Template-Type: ReDIF-Paper 1.0
Title: How Will Defined Contribution Pension Plans Affect Retirement Income?
Classification-JEL: J32; J14
Author-Name: Andrew A. Samwick
Author-Person: psa395
Author-Name: Jonathan Skinner
Author-Person: psk23
Note: AG PE
Number: 6645
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6645
File-URL: http://www.nber.org/papers/w6645.pdf
File-Format: application/pdf
Publication-Status: published as Samwick, Andrew A. and Jonathan Skinner. "How Will 401(k) Pension Plans Affect Retirement Income?," American Economic Review, 2004, v94(1,Mar), 329-343.
Abstract: How has the emergence of defined contribution pension plans, such as 401(k)s, affected the financial security of future retirees? We consider this question using a detailed survey of pension formulas in the Survey of Consumer Finances. Our simulations show that average and median pension benefits are higher under defined contribution plans that for defined benefit plans. Defined benefit plans are slightly better at providing minimum benefits, but for plausible values of risk aversion, a defined contribution plan drawn randomly from those available in 1995 is still preferred to a defined benefit plan drawn randomly from those available in 1983. This result is robust to different assumptions regarding the spending of defined contribution balances between jobs, equity rates of return, and the date of retirement. In short, we suggest that defined contribution plans can strengthen the financial security of retirees.
Handle: RePEc:nbr:nberwo:6645
Template-Type: ReDIF-Paper 1.0
Title: A Frictionless View of U.S. Inflation
Classification-JEL: E4; E5
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG
Number: 6646
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6646
File-URL: http://www.nber.org/papers/w6646.pdf
File-Format: application/pdf
Publication-Status: published as A Frictionless View of US Inflation, John H. Cochrane. in NBER Macroeconomics Annual 1998, volume 13, Bernanke and Rotemberg. 1999
Abstract: Financial innovation challenges the foundations of monetary theory, and standard monetary theory has not been very successful at describing the history of U.S. inflation. Motivated by these observations, I ask: Can we understand the history of U.S. inflation using a framework that ignores monetary frictions? The fiscal theory of the price level allows us to think about price level determination with no monetary frictions. The price level adjusts to equilibrate the real value of nominal government debt with the present value of surpluses. I describe the theory, and I argue that it is a return to pre-quantity theoretic ideas in which money is valued via a commodity standard or because the government accepts it to pay taxes. Both sources of value are immune to financial innovation and the presence or absence of monetary frictions. I then interpret the history of U.S. inflation with a fiscal-theory, frictionless view. I show how the fiscal theory can accommodate the stylized fact that deficits and inflation seem to be negatively, not positively correlated. I verify its prediction that open market operations do not affect inflation. I show how debt policy has already smoothed inflation a great deal.
Handle: RePEc:nbr:nberwo:6646
Template-Type: ReDIF-Paper 1.0
Title: Accounting for Growth
Author-Name: Jeremy Greenwood
Author-Person: pgr12
Author-Name: Boyan Jovanovic
Note: PR
Number: 6647
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6647
File-URL: http://www.nber.org/papers/w6647.pdf
File-Format: application/pdf
Publication-Status: published as Accounting for Growth, Jeremy Greenwood, Boyan Jovanovic. in New Developments in Productivity Analysis, Hulten, Dean, and Harper. 2001
Abstract: A satisfactory account of the postwar growth experience of the United States should be able to come to terms with the following three facts: 1. Since the early 1970s there has been a slump in the advance of productivity. 2. The price of new equipment has fallen steadily over the postwar period. 3. Since the mid-1970s the skill premium has risen. Variants of Solow's (1960) vintage-capital model can go a long way toward explaining these facts, as this paper shows. In brief, the explanations are: 1. Productivity slowed down because the implementation of information technologies was both costly and slow. 2. Technological advance in the capital goods sector has lead to a decline in equipment prices. 3. The skill premium rose because the new, more efficient capital is complementary with skilled labor and/or because the use of skilled labor facilitates the adoption of new technologies.
Handle: RePEc:nbr:nberwo:6647
Template-Type: ReDIF-Paper 1.0
Title: Performance Evaluation with Transactions Data: The Stock Selection of Investment Newsletters
Classification-JEL: G12; G14
Author-Name: Andrew Metrick
Author-Person: pme99
Note: AP
Number: 6648
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6648
File-URL: http://www.nber.org/papers/w6648.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Finance, Vol. 54, no. 5 (October 1999): 1743-1775.
Abstract: This paper analyzes the equity-portfolio recommendations made by investment newsletters. The dataset spans 17 years, is free of survivor and back-fill biases, and includes the complete recommendations for 153 different newsletters. Overall, there is no significant evidence of superior stock-picking ability for this sample of newsletters. Some individual letters do have superior performance records, but this does not occur more often than would be expected by chance, and these records are never more extreme than would be expected for the sample size. In addition, a strategy of buying past winners does not earn positive abnormal returns. The comprehensive and bias-free transactions database also allows for insights into several popular models of performance evaluation. The transactions-based approach of Daniel, Grinblatt, Titman and Wermers (1997) yields a median improvement in precision of 10 percent over the 4-factor model of Carhart (1997a), with the former approach providing more precise estimates of abnormal performance for more than 80 percent of the newsletters. This compares with a median improvement of less than 1 percent for the 4-factor model over the CAPM.
Handle: RePEc:nbr:nberwo:6648
Template-Type: ReDIF-Paper 1.0
Title: Bank Capital and Portfolio Management: The 1930's Capital Crunch and Scramble to Shed Risk
Classification-JEL: G21; G32
Author-Name: Charles W. Calormiris
Author-Person: pca421
Author-Name: Berry Wilson
Note: DAE
Number: 6649
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6649
File-URL: http://www.nber.org/papers/w6649.pdf
File-Format: application/pdf
Publication-Status: published as Charles W. Calomiris & Berry Wilson, 2004. "Bank Capital and Portfolio Management: The 1930s "Capital Crunch" and the Scramble to Shed Risk," Journal of Business, University of Chicago Press, vol. 77(3), pages 421-456, July.
Abstract: Recent models of banking under asymmetric information argue that depositors penalize banks that offer high-risk deposits. Focusing on New York City banks in the 1920's and 1930's, this study examines how banks manage risk during normal times and in response to severe shocks. We develop and apply a simple framework that identifies the tradeoffs among alternative means of satisfying depositors' preferences for low-risk deposits (i.e. low asset risk versus high capital). During the 1920's profitable lending opportunities and low costs of raising capital prompted banks to increase their asset risk, while increasing capital to maintain low default risks on deposits. Cross-sectional differences in the cost of raising equity explain differences in banks' choices of asset risk and capital ratios. In the wake of the loan losses produced by the Depression, high default risk was penalized with deposit withdrawals. To reduce deposit risk, banks increased their riskless assets and cut dividends, but avoided costly equity issues. Banks with high default risk or with high costs of raising equity contracted dividends the most during the 1930's.
Handle: RePEc:nbr:nberwo:6649
Template-Type: ReDIF-Paper 1.0
Title: Is Job Stability in the US Falling? Reconciling Trends in the Current Population Survey and Panel Study of Income Dynamics
Classification-JEL: J63
Author-Name: David A. Jaeger
Author-Person: pja17
Author-Name: Ann Huff Stevens
Author-Person: pst180
Note: LS
Number: 6650
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6650
File-URL: http://www.nber.org/papers/w6650.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics (October 1999).
Abstract: Documenting trends in job stability over the past twenty-five years has become a controversial exercise. The two main sources of information on employer tenure, the Panel Study of Income Dynamics (PSID) and the Current Population Survey (CPS), have generally given different pictures of the degree of job stability in the U.S. economy. This paper examines whether the PSID and CPS yield systematically different results with respect to comparable measures of job stability. We find that there is little evidence in either data set of a trend in the share of employed individuals with one year or less of tenure. Both data sets do show an increase in the fraction of male workers aged 30 and over with tenure less than ten years beginning in the early 1990's. We find that the two data sets provide nearly identical results for the 1980's and 1990's while in the 1970's they give results that are somewhat less comparable. We argue that this is probably the result of changes in the CPS tenure question following the 1981 survey. The effects of this change and the choice of ending year and variable definition in PSID-based studies are the most likely explanations for the disparate findings in the literature.
Handle: RePEc:nbr:nberwo:6650
Template-Type: ReDIF-Paper 1.0
Title: Minimum Wages and Training Revisited
Classification-JEL: J24; J31
Author-Name: David Neumark
Author-Person: pne16
Author-Name: William Wascher
Note: LS
Number: 6651
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6651
File-URL: http://www.nber.org/papers/w6651.pdf
File-Format: application/pdf
Publication-Status: published as Neumark, David and William Wascher. "Minimum Wages And Training Revisited," Journal of Labor Economics, 2001, v19(3,Jul), 563-595.
Abstract: Theory predicts that minimum wages will reduce employer-provided on-the-job training designed to improve workers' skills on the current job, but may increase the amount of training that workers obtain to qualify for a job. We estimate the effects of minimum wages on the amount of both types of training received by young workers by exploiting cross-state variation in minimum wage increases. The evidence provides considerable support for the hypothesis that higher minimum wages reduce training (especially formal training) aimed at improving skills on the current job. At the same time, there is little or no evidence that minimum wages increase training undertaken to qualify for or obtain jobs. Consequently, it appears that, overall, minimum wages substantially reduce training received by young workers.
Handle: RePEc:nbr:nberwo:6651
Template-Type: ReDIF-Paper 1.0
Title: Investment, Fundamentals and Finance
Classification-JEL: E22; E44
Author-Name: Simon Gilchrist
Author-Person: pgi28
Author-Name: Charles Himmelberg
Note: ME
Number: 6652
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6652
File-URL: http://www.nber.org/papers/w6652.pdf
File-Format: application/pdf
Publication-Status: published as Investment: Fundamentals and Finance, Simon Gilchrist, Charles Himmelberg. in NBER Macroeconomics Annual 1998, volume 13, Bernanke and Rotemberg. 1999
Abstract: Financial variables such as cash flow and cash stocks are robust and quantitatively important explanatory variables for investment at the firm-level. A large body of recent empirical work attributes these findings to capital market imperfections. This interpretation is controversial, however, because even in the absence of capital market imperfections, such financial variables may appear as an explanatory variable for investment if they contain information about the expected marginal value of capital. In this paper, we show how structural models of investment with costly external finance can be used to identify and quantify the fundamental' versus the financial' determinants of investment. Our empirical results show that investment responds significantly to both fundamental and financial factors. Point estimates from our structural model imply that, for the average firm in our sample, financial factors raise the overall response of investment to an expansionary shock by 25%, relative to a baseline case where financial frictions are zero. Consistent with theory, small firms and firms without bond ratings show the strongest response to financial factors, while bond-rated firms show little if any response once we control for investment fundamentals.
Handle: RePEc:nbr:nberwo:6652
Template-Type: ReDIF-Paper 1.0
Title: Meals on Wheels: Restaurant and Home Meal Production and the Exemption of Food from Sales and Value Added Taxes
Author-Name: Aled Ab Iorwerth
Author-Person: pab70
Author-Name: John Whalley
Author-Person: pwh8
Note: PE
Number: 6653
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6653
File-URL: http://www.nber.org/papers/w6653.pdf
File-Format: application/pdf
Publication-Status: published as Iorwerth, Aled ab and John Whalley. "Efficiency Considerations And The Exemption Of Food From Sales And Value Added Taxes," Canadian Journal of Economics, 2002, v34(1,Feb), 166-182.
Abstract: This paper discusses efficiency considerations underlying the widespread exemption of food from sales and value added taxes, in contrast to the distributional considerations usually used to justify them, analyzing the implications for tax policy. Although there are increasing returns in both household and market production of meals there are, nonetheless, critical differences between them. Market production is imperfectly competitive leading to average cost pricing with free entry, but because production in the household involves only one firm, any household can appropriate the consumer surplus from its own production and hence marginal cost price. We use a numerical simulation model using 1994 Canadian data with increasing returns to scale in both home and restaurant meals resulting from fixed costs and where a Dixit-Stiglitz Chamberlinian structure is used to represent restaurant meal provision. Because food (along with time and durables) is an input into home provided meals, more than full taxation of food would seem to be justified to offset the non taxation of time inputs into household production, even under constant returns to scale. Because of the differences in pricing rules between market and household production with increasing returns, not only are gains from taxing food higher but they are amplified by also subsidizing food in restaurant use, and even more by subsidizing all marginal cost components of restaurant meal provision (including labour). On efficiency grounds, the exemption of food in sales and value added taxes
Handle: RePEc:nbr:nberwo:6653
Template-Type: ReDIF-Paper 1.0
Title: Notes on Growth Accounting
Classification-JEL: O3; O4
Author-Name: Robert J. Barro
Author-Person: pba251
Note: EFG
Number: 6654
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6654
File-URL: http://www.nber.org/papers/w6654.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Growth, Vol. 4, no. 2 (June 1999): 119-137
Abstract: Growth accounting breaks down economic growth into components associated with changes in factor inputs and the Solow residual, which reflects technological progress and other elements. This exercise is generally viewed as a preliminary step for the analysis of fundamental determinants of growth and is especially useful if the determinants of factor growth rates are substantially independent from those that matter for technological change. This paper begins with a short presentation of the basics of growth accounting. The analysis then considers dual approaches to growth accounting (which considers changes in factor prices rather than quantities), spillover effects and increasing returns, taxes, and multiple types of factor inputs. Later sections place the growth-accounting exercise within the context of two recent strands of endogenous growth theory -- varieties-of-products models and quality-ladders models. Within these settings, the Solow residual can be interpreted in terms of measures of the endogenously changing level of technology. This technology corresponds, in one case, to a number of types of intermediate products that have been invented and, in the other case, to an index of the aggregate quality of intermediate inputs. The models have implications for the relation of the Solow residual to R&D outlays and also provide a clear interpretation of the 'R&D capital stock.'
Handle: RePEc:nbr:nberwo:6654
Template-Type: ReDIF-Paper 1.0
Title: Are Insiders' Trades Informative?
Author-Name: Josef Lakonishok
Author-Name: Inmoo Lee
Note: AP
Number: 6656
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6656
File-URL: http://www.nber.org/papers/w6656.pdf
File-Format: application/pdf
Publication-Status: published as Review of Financial Studies, Volume: 14 Issue: 1 Pages: 79-111 (2001)
Abstract: We document insider trading activities of all companies listed on the NYSE, Amex, and Nasdaq exchanges during the 1975-1995 period. Insider trading is common, and in more than half the sample firms, there is at least some insider activity in a given year. In general, very little market movement is observed when insiders trade and when they report their trades to the SEC. Insiders in aggregate are contrarian investors. However, they predict market movements better than simple contrarian strategies. Insiders also seem to be able to predict cross-sectional stock returns. The result, however, is driven by insider's ability to predict returns in smaller firms. In addition, insider purchases are more informative than insider sales.
Handle: RePEc:nbr:nberwo:6656
Template-Type: ReDIF-Paper 1.0
Title: Alternative Estimates of Productivity Growth in the NICs: A Comment on the Findings of Chang-Tai Hsieh
Author-Name: Alwyn Young
Note: EFG
Number: 6657
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6657
File-URL: http://www.nber.org/papers/w6657.pdf
File-Format: application/pdf
Abstract: Dual estimates of productivity growth by Chang-Tai Hsieh have raised questions about the accuracy of the East Asian national accounts, suggesting that productivity growth in the NICs, particularly Singapore, may have been substantially higher than previously estimated. This paper shows that once one corrects for computational and methodological errors, dual estimates, using Hsieh's own data, are not that far removed from the results implied by primal sources. Further, Hsieh's criticisms of the accuracy of the national accounts capital formation figures are shown to be invalid. Finally, other data exist which support the picture of declining real rentals painted by the national accounts capital formation figures.
Handle: RePEc:nbr:nberwo:6657
Template-Type: ReDIF-Paper 1.0
Title: Changes in Unemployment and Wage Inequality: An Alternative Theory and Some Evidence
Classification-JEL: E24; J31
Author-Name: Daron Acemoglu
Author-Person: pac16
Note: LS
Number: 6658
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6658
File-URL: http://www.nber.org/papers/w6658.pdf
File-Format: application/pdf
Publication-Status: published as Acemoglu, Daron. "Changes In Unemployment And Wage Inequality: An Alternative Theory And Some Evidence," American Economic Review, 1999, v89(5,Dec), 1259-1278.
Abstract: This paper offers a model where firms decide what types of jobs to create and then search for suitable workers. When there are few skilled workers and the productivity gap between the skilled and the unskilled is small, firms create a single type of job and recruit all workers. An increase in the proportion of skilled workers or skill-biased technical change can create a qualitative change in the composition of jobs, increasing the demand for skills, wage inequality, and the unemployment rates for both groups. The paper provides some evidence that there has been a change in the composition of jobs in the U.S. during the past two decades.
Handle: RePEc:nbr:nberwo:6658
Template-Type: ReDIF-Paper 1.0
Title: Fiscal Institutions and Public Sector Labor Markets
Classification-JEL: H73; J33
Author-Name: James M. Poterba
Author-Person: ppo19
Author-Name: Kim S. Rueben
Author-Person: pru27
Note: PE
Number: 6659
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6659
File-URL: http://www.nber.org/papers/w6659.pdf
File-Format: application/pdf
Abstract: This paper investigates how state and local fiscal institutions affect the pattern of relative wages between state and local government employees and their private sector counterparts. It focuses on changes in relative wages during the 1979-1986 period. Empirical analysis of data from the Current Population Survey suggests that in places with limitations on local property taxes, and to a lesser extent state-level tax and expenditure caps, public sector wages grew more slowly than the wages paid to comparable workers in the private sector. The differential movement of public sector and private sector wages is particularly pronounced for college-educated women who work in the local public sector. Many of these employees are public school teachers. There is some evidence that the impact of fiscal limits is most pronounced in the years immediately following their adoption, and that the effect of these limits weakens over time.
Handle: RePEc:nbr:nberwo:6659
Template-Type: ReDIF-Paper 1.0
Title: Some Costs and Benefits of Price Stability in the United Kingdom
Author-Name: Hasan Bakhshi
Author-Name: Andrew G. Haldane
Author-Person: pha1042
Author-Name: Neal Hatch
Note: PE ME
Number: 6660
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6660
File-URL: http://www.nber.org/papers/w6660.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. 133-180.
Publication-Status: published as Some Costs and Benefits of Price Stability in the United Kingdom, Hasan Bakhshi, Andrew Haldane, Neal Hatch. in The Costs and Benefits of Price Stability, Feldstein. 1999
Abstract: In a previous attempt to articulate the costs of inflation (Leigh-Pemberton (1992)), the Bank of England outlined the following costs of a fully-anticipated inflation: - the cost of economising on real money balances -- so-called shoe-leather' effects; - the costs of operating a less-than-perfectly indexed tax system; - the costs of front-end loading' of nominal debt contracts; - the cost of constantly revising price lists -- so called menu costs' Feldstein (1996) quantified the first two of these costs when moving from 2% inflation to price stability in the U.S. Feldstein concluded that the permanent welfare gains through these two channels -- suitably discounted -- alone exceeded the transient costs of doing so. This paper aims to replicate Feldstein's analysis for the U.K. Welfare effects are quantified using deadweight loss analysis familiar from public finance economics. Because inflation exacerbates tax distortions that exist even without inflation, the welfare costs are trapezoids rather than the usual triangles, or, alternatively, first-order rather than second-order losses. We find that the welfare gains from moving to price stability through the two channels identified above are lower in
Handle: RePEc:nbr:nberwo:6660
Template-Type: ReDIF-Paper 1.0
Title: Do Foreign Investors Destabilize Stock Markets? The Korean Experience in 1997
Classification-JEL: G15; G11
Author-Name: Hyuk Choe
Author-Name: Bong-Chan Kho
Author-Name: Rene M. Stulz
Note: CF
Number: 6661
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6661
File-URL: http://www.nber.org/papers/w6661.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Financial Economics, Vol. 54, no. 2 (October 1999): 227-264.
Abstract: This paper examines the impact of foreign investors on stock returns in Korea from November 30, 1996, to the end of 1997 using trade data. We find strong evidence of positive feedback trading and herding by foreign investors before the period of Korea's economic crisis during the last three months of 1997. The evidence of herding becomes weaker during the crisis period and positive feedback trading by foreign investors disappears. We find no evidence that trades by foreign investors had a destabilizing effect on Korea's stock market over our sample period. In particular, the market adjusted quickly and efficiently to large sales by foreign investors and these sales were not followed by negative abnormal returns amplifying their impact.
Handle: RePEc:nbr:nberwo:6661
Template-Type: ReDIF-Paper 1.0
Title: The Complexity of Job Mobility Among Young Men
Classification-JEL: J24
Author-Name: Derek Neal
Note: LS
Number: 6662
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6662
File-URL: http://www.nber.org/papers/w6662.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 17, no. 2 (April 1999): 237-261
Abstract: The model of job search involves both employer matches and career matches and incorporates an asymmetry in the search technology. Workers may change employers without changing careers, but cannot search over possible lines of work while working for one employer. The optimal policy implies a two-stage search strategy in which workers search over types of work first. After finding a good match with a particular line of work, they then concentrate on finding an employer. The patterns of job changes observed in the NLSY provide considerable support for the two-stage search policy implied by the model. Among male workers who are changing jobs, those who have previously changed employers while working in their current career are much less likely to change careers during the current job change. This result holds even among workers with similar levels of career-specific work experience. Further, the link between experience and the complexity of job changes operates almost entirely through the two-stage mechanism identified in the model. Among those who are in the first stage (no previous intra-career moves) there is little relationship between experience and the complexity of job changes.
Handle: RePEc:nbr:nberwo:6662
Template-Type: ReDIF-Paper 1.0
Title: Paasche vs. Laspeyres: The Elasticity of Substitution and Bias in Measures of TFP Growth
Author-Name: Alwyn Young
Note: EFG
Number: 6663
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6663
File-URL: http://www.nber.org/papers/w6663.pdf
File-Format: application/pdf
Abstract: In recent papers, Nelson and Pack (1995) , Rodrik (1997), and Hsieh (1997a) argue that standard measures of total factor productivity growth in countries where the capital-labour ratio has risen rapidly, e.g. the East Asian NICS, will understate true productivity growth if the elasticity of substitution is less than one and there is labour augmenting technical change. This note shows that this argument increases a Paasche measure of productivity, at the expense of lowering a Laspeyres estimate. The conditions under which total factor productivity growth is consistently underestimated are clarified.
Handle: RePEc:nbr:nberwo:6663
Template-Type: ReDIF-Paper 1.0
Title: Dunning Delinquent Dads: The Effects of Child Support Enforcement on Child Support Receipt by Never Married Women
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Jane Waldfogel
Note: CH
Number: 6664
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6664
File-URL: http://www.nber.org/papers/w6664.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. and Jane Waldfogel. "Dunning Delinquent Dads: The Effect Of Child Support Enforcement Policy On Child Support Receipt By Never Married Women, Dunning Delinquent Dads: The Effect Of Child Support Enforcement Policy On Child Support Receipt By Never Married Women," Journal of Human Resources, 2001, v36(2,Spring), 207-225.
Abstract: Since the mid-1970s, the number of single-parent families has increased greatly in the U.S., contributing to the nation's child poverty problem. In response, the federal government and various states have tried to increase child support payments from non-custodial parents. Using data from administrative records and from the child support modules in the Survey of Income Program and Participation (SIPP) and the April and March Current Population Surveys (CPS), we find that the proportion of never married mothers receiving child support rose sharply in the 1980s and 1990s, with the largest increases in states where child support payment were particularly modest. Using within-state variation over time to determine the effect of policy on child support payments, we estimate that increased government expenditures on child support policies are responsible for about one fifth of the upward trend. Our results show that child support expenditures and tougher child support legislation policies work best in tandem. States that both increased expenditures and adopted tougher laws experienced the largest increase in the proportion of never married mothers receiving support.
Handle: RePEc:nbr:nberwo:6664
Template-Type: ReDIF-Paper 1.0
Title: State Versus Private Ownership
Classification-JEL: H11; P30
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: PE CF
Number: 6665
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6665
File-URL: http://www.nber.org/papers/w6665.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 12, no. 4 (1998): 133-150.
Abstract: Private ownership should generally be preferred to public ownership when the incentives to innovate and to contain costs must be strong. In essence, this is the case for capitalism over socialism, explaining the dynamic vitality' of free enterprise. The great economists of the 1930s and 1940s failed to see the dangers of socialism in part because they focused on the role of prices under socialism and capitalism and ignored the enormous importance of ownership as the source of capitalist incentives to innovate. Moreover, many of the concerns that private firms fail to address social goals' can be addressed through government contacting and regulation without resort to government ownership. The case for private provision only becomes stronger when competition between suppliers, reputational mechanisms, and the possibility of provision by private not-for-profit firms, as well as political patronage and corruption, are brought into play.
Handle: RePEc:nbr:nberwo:6665
Template-Type: ReDIF-Paper 1.0
Title: Testing for Market Microstructure Effects in Intraday Volatility: A Reassessment of the Tokyo FX Experiment
Classification-JEL: C12; C22
Author-Name: Torben G. Anderson
Author-Name: Tim Bollerslev
Author-Person: pbo66
Author-Name: Ashish Das
Note: AP
Number: 6666
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6666
File-URL: http://www.nber.org/papers/w6666.pdf
File-Format: application/pdf
Publication-Status: published as "Variance-ratio Statistics and High-frequency Data: Testing for Changes in Intraday Volatility Patterns" Journal of Finance, Volume 56: Issue 1 Pages 305 - 327 (2001)
Abstract: This paper develops mew robust inference procedures for analyzing the intraday return volatility patterns that constitute a focal point of much market microstructure theory. Our empirical analysis is motivated by the recent lifting of trading restrictions in the interbank foreign exchange (FX) market for Japanese banks during the Tokyo lunch period. Ito, Lyons, and Melvin (1998) (ILM) argue that this deregulation resulted in a highly significant shift in the volatility pattern across the entire Japanese trading day, indicating that private information is an important component of the price formation process in the FX market. In contrast, our robust analysis finds no evidence for any discernible change in the pattern outside of the Tokyo lunch period. Moreover, we document that the standard variance-ratio methodology inference in this high-frequency data context.
Handle: RePEc:nbr:nberwo:6666
Template-Type: ReDIF-Paper 1.0
Title: Sales Taxes and Prices: An Empirical Analysis
Classification-JEL: H22
Author-Name: Timothy J. Besley
Author-Person: pbe46
Author-Name: Harvey S. Rosen
Author-Person: pro55
Note: PE
Number: 6667
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6667
File-URL: http://www.nber.org/papers/w6667.pdf
File-Format: application/pdf
Publication-Status: published as National Tax Journal, Vol. 52, no. 2 (June 1999): 157-178.
Abstract: One of the most fundamental questions in public finance is who bears the burden of taxes -- the incidence of taxation.' Our understanding of incidence from an empirical standpoint is quite meager. Indeed, there seems to be little evidence even in the case that is theoretically the easiest -- partial equilibrium commodity taxes. Are taxes levied on commodities completely shifted into their prices, or does the incidence also fall on firms? How long does the shifting process take? In this paper we employ a unique data source to examine the incidence of sales taxes. The main idea is to take information on the prices of specific commodities in different U.S. cities and to examine the extent to which differences in tax rates and bases are reflected in prices, controlling for other factors (such as costs). We find a surprising variety of shifting patterns. For some commodities, the after-tax price increases by exactly the amount of the tax, a result consistent with the standard competitive model. However, taxes on other commodities are overshifted -- an increase in tax revenue of one dollar per unit increases the price by more than one dollar.
Handle: RePEc:nbr:nberwo:6667
Template-Type: ReDIF-Paper 1.0
Title: Trade Flows and Wage Premiums: Does Who or What Matter?
Classification-JEL: F16; J31
Author-Name: Mary E. Lovely
Author-Person: plo347
Author-Name: J. David Richardson
Note: ITI
Number: 6668
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6668
File-URL: http://www.nber.org/papers/w6668.pdf
File-Format: application/pdf
Abstract: In this paper we investigate relationships between trade, wages, and the rewards to skill for U.S. workers during the period 1981 - 92. We measure U.S. trade flows with three groups of trading partners -- industrial countries, newly industrial countries, and primary producers -- and we estimate the correlation of these trade flows with several types of wage premiums, using conditioning methods that separate pure wage premiums from the return to education industry by industry. We find that greater U.S. trade with newly industrializing countries is associated with increased rewards to skill and reduced rewards to pure labor, consistent with heightened wage inequality and distributional conflict. The opposite is usually true of greater trade with traditional industrial countries. Our interpretation of these results rests on two models. One is a model of North-North intraindustry trade in differentiated, skill-intensive intermediate goods ( horizontal' exchange) and North-South intraindustry trade in intermediates for finished manufactures ( vertical' exchange). The second is a simple model of industry wage premiums that are rewards for loyalty, firm-specific knowledge, or (dis)amenities, in which we posit different premiums for skilled and less-skilled workers whose labor markets are segmented from one another.
Handle: RePEc:nbr:nberwo:6668
Template-Type: ReDIF-Paper 1.0
Title: Capital Flows and the Behavior of Emerging Market Equity Returns
Classification-JEL: F3; F4
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Campbell R. Harvey
Author-Person: pha102
Note: AP IFM
Number: 6669
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6669
File-URL: http://www.nber.org/papers/w6669.pdf
File-Format: application/pdf
Publication-Status: published as Bekaert, Geert and Campbell R. Harvey. "Foreign Speculators And Emerging Equity Markets," Journal of Finance, 2000, v55(2,Apr), 565-613.
Publication-Status: published as Edwards, Sebastian (ed.) Capital Flows and the Emerging Economies: Theory, Evidence and Controversies. Chicago: University of Chicago Press, 2000.
Publication-Status: published as Capital Flows and the Behavior of Emerging Market Equity Returns, Geert Bekaert, Campbell R. Harvey. in Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, Edwards. 2000
Abstract: Foreign portfolio flows may reflect deep changes in the functioning of an emerging market economy and its capital markets. Using a database of monthly net U.S. equity flows, we investigate the relation of these flows to the behavior of equity returns, the structural characteristics of the capital markets, exchange rates, and the strength of the economy. We find that increases in equity flows are associated with a lower cost of capital, higher correlation with world market returns, lower asset concentration, lower inflation, larger market size relative to GDP, more trade, and slightly higher per capita economic growth.
Handle: RePEc:nbr:nberwo:6669
Template-Type: ReDIF-Paper 1.0
Title: Consequences of Employment Protection? The Case of the Americans with Disabilities Act
Classification-JEL: J23; J38
Author-Name: Daron Acemoglu
Author-Person: pac16
Author-Name: Joshua Angrist
Author-Person: pan29
Note: LS
Number: 6670
Creation-Date: 1998-07
Order-URL: http://www.nber.org/papers/w6670
File-URL: http://www.nber.org/papers/w6670.pdf
File-Format: application/pdf
Publication-Status: published as Acemoglu, Daron and Joshua D. Angrist. "Consequences Of Employment Protection? The Case Of The Americans With Disabilities Act," Journal of Political Economy, 2001, v109(5,Oct), 915-957.
Abstract: The Americans With Disabilities Act (ADA) requires employers to accommodate disabled workers and outlaws discrimination against the disabled in hiring, firing, and pay. Although the ADA was meant to increase employment of the disabled, it also increases costs for employers. The net theoretical impact turns on which provisions of the ADA are most important and how responsive firm entry and exit is to profits. Empirical results using the CPS suggest that the ADA had a negative effect on the employment of disabled men of all working ages and disabled women under age 40. The effects appear to be larger in medium size firms, possibly because small firms were exempt from the ADA. The effects are also larger in states where there have been more ADA-related discrimination charges. Estimates of effects on hiring and firing suggest the ADA reduced hiring of the disabled but did not affect separations. This weighs against a pure firing-costs interpretation of the ADA. Finally, there is little evidence of an impact on the nondisabled, suggesting that the adverse employment consequences of the ADA have been limited to the protected group.
Handle: RePEc:nbr:nberwo:6670
Template-Type: ReDIF-Paper 1.0
Title: On the Won and Other East Asian Currencies
Classification-JEL: F31; F41
Author-Name: Menzie D. Chinn
Author-Person: pch129
Note: IFM
Number: 6671
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6671
File-URL: http://www.nber.org/papers/w6671.pdf
File-Format: application/pdf
Publication-Status: published as International Journal of Finance & Economics, Vol. 4, no. 2 (April 1999): 113-127
Abstract: Five East Asian currencies -- the Indonesian rupiah, Korean won, Singapore dollar, Taiwanese dollar, and the Thai baht -- are modeled in the framework of a monetary specification augmented by the relative price of nontradables. This relative price variable proxies for the Balassa-Samuelson effect in East Asian real exchange rates identified in Chinn (1997b). All of the currencies fit the long run implications of various types of monetary models, according to Johansen (1988) multivariate cointegration tests. Exchange rates do the bulk of adjustment toward equilibrium, except in the cases of the Thai baht and the New Taiwan dollar. For these currencies, interest rates and money supplies move to restore equilibrium. In ex post simulation, the out-of-sample fit of the estimated models is relatively good for the won, Singapore and New Taiwan dollars, and for the baht, although in no case is the exact magnitude and timing of the currency clashes predicted. The estimated model completely fails to track the rupiah out-of-sample.
Handle: RePEc:nbr:nberwo:6671
Template-Type: ReDIF-Paper 1.0
Title: Converting Hospitals from Not-for-profit to For-profit Status
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Jill R. Horwitz
Note: EH
Number: 6672
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6672
File-URL: http://www.nber.org/papers/w6672.pdf
File-Format: application/pdf
Publication-Status: published as The Changing Hospital Inudstry: Comparing Not-for-Profit and For-Profit Institutions, Cutler, David M., pp. 45-79, (National Bureau of Economics Research, 2000).
Abstract: Over the past twenty-five years, about 330 (7 percent) of the country's 5,000 not-for-profit hospitals have converted to for-profit form This paper explores the causes and effects of conversions through two case studies -- Wesley Medical Center in Wichita, Kansas and the Columbia/HealthOne system in Denver, Colorado. We identify two primary explanations of why hospitals convert: financial concerns and board culture-perceived mission. Financial concerns are multifaceted and include expectations about future profits, anticipated problems servicing debt, and pessimism regarding the future of government reimbursement policies. The effects of these conversions are mixed. There are some efficiencies associated with conversions such as cost-cutting, increased access to capital, and debt-burden relief. However, profits are often derived from increasing reimbursement from the public sector. Further, conversions are likely to cause fragmentation of the hospital market between rich and poor. The results show that not-for-profit hospitals are likely to copy the undesirable behavior of for-profit hospitals in their markets.
Handle: RePEc:nbr:nberwo:6672
Template-Type: ReDIF-Paper 1.0
Title: LAPM: A Liquidity-based Asset Pricing Model
Classification-JEL: G12
Author-Name: Bengt Holmstrom
Author-Person: pho488
Author-Name: Jean Tirole
Author-Person: pti33
Note: AP CF
Number: 6673
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6673
File-URL: http://www.nber.org/papers/w6673.pdf
File-Format: application/pdf
Publication-Status: published as Holmstrom, Bengt and Jean Tirole. "LAPM: A Liquidity-Based Asset Pricing Model," Journal of Finance, 2001, v56(5,Oct), 1837-1867.
Abstract: The intertemporal CAPM predicts that an asset's price is equal to the expectation of the product of the asset's payoff and a representative consum substitution. This paper develops an alternative approach to asset pricing based on industrial and financial corporations' desire to hoard liquidity to fulfill future cash needs. Our corporate finance a determinants of asset prices such as the distribution of wealth within the corporate sector and between the corporate sector and the consumers. Also, leverage ratios, capital adequacy requirements, and the composition of savings affect the corporate demand for li The paper first sets up a general model of corporate demand for liquid assets, and obtains an explicit formula for the associated liquidity permia. It then derives some implications of corporate liquidity demand for the equity premium puzzle, for the yield curve, and for the state-contingent volatility of asset prices. Finally, the paper looks at some macroeconomic implications of the theory. It shows that government may be able to boost aggregate liquidity and enhance economic efficiency by promoting job and asset price stability. On the liability side, long-term deposits and equity investments, which depend on the consumers' endogenously determined liquidity needs, contribute to creating a feedback effect between employment prospects and equity-like investments. On the asset side, orderly sales of real estate by liquidity-squeezed institutions may generate a Pareto improvement
Handle: RePEc:nbr:nberwo:6673
Template-Type: ReDIF-Paper 1.0
Title: The Pay to Performance Incentives of Executive Stock Options
Author-Name: Brian J. Hall
Note: CF LS
Number: 6674
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6674
File-URL: http://www.nber.org/papers/w6674.pdf
File-Format: application/pdf
Abstract: Detailed data about stock option contracts are used to measure and analyze the pay to performance incentives of executive stock options. Two main issues are addressed. The first is the pay to performance incentives created by the revaluation of stock option holdings. The findings suggest that if CEO stock holdings were replaced by the same ex ante value of stock options, the pay to performance sensitivity of the median CEO would approximately double. Relative to granting at the money options, a value neutral policy of regularly granting options out of the money would increase pay to performance sensitivity by approximately 27 percent. The second issue is the pay to performance created by yearly stock option grants. Because most stock option plans are multi year plans, it is shown that different option granting plans have significantly different pay to performance incentives since changes in current stock prices affect the value of future option grants in different ways. Four option granting policies are compared and contrasted. Ranked from highest powered to lowest powered, these policies are: 1) LBO-style up-front options, 2) fixed number policies, 3) fixed value policies, and 4) an (unofficial) policy of back-door repricing.' Empirical evidence suggests that (even ignoring the revaluation of past option grants) the pay to performance relationship in practice is stronger for 1) stock option grants relative to salary and bonus, and 2) fixed number plans relative to non-fixed number plans.
Handle: RePEc:nbr:nberwo:6674
Template-Type: ReDIF-Paper 1.0
Title: Prices and Productivity in Managed Care Insurance
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Mark McClellan
Author-Name: Joseph P. Newhouse
Note: EH
Number: 6677
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6677
File-URL: http://www.nber.org/papers/w6677.pdf
File-Format: application/pdf
Publication-Status: published as David M. Cutler, Mark McClellan, and Joseph P. Newhouse. “How Does Managed Care Do It?” RAND Journal of Economics 31, 3 (Autumn 2000): 526-548.
Abstract: Integrating the health services and insurance industries (HMOs) could lower expenditure by reducing either the quantity of services or unit price. We compare the treatment of heart attacks and newly diagnosed chest pain in HMOs and traditional plans in two data sets. The nature of these health problems should minimize selection, and OLS and instrumental-variable estimates yield consistent results. HMOs have 30 to 40 percent lower expenditures than traditional indemnity plans. Actual treatments and health outcomes differ little; virtually all the difference in spending comes from lower unit prices. Managed care may yield substantial productivity improvements relative to traditional insurance.
Handle: RePEc:nbr:nberwo:6677
Template-Type: ReDIF-Paper 1.0
Title: A Simple Approach for Deciding When to Invest
Classification-JEL: G31; D92
Author-Name: Jonathan B. Berk
Note: AP
Number: 6678
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6678
File-URL: http://www.nber.org/papers/w6678.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review, Vol. 89 (1999): 1319-1326.
Abstract: A straightforward generalization of the simple net present value rule that correctly predicts when to invest in two classes of projects that can be delayed is derived. The first class consists of projects for which the option to delay derives its value exclusively from uncertainty about interest rates. It is shown that the optimal rule for investing in such projects is to simply multiply the discount rate of the project by the ratio of the mortgage rate to the riskless rate and then use this new rate as the discount rate in a standard net present value analysis. The other class of investment opportunities that is considered is the firm's option to expand. It is shown that it is only optimal for the firm to expand when a particular call option on the firm's stock has no time value. The fact that mortgage bonds (in the form of GNMAs) and stock options are actively traded implies that these rules have potentially important practical and empirical value. Besides their simplicity, the rules have the added advantage that they do not depend on a maintained assumption on the dynamics of interest rates in the economy.
Handle: RePEc:nbr:nberwo:6678
Template-Type: ReDIF-Paper 1.0
Title: Effects of Work-Related Absences on Families: Evidence from the Gulf War
Classification-JEL: J12; J13
Author-Name: Joshua D. Angrist
Author-Person: pan29
Author-Name: John H. Johnson, IV
Note: LS
Number: 6679
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6679
File-URL: http://www.nber.org/papers/w6679.pdf
File-Format: application/pdf
Publication-Status: published as Joshua D. Angrist & John H. Johnson & IV, 2000. "Effects of work-related absences on families: Evidence from the Gulf War," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 54(1), pages 41-58, October.
Abstract: Labor economists and policy makers have long been interested in work-family interactions. Work generates income but also reduces the time families have to spend together. Many soldiers who were mobilized for Gulf War service were away from home for an extended period of time, so Gulf War mobilization makes for an interesting case study of work-related absences by both husbands and wives. We estimate the effect of Gulf War deployment on employment rates for soldiers' spouses, divorce rates, and disability rates among soldiers' children. Data from the 1992 Survey of Officers and Enlisted Personnel show that personnel deployed to the Gulf spent 3-6 more months away from home than non-deployed personnel. The estimates suggest that deployments of a male soldier reduced wives' employment rates, probably because of added child care responsibilities. Deployment of a female soldier left husbands' employment rates unchanged, but female deployment is associated with significantly higher post-deployment divorce rates. Finally sample of men and women show no significant increase in the incidence of temporary disabilities among the children of deployed personnel. This may be because for most military families, deployment was not associated with a change in living standards.
Handle: RePEc:nbr:nberwo:6679
Template-Type: ReDIF-Paper 1.0
Title: The Onset of the East Asian Financial Crisis
Author-Name: Steven Radelet
Author-Name: Jeffrey Sachs
Note: IFM
Number: 6680
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6680
File-URL: http://www.nber.org/papers/w6680.pdf
File-Format: application/pdf
Publication-Status: Published as "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects", Brookings Paper, Vol. 28, no. 1 (1998): 1-74.
Publication-Status: published as The Onset of the East Asian Financial Crisis, Steven Radelet, Jeffrey Sachs. in Currency Crises, Krugman. 2000
Abstract: This paper provides an early diagnosis of the financial crisis in Asia, focusing on the empirical record in the lead-up to the crisis. The main goal is to emphasize the role of financial panic as an essential element of the Asian crisis. At the core of the crisis were large-scale foreign capital inflows into financial systems that became vulnerable to panic. The paper finds that while there were significant underlying problems and weak fundamentals besetting the Asian economies at both a macroeconomic and a microeconomic level, the imbalances were not severe enough to warrant a financial crisis of the magnitude that took place in the latter half of 1997. A combination of panic on the part of the international investment community, policy mistakes at the onset of the crisis by Asian governments, and poorly designed international rescue programs turned the withdrawal of foreign capital into a full-fledged financial panic, and deepened the crisis more than was either necessary or inevitable.
Handle: RePEc:nbr:nberwo:6680
Template-Type: ReDIF-Paper 1.0
Title: Effects of Pensions on Saving: Analysis with Data from the Health and Retirement Study
Classification-JEL: D31; D91
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: LS AG
Number: 6681
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6681
File-URL: http://www.nber.org/papers/w6681.pdf
File-Format: application/pdf
Publication-Status: Published as "The Effects of Pensions and Retirement Policies on Retirement in Higher Education", American Economic Review, Vol. 81, no. 2(1991): 111-115.
Publication-Status: published as With Olivia S. Mitchell, published as "Retirement Measures in the Healthand Retirement Study", Journal of Human Resources, Vol. 30 (Supp, 1995): 57-83.
Publication-Status: published as Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
Abstract: This paper examines the composition and distribution of total wealth for a cohort of 51 to 61 year olds from the Health and Retirement Study (HRS), and the role of pensions in forming retirement wealth. Pension coverage is widespread, covering two thirds of households and accounting for one quarter of accumulated wealth. Social security benefits account for another quarter of total wealth. As calculated from earnings records, the present disco value of social security benefits is less than the present value of taxes paid. Earlier than many expect, social security is already a poor investment on average for this cohort on the verge of retirement. Lifetime earnings are measured for each individual in the HRS from social security earnings records augmented by self reported earnings histories. This result is consistent with the predictions of a stripped down life cycle model. Also consistent is a finding that the ratio of wealth to lifetime earnings is no higher for those with pensions than for those without pensions. Multivariate regressions relating total wealth to pension coverage and pension value, suggest that pensions cause very limited displacement of other wealth, if any. Pensions add to total wealth by at least half the value of the pension, and in most estimates by a good deal more. These findings are not consistent with a simple life cycle explanation for savings. They also raise questions about whether pensions are fundamentally a tax avoidance device, allowing substitution of pension for nonpension savings.
Handle: RePEc:nbr:nberwo:6681
Template-Type: ReDIF-Paper 1.0
Title: Risk Premia and Term Premia in General Equilibrium
Classification-JEL: G12
Author-Name: Andrew B. Abel
Author-Person: pab10
Note: AP
Number: 6683
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6683
File-URL: http://www.nber.org/papers/w6683.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 43, no. 1 (February 1999): 3-33.
Abstract: The equity premium consists of a term premium reflecting the longer maturity of equity relative to short-term bills, and a risk premium reflecting the stochastic nature of equity payoffs and the deterministic nature of payoffs on reckless bills. This paper analyzes term premia and the risk premia in a general equilibrium model with catching up with the Joneses preferences and a novel formulation of leverage. Closed-form solutions for moments of asset returns are derived. First-order approximations illustrate the effects of parameters and provide an algorithm to match the means and variances of the riskless rate and the rate of return on equity.
Handle: RePEc:nbr:nberwo:6683
Template-Type: ReDIF-Paper 1.0
Title: The A-K Model: It's Past, Present, and Future
Classification-JEL: H0; E0
Author-Name: Laurence J. Kotlikoff
Author-Person: pko44
Note: PE
Number: 6684
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6684
File-URL: http://www.nber.org/papers/w6684.pdf
File-Format: application/pdf
Publication-Status: published as Harrison, Glenn, Svend E. Hougaard Jensen, Lars Haagen Pedersen, and Thomas F. Rutherford (eds.) Using Dynamic CGE Models for Policy Analysis. North Holland, 2000.
Abstract: Almost two decades have passed since the development of the prototype of the Auerbach-Kotlikoff dynamic life-cycle simulation model. The model has been used to examine a host of policies, including tax reform, tax cuts, investment incentives, tax progressivity, expansion of social security, government spending, monetary policy, endogenous growth, the size of the informal sector, human capital accumulation, and educational policy. It has also been used to study demographic change, the timing of policy impacts, the efficiency gains from fiscal reforms, and the effects of fiscal policies on both the intra- and intergenerational distributions of economic welfare. Auerbach and Kotlikoff and their co-authors have done much of this research. The rest has been done by other economists in academia, government, and multilateral lending institutions, many of whom have developed their own versions of the model. This paper describes the origins of the A-K Model, its current structure, the lessons learned using it, and some of the questions that remain to be addressed. It also considers two issues -- tax reform and social security privatization -- in illustrating the model's current capacities.
Handle: RePEc:nbr:nberwo:6684
Template-Type: ReDIF-Paper 1.0
Title: Why Do Countries Subsidize Investment and Not Employment?
Classification-JEL: H20; J51
Author-Name: Clemens Fuest
Author-Person: pfu13
Author-Name: Bernd Huber
Note: PE
Number: 6685
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6685
File-URL: http://www.nber.org/papers/w6685.pdf
File-Format: application/pdf
Publication-Status: published as Fuest, Clemens and Bernd Huber. "Why Do Governments Subsidize Investment And Not Employment?," Journal of Public Economics, 2000, v78(1-2,Oct), 171-192.
Abstract: The governments of nearly all industrialised countries use subsidies to support the economic development of specific sectors or regions with high rates of unemployment. Conventional economic wisdom would suggest that the most efficient way to support these regions or sectors is to pay employment subsidies. We present evidence showing that capital subsidies are empirically much more important than employment subsidies. We then discuss possible explanations for the dominance of investment subsidies and develop a simple model with unemployment to explain this phenomenon. In our model, unemployment arises due to bargaining between unions and heterogenous firms that differ with respect to their productivity. Union bargaining power raises wage costs and leads to a socially inefficient collapse of low productivity firms and a corresponding job loss. Union-firm bargaining also gives rise to underinvestment. In this framework, it turns out that an investment subsidy dominates an employment subsidy in terms of welfare. The reason is that investment subsidies are a more efficient instrument to alleviate the underinvestment problem and to raise the number of operating firms.
Handle: RePEc:nbr:nberwo:6685
Template-Type: ReDIF-Paper 1.0
Title: Efficient Unemployment Insurance
Classification-JEL: D83; J64
Author-Name: Daron Acemoglu
Author-Person: pac16
Author-Name: Robert Shimer
Author-Person: psh9
Note: LS PE
Number: 6686
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6686
File-URL: http://www.nber.org/papers/w6686.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 107, no. 5 (1999): 893-928.
Abstract: This paper constructs a tractable general equilibrium model of search with risk-aversion. An increase in risk-aversion reduces wages, unemployment, and investment. Unemployment insurance (UI) has the reverse effect due to market generated moral hazard: insured workers seek high wage jobs with high unemployment risk. An economy with risk-neutral workers achieves maximal output without any UI. In contrast, in an economy with risk-averse workers, a positive level of UI maximizes output. Therefore, moderate UI not only improves risk-sharing, but also increases output.
Handle: RePEc:nbr:nberwo:6686
Template-Type: ReDIF-Paper 1.0
Title: The Portfolio Flows of International Investors, I
Author-Name: Kenneth A. Froot
Author-Person: pfr60
Author-Name: Paul G.J. O'Connell
Author-Name: Mark S. Seasholes
Note: AP
Number: 6687
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6687
File-URL: http://www.nber.org/papers/w6687.pdf
File-Format: application/pdf
Publication-Status: published as Froot, Kenneth A., Paul G. J. O'Connell and Mark S. Seasholes. "The Portfolio Flows Of International Investors," Journal of Financial Economics, 2001, v59(2,Feb), 151-193.
Abstract: This paper explores the behavior of daily, international portfolio flows into and out of 46 countries from 1994 through 1998. Our data are from State Street Bank & Trust and encompass over 3 million trades by client institutions. We find a number of interesting facts. First, we detect regional factors within the flows. Second, the flows are strongly persistent -- the persistence decays only slowly over time. Third, flows are strongly influenced by past returns, so that investor trend-following is apparent. Fourth forecasting power for future emerging market returns, but not for developed country returns. Fifth, we find the sensitivity of local stock prices to foreign inflows to be positive and determine that transitory inflows impact future returns negatively. Finally, we examine and reject that the positive covariance of returns and inflows is associated with an information disadvantage on the part of international investors.
Handle: RePEc:nbr:nberwo:6687
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Transfer Pricing on Intrafirm Trade
Author-Name: Kimberly A. Clausing
Note: ITI PE
Number: 6688
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6688
File-URL: http://www.nber.org/papers/w6688.pdf
File-Format: application/pdf
Publication-Status: published as Clausing, Kimberly A. "Tax-Motivated Transfer Pricing And US Intrafirm Trade Prices," Journal of Public Economics, 2003, v87(9-10,Sep), 2207-2223.
Publication-Status: published as The Impact of Transfer Pricing on Intrafirm Trade, Kimberly A. Clausing. in International Taxation and Multinational Activity, Hines. 2000
Abstract: Using data on the operations of U.S. parent firms and their foreign affiliates between 1982 and 1994, this paper examines the extent to which tax minimizing behavior influences intrafirm trade. The results indicate that taxes have a substantial influence on intrafirm trade flows between U.S. parent firms and their affiliates abroad; the United States has less favorable intrafirm trade balances with low tax countries. This result is anticipated if U.S. sales to affiliates in low tax countries are underpriced and U.S. purchases from affiliates in high tax countries are overpriced. Taxes are also shown to have an influence on intrafirm trade flows between different foreign affiliates of U.S. firms.
Handle: RePEc:nbr:nberwo:6688
Template-Type: ReDIF-Paper 1.0
Title: Least-Present-Value-of-Revenue Auctions and Highway Franchising
Classification-JEL: D81; H42
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Author-Name: Ronald D. Fischer
Author-Person: pfi53
Author-Name: Alexander Galetovic
Author-Person: pga381
Note: PE
Number: 6689
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6689
File-URL: http://www.nber.org/papers/w6689.pdf
File-Format: application/pdf
Publication-Status: published as Engel, Eduardo M. R. A., Ronald D. Fischer and Alexander Galetovic. "Least-Present-Value-Of-Revenue Auctions And Highway Franchising," Journal of Political Economy, 2001, v109(5,Oct), 993-1020.
Abstract: In recent years several countries have started massive highway franchising programs auctioned to private firms. In these auctions, the regulator typically sets the franchise term and firms bid on tolls, or, alternatively, the regulator sets tolls and the winner is the firm that asks for the shortest franchise term. In this paper we argue that many of the problems that highway franchises have encountered are due to the fact that the franchise term cannot adjust to demand realizations. We propose a new auction mechanism where the firm that bids the least present value of revenue from tolls (LPVR) wins the franchise. With this scheme, the franchise length adjusts endogenously to demand realizations. Assuming that the regulator is not allowed to make transfers to the franchise holder that firms are unable to diversify risk completely due to agency problems auctions are optimal, even when the regulator does not know firms' construction costs. Furthermore, for demand uncertainty and risk aversion parameters typical of developing countries, welfare gains associated with substituting a LPVR auction for a fixed-term auction are large (e.g. one-third of the cost of the highway).
Handle: RePEc:nbr:nberwo:6689
Template-Type: ReDIF-Paper 1.0
Title: Does Special Education Raise Academic Achievement for Students with Disabilities?
Classification-JEL: I2; H4
Author-Name: Eric A. Hanushek
Author-Person: pha97
Author-Name: John F. Kain
Author-Name: Steven G. Rivkin
Author-Person: pri265
Note: CH
Number: 6690
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6690
File-URL: http://www.nber.org/papers/w6690.pdf
File-Format: application/pdf
Publication-Status: published as Hanushek, Eric A., John F. Kain and Steven G. Rivkin. "Inferring Program Effects For Special Populations: Does Special Education Raise Achievement For Students With Disabilities?," Review of Economics and Statistics, 2002, v84(4,Nov), 584-599.
Abstract: While special education has become a hotly debated issue of school policy, most of the discussion has centered on the aggregate costs of providing mandated programs for disabled children. Little attention has been paid to the effectiveness of such programs or possible interactions with the provision of regular education. This study, building on the unique data of the Harvard/UTD Texas Schools Project provides direct evidence on the effectiveness of special education programs. The average special education program boosts mathematics and reading achievement of special education students, particularly those classified as learning disabled, while not detracting from regular education students. These results are estimated quite precisely from models of fixed effects in achievement gains, and they are robust to a series of specification tests. At this stage, it is not possible to judge whether the program benefits are sufficiently large to justify the added spending involved.
Handle: RePEc:nbr:nberwo:6690
Template-Type: ReDIF-Paper 1.0
Title: Teachers, Schools, and Academic Achievement
Classification-JEL: I2; H4
Author-Name: Eric A. Hanushek
Author-Person: pha97
Author-Name: John F. Kain
Author-Name: Steven G. Rivkin
Author-Person: pri265
Note: CH
Number: 6691
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6691
File-URL: http://www.nber.org/papers/w6691.pdf
File-Format: application/pdf
Publication-Status: published as Steven G. Rivkin & Eric A. Hanushek & John F. Kain, 2005. "Teachers, Schools, and Academic Achievement," Econometrica, Econometric Society, vol. 73(2), pages 417-458, 03.
Abstract: Considerable controversy surrounds the impact of schools and teachers on the achievement of students. This paper disentangles the separate factors influencing achievement with special attention given to the role of teacher differences and other aspects of schools. Unique matched panel data from the Harvard/UTD Texas Schools Project permit distinguishing between total effects and the impact of specific, measured components of teachers and schools. While schools are seen to have powerful effects on achievement differences, these effects appear to derive most importantly from variations in teacher quality. A lower bound suggests that variations in teacher quality account for at least 7« percent of the total variation in student achievement, and there are reasons to believe that the true percentage is considerably larger. The subsequent analysis estimates educational production functions based on models of achievement growth with individual fixed effects. It identifies a few systematic factors a negative impact of initial years of teaching and a positive effect of smaller class sizes for low income children in earlier grades but these effects are very small relative to the effects of overall teacher quality differences.
Handle: RePEc:nbr:nberwo:6691
Template-Type: ReDIF-Paper 1.0
Title: The Causes of American Business Cycles: An Essay in Economic Historiography
Author-Name: Peter Temin
Author-Person: pte231
Note: DAE ME EFG
Number: 6692
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6692
File-URL: http://www.nber.org/papers/w6692.pdf
File-Format: application/pdf
Publication-Status: published as Beyond Shocks, Fuhrer, Jeffery C. and Scott Schuh, eds., Boston: Federal Reserve Bank, June 1998.
Publication-Status: published as Peter Temin, 1998. "Causes of American business cycles: an essay in economic historiography," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Jun, pages 37-64.
Abstract: This paper surveys the causes of American business cycles for the century 1890 - 1990. Causes are taken to be exogenous shocks to a model with largely endogenous policy makers. Causes are classified as either real or monetary and domestic or foreign. All four causes were found to have led to cycles in the past century. This diversity was found in all time periods and for all size cycles. There were more domestic than foreign causes, confirming the relative independence of the American economy from external conditions. There were more real than monetary causes, conflicting with the popular view that monetary shocks are the source of most cycles.
Handle: RePEc:nbr:nberwo:6692
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform and the Dutch Labor Market: An Applied General Equilibrium Approach
Classification-JEL: D58; E62
Author-Name: A. Lans Bovenberg
Author-Person: pbo45
Author-Name: Johan J. Graafland
Author-Name: Ruud A. de Mooij
Author-Person: pmo473
Note: PE
Number: 6693
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6693
File-URL: http://www.nber.org/papers/w6693.pdf
File-Format: application/pdf
Publication-Status: published as Bovenberg, A. Lans & Graafland, Johan J. & de Mooij, Ruud A., 2000. "Tax reform and the Dutch labor market: an applied general equilibrium approach," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 193-214, October.
Abstract: This paper employs MIMIC, an applied general equilibrium model of the Dutch economy, to explore various tax cuts aimed at combating unemployment and raising labor supply. MIMIC combines modern labor-market theories, a firm empirical foundation detailed description of Dutch labor-market institutions. We develop a small aggregate model which contains the core of MIMIC, namely wage setting, job matching, labor supply demand. In addition to illustrating the main economic mechanisms in MIMIC shows the advantages of employing a larger, more disaggregated model that accounts for heterogeneity, institutional details, and more economic mechanisms. Targeting in-work benefits at the low skilled is the most effective way to cut economy-wide unemployment quality and quantity of labor supply. Cuts in social security contributions paid by employers and subsidies for hiring long-term unemployed reduce unskilled unemployment most substantially. Tax cuts in the higher tax brackets boost the quantity and quality of formal labor supply but are less effective in reducing unemployment and in raising unskilled employment and female labor supply.
Handle: RePEc:nbr:nberwo:6693
Template-Type: ReDIF-Paper 1.0
Title: Risk and Exchange Rates
Classification-JEL: F41
Author-Name: Maurice Obstfeld
Author-Person: pob13
Author-Name: Kenneth Rogoff
Author-Person: pro164
Note: IFM
Number: 6694
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6694
File-URL: http://www.nber.org/papers/w6694.pdf
File-Format: application/pdf
Publication-Status: published as Helpman, Elhanan and Efraim Sadka (eds.) Contemporary Economic Policy: Essays in Honor of Assaf Razin. Cambridge University Press, 2003.
Abstract: This paper develops an explicitly stochastic new open economy macroeconomics' model, which can potentially be used to explore the qualitative and quantitative welfare differences between alternative exchange rate regimes. A crucial feature is that we do not simplify by assuming certainty equivalence for producer price setting behavior. Our framework also provides a sticky-price alternative to Lucas's (1982) exchage rate risk premium model. We show that the level risk premium' in the exchage rate is potentially quite large and may be an important missing fundamental in empirical exchange rate equations. As a byproduct analysis also suggests an intriguing possible explanation of the forward premium puzzle.
Handle: RePEc:nbr:nberwo:6694
Template-Type: ReDIF-Paper 1.0
Title: Incentives in Organizations
Classification-JEL: J33; J41
Author-Name: Robert Gibbons
Author-Person: pgi283
Note: LS
Number: 6695
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6695
File-URL: http://www.nber.org/papers/w6695.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 12, no. 4 (Fall 1998): 115-132.
Abstract: In this paper I summarize four new strands in agency theory that help me think about incentives in real organizations. As a point of departure, I being with a quick sketch of the classic agency model. I then discuss static models of objective performance measurement in which firms get what they pay for; repeated-game models of subjective performance assessments; incentives for skill development rather than simply for effort; and incentive contracts between versus within organizations. I conclude by suggesting two avenues for further progress in agency theory: better integration with organizational economics, as launched by Coase and reinvigorated by Williamson, and cross-pollination with other fields that study organizations, including industrial relations, organizational sociology, and social psychology.
Handle: RePEc:nbr:nberwo:6695
Template-Type: ReDIF-Paper 1.0
Title: Research, Innovation, and Productivity: An Econometric Analysis at the Firm Level
Classification-JEL: C31; L60; O31; O33
Author-Name: Bruno Crepon
Author-Person: pcr135
Author-Name: Emmanuel Duguet
Author-Name: Jacques Mairesse
Author-Person: pma712
Note: PR
Number: 6696
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6696
File-URL: http://www.nber.org/papers/w6696.pdf
File-Format: application/pdf
Publication-Status: published as Crepon, Bruno, Emmanuel Duguet, and Jacques Mairesse. "Research, Innovation and Productivity: An Econometric Analysis at the Firm Level." Economics of Innovation and New Technology 7, 2 (1998): 115-58.
Abstract: This paper studies the links between productivity, innovation and research at th level. We introduce three new features: (i) A structural model that explains pro by innovation output, and innovation output by research investment; (ii) New dat manufacturing firms, including the number of European patents and the percentage sales, as well as firm-level demand pull and technology push indicators; (iii) E which correct for selectivity and simultaneity biases and take into account the features of the available data: only a small proportion of firms engage in resea apply for patents; productivity, innovation and research are endogenously determ investment and capital are truncated variables, patents are count data and innov We find that using the more widespread methods, and the more usual data and mode may lead to sensibly different estimates. We find in particular that simultaneit with selectivity, and that both sources of biases must be taken into account tog results are consistent with many of the stylized facts of the empirical literatu of engaging in research (R&D) for a firm increases with its size (number of empl share and diversification, and with the demand pull and technology push indicato capital intensity) of a firm engaged in research increases with the same variabl research capital being strictly proportional to size). The firm innovation outpu patent numbers or innovative sales, rises with its research effort and with the indicators, either directly or indirectly through their effects on research. Fin correlates positively with an higher innovation output, even when controlling fo the skill composition of labor as well as for physical capital intensity.
Handle: RePEc:nbr:nberwo:6696
Template-Type: ReDIF-Paper 1.0
Title: Oil Prices and the Terms of Trade
Classification-JEL: F41; F32
Author-Name: David K. Backus
Author-Person: pba242
Author-Name: Mario J. Crucini
Author-Person: pcr3
Note: ITI
Number: 6697
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6697
File-URL: http://www.nber.org/papers/w6697.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Economics, (1999).
Abstract: The combination of substantial terms of trade variability and unstable correlation patterns of trade prices with output and trade volumes has led some to suggest a break in the link between trade volumes and prices. We find that oil accounts for much of the variation in the terms of trade over the last twenty five years and its quantitative role varies significantly over time. And since our dynamic general equilibrium model predicts that the economy responds differently to oil supply shocks than to other shocks, changes in their relative importance help to account for the unstable correlations in the data.
Handle: RePEc:nbr:nberwo:6697
Template-Type: ReDIF-Paper 1.0
Title: Proofs and Prototypes for Sale: The Tale of University Licensing
Classification-JEL: O31; O34
Author-Name: Richard Jensen
Author-Name: Marie Thursby
Author-Person: pth283
Note: PR IO
Number: 6698
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6698
File-URL: http://www.nber.org/papers/w6698.pdf
File-Format: application/pdf
Publication-Status: published as Jensen, Richard and Marie Thursby. "Proofs And Prototypes For Sale: The Licensing Of University Inventions," American Economic Review, 2001, v91(1,Mar), 240-259.
Abstract: Proponents of the Bayh-Dole Act argue that unless universities have the right to license patentable inventions, many results from federally funded research would never be transferred to industry. Our survey of U.S. research universities supports this view. Results point to the embryonic state of most technologies licensed and the need for inventor cooperation in the commercialization process. Thus, for most university inventions, there is a moral hazard problem with regard to inventor effort. Our theoretical analysis shows that for such inventions, development would not occur unless the inventor's income is tied to the licensee's output by payments such as royalties or equity. Sponsored research can also be critical to commercialization, but it alone does not solve the inventor's moral hazard problem.
Handle: RePEc:nbr:nberwo:6698
Template-Type: ReDIF-Paper 1.0
Title: Characterizing Selection Bias Using Experimental Data
Classification-JEL: C14; C93
Author-Name: James Heckman
Author-Name: Hidehiko Ichimura
Author-Person: pic1
Author-Name: Jeffrey Smith
Author-Person: psm73
Author-Name: Petra Todd
Note: LS PE
Number: 6699
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6699
File-URL: http://www.nber.org/papers/w6699.pdf
File-Format: application/pdf
Publication-Status: published as Econometrica, Vol. 66, no. 5 (1999): 1017-1098.
Abstract: This paper develops and applies semiparametric econometric methods to estimate the form of selection bias that arises from using nonexperimental comparison groups to evaluate social programs and to test the identifying assumptions that justify three widely-used classes of estimators and our extensions of them: (a) the method of matching; (b) the classical econometric selection model which represents the bias solely as a function of the probability of participation; and (c) the method of difference-in-differences. Using data from an experiment on a prototypical social program combined with unusually rich data from a nonexperimental comparison group, we reject the assumptions justifying matching and our extensions of that method but find evidence in support of the index-sufficient selection bias model and the assumptions that justify application of a conditional semiparametric version of the method of difference-in-difference. Fa comparable people and to appropriately weight participants and nonparticipants a sources of selection bias as conveniently measured. We present a rigorous defin bias and find that in our data it is a small component of conventially meausred it is still substantial when compared with experimentally-estimated program impa matching participants to comparison group members in the same labor market, givi same questionnaire, and making sure they have comparable characteristics substan the performance of any econometric program evaluation estimator. We show how t analysis to estimate the impact of treatment on the treated using ordinary obser
Handle: RePEc:nbr:nberwo:6699
Template-Type: ReDIF-Paper 1.0
Title: On the Dynamics of Trade Reform
Classification-JEL: F11
Author-Name: Rui Albuquerque
Author-Person: pal94
Author-Name: Sergio Rebelo
Note: EFG ITI
Number: 6700
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6700
File-URL: http://www.nber.org/papers/w6700.pdf
File-Format: application/pdf
Publication-Status: published as Albuquerque, Rui and Sergio Rebelo. "On The Dynamics Of Trade Reform," Journal of International Economics, 2000, v51(1,Jun), 21-47.
Abstract: The empirical evidence on trade reforms suggests that these have a surprisingly small impact on the country's industrial configuration. This industrial structure inertia is difficult to rationalize in standard trade models. This paper develops a two-sector industry dynamics model in which industrial composition inertia arises naturally. The model is then used to study the consequences of different types of trade reforms (e.g. permanent, temporary, gradual, pre-announced) on investment, employment composition, and income distribution.
Handle: RePEc:nbr:nberwo:6700
Template-Type: ReDIF-Paper 1.0
Title: Change, Consolidation, and Competition in Health Care Markets
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Deborah Haas-Wilson
Note: EH
Number: 6701
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6701
File-URL: http://www.nber.org/papers/w6701.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 13, no. 1 (Winter 1999): 141-164.
Abstract: The health care industry is being transformed. Large firms are merging and acquiring other firms. Alliances and contractual relations between players in this market are shifting rapidly. Within the next few years, many markets are predicted to be dominated by a few large firms. Antitrust enforcement authorities like the Department of Justice and the Federal Trade Commission, as well as courts and legislators at both the federal and state levels, are struggling with the implications of these changes for the nature and consequences of competition in health care markets. In this paper, we summarize the nature of the changes in the structure of the health care industry. We will focus on the markets for health insurance, hospital services, and physician services. We will discuss the potential implications of the restructuring of the health care industry for competition, efficiency, and public policy. As will become apparent, this area offers a number of intriguing questions for inquisitive researchers.
Handle: RePEc:nbr:nberwo:6701
Template-Type: ReDIF-Paper 1.0
Title: Diffusion Indexes
Classification-JEL: C32; E37
Author-Name: James H. Stock
Author-Person: pst148
Author-Name: Mark W. Watson
Author-Person: pwa582
Note: EFG
Number: 6702
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6702
File-URL: http://www.nber.org/papers/w6702.pdf
File-Format: application/pdf
Publication-Status: published as Stock, James H. and Mark W. Watson. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business and Economic Statistics, 2002, v20(2,Apr), 147-162.
Abstract: This paper considers forecasting a single time series using more predictors than there are time series observations. The approach is to construct a relatively few indexes, akin to diffusion indexes, which are weighted averages of the predictors, using an approximate dynamic factor model. Estimation is discussed for balanced and unbalanced panels. The estimated dynamic factors are (uniformly) consistent, even in the presence of time varying parameters and/or data contamination, and forecasts based on the estimated factors are efficient. In an application to forecasting U.S. inflation and industrial production using 224 monthly time series, these forecasts outperform various state-of-the-art benchmark models.
Handle: RePEc:nbr:nberwo:6702
Template-Type: ReDIF-Paper 1.0
Title: Capital Mobility in a Second Best World -- Moral Hazard With Costly Financial Intermediation
Classification-JEL: F15; F2
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: IFM
Number: 6703
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6703
File-URL: http://www.nber.org/papers/w6703.pdf
File-Format: application/pdf
Publication-Status: published as Joshua Aizenman, 2003. "Capital Mobility In A Second--Best World: Moral Hazard With Costly Financial Intermediation," Review of International Economics, Blackwell Publishing, vol. 11(1), pages 1-17, February.
Abstract: This paper studies the welfare effects of financial integration in the presence of moral hazard. Entrepreneurs face a trade off between risk and return. Banks may mitigate the resultant excessive risk by costly monitoring, where greater risk reduction requires more resources devoted to risk supervision. Hence, the excessive risk associated with moral hazard is endogenously determined. We show that a drop in banks' cost of funds increases the risk tolerated by banks in a competitive equilibrium. Similarly, less efficient intermediation technology (i.e. more costly risk monitoring), higher macroeconomic volatility, and a more generous deposit insurance all raise the riskiness of projects in a competitive equilibrium. Overborrowing would arise e insurance in circumstances where the cost of financial intermediation is relatively high, the banks' cost of funds is relatively low, and macroeconomic volatility is high. With relative scarcity of funds, financial integration is welfare reducing (enhancing) if the financial intermediation is relatively inefficient (efficient). The association between financial integration and welfare may be non-monotonic. For a large enough cost of financial intermediation, the dependence of welfare on the banks' cost of funds has an inverted U shape. For such an economy, financial integration and reforming the banking sector are complimentary policies, as the gain of each reform is magnified by the second. If one starts with a highly inefficient banking system, reforming it and improving its operation is a precondition for s
Handle: RePEc:nbr:nberwo:6703
Template-Type: ReDIF-Paper 1.0
Title: Does Exchange Rate Stability Increase Trade and Capital Flows?
Classification-JEL: F31; F33
Author-Name: Philippe Bacchetta
Author-Person: pba111
Author-Name: Eric Van Wincoop
Author-Person: pva387
Note: IFM
Number: 6704
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6704
File-URL: http://www.nber.org/papers/w6704.pdf
File-Format: application/pdf
Publication-Status: published as Bacchetta, P. and E. Van Wincoop. "Does Exchange-Rate Stability Increase Trade And Welfare?," American Economic Review, 2000, v90(5,Dec), 1093-1109.
Abstract: On the eve of a major change in the world monetary system, the adoption of a single currency in Europe, our theoretical understanding of the implications of the exchange rate regime for trade and capital flows is still limited. We argue that two key model ingredients are essential to address this question: a general equilibrium setup and deviations from purchasing power parity. By developing a simple benchmark monetary model that contains these two ingredients, we find the following main results. First, the level of trade is not necessarily higher under a fixed exchange rate regime. Second, the level of net capital flows tends to be higher under a fixed exchange rate regime when there is a preference for domestic bonds, which is the case when the rate of relative risk-aversion is larger than one. Third, the asset market structure, including the presence of a forward market, does not quantitatively affect the results.
Handle: RePEc:nbr:nberwo:6704
Template-Type: ReDIF-Paper 1.0
Title: Derivatives Usage in Risk Management by US and German Non-Financial Firms: A Comparative Survey
Author-Name: Gordon M. Bodnar
Author-Person: pbo613
Author-Name: Gunther Gebhardt
Note: IFM
Number: 6705
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6705
File-URL: http://www.nber.org/papers/w6705.pdf
File-Format: application/pdf
Publication-Status: published as Bodnar, Gordon M. and Gunther Gebhardt. "Derivatives Usage In Risk Management By US And German Non-Financial Firms: A Comparative Study," Journal of International Financial Management and Accounting, 1999, v10(3,Autumn), 153-187.
Abstract: This paper is a comparative study of the responses to the 1995 Wharton School survey of derivative usage among US non-financial firms and a 1997 companion survey on German non-financial firms. It is not a mere comparison of the results of both studies, but a comparative study, drawing a comparable subsample of firms from the US study to match the sample of German firms on both size and industry composition. We find that German firms are more likely to use derivatives than US firms, with 78% of German firms using derivatives compared to 57% of US firms. Aside from this higher overall usage, the general pattern of usage across industry and size groupings is comparable across the two countries. In both countries, foreign currency derivative usage is most common, followed closely by interest rate derivatives, with commodity derivatives a distant third. In contrast to the similarities, firms in the two countries differ notably on issues such as the primary goal of hedging, their choice of instruments, and the influence of their market view when taking derivative positions. These differences appear to be driven by the greater importance of financial accounting statements in Germany than the US and stricter German corporate policies of control over derivative activities within the firm.
Handle: RePEc:nbr:nberwo:6705
Template-Type: ReDIF-Paper 1.0
Title: Hospital Ownership and Cost and Quality of Care: Is There a Dime's Worth of Difference?
Author-Name: Frank A. Sloan
Author-Person: psl34
Author-Name: Gabriel A. Picone
Author-Person: ppi8
Author-Name: Donald H. Taylor, Jr.
Author-Name: Shin-Yi Chou
Note: EH
Number: 6706
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6706
File-URL: http://www.nber.org/papers/w6706.pdf
File-Format: application/pdf
Publication-Status: published as Sloan, Frank A. & Picone, Gabriel A. & TaylorJr., Donald H. & Chou, Shin-Yi, 2001. "Hospital ownership and cost and quality of care: is there a dime's worth of difference?," Journal of Health Economics, Elsevier, vol. 20(1), pages 1-21, January.
Abstract: This paper compares cost and quality of care for Medicare patients hospitalized in for-profit hospitals contrasted with those in nonprofit and government hospitals following admission for hip fracture, stroke, coronary heart disease, or congestive heart failure. Cost of care in for-profit hospitals was similar to that of nonprofits, but patients admitted to government hospitals incurred less Medicare payments on average. There were only small differences in survival between for-profit, nonprofit, and government hospitals. Other measures of quality, including living in the community and activity of daily living limitations after index admission, show trivial differences by hospital ownership type. Between private sector hospital types (for-profit and nonprofit) there is indeed not a dime's worth of difference between the two in terms of cost to Medicare and patient outcome.
Handle: RePEc:nbr:nberwo:6706
Template-Type: ReDIF-Paper 1.0
Title: Is Free Trade Good for the Environment?
Classification-JEL: F1; Q00
Author-Name: Werner Antweiler
Author-Name: Brian R. Copeland
Author-Person: pco51
Author-Name: M. Scott Taylor
Author-Person: pta60
Note: ITI
Number: 6707
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6707
File-URL: http://www.nber.org/papers/w6707.pdf
File-Format: application/pdf
Publication-Status: published as Antweiler, Werner, Brian R. Copeland and M. Scott Taylor. "Is Free Trade Good For The Environment?," American Economic Review, 2001, v91(4,Sep), 877-908.
Abstract: This paper sets out a theory of how openness to international goods markets affects pollution concentrations. We develop a theoretical model to divide trade's impact on pollution into scale, technique, and composition effects and then examine this theory using data on sulfur dioxide concentrations when it alters the composition, and hence the pollution intensity, of national output. Our estimates of the associated technique and scale efforts created by trade imply a net reduction in pollution from these sources. Combining our estimates of scale, composition, and technique efforts yields a somewhat surprising conclusion: freer trade appears to be good for the environment.
Handle: RePEc:nbr:nberwo:6707
Template-Type: ReDIF-Paper 1.0
Title: Tax Arbitrage and Labor Supply
Classification-JEL: H21; H23
Author-Name: Jonas Agell
Author-Name: Mats Persson
Author-Person: ppe498
Note: PE
Number: 6708
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6708
File-URL: http://www.nber.org/papers/w6708.pdf
File-Format: application/pdf
Publication-Status: published as Agell, Jonas and Mats Persson. "Tax Arbitrage And Labor Supply," Journal of Public Economics, 2000, v78(1-2,Oct), 3-24.
Abstract: We examine how tax avoidance in the form of trade in well-functioning asset markets affects the basic labor supply model. We argue that models that integrate tax arbitrage and labor supply decisions may shed light on a number of positive and normative questions concerning modern systems of income taxation. Such models also appear to have strong implications for empirical research. Studies that ignore the effects of tax arbitrage and asset trade on labor supply incentives may easily come up with biased estimates of the tax responsiveness of the hours supply of high-wage individuals. Finally, because of tax avoidance in the form of asset trade, international comparisons of income inequality will exaggerate the redistributive achievements of high-tax countries like Sweden.
Handle: RePEc:nbr:nberwo:6708
Template-Type: ReDIF-Paper 1.0
Title: Recent Trends in Employer-Sponsored Health Insurance Coverage: Are Bad Jobs Getting Worse?
Classification-JEL: J32; I10
Author-Name: Henry S. Farber
Author-Name: Helen Levy
Author-Person: ple728
Note: LS CH
Number: 6709
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6709
File-URL: http://www.nber.org/papers/w6709.pdf
File-Format: application/pdf
Publication-Status: published as Farber, Henry S. and Helen Levy. "Recent Trends In Employer-Sponsored Health Insurance Coverage: Are Bad Job Getting Worse?," Journal of Health Economics, 2000, v19(1,Jan), 93-119.
Abstract: We examine whether the decline in the availability of employer-provided health insurance is a phenomenon common to all jobs or is concentrated only on certain jobs. In particular, we investigate the extent to which employers have continued to provide health insurance on what we term reducing the availability of health insurance on jobs. We consider two dimensions on which jobs may be considered peripheral: if they are new (tenure less than one year) or part-time. We consider three outcomes whose product is the health insurance coverage rate: 1) the fraction of workers who are in firms that offer health insurance to at least some workers (the offer rate); 2) the fraction of workers who are eligible for health insurance, conditional on being in a firm where it is offered (the eligibility rate); and 3) the fraction of workers who enroll in health insurance when they are eligible for it (the takeup rate). We find that declines in own-employer insurance coverage over the 1988-1997 period are driven primarily by declines in takeup for core workers and declines in eligibility for peripheral workers. We also look at trends by workers' education level and see how much of the decline is offset by an increase in coverage through a spouse's policy. Our findings are consistent with the view that employers are continuing to make health insurance available to their core long-term employees but are restricting access to health insurance by their peripheral short-term and pa
Handle: RePEc:nbr:nberwo:6709
Template-Type: ReDIF-Paper 1.0
Title: Health, Government, and Irving Fisher
Classification-JEL: I18
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 6710
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6710
File-URL: http://www.nber.org/papers/w6710.pdf
File-Format: application/pdf
Publication-Status: published as Fuchs, Victor R. "Health, Government, And Irving Fisher," American Journal of Economics and Sociology, 2005, v64(1,Jan), 407-425.
Abstract: This paper provides a few historical notes on government involvement in health, followed by a summary of the theoretical arguments that economists offer in its support. Irving Fisher's views and recommendations about health are examined in the light of today's perceptions concerning health, health economics, and health policy. The wide variety of roles that the U.S. and other governments currently play in health is reviewed and the ability of economics to explain these roles is assessed. The consequences of government involvement for the health of populations, for expenditures on health care, and for political and social stability are examined. The paper concludes with an overview of new worldwide trends in health policy and some probable explanations for these trends.
Handle: RePEc:nbr:nberwo:6710
Template-Type: ReDIF-Paper 1.0
Title: Import Peneteration and the Politics of Trade Protection
Classification-JEL: F13; D72
Author-Name: Giovanni Maggi
Author-Person: pma1315
Author-Name: Andres Rodriguez-Clare
Author-Person: pro372
Note: ITI
Number: 6711
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6711
File-URL: http://www.nber.org/papers/w6711.pdf
File-Format: application/pdf
Publication-Status: published as Maggi, Giovanni and Andres Rodriguez-Clare. "Import Penetration And The Politics Of Trade Protection," Journal of International Economics, 2000, v51(2,Aug), 287-304.
Abstract: In this paper we reconsider a key empirical prediction generated by an important class of political-economy models of trade policy, namely that trade protection should be higher in sectors characterized by lower import penetration (we call this the little support for this prediction. In this paper we argue that the standard prediction depends critically on the assumptions that trade taxes are the only policy instruments and that the government has access to non-distortionary taxation. We analyze a model in which the government can use quotas and VERs in addition to trade taxes and raising public funds may be costly. Under a simple sufficient condition, our model predicts that the protection level increases with import penetration, both in sectors that are protected with tariffs and in sectors that are protected with quantitative restrictions.
Handle: RePEc:nbr:nberwo:6711
Template-Type: ReDIF-Paper 1.0
Title: The Division and Size of Gains from Liberalization of Service Networks
Classification-JEL: D58; D62
Author-Name: Keshab Bhattarai
Author-Person: pbh51
Author-Name: John Whalley
Author-Person: pwh8
Note: ITI
Number: 6712
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6712
File-URL: http://www.nber.org/papers/w6712.pdf
File-Format: application/pdf
Publication-Status: published as Bhattarai, Keshab and John Whalley. "The Division And Size Of Gains From Liberalization In Service Networks," Review of International Economics, 2006, v14(3,Aug), 348-361.
Abstract: This paper emphasizes the different nature of cross border liberalization in network related services, such as telecoms, compared to liberalization in goods. In the presence of network externalities, it argues that if two disjoint country service networks involving a small and large country are connected as part of international liberalization, the per capita gain for the small country from access to a large network will be large, and the per capita gain for the large country will be small. Benefits of liberalization in network related serv ices, unlike goods, are more likely to be approximately equally divided between large and small countries than is true of trade in goods, where benefits accrue disproportionately to the small country. We also argue that non-cooperation in network related services trade may involve more extreme retaliation than suggested for trade in goods from the optimal tariff literature, so that relative to a non-cooperative outcome, gains from liberalization in network related services become larger than from liberalization in goods. An empirical implementation of global telecoms liberalization for the US, Europe, Canada, and the Rest of the World using the framework developed in the paper shows larger gains to larger regions, consistent with the theme of the paper that goods and services liberalization differ.
Handle: RePEc:nbr:nberwo:6712
Template-Type: ReDIF-Paper 1.0
Title: Extended Benefits and the Duration of UI Spells: Evidence from the New Jersey Extended Benefit Program
Classification-JEL: J6
Author-Name: David Card
Author-Person: pca271
Author-Name: Phillip B. Levine
Author-Person: ple553
Note: LS PE
Number: 6714
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6714
File-URL: http://www.nber.org/papers/w6714.pdf
File-Format: application/pdf
Publication-Status: published as Card, David and Phillip B. Levine. "Extended Benefits And The Duration Of UI Spells: Evidence From The New Jersey Extended Benefit Program," Journal of Public Economics, 2000, v78(1-2,Oct), 107-138.
Abstract: In 1996 a political trade-off in the New Jersey legislature led to a six-month program that provided up to 13 additional weeks of exhausted their regular benefit entitlement. We use this unique episode to provide new evidence on the effect of changes in the duration of unemployment insurance (UI) benefits on the behavior of UI claimants. Unlike most benefit extensions, the New Jersey Extended Benefit (NJEB) program arose during a period of stable economic conditions, allowing us to sidestep the important issue of endogenous policy adoption. We use aggregate state-level data and administrative records for individual UI claimants from before, during, and after the NJEB program to estimate its impact on unemployment spell lengths. Overall, we find that the NJEB program raised the fraction of UI claimants who exhausted their regular benefits by 1-3 percentage points. More importantly, however, we find that the short-term nature of the benefit extension substantially moderated its effect. For individuals who were receiving UI when the benefit extension was passed, we estimate that the rate of leaving UI fell by about 15 percent. Simulations suggest that if the program had run long enough to affect UI claimants from the first day of their spell, the fraction of recipients exhausting regular benefits would have risen by 7 percentage points, and the average recipient would have collected about one extra week or regular benefits.
Handle: RePEc:nbr:nberwo:6714
Template-Type: ReDIF-Paper 1.0
Title: Sect, Subsidy, and Sacrifice: An Economist's View of Ultra-Orthodox Jews
Classification-JEL: D6; D8
Author-Name: Eli Berman
Author-Person: pbe188
Note: LS
Number: 6715
Creation-Date: 1998-08
Order-URL: http://www.nber.org/papers/w6715
File-URL: http://www.nber.org/papers/w6715.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics (August 2000). 6715 revised 10/26/00
Abstract: The Israeli Ultra-Orthodox population doubles each seventeen years. With 60 % of prime aged males attending Yeshiva rather than working, that community is rapidly outgrowing its resources. Why do fathers with families in poverty choose Yeshiva over work? Draft deferments subsidize Yeshiva attendance, yet attendance typically continues long after they are draft exempt. We explain this puzzle with a club good model in which Yeshiva attendance signals commitment to the community. Subsidizing membership in a club with sacrifice as an entry requirement induces increased sacrifice, compounding the distortion and dissipating the subsidy. Policies treating members and potential entrants equally are Pareto improving. The analysis may generalize to other by increasing the stringency of prohibitions and sacrifice.
Handle: RePEc:nbr:nberwo:6715
Template-Type: ReDIF-Paper 1.0
Title: Continuing Progress? Trends in Occupational Segregation in the United States Over the 1970s and 1980s
Author-Name: Francine D. Blau
Author-Person: pbl16
Author-Name: Patricia Simpson
Author-Name: Deborah Anderson
Note: LS
Number: 6716
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6716
File-URL: http://www.nber.org/papers/w6716.pdf
File-Format: application/pdf
Publication-Status: published as Feminist Economics (Fall 1998): 29-71. Published as "Black-White Earnings Over the 1970s and 1980s: Gender Differences in Trends".
Abstract: This study uses comparable data on 470 detailed occupations from the 1970, 1980 and 1990 Censuses to analyze trends in occupational segregation in the United States in the 1980s and compare them in detail to the 1970s experience of declining segregation. We find that the trend towards reduced segregation did indeed continue into the 1980s at only a slightly slower pace. In both decades, changes in sex composition within occupations accounted for the major share of the decline in segregation (compared to changes in the mix of occupations in the economy). We also find that the pattern of changes in the sex composition of occupations and in the employment distribution of workers that produced the observed reductions in segregation were remarkably similar in each of these two periods. This similarity potentially poses some problems for the future. As women continue to enter the same areas, resegregation, which we found to have relatively moderate effects in the 1970s and 1980s, becomes an increasing possibility. Continued progress towards reducing occupational segregation requires that women succeed in entering a broader range of traditionally male occupations and/or a greater flow of men into traditionally female occupations.
Handle: RePEc:nbr:nberwo:6716
Template-Type: ReDIF-Paper 1.0
Title: Improper Churn: Social Costs and Macroeconomic Consequences
Classification-JEL: E24; E44
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Mohamad L. Hammour
Note: EFG
Number: 6717
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6717
File-URL: http://www.nber.org/papers/w6717.pdf
File-Format: application/pdf
Abstract: This paper assembles elements that are essential in forming an integral picture of the way a churning' economy functions and of the disruptions caused by transactional difficulties in labor and financial markets. We couch our analysis in a stochastic equilibrium model anchored with US evidence on gross factor flows and on rents in worker and firm income. We develop a social accounting framework to measure the costs of transactional impediments. We calculate the average social loss associated with structural unemployment and low productivity -- due to technological sclerosis' and a scrambling' of productivity rankings in entry and exit decisions. We also estimate the loss from a recession. An additional forty percent to the traditional unemployment cost is due to reduced productivity and is determined by the recession's cumulative effect on the economy's churn rate. Although a recessionary shock increases the economy's turbulence' at impact, semi-structural VAR evidence from US manufacturing indicates that, cumulatively, it results in a chill' -- which is costly in an economy that suffers from sclerosis.
Handle: RePEc:nbr:nberwo:6717
Template-Type: ReDIF-Paper 1.0
Title: Education, Earnings, and the "Canadian G.I. Bill"
Classification-JEL: J24; I21
Author-Name: Thomas Lemieux
Author-Person: ple92
Author-Name: David Card
Author-Person: pca271
Note: LS
Number: 6718
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6718
File-URL: http://www.nber.org/papers/w6718.pdf
File-Format: application/pdf
Publication-Status: published as Canadian Journal of Economics, Vol. 34, no. 2 (May 2001): 313-344
Abstract: We use the unique experiences of Canadian World War II veterans to identify the effects of a large scale college subsidy program on educational attainment and earnings. Like the United States, Canada set up an extensive veteran's assistance program that provided financial aid and institutional support for college attendance. Because of differences in military enlistment rates and education systems, however, a much lower fraction of Quebec men benefited from VRA benefits than men from other provinces. Building on this fact, we analyze inter-cohort patterns of education and earnings for English- speaking men from Ontario, using French-speaking men from Quebec as a control group. We use data from the 1971 and 1981 Canadian Censuses to compare conventional (OLS) estimates of the return to schooling with instrumental variables (IV) estimates that use potential eligibility for VRA benefits as an exogenous determinant of schooling. Consistent with the recent literature, we find that the IV estimates are typically as big or bigger than the corresponding OLS estimates. We also explore an alternative identification strategy that utilizes information on family background available in the 1973 Canadian Job Mobility Survey. We hypothesize that veterans from relatively disadvantaged family backgrounds were more likely to be affected by the VRA's incentives than veterans from wealthier families. Using the interaction of veteran status and family background as an instrument for schooling, we again find rates of return to education as large or larger than the corresponding OLS estimates.
Handle: RePEc:nbr:nberwo:6718
Template-Type: ReDIF-Paper 1.0
Title: The Economics of Social Security Reform
Classification-JEL: H55
Author-Name: Peter Diamond
Author-Person: pdi24
Note: PE AG
Number: 6719
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6719
File-URL: http://www.nber.org/papers/w6719.pdf
File-Format: application/pdf
Publication-Status: published as Arnold, R. D., M. J. Graetz and A. H. Munnell (eds.) Framing the Social Security Debate: Values, Politics, and Economics, National Academy of Social Insurance. Brookings Institution Press, 1998.
Abstract: Economic analysis centers on three questions whether to have a mixed defined contribution (DC)/defined benefit (DB) plan and how to invest the funding. The paper compares a DB funded plan with a funded DC plan without any individual choice. The paper then considers individu choice about benefits, with particular attention to widows. Portfolio choice is considered for a central fund and in individual accounts, particularly the costs of implementation, as are the implications of greater funding. The implications for the labor market are examined. The major economic issues are not controversial. More funding involves higher taxes (or lower benefits) in the near-term in order to have lower taxes (or higher benefits) in the long run. More funding can reduce the frequency of needed adjustments to Social Security and can increase national savings. These economic effects are similar with or without individual accounts, although the politics will differ. The financial advantage of a diversified portfolio applies to a central fund, whether for a DC or a DB. Indeed, a DB that adjusts well handles risk better than a DC. Economically, the case for diversification is clear, but political questions arise about investing well and avoiding improper interference in corporate governance. Individual accounts respond to political concerns and allow diversity in individual portfolios but add to administrative costs and raise questions about the quality of individual investment decisions. They also raise the political question of maintaining redistribution. It is unclear whether individual accounts would make the labor market more or less efficient. My bottom line is that a well-run DB system is economically more efficient than a mixed DC/DB system. The real issue then becomes how well the US government could run either system.
Handle: RePEc:nbr:nberwo:6719
Template-Type: ReDIF-Paper 1.0
Title: International Trade Aspects of Competition Policy
Classification-JEL: L40; F12
Author-Name: Sadao Nagaoka
Note: ITI
Number: 6720
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6720
File-URL: http://www.nber.org/papers/w6720.pdf
File-Format: application/pdf
Publication-Status: published as International Trade Aspects of Competition Policy, Sadao Nagaoka. in Deregulation and Interdependence in the Asia-Pacific Region, Ito and Krueger. 2000
Abstract: Recently competition policy has become an important trade policy issue, since many policy makers now see competition policy as an important instrument to secure market access' to foreign markets. This paper analyzes this issue both from a theoretical point of view and from the review of the recent development of the Japanese competition policy. While voluntary trade cartels have a strongly negative international spillover, export cartels or international cartels do not constrain market access,' and export restraints were often used to ameliorate trade frictions. Moreover, domestic cartels often have a positive international spillover on the export from foreign countries. Thus, the recent focus on competition policy from market access' concern is misleading. The Japanese government has substantially strengthened its competition policy in the 1990s, especially in terms of drastic reduction of cartels exempted from the application of Antimonopoly Law and in strengthening its enforcement against cartels. While these changes of competition policy would be highly beneficial to the Japanese economy, it is not clear whether such policy changes could have a substantial impact on market access.'
Handle: RePEc:nbr:nberwo:6720
Template-Type: ReDIF-Paper 1.0
Title: Double Trouble: On the Value of Twins-Based Estimation of the Return to Schooling
Classification-JEL: J24
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Gary Solon
Author-Person: pso215
Note: LS
Number: 6721
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6721
File-URL: http://www.nber.org/papers/w6721.pdf
File-Format: application/pdf
Publication-Status: published as Economics of Education Review, Vol. 18, no. 2 (April 1999): 169-182
Abstract: Several recent studies use the schooling and wage variation between monozygotic twins to estimate the return to schooling. In this paper, we summarize the results from this literature, and we examine the implications of endogenous determination of which twin goes to school longer and of measuring schooling with (possibly mean-reverting) error. Endogeneity of between-twins schooling variation is strongly suggested by the extensive (mostly non-economic) literature documenting that the between-twins difference in birth weight is correlated with the between-twins differences in both schooling and IQ. We conclude that twins-based estimation is vulnerable to the same sort of inconsistency that afflicts conventional cross-sectional estimation. We argue, however, that, if one starts with the presumption that endogenous schooling induces upward inconsistency in the estimated return to schooling, the new twins-based estimates may complement other approaches to tightening the upper bound on the return to schooling.
Handle: RePEc:nbr:nberwo:6721
Template-Type: ReDIF-Paper 1.0
Title: Institutional Investors and Equity Prices
Classification-JEL: G20; G12
Author-Name: Paul A. Gompers
Author-Person: pgo301
Author-Name: Andrew Metrick
Author-Person: pme99
Note: CF AP
Number: 6723
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6723
File-URL: http://www.nber.org/papers/w6723.pdf
File-Format: application/pdf
Publication-Status: published as Quarterly Journal of Economics (February 2001).
Abstract: We analyze institutional investors' preferences for stocks and the implications that these preferences have for stock-market prices and returns. We find that -- a category including all managers with greater than $100 million under discretionary control -- have nearly doubled their share of the common-stock market from 1980 to 1996 most of this increase driven by the growth in holdings of the largest one-hundred institutions. Large institutions, when compared with other investors, prefer stocks that have greater market capitalizations, are more liquid, and have higher book-to-market ratios and lower returns for the previous year. We discuss how institutional preferences, when combined with the rising share of the market held by institutions, induce changes in the relative prices and returns of large stocks and small stocks. We provide evidence to support the in-sample implications for prices and realized returns and we derive out-of-sample predictions for expected returns.
Handle: RePEc:nbr:nberwo:6723
Template-Type: ReDIF-Paper 1.0
Title: Dating the Integration of World Equity Markets
Classification-JEL: F3; G15
Author-Name: Geert Bekaert
Author-Person: pbe52
Author-Name: Campbell R. Harvey
Author-Person: pha102
Author-Name: Robin L. Lumsdaine
Note: AP
Number: 6724
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6724
File-URL: http://www.nber.org/papers/w6724.pdf
File-Format: application/pdf
Publication-Status: published as Bekaert, Geert, Campbell R. Harvey and Robin L. Lumsdaine. "Dating The Integration Of World Equity Markets," Journal of Financial Economics, 2002, v65(2,Aug), 203-247.
Abstract: Measuring the integration of world capital markets is notoriously difficult. For example, regulatory changes which appear comprehensive may have little impact on the functioning of the capital market if they fail to lead to foreign portfolio inflows. In contrast to the usual practice of documenting the timing of regulatory changes, we specify a reduced-form model for a number of financial time-series (for example, equity returns and dividend yields) and search for a common break in the process generating the data. In addition, we estimate a confidence interval for the break. Information on a variety of financial and macroeconomic indicators is employed to interpret the results and to identify the likely date the equity market becomes financially integrated with world capital markets. We find endogenous break dates that are very accurately estimated but do not always correspond closely to dates of official capital market reforms. After the break, stock markets are on average larger and more liquid than before; returns are more volatile and more highly correlated with the world market return, dividend yields are lower and credit ratings improve.
Handle: RePEc:nbr:nberwo:6724
Template-Type: ReDIF-Paper 1.0
Title: The Determinants of Corporate Venture Capital Successes: Organizational Structure, Incentives, and Complementarities
Author-Name: Paul A. Gompers
Author-Person: pgo301
Author-Name: Josh Lerner
Author-Person: ple60
Note: CF
Number: 6725
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6725
File-URL: http://www.nber.org/papers/w6725.pdf
File-Format: application/pdf
Publication-Status: published as Morck, Randall (ed.) Concentrated Corporate Ownership. Chicago: Universityof Chicago Press for NBER, 2000.
Publication-Status: published as The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities, Paul Gompers, Josh Lerner. in Concentrated Corporate Ownership, Morck. 2000
Abstract: We examine a sample of over thirty thousand transactions by corporate and other venture organizations. Corporate venture investments in entrepreneurial firms appear to be at least as successful (using such measures as the probability of the portfolio firm going public) as those backed by independent venture organizations, particularly when there is a strategic overlap between the corporate parent and the portfolio firm. While corporate vendue capitalists tend to invest at a premium to other firms, this premium appears to be no higher in investments with a strong strategic fit. Finally, corporate programs without a strong strategic focus appear to be much less stable, frequently ceasing operations after only a few investments, but strategically focused programs appear to be as stable as independent venture organizations. The evidence is consistent with the existence of complementarities that allow corporations to effectively select and add value to portfolio firms, but is somewhat at odds with suggestions that the structure of corporate venture funds limits their effectiveness.
Handle: RePEc:nbr:nberwo:6725
Template-Type: ReDIF-Paper 1.0
Title: Foundations of Incomplete Contracts
Classification-JEL: D23
Author-Name: Oliver Hart
Author-Person: pha222
Author-Name: John Moore
Author-Person: pmo265
Note: CF
Number: 6726
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6726
File-URL: http://www.nber.org/papers/w6726.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 66, no. 1 (1999): 115-138.
Abstract: In the last few years a new area has emerged in economic theory, which goes under the heading of However, almost since its inception, the theory has been under attack for its lack of rigorous foundations. In this paper, we evaluate some of the criticisms that have been made of the theory, in particular, those in Maskin and Tirole (1998a). In doing so, we develop a model that provides a rigorous foundation for the idea that contracts are incomplete.
Handle: RePEc:nbr:nberwo:6726
Template-Type: ReDIF-Paper 1.0
Title: The Quality of Goverment
Classification-JEL: H11; N40
Author-Name: Rafael La Porta
Author-Person: pla273
Author-Name: Florencio Lopez-de-Silanes
Author-Person: plo137
Author-Name: Andrei Shleifer
Author-Person: psh93
Author-Name: Robert Vishny
Author-Person: pvi218
Note: PE
Number: 6727
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6727
File-URL: http://www.nber.org/papers/w6727.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law, Economics, and Organization, Vol. 15, no. 1 (April 1999): 222-279
Abstract: We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French of socialist laws, or have high proportions of Catholics or Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
Handle: RePEc:nbr:nberwo:6727
Template-Type: ReDIF-Paper 1.0
Title: "Tax Sparing" and Direct Investment in Developing Countries
Classification-JEL: H87; F21
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 6728
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6728
File-URL: http://www.nber.org/papers/w6728.pdf
File-Format: application/pdf
Publication-Status: published as Tax Sparing and Direct Investment in Developing Countries, James R. Hines Jr.. in International Taxation and Multinational Activity, Hines. 2000
Abstract: This paper analyzes the effect of and performance of foreign direct investment (FDI). sparing foreign investment income to permit investors to receive the full benefits of host country tax reductions. For example, Japanese firms investing in countries with whom Japan has agreements are entitled to claim foreign tax credits for income taxes that they would have paid to foreign governments in the absence of tax holidays and other special abatements. Most high-income capital-exporting countries grant "tax sparing" for FDI in developing countries, while the United States does not. Comparisons of Japanese and American investment patterns reveal that the volume of Japanese FDI located in countries with whom Japan has than what it would have been otherwise. In addition, Japanese firms are subject to 23% lower tax rates than are their American counterparts in countries with whom Japan has agreements. Similar patters appear when with the United Kingdom are used as instruments for Japanese sparing influences the level and location of foreign direct investment and the willingness of foreign governments to offer tax concessions.
Handle: RePEc:nbr:nberwo:6728
Template-Type: ReDIF-Paper 1.0
Title: Impacts of the Basle Capital Standard on Japanese Banks' Behavior
Classification-JEL: G18; G21
Author-Name: Takatoshi Ito
Author-Name: Yuri Nagatake Sasaki
Note: IFM ME
Number: 6730
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6730
File-URL: http://www.nber.org/papers/w6730.pdf
File-Format: application/pdf
Publication-Status: published as Ito, Takatoshi and Yuri Nagataki Sasaki. "Impacts Of The Basle Capital Standard On Japanese Banks' Behavior," Journal of the Japanese and International Economies, 2002, v16(3,Sep), 372-397.
Abstract: This paper examines how the risk based capital standards, the so-called Basle Accord between 1990 and 1993. As the Japanese stock prices fell, banks' latent capital gains, which are part of tier II capital, became smaller. Empirical findings are consistent with a view that banks with lower capital ratios tended to issue more subordinated debts (tier II) and to reduce lending (risk assets).
Handle: RePEc:nbr:nberwo:6730
Template-Type: ReDIF-Paper 1.0
Title: Taxes and the Quality of Capital
Classification-JEL: E62; L64
Author-Name: Austan Goolsbee
Author-Person: pgo49
Note: PE
Number: 6731
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6731
File-URL: http://www.nber.org/papers/w6731.pdf
File-Format: application/pdf
Publication-Status: published as Goolsbee, Austan. "Taxes And The Quality Of Capital," Journal of Public Economics, 2004, v88(3-4,Mar), 519-543.
Abstract: This paper shows that tax policy toward investment, by changing the relative prices of capital varieties, can have a direct effect on the quality of capital goods that firms purchase. The empirical results indicate that this impact is economically important and readily apparent in disaggregated data on farming, mining, and construction machinery. The paper also applies a general method for aggregation using index number theory which suggests that all of the investment increase generated by tax subsidies comes from buying higher quality capital goods as opposed to buying a larger number of capital goods. It shows, further, that the supply of capital is upward sloping with an elasticity of about one. The tax induced quality changes documented in the paper imply a tax distortion whose deadweight loss is neglected in the conventional literature but whose magnitude indicates may represent a substantial efficiency cost from capital taxation (or subsidy).
Handle: RePEc:nbr:nberwo:6731
Template-Type: ReDIF-Paper 1.0
Title: Supply Side Hysterisis: The Case of the Canadian Unemployment Insurance System
Classification-JEL: I38; J64
Author-Name: Thomas Lemieux
Author-Person: ple92
Author-Name: W. Bentley MacLeod
Author-Person: pma156
Note: PE LS
Number: 6732
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6732
File-URL: http://www.nber.org/papers/w6732.pdf
File-Format: application/pdf
Publication-Status: published as Lemieux, Thomas and W. Bentley MacLeod. "Supply Side Hysteresis: The Case Of The Canadian Unemployment Insurance System," Journal of Public Economics, 2000, v78(1-2,Oct), 139-170.
Abstract: This paper presents results from a 1971 natural experiment carried out by the Canadian government on the unemployment insurance system. At that time, they dramatically increased the generosity of the system. We find that the propensity to collect UI increases with a first time exposure to the system. Hence as more individuals experience unemployment their lifetime use of the system increases. This supply side hysterisis effect may explain why unemployment has steadily increased over the 1972 - 1992 period, even though the generosity of unemployment insurance did not.
Handle: RePEc:nbr:nberwo:6732
Template-Type: ReDIF-Paper 1.0
Title: Multinationals and the Gains from International Diversification
Classification-JEL: F23; G11
Author-Name: Patrick F. Rowland
Author-Name: Linda L. Tesar
Author-Person: pte111
Note: IFM
Number: 6733
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6733
File-URL: http://www.nber.org/papers/w6733.pdf
File-Format: application/pdf
Publication-Status: published as Rowland, Patrick F. and Linda L. Tesar. "Multinationals And The Gains From International Diversification," Review of Economic Dynamics, 2004, v7(4,Oct), 789-826.
Abstract: One possible explanation for home bias is that investors may obtain indirect international diversification benefits by investing in multinational firms rather than by investing directly in foreign markets. This paper employs mean-variance spanning tests to examine the diversification potential of multinational firms and foreign market indices for investors domiciled in Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. We find that in most countries and most time periods, the portfolio of domestic stocks spans the risk and return opportunities of a portfolio that includes domestic and multinational stocks. However, there is weak evidence that U.S. multinationals provided global diversification benefits in the full 1984-92 sample and in the post-1987 subsample. We also find that the addition of foreign market indices to a domestic portfolio - inclusive of multinationals - provides diversification benefits. The economic importance of the shift of the portfolio frontier - measured as the utility gain from diversification - varies considerably from market to market and often reflects the benefits of large short positions in certain markets.
Handle: RePEc:nbr:nberwo:6733
Template-Type: ReDIF-Paper 1.0
Title: Tax Burden and Migration: A Political Economy Theory and Evidence
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Effraim Sadka
Author-Person: psa492
Author-Name: Phillip Swagel
Author-Person: psw34
Note: PE
Number: 6734
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6734
File-URL: http://www.nber.org/papers/w6734.pdf
File-Format: application/pdf
Publication-Status: published as Razin, Assaf, Efraim Sadka and Phillip Swagel. "Tax Burden And Migration: A Political Economy Theory And Evidence," Journal of Public Economics, 2002, v85(2,Aug), 167-190.
Abstract: The extent of taxation and redistribution policy is generally determined as a political-economy equilibrium by a balance between those who gain from higher taxes/transfers and those who lose. In a stylized model of migration and human capital formation, we show -- somewhat against the conventional wisdom -- that low-skill immigration may lead to a lower tax burden and less redistribution than would be the case with no immigration, even though migrants (naturally) join the pro-tax/transfer coalition. Data on 11 European countries over the period 1974 to 1992 are consistent with the implications of the theory: a higher share of immigrants in the population leads to a lower tax rate on labor income, even after controlling for the generosity and size of the welfare state, demographics, and the international exposure of the economy. As predicted by the theory, it is the increased share of low education immigrants that leads to the smaller tax burden.
Handle: RePEc:nbr:nberwo:6734
Template-Type: ReDIF-Paper 1.0
Title: Risky Habits: On Risk Sharing, Habit Formation, and the Interpretation of International Consumption Correlations
Classification-JEL: F36; F41
Author-Name: Jeffrey C. Fuhrer
Author-Person: pfu8
Author-Name: Michael W. Klein
Author-Person: pkl9
Note: IFM
Number: 6735
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6735
File-URL: http://www.nber.org/papers/w6735.pdf
File-Format: application/pdf
Publication-Status: published as Fuhrer, Jeffrey C. and Michael W. Klein. "Risky Habits: On Risk Sharing, Habit Formation, And The Interpretation Of International Consumption Correlations," Review of International Economics, 2006, v14(4,Sep), 722-740.
Abstract: Standard international economic models with life cycle/permanent income consumption behavior predict that international portfolio diversification leads to high bilateral consumption correlations. Thus international consumption correlations have been empirically estimated as a test of international portfolio diversification and risk sharing. In this paper we investigate the international consumption correlations generated by a more general model which incorporates habit formation in consumption. We show that, in the presence of common interest rate movements, habit formation itself can generate positive international consumption correlations even in the absence of any international risk sharing. Empirical evidence presented in this paper suggests habit formation characterizes consumption behavior among most of the G-7 countries. Thus, the extent of international portfolio diversification may be even lower than that suggested by previous research which studied international consumption correlations.
Handle: RePEc:nbr:nberwo:6735
Template-Type: ReDIF-Paper 1.0
Title: Discrete-Time Models of Bond Pricing
Classification-JEL: E43; G12
Author-Name: David Backus
Author-Person: pba242
Author-Name: Silverio Foresi
Author-Name: Chris I. Telmer
Author-Person: pte102
Note: AP
Number: 6736
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6736
File-URL: http://www.nber.org/papers/w6736.pdf
File-Format: application/pdf
Publication-Status: published as Jegadeesh, N. and B. Tuckman (eds.) Advanced Fixed Income Valuation Tools. Wiley, 2000.
Abstract: We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple factors, and stochastic volatility. We describe each model in a common theoretical framework and explain the reasoning underlying the choice of parameter values. Our framework has continuous state variables but discrete time, which we regard as a convenient middle ground between the stochastic calculus of high theory and the binomial models of classroom fame. In this setting, most of the models we examine are easily implemented on a spreadsheet.
Handle: RePEc:nbr:nberwo:6736
Template-Type: ReDIF-Paper 1.0
Title: Understanding the Effects of a Shock to Government Purchases
Author-Name: Wendy Edelberg
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Jonas D.M. Fisher
Author-Person: pfi4
Note: EFG
Number: 6737
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6737
File-URL: http://www.nber.org/papers/w6737.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Dynamics, Vol. 2, no. 1 (January 1999): 166-206
Abstract: This paper investigates the consequences of an exogenous increase in U.S. government purchases. We find that in response to such a shock, employment, output, and nonresidential investment rise, while real wages, residential investment, and consumption expenditures fall. The paper argues that a simple variant of the neoclassical model which distinguishes between nonresidential and residential investment is consistent with this evidence.
Handle: RePEc:nbr:nberwo:6737
Template-Type: ReDIF-Paper 1.0
Title: Was There Really an Earlier Period of International Financial Integration Comparable to Today?
Classification-JEL: F21; F32
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Barry Eichengreen
Author-Person: pei2
Author-Name: Jongwoo Kim
Note: IFM
Number: 6738
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6738
File-URL: http://www.nber.org/papers/w6738.pdf
File-Format: application/pdf
Publication-Status: published as The Implications of the Globalization of World Financial Markets, Seoul: Bank of Korea (1999).
Abstract: In this paper we reconsider the international market integration, starting at high levels in the late nineteenth century, collapsing between the wars, and recovering gradually after 1945 to reach levels comparable to pre-1914 in the 1990's. The empirical evidence we survey suggests that in some respects the financial integration of the pre-1914 era remains unsurpassed, but in others today's financial markets are even more closely integrated than those in the past. The difference today is that new information-generating and processing technologies have reduced the market-segmenting effects of asymmetric information. In consequence, the range of financial claims that are traded internationally has broadened. While international financial transactions were once determined by claims on governments, railroads, and mining companies, entities with tangible and therefore relatively transparent assets, international investors now transact freely in a much broader range of securities.
Handle: RePEc:nbr:nberwo:6738
Template-Type: ReDIF-Paper 1.0
Title: The Simple Analytics of the Environmental Kuznets Curve
Classification-JEL: Q00; H4
Author-Name: James Andreoni
Author-Person: pan31
Author-Name: Arik Levinson
Author-Person: ple135
Note: PE
Number: 6739
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6739
File-URL: http://www.nber.org/papers/w6739.pdf
File-Format: application/pdf
Publication-Status: published as Andreoni, James and Arik Levinson. "The Simple Analytics Of The Environmental Kuznets Curve," Journal of Public Economics, 2001, v80(2,May), 269-286.
Abstract: Evidence suggests that some pollutants follow an inverse-U-shaped pattern relative to countries' incomes. This relationship has been called the out a simple and straight-forward static model of the microfoundations of the pollution-income relationship. We show that the environmental Kuznets curve can be derived directly from the technological link between consumption of a desired good and abatement of its undesirable byproduct. The inverse-U shape does not depend on the dynamics of growth, political institutions, or even externalities, and can be consistent with a decentralized economy as well as a Pareto efficient policy.
Handle: RePEc:nbr:nberwo:6739
Template-Type: ReDIF-Paper 1.0
Title: Beyond Becker: Training in Imperfect Labor Markets
Classification-JEL: J24; J31
Author-Name: Daron Acemoglu
Author-Person: pac16
Author-Name: Jorn-Steffen Pischke
Author-Person: ppi29
Note: LS
Number: 6740
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6740
File-URL: http://www.nber.org/papers/w6740.pdf
File-Format: application/pdf
Publication-Status: published as Economic Journal, Vol.109 (February 1999): F112-F142.
Abstract: In this paper, we survey non-competitive theories of training. With competitive labor markets, firms never pay for investments in general training, whereas when labor markets are imperfect, firm-sponsored training arises as an equilibrium phenomenon. We discuss a variety of evidence which support the predictions of non-competitive theories, and we draw some tentative policy conclusions from these models.
Handle: RePEc:nbr:nberwo:6740
Template-Type: ReDIF-Paper 1.0
Title: Diversity and Trade
Classification-JEL: F11; D51
Author-Name: Gene M. Grossman
Author-Person: pgr21
Author-Name: Giovanni Maggi
Author-Person: pma1315
Note: ITI
Number: 6741
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6741
File-URL: http://www.nber.org/papers/w6741.pdf
File-Format: application/pdf
Publication-Status: published as Grossman, G. M. and G. Maggi. "Diversity And Trade," American Economic Review, 2000, v90(5,Dec), 1255-1275.
Abstract: We develop a competitive model of trade between countries with similar aggregate factor endowments. The trade pattern reflects differences in the distribution of talent across the labor forces of the two countries. The country with a relatively homogenous population exports the good produced by a technology with complementarities between tasks. The country with a more diverse work force exports the good for which individual success is more important. Imperfect observabilitiy of talent strengthens the forces of comparative advantage. Finally, we examine an aspect of education policy concerning the spread of human capital across the student population.
Handle: RePEc:nbr:nberwo:6741
Template-Type: ReDIF-Paper 1.0
Title: Currency Hedging and Goods Trade
Classification-JEL: F3; F31
Author-Name: Shang-Jin Wei
Author-Person: pwe20
Note: IFM ITI
Number: 6742
Creation-Date: 1998-09
Order-URL: http://www.nber.org/papers/w6742
File-URL: http://www.nber.org/papers/w6742.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 43, no. 7 (June 1999): 1371-1394.
Abstract: A puzzle in empirical international finance is the difficulty in finding a large and negative effect of exchange rate volatility on international trade. A common explanation is the availability of hedging instruments. This paper examines the empirical validity of this explanation using data on over 1,000 country pairs. Which countries have currency hedging instruments is not perfectly observable. This paper deals with the problem by specifying an endogenous regime-switching regression. There are two main findings. First, there is no evidence in the data to support the validity of the hedging hypothesis. Second, for country pairs with large trade potential, exchange rate volatility deters goods trade to an extent much larger than that typically has been documented in the literature (without using the switching regression specification).
Handle: RePEc:nbr:nberwo:6742
Template-Type: ReDIF-Paper 1.0
Title: Love or Money? The Effects of Owner Motivation in the California Wine Industry
Author-Name: Fiona M. Scott Morton
Author-Name: Joel M. Podolny
Note: IO
Number: 6743
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6743
File-URL: http://www.nber.org/papers/w6743.pdf
File-Format: application/pdf
Publication-Status: published as Scott Morton, Fiona M & Podolny, Joel M, 2002. "Love or Money? The Effects of Owner Motivation in the California Wine Industry," Journal of Industrial Economics, Blackwell Publishing, vol. 50(4), pages 431-56, December.
Abstract: Many industries are characterized by heterogeneous objectives on the part of firm owners. Owners of private firms, in particular, are likely to maximize utility, rather than profits. In this paper, we model and measure motivations of owners in on particular industry, the California wine industry. In both a formal model and an empirical analysis, we examine the implications of these motivations for market behavior. We find evidence that owners with strong non-financial motivations choose higher prices for their wines, controlling for quality; owners with strong profit-maximizing motives choose lower prices for their wines, controlling for quality. We also find that utility-maximizers are more likely to locate at the higher end of the quality spectrum, whereas profit-maximizers are more likely to locate at the lower end. We explore how the presence of a significant number of utility maximizers within an industry affects the competitive interactions within that industry. We conclude that some winery owners consume' features of their product or business as a substitute for profits and, in the process, provide softer price competition for for-profits. Additionally, in aggregate, their preference for quality can prevent entry into the high-quality segment on the part of profit-maximizing firms.
Handle: RePEc:nbr:nberwo:6743
Template-Type: ReDIF-Paper 1.0
Title: Physician Fees and Procedure Intensity: The Case of Cesarean Delivery
Classification-JEL: F18
Author-Name: Jon Gruber
Author-Person: pgr20
Author-Name: John Kim
Author-Name: Dina Mayzlin
Note: EH
Number: 6744
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6744
File-URL: http://www.nber.org/papers/w6744.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Health Economics, Vol. 18, no. 4 (1999): 473-490.
Abstract: While there is a large literature investigating the response of treatment intensity to Medicare reimbursement differentials, there is much less work on this question for the Medicaid program. The answers for Medicare may not apply in the Medicaid context, since a smaller share of physician's patients will be Medicaid insured, so that income effects from fee changes may be dominated by substitution effects. We investigate the effect of Medicaid fee differentials on the use of cesarean delivery over the 1988-1992 period. We find, in contrast to the backward-bending supply curve implied by the Medicare literature larger fee differentials between cesarean and normal childbirth for the Medicaid program leads to higher cesarean delivery rates. In particular, we find that the lower fee differentials between cesarean and normal childbirth under the Medicaid program than under private insurance can explain between one-half and three-quarters of the difference between Medicaid and private cesarean delivery rates. Our results suggest that Medicaid reimbursement reductions can cause real reductions in the intensity with which Medicaid patients are treated.
Handle: RePEc:nbr:nberwo:6744
Template-Type: ReDIF-Paper 1.0
Title: Valuation and Return Dynamics of New Ventures
Classification-JEL: G31; G12
Author-Name: Jonathan B. Berk
Author-Name: Richard C. Green
Author-Name: Vasant Naik
Note: AP
Number: 6745
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6745
File-URL: http://www.nber.org/papers/w6745.pdf
File-Format: application/pdf
Publication-Status: published as Jonathan B. Berk, 2004. "Valuation and Return Dynamics of New Ventures," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 17(1), pages 1-35.
Abstract: We develop and analyze a model of a multi-stage investment project that captures many features of R&D ventures and start-up companies. An important feature these problems share is that the firm learns about the potential profitability of the project throughout its life, but that research and development effort itself is only resolved through additional investment by the firm. In addition, the risks associated with the ultimate cash flows the firm realizes on completion of the project have a systematic component, while the purely technical risks are idiosyncratic. Our model captures these different sources of risk, and allows us to study their interaction in determining the risk premia earned by the venture during development. Our results show that the systematic risk, and the required risk premium, of the venture are highest early in its life, and decrease as it approaches completion, despite the idiosyncratic nature of the technical risk.
Handle: RePEc:nbr:nberwo:6745
Template-Type: ReDIF-Paper 1.0
Title: Redistributive Public Employment
Author-Name: Alberto Alesina
Author-Person: pal207
Author-Name: Reza Baqir
Author-Name: William Easterly
Author-Person: pea1
Note: PE
Number: 6746
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6746
File-URL: http://www.nber.org/papers/w6746.pdf
File-Format: application/pdf
Publication-Status: published as Alesina, Alberto, Reza Baqir and William Easterly. "Redistributive Public Employment," Journal of Urban Economics, 2000, v48(2,Sep), 219-241.
Abstract: Politicians may use disguised' redistributive policies in order to circumvent opposition to explicit tax-transfer schemes. First, we present a theoretical model that formalizes this hypothesis; then we provide evidence that in US cities, politicians use public employment as such a redistributive device. We find that city employment is significantly higher in cities where income inequality and ethnic fragmentation are higher.
Handle: RePEc:nbr:nberwo:6746
Template-Type: ReDIF-Paper 1.0
Title: "Overreaction" of Asset Prices in General Equilibrium
Classification-JEL: G1; E0
Author-Name: S. Rao Aiyagari
Author-Name: Mark Gertler
Author-Person: pge11
Note: AP
Number: 6747
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6747
File-URL: http://www.nber.org/papers/w6747.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Dynamics, Vol. 2, no. 1 (January 1999): 3-35
Abstract: We attempt to explain the overreaction of asset prices to movements in short-term interest rates, dividends, and asset supplies. The key element of our explanation is a margin constraint that traders face which limits their leverage to a fraction of the value of their assets. Traders may lever themselves further, either directly by borrowing short term or indirectly by engaging in futures and options trading, so that the scenario is relevant to contemporary financial markets. When some shock pushes asset prices to a low enough level at which the margin constraint binds, traders are forced to liquidate assets. This drives asset prices below what they would be with frictionless markets. Also, a shock which simply increases the likelihood that the margin constraint will bind can have a very similar effect on asset prices. We construct a general equilibrium model with margin constrained traders and derive some qualitative properties of asset prices. We present an analytical solution for a deterministic version of the model and a simple numerical computation of the stochastic version.
Handle: RePEc:nbr:nberwo:6747
Template-Type: ReDIF-Paper 1.0
Title: Medical Care at the End of Life: Diseases, Treatment Patterns, and Costs
Classification-JEL: I12
Author-Name: Alan M. Garber
Author-Name: Thomas E. MaCurdy
Author-Name: Mark C. McClellan
Note: AG EH
Number: 6748
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6748
File-URL: http://www.nber.org/papers/w6748.pdf
File-Format: application/pdf
Publication-Status: published as Frontiers in Health Policy Research. Garber, Alan M., ed., Cambridge: MIT Press, 1999, pp. 77-98.
Abstract: In recent years, the use of Medicare-covered home health care and hospice services has grown dramatically. Hospice care, like much home health and nonacute hospital care, is designed to meet the needs of dying patients, who are known to generate disproportionately large costs of care. How has use of these services by dying Medicare beneficiaries changed over time? How has it varied by disease? Does recent experience suggest that these services have helped save the Medicare program money by displacing hospital care and other costly services? To address these questions, we examined linked Medicare claims files from 1988 to 1995, determining the location of death, days of use of services, and expenditures for the care of beneficiaries in the final months of life. We found that use of hospice and home health services by decedents grew rapidly over the eight-year study period, and especially rapidly among patients who died with a predictably terminal illness such as lung cancer. Among the elderly who have such illnesses, these alternatives to acute hospital care have reduced the use of hospital care near the very end of life. Most of the growth in these services in the year or two before death, however, appears to involve additional Medicare-covered services. As a result, utilization of Medicare-covered home health and hospice care by dying beneficiaries has increased over time, with an associated reduction in the proportion of deaths occurring in acute-care hospitals. But as the use of non-hospital services has grown, the growth in Medicare expenditures for hospital services at the end of life has not slowed appreciably, nor has there been a marked change in the intensity of end-of-life treatment for Medicare beneficiaries dying of more acute illnesses or requiring substantial supportive care.
Handle: RePEc:nbr:nberwo:6748
Template-Type: ReDIF-Paper 1.0
Title: Employment versus Wage Adjustment and the US Dollar
Classification-JEL: F31; F3
Author-Name: Jose Manuel Campa
Author-Person: pca393
Author-Name: Linda S. Goldberg
Author-Person: pgo256
Note: IFM
Number: 6749
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6749
File-URL: http://www.nber.org/papers/w6749.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics August 2001, Vol. 83, No. 3, Pages 477-489: 477-489.
Abstract: Using two decades of annual data, we explore the links between real exchange rates and employment, wages and overtime activity in specific U.S. manufacturing industries. Across two-digit industry levels of aggregation, exchange rate movements do not have large effects on numbers of jobs or on hours worked. More substantial effects are picked up in industry wages, especially for industries characterized by low price-over-cost markup ratios, and in overtime wages and overtime employment. The industry-by-industry pattern of wage responsiveness is not strongly related to industry export orientation or changes in overall external orientation. Industries with low price-over-cost markups and those with a less skilled workforce exhibit relatively larger employment elasticities but lower wage elasticities.
Handle: RePEc:nbr:nberwo:6749
Template-Type: ReDIF-Paper 1.0
Title: The Last American Shoe Manufacturers: Changing the Method of Pay to Survive Foreign Competition
Author-Name: Richard B. Freeman
Author-Person: pfr23
Author-Name: Morris M. Kleiner
Note: LS
Number: 6750
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6750
File-URL: http://www.nber.org/papers/w6750.pdf
File-Format: application/pdf
Publication-Status: published as Freeman, Richard B. and Morris M. Kleiner. “The Last American Shoe Manufacturers: Decreasing Productivity and Increasing Profits in the Shift from Piece Rates to Continuous Flow Production." Industrial Relations 44, 2 (April 2005).
Abstract: During the last 150 years, shoe manufacturing in the U.S. has gone from one of the largest employers in manufacturing to one of the smallest, yet some firms have survived and remained profitable. This study examines the role of changing methods of compensation in shoe manufacturing, in a sector that faces severe import competition. During the 1970s - 1990s, most firms in the industry shifted from piece rate to time rate modes of compensation as a strategy for survival. Using longitudinal establishment data files, we find wide variation in labor input usage and in labor's share of sales among establishments in the sector, with establishments having high labor shares of cost disproportionately likely to close down over time; and a widening range of labor input usage in production associated with the widening U.S. wage structure. Using data for a simple manufacturer, methods of pay was part of a move toward continuous flow methods of production, with job rotation and rapid changes in work tasks to introduce new styles. The switch reduced productivity, but brought offsetting cost savings in the form of lower workers' compensation insurance costs, smaller inventories, lower monitoring costs, and lower hourly wages, and made it easier for the firm to introduce new shoe styles. On net, the shirt to time rates lowered labor's share of cost at the company and increased the economic surplus available to the firm.
Handle: RePEc:nbr:nberwo:6750
Template-Type: ReDIF-Paper 1.0
Title: Horizontal Mergers in the Paper Industry
Author-Name: Martin Pesendorfer
Author-Person: ppe80
Note: IO
Number: 6751
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6751
File-URL: http://www.nber.org/papers/w6751.pdf
File-Format: application/pdf
Publication-Status: published as Pesendorfer, Martin. "Horizontal Mergers In The Paper Industry," Rand Journal of Economics, 2003, v34(3,Autumn), 495-515.
Abstract: This paper examines mergers and acquisitions in the US paper and paperboard industry. This industry experienced a wave of horizontal mergers during the mid 1980s. We study implications of mergers on consumers, rival firms, and welfare. The analysis is based on a model of investment decisions. We compare the equilibrium investment decisions prior to and after the merger wave. The evidence indicates that the efficiency of the majority of acquiring firms increases following an acquisition. Based on the parameter estimates, we calculate merger welfare effects. We find that total welfare increased by $583.5 million as a result of the mergers.
Handle: RePEc:nbr:nberwo:6751
Template-Type: ReDIF-Paper 1.0
Title: The Structure of Foreign Trade
Classification-JEL: F11; F12
Author-Name: Elhanan Helpman
Author-Person: phe205
Note: ITI
Number: 6752
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6752
File-URL: http://www.nber.org/papers/w6752.pdf
File-Format: application/pdf
Publication-Status: published as Helpman, Elhanan. "The Structure Of Foreign Trade," Journal of Economic Perspectives, 1999, v13(2,Spring), 121-144.
Abstract: During the last two decades, new research has greatly advanced our understanding of the structure of world trade. This article reviews the empirical literature that grew out of this effort, emphasizing the ways in which it relied on theoretical developments.
Handle: RePEc:nbr:nberwo:6752
Template-Type: ReDIF-Paper 1.0
Title: Empirical Patterns of Firm Growth and R&D Investment: A QuUality LadderModel Interpretation
Classification-JEL: O31; D43
Author-Name: Tor Jakob Klette
Author-Name: Zvi Griliches
Note: PR
Number: 6753
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6753
File-URL: http://www.nber.org/papers/w6753.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 stochastic innovation as the engines of growth. 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 the empirical studies of growth, productivity, R&D and patenting at the firm level. The analysis shows that the model fits well with empirical patterns such as (i) a skewed size distribution of firms with persistent differences in firm sizes, (ii) firm growth independent of firm size, as stated in 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:6753
Template-Type: ReDIF-Paper 1.0
Title: Staggered Price and Wage Setting in Macroeconomics
Classification-JEL: E2; E10
Author-Name: John B. Taylor
Author-Person: pta174
Note: EFG
Number: 6754
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6754
File-URL: http://www.nber.org/papers/w6754.pdf
File-Format: application/pdf
Publication-Status: published as Taylor, John B., 1999. "Staggered price and wage setting in macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 15, pages 1009-1050 Elsevier.
Abstract: This paper reviews the role of temporary price and wage rigidities in explaining the dynamic relationship between money, real output, and inflation. It summarizes microeconomic data on price and wage setting behavior, and argues that staggered price and wage setting models provide the most satisfactory match with the data. Research in this area has been very active in the 1990's with a remarkable number of studies using, estimating, or testing models of staggered price and wage setting. A new generation of econometric models incorporating staggered price and wage setting with rational expectations has been built. Researchers have begun to incorporate staggered wage and price setting into real business cycle models. Close links have been discovered between the parameters of people's utility functions and the parameters of price and wage setting equations. There is now a debate about whether standard calibrations of utility functions prevent staggered price models, at least those with frequent price changes, from explaining long persistence of real output. There is much to be discovered from these debates and from the future research they stimulate.
Handle: RePEc:nbr:nberwo:6754
Template-Type: ReDIF-Paper 1.0
Title: Health Care for the Elderly: How Much? Who Will Pay for It?
Classification-JEL: I18; J14
Author-Name: Victor R. Fuchs
Author-Person: pfu157
Note: EH
Number: 6755
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6755
File-URL: http://www.nber.org/papers/w6755.pdf
File-Format: application/pdf
Publication-Status: published as V R Fuchs, 1999. "Health care for the elderly: how much? Who will pay for it?," Health Affairs, vol 18(1), pages 11-21.
Abstract: The tendency of health care expenditures on the elderly to grow about 4 percent per annum more rapidly than the Gross Domestic Product could plunge the nation into a severe economic and social crisis within two decades. This paper describes recent growth in age-sex-specific health care utilization by the elderly and discusses the important role of technology in that growth. It also explores the potential for the elderly to pay for additional care through increases in work and savings. Efforts to Medicare embedded in broader policy initiatives that slow the rate of growth of health care expenditures and/or increase the income of the elderly.
Handle: RePEc:nbr:nberwo:6755
Template-Type: ReDIF-Paper 1.0
Title: Interest Rate Volatility, Capital Controls, and Contagion
Classification-JEL: F3; F32
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: IFM
Number: 6756
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6756
File-URL: http://www.nber.org/papers/w6756.pdf
File-Format: application/pdf
Publication-Status: published as Edwards, Sebastian. "Interest Rate Volatility, Contagion And Convergence: An Empirical Investigation Of The Cases Of Argentina, Chile And Mexico," Journal of Applied Economics, 1998, v1(1,May), 55-86.
Abstract: Current debates on globalization have tended to focus on financial market volatility and contagion. In fact, many proponents of the imposition of some form of capital restrictions in emerging markets have argued that these would help reduce or even eliminate spillover across emerging market. Although this has been an old concern among developing economies, it has become more generalized after the Mexican, East Asian and Russian crises. In this paper I use high frequency data on short term nominal interest rates during the 1990s in three Latin American countries Argentina, Chile and Mexico -- to analyze whether there has been volatility contagion from Mexico to the two South American nations. The results obtained from the estimation of augmented GARCH equations indicate, quite strongly, that while there has been volatility contagion from Mexico to Argentina, there has been no volatility contagion from Mexico to Chile. These results also indicate, however, that with the exception of a brief period in 1995, nominal interest rates have been more volatile in Chile than in Argentina. The results reported in this paper also indicate that interest rate differentials with respect to the US have tended to disappear somewhat slowly in both Chile and Argentina. Moreover, the estimation of rolling regressions for Chile indicate that after capital controls on capital inflows were imposed, interest rate differentials became more sluggish and tended to disappear more slowly than during the free capital mobility period.
Handle: RePEc:nbr:nberwo:6756
Template-Type: ReDIF-Paper 1.0
Title: The Educational Attainment of Immigrants: Trends and Implications
Author-Name: Julian R. Betts
Author-Name: Magnus Lofstrom
Author-Person: plo12
Note: LS
Number: 6757
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6757
File-URL: http://www.nber.org/papers/w6757.pdf
File-Format: application/pdf
Publication-Status: published as The Educational Attainment of Immigrants: Trends and Implications, Julian R. Betts, Magnus Lofstrom. in Issues in the Economics of Immigration, Borjas. 2000
Abstract: This paper uses the 1970, 1980, and 1990 U.S. Censuses to study trends in educational attainment of immigrants relative to natives. Immigrants have become relatively less highly educated, but have become more highly educated in an absolute sense. The effects of changes in relative educational attainment between immigrants and natives on earnings are studied. Educational differences are found to explain more than half the observed wage gap between the two groups. The paper also allows for non-linearities in returns to education. Sheepskin effects influence earnings in different ways for natives and immigrants. Differences in returns to pre- and post-migration education also appear. The paper also finds evidence that immigrants crowd natives out of education, although the effects are stronger in secondary than in postsecondary education.
Handle: RePEc:nbr:nberwo:6757
Template-Type: ReDIF-Paper 1.0
Title: Prospective Deficits and the Asian Currency Crisis
Classification-JEL: F31
Author-Name: Craig Burnside
Author-Person: pbu20
Author-Name: Martin Eichenbaum
Author-Person: pei4
Author-Name: Sergio Rebelo
Note: EFG IFM
Number: 6758
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6758
File-URL: http://www.nber.org/papers/w6758.pdf
File-Format: application/pdf
Publication-Status: published as Burnside, Craig, Martin Eichenbaum and Sergio Rebelo. "Prospective Deficits And The Asian Currency Crisis," Journal of Political Economy, 2001, v109(6,Dec), 1155-1197.
Abstract: This paper argues that the recent Southeast Asian currency crisis was caused by large prospective deficits associated with implicit bailout guarantees to failing banking systems. We articulate this view using a simple dynamic general equilibrium model whose key feature is that a speculative attack is inevitable once the present value of future government deficits rises. This is true regardless of the government's foreign reserve position or the initial level of its debt. While the government cannot prevent a speculative attack, it can affect its timing. The longer the delay, the higher inflation will be under flexible exchange rates. We present empirical evidence in support of the three key assumptions in our model: (i) foreign reserves did not play a special role in the timing of the attack, (ii) large losses in the banking sector were associated with large increases in governments' prospective deficits, and (iii) the public knew that banks were in trouble before the currency crisis.
Handle: RePEc:nbr:nberwo:6758
Template-Type: ReDIF-Paper 1.0
Title: Tax Reform Evaluation Using Nonparametric Methods: Sweden 1980 - 1991
Classification-JEL: C14; D31
Author-Name: Soren Blomquist
Author-Person: pbl164
Author-Name: Matias Eklof
Author-Name: Whitney Newey
Author-Person: pne241
Note: PE
Number: 6759
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6759
File-URL: http://www.nber.org/papers/w6759.pdf
File-Format: application/pdf
Publication-Status: published as Blomquist, Soren, Matias Eklof and Whitney Newey. "Tax Reform Evaluation Using Non-Parametric Methods: Sweden 1980-1991," Journal of Public Economics, 2001, v79(3,Mar), 543-568.
Abstract: This paper evaluates the tax reforms carried out in Sweden between 1980 and 1991. We use a recently developed nonparametric estimation technique to account for labor supply responses. We decompose the tax returns to study how the separate components influence hours of work, tax revenues distribution. The results indicate that the reform was underfinanced and that the increased indirect taxation and redesigned transfer system almost eliminated the positive effects on hours of work due to the decreased marginal taxes on labor income. Further the predictions of a parametric estimated labor supply model. The responses of the parametric model is almost twice the size of the nonparametric.
Handle: RePEc:nbr:nberwo:6759
Template-Type: ReDIF-Paper 1.0
Title: Policy Rules for Open Economies
Author-Name: Laurence Ball
Author-Person: pba605
Note: ME EFG IFM
Number: 6760
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6760
File-URL: http://www.nber.org/papers/w6760.pdf
File-Format: application/pdf
Publication-Status: published as Policy Rules for Open Economies, Laurence M. Ball. in Monetary Policy Rules, Taylor. 1999
Abstract: This paper examines the choice of a monetary-policy rule in a simple macroeconomic model. In a closed economy, the optimal policy is a output and inflation. In an open economy, the optimal rule changes in two ways. First, the policy instrument is a Conditions Index the exchange rate. Second, on the right side of the rule, inflation is replaced by filters out the transitory effects of exchange-rate movements. The model also implies that pure inflation targeting is dangerous in an open economy, because it creates large fluctuations in exchange rates and output. Targeting long-run inflation avoids this problem and produces a close approximation to the optimal instrument rule.
Handle: RePEc:nbr:nberwo:6760
Template-Type: ReDIF-Paper 1.0
Title: Tools or Toys? The Impact of High Technology on Scholarly Productivity
Classification-JEL: D24; A14
Author-Name: Daniel S. Hamermesh
Author-Person: pha78
Author-Name: Sharon M. Oster
Note: LS
Number: 6761
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6761
File-URL: http://www.nber.org/papers/w6761.pdf
File-Format: application/pdf
Publication-Status: published as Hamermesh, Daniel S. and Sharon M. Oster. "Tools Or Toys? The Impact Of High Technology On Scholarly Productivity," Economic Inquiry, 2002, v40(4,Oct), 539-555.
Abstract: Toys. The impact of computers on productivity has been examined directly on macro data and indirectly (on wages) using microeconomic data. This study examines the direct impact on the productivity of scholarship by considering how high technology might alter patterns of coauthoring of articles in economics and their influence. Using all coauthored articles in three major economics journals from 1970-79 and 1992-96, we find: 1) Sharp growth in the percentage of distant coauthorships (those between authors who were not in the same metropolitan areas in the four years prior to publication), as the theory predicts. Contrary to the theory: 2) Lower productivity (in terms of subsequent citations) of distant than close-coauthored papers; and 3) No decline in their relative disadvantage between the 1970s and 1990s. These findings are reconciled by the argument that high-technology functions as a consumption rather than an investment good. As such, it can be welfare-increasing without increasing productivity.
Handle: RePEc:nbr:nberwo:6761
Template-Type: ReDIF-Paper 1.0
Title: Health Insurance and the Labor Market
Classification-JEL: I28; I18
Author-Name: Jonathan Gruber
Author-Person: pgr20
Note: EH
Number: 6762
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6762
File-URL: http://www.nber.org/papers/w6762.pdf
File-Format: application/pdf
Publication-Status: published as (1994): 86-102.
Publication-Status: Published as "Public Health Insurance and Private Savings", Journal of Political Economy, Vol. 107, no. 6, part 1 (December 1999): 1249-1274. Published as "Health Insurance and Job Mobility: The Effects of Public Policy on Job-Lock", Industrial and Labor Relations Review, Vol. 48, no. 1
Abstract: A distinctive feature of the health insurance market in the U.S. is the restriction of group insurance availability to the workplace. This has a number of important implications for the functioning of the labor market, through mobility from job-to-job or in and out of the labor force, wage determination, and hiring decisions. This paper reviews the large literature that has emerged in recent years to assess the impact of health insurance on the labor market. I begin with an overview of the institutional details relevant to assessing the interaction of health insurance and the labor market. I then present a theoretical overview of the effects of health insurance on mobility and wage/employment determination. I critically review the empirical literature on these topics, focusing in particular on the methodological issues that have been raised, and highlighting the unanswered questions which can be the focus of future work in this area.
Handle: RePEc:nbr:nberwo:6762
Template-Type: ReDIF-Paper 1.0
Title: Elasticities of Substitution in Real Business Cycle Models with Home Production
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Sydney Ludvigson
Author-Person: plu153
Note: EFG
Number: 6763
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6763
File-URL: http://www.nber.org/papers/w6763.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John Y. and Syndney Ludvigson. "Elasticities Of Substitution In Real Business Cycle Models With Home Production," Journal of Money, Credit and Banking, 2001, v33(4,Nov), 847-875.
Abstract: This paper constructs a simple model of home production that demonstrates the connection between the intertemporal elasticity of substitution in market consumption (IES) and the static elasticity of substitution between home and market consumption (SES), when the utility function is additively separable over home and market consumption. Understanding this connection is important because there is a large body of empirical evidence suggesting that the IES is small, but little evidence on the size of the SES. We use our framework to shed light on the properties of a home production model with a low IES. We find that such a model must have two fundamental properties in order to match key aspects of the U.S. aggregate data. First, the steady-state growth rate of technology must be the same across sectors. Second, shocks to technology must be sufficiently positively correlated across sectors.
Handle: RePEc:nbr:nberwo:6763
Template-Type: ReDIF-Paper 1.0
Title: The Changing Skills of New Immigrants to the United States: Recent Trends and Their Determinants
Author-Name: Guillermina Jasso
Author-Name: Mark R. Rosenzweig
Author-Person: pro558
Author-Name: James P. Smith
Author-Person: psm28
Note: LS
Number: 6764
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6764
File-URL: http://www.nber.org/papers/w6764.pdf
File-Format: application/pdf
Publication-Status: published as The Changing Skill of New Immigrants to the United States: Recent Trends and Their Determinants, Guillermina Jasso, Mark R. Rosenzweig, James P. Smith. in Issues in the Economics of Immigration, Borjas. 2000
Abstract: The objective of this paper is to describe and understand the determinants of changes in the number and quality of new legal immigrants to the United States over the last 25 years. Our main interest is in understanding the behavioral response of potential immigrants to changes in the U.S. immigration law regime (as well as in the origin-country determinants of demand for immigration to the United States) and how these affect and have affected the skill composition of immigrants. By understanding how the composition of legal immigrant flows shifts in response to immigration law changes, particularly in numerically unrestricted immigration categories, a better understanding of the consequences of future immigration reforms may be attained. We assemble a new data set based on annual INS records of all new, legal immigrants over the period 1972 through 1995. The data thus permit a new examination of the changing skill composition of legal immigrants as well as an investigation as to how these changes were influenced by alterations in immigration law regimes and, with additional data, origin-country conditions. Inspection of our new data indicates that since the mid 1980s the average skill of new, U.S. legal immigrants has been rising relative to that of the U.S. population. An econometric analysis of a panel of country-specific measures of the skill of immigrants based on these data over the period 1972 - 1992 indicates that these changes are due in part to changes in immigration law and to the overall rise in the real purchasing power of countries outside the United States.
Handle: RePEc:nbr:nberwo:6764
Template-Type: ReDIF-Paper 1.0
Title: Constraints on Large-Block Shareholders
Author-Name: Clifford G. Holderness
Author-Name: Dennis P. Sheehan
Note: CF
Number: 6765
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6765
File-URL: http://www.nber.org/papers/w6765.pdf
File-Format: application/pdf
Publication-Status: published as Constraints on Large-Block Shareholders, Clifford Holderness, Dennis P. Sheehan. in Concentrated Corporate Ownership, Morck. 2000
Abstract: Corporate managers who own a majority of the common stock in their company or who represent another firm owning such an interest appear to be less constrained than managers of diffusely held firms, yet their power to harm minority shareholders must be circumscribed by some organizational or legal arrangements. Empirical investigations reveal that boards of directors in majority-owned firms are little different from firms with diffuse stock ownership. Another source of constraints on a majority shareholders -- capital market activity -- also appears to be no different from firms with diffuse ownership. Finally, there is little evidence that new organizational mechanisms have evolved to constrain managers who own large blocks of stock. The frequency and associated wealth effects of reorganizations of majority shareholder firms, however, indicate that the law constrains managerial majority shareholders, both in their day-to-day management and when they redeem the ownership interest of minority shareholders.
Handle: RePEc:nbr:nberwo:6765
Template-Type: ReDIF-Paper 1.0
Title: School Finance Reform, the Distribution of School Spending, and the Distribution of SAT Scores
Classification-JEL: I22
Author-Name: David Card
Author-Person: pca271
Author-Name: A. Abigail Payne
Author-Person: ppa10
Note: LS
Number: 6766
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6766
File-URL: http://www.nber.org/papers/w6766.pdf
File-Format: application/pdf
Publication-Status: published as Card, David and A. Abigail Payne. "School Finance Reform, The Distribution Of School Spending, And The Distribution Of Student Test Scores," Journal of Public Economics, 2002, v83(1,Jan), 49-82.
Abstract: In this paper we study the effects of school finance reforms on the distribution of school spending across richer and poorer districts, and the effects of spending equalization on the distribution of student outcomes across children from different family backgrounds. We use school district data from the 1977 and 1992 Censuses of Governments to measure the correlation between state funding per pupil and median family income in each district. We find that states where the school finance system was declared unconstitutional in the 1980s increased the relative funding of low-income districts. Increases in state funds available to poorer districts led to increases in the relative spending of these districts, and to some equalization in spending across richer and poorer districts. We then use micro samples of SAT scores from this same period to measure the effects of spending inequality on the inequality in test scores between children from different family backgrounds. We find some evidence that the equalization of spending across districts leads to a narrowing of test score outcomes across family background groups.
Handle: RePEc:nbr:nberwo:6766
Template-Type: ReDIF-Paper 1.0
Title: An Historical Analysis of Monetary Policy Rules
Classification-JEL: E3; E5
Author-Name: John B. Taylor
Author-Person: pta174
Note: ME EFG
Number: 6768
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6768
File-URL: http://www.nber.org/papers/w6768.pdf
File-Format: application/pdf
Publication-Status: published as as "Applying Academic Research on Monetary Policy Rules: An Exercise in Translational Economics", The Manchester School, Vol. 66, Issue S, (Supplement 1998): 1-16
Publication-Status: published as as "The Robustness and Efficiency of Monetary Policy Rules as Guidelines for Interest Rate Setting by the European Central Bank", Journal of Monetary Economics, Vol. 43, no. 3 (June 1999): 655-679
Publication-Status: published as A Historical Analysis of Monetary Policy Rules, John B. Taylor. in Monetary Policy Rules, Taylor. 1999
Abstract: This paper examines several episodes in U.S. monetary history using the framework of an interest rate rule for monetary policy. The main finding is that a monetary policy rule in which the interest rate responds to inflation and real output more aggressively than it did in the 1960s and 1970s, or than during the time of the international gold standard, and more like the late 1980s and 1990s, is a good policy rule. Moreover, if one defines rule, then such mistakes have been associated with either high and prolonged inflation or drawn out periods of low capacity utilization.
Handle: RePEc:nbr:nberwo:6768
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Daycare Reconsidered
Classification-JEL: J13; J22
Author-Name: Karen Norberg
Author-Person: pno208
Note: CH
Number: 6769
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6769
File-URL: http://www.nber.org/papers/w6769.pdf
File-Format: application/pdf
Abstract: Do children of employed mothers differ from other children, even before mother's (re)entry to the labor force? Preexisting differences among children may be an alternative explanation for many apparent daycare outcome effects. Data from the 1994 wave of the National Longitudinal Survey of Youth were available for 6603 singleton infants followed from birth. Mothers of children with intrauterine growth retardation, birth defects, or extended hospitalization at birth began working significantly later after the birth of the child, and mothers of infants with higher development scores and more difficult temperament, and mothers of healthy premature infants, began working significantly earlier. The associations with newborn health persisted when the comparisons were made among siblings. The magnitudes of the effects were large enough to have practical importance. After controlling for both observed and unobserved differences between families, a mother was only 50% as likely to have been employed at all in the first five years after the birth of a high risk infant. About 20% of low-income newborns in the sample were classified as problems may therefore have resulted in a 10% lower labor force participation rate among low-income mothers of children under five.
Handle: RePEc:nbr:nberwo:6769
Template-Type: ReDIF-Paper 1.0
Title: Income Inequality and Poverty
Classification-JEL: D3; J3
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: PE
Number: 6770
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6770
File-URL: http://www.nber.org/papers/w6770.pdf
File-Format: application/pdf
Abstract: The first part of this paper argues that income inequality is not a problem in need of remedy. The common practice of interpreting a rise in the gini coefficient measure of inequality as a bad thing violates the Pareto principle and is equivalent to using a social welfare function that puts negative weight on increases in the income of high income individuals. The real distributional problem is not inequality but poverty. The paper considers three sources of poverty and asks what if anything might be done about each of them: unemployment; a low level of earning capacity; and individual choice.
Handle: RePEc:nbr:nberwo:6770
Template-Type: ReDIF-Paper 1.0
Title: Long-term Debt and Optimal Policy in the Fiscal Theory of the Price Level
Classification-JEL: E3; E4
Author-Name: John H. Cochrane
Author-Person: pco57
Note: EFG
Number: 6771
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6771
File-URL: http://www.nber.org/papers/w6771.pdf
File-Format: application/pdf
Publication-Status: published as Cochrane, John H. "Long-Term Debt And Optimal Policy In The Fiscal Theory Of The Price Level," Econometrica, 2001, v69(1,Jan), 69-116.
Abstract: The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of future deficits implies current inflation or future inflation. When long term debt is present, the government can trade current inflation for future inflation by debt operations; this tradeoff is not present if the government rolls over short term debt. I solve for optimal debt policies to minimize the variance of inflation. I find cases in which long-term debt helps to stabilize inflation, and I find that the optimal inflation-stabilizing policy produces time series that are surprisingly similar to U.S. surplus and debt time series.
Handle: RePEc:nbr:nberwo:6771
Template-Type: ReDIF-Paper 1.0
Title: Coding Geographic Areas Across Census Years: Creating Consistent Definitions of Metropolitan Areas
Classification-JEL: J00
Author-Name: David A. Jaeger
Author-Person: pja17
Author-Name: Susanna Loeb
Author-Name: Sarah E. Turner
Author-Person: ptu103
Author-Name: John Bound
Author-Person: pbo406
Note: LS
Number: 6772
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6772
File-URL: http://www.nber.org/papers/w6772.pdf
File-Format: application/pdf
Abstract: This paper presents suggested matches for the geographical coding (geocoding) of metropolitan areas in the 1970, 1980, and 1990 Censuses. The Census Bureau used different definitions and taxonomies to describe the geography of metropolitan areas in these three Census years. As a result, the geographical areas referred to by the standard Census Bureau definitions differ among the three Census data sets. The geographic matching scheme explained in this paper attempts to maximize consistency over time for metropolitan areas in the U.S.
Handle: RePEc:nbr:nberwo:6772
Template-Type: ReDIF-Paper 1.0
Title: Estimating the Knowledge-Capital Model of the Multinational Enterprise
Classification-JEL: F12; F23
Author-Name: David L. Carr
Author-Name: James R. Markusen
Author-Person: pma528
Author-Name: Keith E. Maskus
Author-Person: pma232
Note: ITI
Number: 6773
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6773
File-URL: http://www.nber.org/papers/w6773.pdf
File-Format: application/pdf
Publication-Status: published as Carr, David L., James R. Markusen and Keith E. Maskus. "Estimating The Knowledge-Capital Model Of The Multinational Enterprise," American Economic Review, 2001, v91(3,Jun), 693-708.
Abstract: What we term the firm includes three principal assumptions. First, services of knowledge-based and knowledge-generating activities, such as R&D, can be geographically separated from production and supplied to production facilities at low cost. Second, these knowledge-intensive activities are skilled-labor intensive relative to production. These characteristics give rise to vertical multinationals, which fragment production and locate activities according to factor prices and market size. Third, knowledge-based services have a (partial) joint-input characteristic that they can be supplied to additional production facilities at low cost. This characteristic gives rise to horizontal multinationals, which produce the same goods or services in multiple locations. In this paper, we note how this model predicts relationships between affiliate sales and country characteristics. We then subject these predictions to empirical tests.
Handle: RePEc:nbr:nberwo:6773
Template-Type: ReDIF-Paper 1.0
Title: Population Age Structure and Asset Returns: An Empirical Investigation
Classification-JEL: G12; J11
Author-Name: James M. Poterba
Author-Person: ppo19
Note: AP
Number: 6774
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6774
File-URL: http://www.nber.org/papers/w6774.pdf
File-Format: application/pdf
Abstract: This paper investigates the association between population age structure, particularly the share of the population in the saving years is motivated by the claim that the aging of the in the United States is a key factor in explaining the recent rise in asset values. It also addresses the associated claim that asset prices will decline when this large cohort reaches retirement age and begins to reduce its asset holdings. This paper begins by considering household age-asset accumulation profiles. Data from the Survey of Consumer Finances suggest that while cross-sectional age-wealth profiles peak for households in their early 60s, cohort data on the asset ownership of the same households show a much less pronounced peak. Wealthy households with substantial asset holdings appear to decumulate slowly, if at all, after retirement. This casts doubt on the (excluding defined benefit pension assets) that households control directly. The paper then considers the historical relationship between demographic structure and real returns on Treasury bills, long-term government bonds, and corporate stock. The results do not suggest any robust relationship between demographic structure and asset returns. This is partly due to the limited power of statistical tests based on the few structure and asset returns in the United States and other developed economies. The paper concludes by discussing factors such as international capital flows and forward-looking behavior on the part of market participants that could weaken the relationship between age structure and asset returns in a single nation.
Handle: RePEc:nbr:nberwo:6774
Template-Type: ReDIF-Paper 1.0
Title: Displaced Capital
Classification-JEL: E22; D24
Author-Name: Valerie A. Ramey
Author-Person: pra154
Author-Name: Matthew D. Shapiro
Author-Person: psh144
Note: EFG PR
Number: 6775
Creation-Date: 1998-10
Order-URL: http://www.nber.org/papers/w6775
File-URL: http://www.nber.org/papers/w6775.pdf
File-Format: application/pdf
Publication-Status: published as Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
Abstract: This paper studies the efficiency with which physical capital can be reallocated across sectors. It presents a model of a firm selling specialized capital in a thin resale market. The model predicts that the selling price depends not only on the sectoral specificity of capital, but also on the thinness of the market and the discount factor of the firm. It then provides empirical evidence on the sectoral mobility of capital based on equipment-level data from aerospace industry auctions. These data track the flow of used capital across industries, as well as the discounts at which the capital sells. The results suggest substantial sectoral specificity of capital. Capital that flowed out of the sector sold for only one-third of its estimated replacement cost.
Handle: RePEc:nbr:nberwo:6775
Template-Type: ReDIF-Paper 1.0
Title: Environmental Regulation and Productivity: Evidence from Oil Refineries
Classification-JEL: D2; H2
Author-Name: Eli Berman
Author-Person: pbe188
Author-Name: Linda T.M. Bui
Author-Person: pbu244
Note: PR
Number: 6776
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6776
File-URL: http://www.nber.org/papers/w6776.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: We examine the effect of air quality regulation on the productivity of some of the most heavily regulated manufacturing plants in the United States, the oil refineries of the Los Angeles (South Coast) Air Basin. We use direct measures of local air pollution regulation in this region to estimate their effects on abatement investment. Refineries not subject to these local environmental regulations are used as a comparison group. We study the period of increased regulation between 1979 and 1992. On average each regulation cost $3M per plant on compliance dates and a further $5M per plant on dates of increased stringency. We also construct measures of total factor productivity using plant level data which allow us to observe physical quantities of inputs and outputs for the entire population of refineries. Despite the high costs associated with the local regulations, productivity in the Los Angeles Air Basin refineries rose sharply during the 1987 - 1992 period, a period of decreased refinery productivity in other regions. We conclude that measures of the cost of environmental regulation may be significantly overstated. The gross costs may be far greater than the net cost, as abatement may be productive.
Handle: RePEc:nbr:nberwo:6776
Template-Type: ReDIF-Paper 1.0
Title: The Dynamic Effects of Health on the Labor Force Transitions of Older Workers
Classification-JEL: J14; J26
Author-Name: John Bound
Author-Person: pbo406
Author-Name: Michael Schoenbaum
Author-Name: Todd R. Stinebrickner
Author-Person: pst255
Author-Name: Timothy Waidmann
Author-Person: pwa241
Note: LS AG
Number: 6777
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6777
File-URL: http://www.nber.org/papers/w6777.pdf
File-Format: application/pdf
Publication-Status: published as Labour Economics, Vol. 6, no. 2 (June 1999): 179-202
Abstract: This paper addresses the interplay between health and labor market behavior in the later part of the working life. We use the longitudinal Health and Retirement Survey to analyze the dynamic relationship between health and alternative labor force transitions, including labor force exit, job change and application for disability insurance. Specifically, we examine how the timing of health shocks affects labor force behavior. Controlling for lagged values of health, poor contemporaneous health is strongly associated with labor force exit in general and with application for disability insurance in particular. At the same time, our evidence suggests that controlling for contemporaneous health, poor lagged health is associated with continued participation. Thus, it appears that not just poor health, but declines in health help explain retirement behavior. We conclude that modeling health in a dynamic, longitudinal framework offers important new insights into the effects of poor health on the labor force behavior of older workers.
Handle: RePEc:nbr:nberwo:6777
Template-Type: ReDIF-Paper 1.0
Title: Migration and Pension
Classification-JEL: F22; H2
Author-Name: Assaf Razin
Author-Person: pra388
Author-Name: Efraim Sadka
Author-Person: psa492
Note: PE
Number: 6778
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6778
File-URL: http://www.nber.org/papers/w6778.pdf
File-Format: application/pdf
Publication-Status: Published as "Migration and Pension with International Capital Mobility", Journal of Public Economics, Vol. 74, no. 1 (October 1999): 141-150.
Abstract: Migration has important implications for the financial soundness of the pension system, which is an important pillar of the welfare state. While it is common sense to expect that young migrants, even if low-skilled, can help society pay the benefits to the currently elderly, it may nevertheless be reasonable to argue that these migrants would adversely affect current young since, after all, the migrants are net beneficiaries of the welfare state. In contrast to the adverse effects of low skilled migration in a static model in a Samuelsonian overlapping generations model that migration is a Pareto-improving measure. All the existing income (low and high) and age (young and old) groups living at the time of the migrant's arrival would be better off.
Handle: RePEc:nbr:nberwo:6778
Template-Type: ReDIF-Paper 1.0
Title: Public School Segregation in Metropolitan Areas
Classification-JEL: J15; R2
Author-Name: Charles T. Clotfelter
Author-Person: pcl34
Note: PE
Number: 6779
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6779
File-URL: http://www.nber.org/papers/w6779.pdf
File-Format: application/pdf
Publication-Status: published as Clotfelter, Charles T. "Public School Segregation," Land Economics, 1999, v75(4,Nov), 487-504.
Abstract: This paper presents measures of segregation in public schools for metropolitan areas. It shows that, not only are metropolitan areas very segregated, most of that segregation is due to racial disparities between districts rather than segregative patterns within districts. Metropolitan areas in the South and West tend to have larger districts, and thus feature less fragmentation by school district. Segregation at the metropolitan level appears to vary systematically with size, racial mix, and region. Because larger metropolitan areas tend to have more jurisdictions and exhibit greater differences in racial composition among jurisdictions, measured segregation rises with size, as measured by school enrollment.
Handle: RePEc:nbr:nberwo:6779
Template-Type: ReDIF-Paper 1.0
Title: Incentive Effects of Social Security on Labor Force Participation: Evidence in Germany and Across Europe
Classification-JEL: J26; H55
Author-Name: Axel Borsch-Supan
Note: AG PE
Number: 6780
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6780
File-URL: http://www.nber.org/papers/w6780.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review (May 1999).
Publication-Status: published as Axel H. Boersch-Supan, 2001. "Incentive Effects of Social Security under an Uncertain Disability Option," NBER Chapters, in: Themes in the Economics of Aging, pages 281-310 National Bureau of Economic Research, Inc.
Publication-Status: published as Axel Börsch-Supan, 2000. "Incentive effects of social security on labor force participation: evidence in Germany and across Europe," Journal of Public Economics, vol 78(1-2), pages 25-49.
Abstract: All across Europe, old age labor force participation has declined dramatically during the last decades. This secular trend coincides with population aging. The European social security systems therefore face a double threat: retirees receive pensions for a longer time while there are less workers per retiree to shoulder the financial burden of the pension systems. This paper shows that a significant part of this problem is homemade: most European pension systems provide strong incentives to retire early. The correlation between the force of these incentives with old age labor force participation is strongly negative. The paper provides qualitative and econometric evidence for the strength of the incentive effects on old age labor supply across Europe and for the German public pension program.
Handle: RePEc:nbr:nberwo:6780
Template-Type: ReDIF-Paper 1.0
Title: Does Teacher Training Affect Pupil Learning? Evidence from Matched Comparisons in Jerusalem Public Schools
Classification-JEL: I21; I28
Author-Name: Joshua D. Angrist
Author-Person: pan29
Author-Name: Victor Lavy
Author-Person: pla111
Note: LS CH
Number: 6781
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6781
File-URL: http://www.nber.org/papers/w6781.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 19, no. 2 (April 2001): 343-369
Abstract: The relationship between teachers' characteristics and their pupils' achievement has been the subject of many studies. Most of this research focuses on the impact of teacher salaries, experience, and measures of teachers' pre-service training such as educational background. The effect of on-the-job or in-service training has received much less attention. In this paper, we estimate the effect of in-service teacher training on children's reading and mathematics achievement in Jerusalem elementary schools. The training was based on pedagogical methods developed in US schools. Our research uses a matched-comparison design which exploits the fact that only a few schools received extra funds for training. Differences-in-differences, regression, and nonparametric matching estimates are reported. The results suggest that the training received by teachers in the non-religious branch of the Jerusalem school system led to an improvement in their pupils' test scores. The estimates for religious schools are not clear cut, but this may be because the training program in religious schools started later and was implemented on a smaller scale. The estimates for non-religious schools suggest that, at least in this case, teacher training provided a less costly means of increasing test scores than reducing class size or adding school hours.
Handle: RePEc:nbr:nberwo:6781
Template-Type: ReDIF-Paper 1.0
Title: Volatility and the Welfare Costs of Financial Market Integration
Classification-JEL: F36; I31
Author-Name: Pierre-Richard Agenor
Author-Person: pag16
Author-Name: Joshua Aizenman
Author-Person: pai8
Note: ITI
Number: 6782
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6782
File-URL: http://www.nber.org/papers/w6782.pdf
File-Format: application/pdf
Publication-Status: published as The Asian Financial Crisis, Agenor, P.R., M. Miller and A. Weber, eds., Cambridge: Cambridge University Press, 1999, pp. 195-225.
Abstract: This paper examines the effect of volatility on the costs and benefits of financial market integration. The basic framework combines the costly state verification model and the contract enforceability approach. The welfare effects of financial market integration are assessed by comparing welfare under financial autarky and financial openness -- under which foreign banks, characterized by lower costs of intermediation and a lower markup rate, have free access to domestic capital markets. The analysis shows that financial integration may be welfare reducing if world interest rates under openness are highly volatile. The basic framework is then extended to consider the case of an upward-sloping domestic supply curve of funds and congestion externalities. It is shown, in particular, that opening the economy to unrestricted inflows of capital may magnify the welfare cost of existing distortions, such as congestion externalities or deposit insurance.
Handle: RePEc:nbr:nberwo:6782
Template-Type: ReDIF-Paper 1.0
Title: Paper Tigers? A Model of the Asian Crisis
Classification-JEL: F31; F34
Author-Name: Giancarlo Corsetti
Author-Name: Paolo Pesenti
Author-Person: ppe152
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: IFM
Number: 6783
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6783
File-URL: http://www.nber.org/papers/w6783.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol. 43 (1999): 1211-1236.
Abstract: This paper develops an interpretation of the Asian meltdown focused on moral hazard as the common source of overinvestment, excessive external borrowing, and current account deficits. To the extent that foreign creditors are willing to lend to domestic agents against future bail-out revenue from the government, unprofitable projects and cash shortfalls are re-financed through external borrowing. While public deficits need not be high before a crisis, the eventual refusal of foreign creditors to refinance the country's cumulative losses forces the government to step in and guarantee the outstanding stock of external liabilities. To satisfy solvency, the government must then undertake appropriate domestic fiscal reforms, possibly involving recourse to seigniorage revenues. Expectations of inflationary financing thus cause a collapse of the currency and anticipate the event of a financial crisis. The empirical section of the paper presents evidence in support of the thesis that weak cyclical performances, low foreign exchange reserves, and financial deficiencies resulting into high shares of non-performing loans were at the core of the Asian collapse.
Handle: RePEc:nbr:nberwo:6783
Template-Type: ReDIF-Paper 1.0
Title: The Impact of Race on Policing, Arrest Patterns, and Crime
Classification-JEL: K42; J78
Author-Name: John J. Donohue III
Author-Person: pdo40
Author-Name: Steven D. Levitt
Author-Person: ple59
Note: LE PE
Number: 6784
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6784
File-URL: http://www.nber.org/papers/w6784.pdf
File-Format: application/pdf
Publication-Status: Published as "Continuous Versus Episodic Change: The Impact of Civil Rights Policy on the Economic Status of Blacks", Journal of Economic Literature, Vol. 29, no. 4 (1991): 1603-
Abstract: Race has long been recognized as playing a critical role in policing. In spite of this awareness, there has been virtually no previous research attempting to quantitatively analyze the issue. In this paper, we examine the relationship between the racial composition of a city's police force and the racial patterns of arrests and crime. Increases in the number of minority police are associated with significant increases in arrests of whites, but have little impact on arrests of non-whites. Similarly arrests of non-whites, but do not systematically affect the number of white arrests. The race of police officers has a less clear-cut impact on crime rates. It appears that own-race policing may be more effective in reducing property crime, but no systematic differences are observed for violent crime. These results are consistent either with own-race policing leading to fewer false arrests or greater deterrence. In either case, own-race policing appears more "efficient" in fighting property crime.
Handle: RePEc:nbr:nberwo:6784
Template-Type: ReDIF-Paper 1.0
Title: An Account of Global Factor Trade
Classification-JEL: F1
Author-Name: Donald R. Davis
Author-Person: pda33
Author-Name: David E. Weinstein
Author-Person: pwe34
Note: ITI
Number: 6785
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6785
File-URL: http://www.nber.org/papers/w6785.pdf
File-Format: application/pdf
Publication-Status: published as Davis, Donald R. and David E. Weinstein. "An Account Of Global Factor Trade," American Economic Review, 2001, v91(5,Dec), 1423-1453.
Abstract: A half-century of empirical work on the factor proportions theory has identified devise simple amendments that bring theory and data into reasonable congruence. Our study considers standard and novel hypotheses regarding the failures of the Heckscher-Ohlin-Vanek formulation and is the first to examine these directly on the technology and absorption data of interest. We show how a few simple and plausible amendments, verified directly by this data, suffice for a striking confirmation of the HOV theory. Countries export the services of abundant factors and in approximately the right magnitude. HOV works.
Handle: RePEc:nbr:nberwo:6785
Template-Type: ReDIF-Paper 1.0
Title: Crime, Imprisonment, and Female Labor Force Participation: A Time-Series Approach
Classification-JEL: K14; H00
Author-Name: Robert Witt
Author-Person: pwi138
Author-Name: Ann Dryden Witte
Note: LS PE
Number: 6786
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6786
File-URL: http://www.nber.org/papers/w6786.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Quantitative Criminology, Vol. 16 (March 2000): 69-85.
Abstract: Crime, Imprisonment, and Female Labor Force Participation: A Time-Series Approach Robert Witt and Ann Dryden Witte NBER Working Paper No. 6786 November 1998 JEL No. K14, H0 Rapidly growing prison population in the US has led to an upsurge of interest in discerning the impact of this costly increase on crime rates. Estimates of impact vary. We obtain new estimates of the impact of prisons using different data, specification and estimation technique than previous work. We find that both higher levels of imprisonment and increases in labor force participation of women are related to significantly higher crime rate. The impact of female labor force participation is much larger than the impact of imprisonment.
Handle: RePEc:nbr:nberwo:6786
Template-Type: ReDIF-Paper 1.0
Title: Market Access, Economic Geography, and Comparative Advantage: An Empirical Assessment
Classification-JEL: F1; D5
Author-Name: Donald R. Davis
Author-Person: pda33
Author-Name: David E. Weinstein
Author-Person: pwe34
Note: ITI
Number: 6787
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6787
File-URL: http://www.nber.org/papers/w6787.pdf
File-Format: application/pdf
Publication-Status: published as Davis, Donald R. and David E. Weinstein. "Economic Geography And Regional Production Structure: An Empirical Investigation," European Economic Review, 1999, v43(2,Feb), 379-407.
Abstract: The increasing returns revolution in trade is incomplete in an important respect there exists no compelling empirical demonstration of the role of increasing returns in determining production and trade structure. One reason is that trade patterns of the canonical increasing returns models are a consequence simply of specialization, which all theories permit. Krugman (1980) shows that increasing returns models with costs of trade economic geography do allow a simple test: home market effects of demand on production. Davis and Weinstein (1996) reject the simple Krugman (1980) model on OECD data. Here we pair the model with a richer geography structure and find evidence of the importance of increasing returns, in combination with comparative advantage, in affecting OECD manufacturing production structure. The results underscore the importance of market access in implementing models of economic geography.
Handle: RePEc:nbr:nberwo:6787
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Capital Subsidization on Israeli Industry
Classification-JEL: L52; O53
Author-Name: Arie Bregman
Author-Name: Melvyn Fuss
Author-Name: Haim Regev
Note: PR
Number: 6788
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6788
File-URL: http://www.nber.org/papers/w6788.pdf
File-Format: application/pdf
Publication-Status: published as Bank of Israel Economic Review, Vol. 72 (1999): 77-101.
Abstract: An industrial policy of subsidizing physical capital investment has been utilized in many countries in order to encourage export growth and spread economic development to outlying areas. For Israel, we possess a unique time series-cross section micro data set that details investment and its associated subsidies by vintage at the level of the individual enterprise for 620 firms. These data provide the means by which an empirical analysis of the effects of the policy of subsidizing capital can be undertaken. We estimate that, for the years 1990-94, this policy has resulted in production inefficiencies ranging from 5% for firms that receive the average level of subsidies to 15% for heavily subsidized firms. We also document the fact that much of the subsidization appears not to have been necessary, in the sense that subsidized firms generally have earned higher rates of return on their total physical capital (including that portion which was subsidized) than firms that were not subsidized.
Handle: RePEc:nbr:nberwo:6788
Template-Type: ReDIF-Paper 1.0
Title: Deadweight Costs and the Size of Government
Classification-JEL: H11; H21
Author-Name: Gary S. Becker
Author-Name: Casey B. Mulligan
Author-Person: pmu64
Note: PE
Number: 6789
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6789
File-URL: http://www.nber.org/papers/w6789.pdf
File-Format: application/pdf
Publication-Status: published as Becker, Gary S & Mulligan, Casey B, 2003. "Deadweight Costs and the Size of Government," Journal of Law & Economics, University of Chicago Press, vol. 46(2), pages 293-340, October.
Abstract: We provide a model for analyzing effects of the tax system and spending programs on the determination of government spending and taxpayer welfare and show that tax system or spending program which is suboptimal from a Ramsey point of view can improve taxpayer welfare because the system creates additional political pressure for suppressing the growth of government. Relevant examples include the use of inflation taxes capital taxes, excise taxes, deficit financing, and income taxes with many We also demonstrate the similarity of the political responses to revenue shocks, spending shocks, changes in program efficiency. In a broad sample of countries for the years 1973 - 90, we show that broad-based taxes with fairly flat rate structures -- are associated with larger governments. An analysis of defense spending -- especially wartime spending -- oil shocks, intergovernmental grants, and other flypaper effects suggests that the cause and effect is not from spending to tax structures.
Handle: RePEc:nbr:nberwo:6789
Template-Type: ReDIF-Paper 1.0
Title: Inflation Targeting as a Monetary Policy Rule
Classification-JEL: E42; E52
Author-Name: Lars E.O. Svensson
Author-Person: psv2
Note: ME
Number: 6790
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6790
File-URL: http://www.nber.org/papers/w6790.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Monetary Economics, Vol. 43 (1999): 607-654.
Abstract: The purpose of the paper is to survey and discuss inflation targeting in the context of monetary policy rules. The paper provides a general conceptual discussion of monetary policy rules, attempts to clarify the essential characteristics of inflation targeting, compares inflation targeting to other monetary policy rules, and draws some conclusions for the monetary policy of the European System of Central Banks.
Handle: RePEc:nbr:nberwo:6790
Template-Type: ReDIF-Paper 1.0
Title: Establishing a Monetary Union
Author-Name: Russell Cooper
Author-Name: Hubert Kempf
Author-Person: pke25
Note: EFG
Number: 6791
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6791
File-URL: http://www.nber.org/papers/w6791.pdf
File-Format: application/pdf
Publication-Status: published as Cooper, Russel and Hubert Kempf. "Establishing a Monetary Union." International Economic Review 44 (2003): 119-142.
Abstract: This paper explores the gains to monetary union. We consider a two-country overlapping generations model. Agents work when young and have random tastes over the composition (domestic vs. foreign goods) of old age consumption. In equilibrium, governments require that local currency be used for transactions as a means of creating a base for seignorage. Thus agents hold multiple currencies to deal with uncertainty in their optimal consumption bundles. We argue that this equilibrium is Pareto dominated by a monetary union, in which there is a single currency and a strong central bank that optimally chooses zero inflation. As suggested by the European Commission's 1990 report, monetary union reduces the inefficiencies created by multiple currencies and leads to price stability. Finally, we argue this Pareto superior outcome cannot be achieved without cooperation of the two governments.
Handle: RePEc:nbr:nberwo:6791
Template-Type: ReDIF-Paper 1.0
Title: All School Finance Equalizations Are Not Created Equal
Author-Name: Caroline M. Hoxby
Author-Person: pho46
Note: PE
Number: 6792
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6792
File-URL: http://www.nber.org/papers/w6792.pdf
File-Format: application/pdf
Publication-Status: published as as "How Much Does School Spending Depend On Family Income? The Historical Origins Of The Current School Finance Dilemma," American Economic Review, Vol. 88, no. 2 (May 1998): 309-314
Publication-Status: published as The Quarterly Journal of Economics, Vol. 116, no. 4, (November 2001): 1189-1231
Abstract: Public school finance equalization programs can be characterized by the change they impose on the tax price of an additional dollar of local school spending. I calculate the tax price of spending for each school district in the United States for 1972, 1982, and 1992. I find that using the actual tax prices (rather than treating school finance equalizations as events) resolves apparently conflicting evidence about the effects of equalizations on per-pupil spending. Depending on whether they impose tax prices greater than or less than one, school finance equalizations either enjoy increased spending under most equalization schemes, but they actually lose spending under the strongest schemes such as those that exist in California and New Mexico. More importantly, regardless of whether an equalization levels down or up, it should be understood as a tax system on districts' spending. I show that school finance equalization schemes have properties that are generally considered undesirable: they raise revenue on a base that is itself a function of the school finance system and they assign tax prices so that people with a high demand for education are penalized relative to otherwise identical people with the same income. I discuss some simple, familiar schemes that do not have these undesirable properties, yet can achieve similar redistribution.
Handle: RePEc:nbr:nberwo:6792
Template-Type: ReDIF-Paper 1.0
Title: Monetary Policy and the Well-Being of the Poor
Classification-JEL: E52; I31
Author-Name: Christina D. Romer
Author-Person: pro407
Author-Name: David H. Romer
Author-Person: pro406
Note: ME
Number: 6793
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6793
File-URL: http://www.nber.org/papers/w6793.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings of a Federal Reserve Bank of Kansas City symposium: "Income Inequality Issues and Policy Options," Jackson Hole, Wyoming, August 27-29, 1998, pp. 159-201
Publication-Status: published as Economic Review, Federal Reserve Bank of Kansas City, First Quarter 1999, pp. 21-49
Abstract: This paper investigates monetary policy's influence on poverty and inequality in both the short run and the long run. We find that the short-run and long-run relationships go in opposite directions. The time-series evidence from the United States shows that a cyclical boom created by expansionary monetary policy is associated with improved conditions for the poor in the short run. The cross-section evidence from a large sample of countries, however, shows that low inflation and stable aggregate demand growth are associated with improved well-being of the poor in the long run. Both the short-run and long-run relationships are quantitatively large, statistically significant, and robust. But because the cyclical effects of monetary policy are inherently temporary, we conclude that monetary policy that aims at low inflation and stable aggregate demand is the most likely to permanently improve conditions for the poor.
Handle: RePEc:nbr:nberwo:6793
Template-Type: ReDIF-Paper 1.0
Title: Social Security Pension Reform in China
Classification-JEL: H55
Author-Name: Martin Feldstein
Author-Person: pfe112
Note: AG PE
Number: 6794
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6794
File-URL: http://www.nber.org/papers/w6794.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin. "Social Security Pension Reform In China," China Economic Review, 1999, v10(2,Jun), 99-107.
Abstract: China has legislated a mixed social security pension system with a defined benefit pay-as-you-go portion and an investment-based defined contribution portion. This paper analyses the economics of these two types of systems in the Chinese context and calculates the advantage to China of using an investment-based portion. Several options for reform of the recently legislated system are considered.
Handle: RePEc:nbr:nberwo:6794
Template-Type: ReDIF-Paper 1.0
Title: Social Mobility and the Demand for Redistribution: The POUM Hypothesis
Classification-JEL: D31; D72
Author-Name: Roland Benabou
Author-Person: pbe27
Author-Name: Efe A. Ok
Note: PE EFG
Number: 6795
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6795
File-URL: http://www.nber.org/papers/w6795.pdf
File-Format: application/pdf
Publication-Status: published as Benabou, Roland and Efe A. Ok. "Social Mobility And The Demand For Redistribution: The Poum Hypothesis," Quarterly Journal of Economics, 2001, v116(2,May), 447-487.
Abstract: Even relatively poor people oppose high rates of redistribution because of the anticipation that they or their children may move up the income ladder. This hypothesis commonly advanced as an explanation of why most democracies do not engage in large-scale expropriation and highly progressive redistribution. But is it compatible with everyone -- especially the poor -- holding rational expectations that not everyone can simultaneously expect to end up richer than average? This paper establishes the formal basis for the POUM hypothesis. There is a range of incomes below the mean where agents oppose lasting redistributions if (and, in a sense, only if) tomorrow's expected income is increasing and concave in today's income. The laissez-faire coalition is larger, the more concave the transition function and the longer the policy horizon. We illustrate the general analysis with an example (calibrated to the U.S.) where, in every period, 3/4 of families are poorer than average, yet a 2/3 majority has expected future incomes above the mean, and therefore desires low tax rates for all future generations. We also analyze empirical mobility matrices from the PSID and find that the POUM effect is indeed a significant feature of the data.
Handle: RePEc:nbr:nberwo:6795
Template-Type: ReDIF-Paper 1.0
Title: The Asian Liquidity Crisis
Classification-JEL: F3; E5
Author-Name: Roberto Chang
Author-Person: pch80
Author-Name: Andres Velasco
Note: IFM
Number: 6796
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6796
File-URL: http://www.nber.org/papers/w6796.pdf
File-Format: application/pdf
Abstract: A country's financial system is internationally illiquid if its potential short term obligations in foreign currency exceed the amount of foreign currency it can have access to in short notice. This condition may be crucial for the existence of financial crises and/or exchange rate collapses (Chang and Velasco 1998a, b). In this paper we argue that the 1997-98 crises in Asia were in fact a consequence of international illiquidity. This follows from an analysis of empirical indicators of illiquidity as well as other macroeconomic statistics. We trace the emergence of illiquidity to financial liberalization, the shortening of the foreign debt structure, and the currency denomination of assets versus liabilities. We explain how financial crises became exchange rate collapses due to a government policy of both fixing exchange rates and acting as lender of last resort. Finally, we outline the policy implications of our view for both preventing crises and dealing with them.
Handle: RePEc:nbr:nberwo:6796
Template-Type: ReDIF-Paper 1.0
Title: Long-Horizon Uncovered Interest Rate Parity
Classification-JEL: F21; F31
Author-Name: Guy Meredith
Author-Name: Menzie D. Chinn
Author-Person: pch129
Note: IFM
Number: 6797
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6797
File-URL: http://www.nber.org/papers/w6797.pdf
File-Format: application/pdf
Publication-Status: published as Meredith, Guy and Menzie D. Chinn. “Monetary Policy and Long Horizon Uncovered Interest Parity." IMF Staff Papers 51, 3 (November 2004): 409-430.
Abstract: Uncovered interest parity (UIP) has been almost universally rejected in studies of exchange rate movements, although there is little consensus on why it fails. In contrast to previous studies, which have used relatively short-horizon data, we test UIP using interest rates on longer-maturity bonds for the G-7 countries. These long-horizon regressions yield much more support for UIP -- all the coefficients on interest differentials are of the correct sign, and almost all are closer to the UIP value of unity than to the zero coefficient implied by the random walk hypothesis. We then use a small macroeconomic model to explain the differences between the short- and long-horizon results. Regressions run on data generated by stochastic simulations replicate the important regularities in the actual data, including the sharp differences between short- and long-horizon parameters. In the short run from risk premium shocks in the face of endogenous monetary policy. In the long run, in contrast, exchange rate movements are driven by the "fundamentals," leading to a relationship between interest rates and exchange rates that is more consistent with UIP.
Handle: RePEc:nbr:nberwo:6797
Template-Type: ReDIF-Paper 1.0
Title: Unintended Consequences? Welfare Reform and the Working Poor
Classification-JEL: H53; I38
Author-Name: Ann Dryden Witte
Author-Name: Magaly Queralt
Author-Name: Tasneem Chipty
Author-Name: Harriet Griesinger
Note: LS PE
Number: 6798
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6798
File-URL: http://www.nber.org/papers/w6798.pdf
File-Format: application/pdf
Publication-Status: published as Social Service Review, Vol. 74 (December 2000).
Abstract: We have used a unique longitudinal database that incorporates information from diverse administrative and research sources to examine the impact of the early stages of welfare reform on poor working families who do not receive cash assistance. Our data are for 2791 working poor families from March 1996 through February 1997. Using a number of different estimation techniques, we find that the impact of the simultaneous October 1996 implementation of welfare reform and a federal minimum wage increase was to lower the earnings of the working poor families in our sample by approximately 6%. We find that increases in funding for Child Care Subsidies associated with welfare reform led to a significant increase in earnings. On net, the increase in Child Care Subsidies and the decrease in earnings because of the October 1996 changes approximately cancel out, with the representative family in our sample experiencing an estimated monthly earnings change of between -$18 and $68, with an earnings gain of $25 being most likely.
Handle: RePEc:nbr:nberwo:6798
Template-Type: ReDIF-Paper 1.0
Title: Price Indexes for Acute Phase Treatment of Depression
Classification-JEL: I1; C8
Author-Name: Ernst R. Berndt
Author-Name: Susan H. Busch
Author-Name: Richard G. Frank
Note: EH
Number: 6799
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6799
File-URL: http://www.nber.org/papers/w6799.pdf
File-Format: application/pdf
Publication-Status: published as Ernst R. Berndt & Susan Busch & Richard Frank, 2001. "Treatment Price Indexes for Acute Phase Major Depression," NBER Chapters, in: Medical Care Output and Productivity, pages 463-508 National Bureau of Economic Research, Inc.
Abstract: Although broad trends in medical spending in the U.S. over the last decade have received widespread attention from policymakers, very little attention has focused on the components of those changes. For many other industries, economists typically divide nominal expenditures by an official government price index to decompose these expenditures into price and quantity components. In this paper we construct a new price index for the treatment of one illness depression. Making use of results from the published clinical literature and from official treatment guideline standards, we identify therapeutically similar treatment bundles. These bundles can then be linked and weighted to construct price indexes for specific forms of major depression. In doing so, we construct CPI and PPI-like medical price indexes that deal with prices of treatment episodes rather than prices of discrete inputs, that are based on transaction rather than list prices, that take quality changes and expected outcomes into account employ current, time-varying expenditure weights in the aggregation computations. We find that regardless of which index number procedure is employed time period the treatment price index for the acute phase of major depression has hardly changed remaining at 1.00 or falling slightly to around 0.97. This index grows considerably less rapidly than the various official PPIs -- thus the price index for the treatment of the acute phase of major depression has fallen over the 1991-95 time period. A hedonic approach to price index measurement yields broadly similar results. These results imply that given a budget for treatment of depression accomplished in 1995 than in 1991. Our results suggest that at least in the case of acute phase major depression, aggregate spending increases are due to a larger number of effective treatments being provided.
Handle: RePEc:nbr:nberwo:6799
Template-Type: ReDIF-Paper 1.0
Title: Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences
Classification-JEL: 430; 433; F
Author-Name: Sebastian Edwards
Author-Person: ped3
Note: IFM ITI
Number: 6800
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6800
File-URL: http://www.nber.org/papers/w6800.pdf
File-Format: application/pdf
Publication-Status: published as Capital Flows, Real Exchange Rates, and Capital Controls: Some Latin American Experiences, Sebastian Edwards. in Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, Edwards. 2000
Abstract: This paper deals with some of the most important aspects of Latin America's experience with capital flows during the last twenty-five years. The paper begins with a historical analysis. I then deal with the sequencing of reform and discuss issues related to the relationship between capital flows, real exchange rates, and international competitiveness. I next concentrate on the role of capital controls as a device for isolating emerging economies from the volatility of international capital markets. I begin by reviewing the policy issues and the current debate on the subject. I then present an empirical analysis of Chile's recent experiences with capital controls and make some comparisons to the recent experiences of Columbia. The analysis of the Chilean experience is particularly important since its practice of imposing reserves requirements on capital inflows has been praised by a number of analysts, including senior staff of the multilateral institutions, as an effective and efficient way of reducing the vulnerability associated with capital flows volatility. The results obtained suggest that capital controls in Chile have had mixed results: while they have allowed the Central Bank to have a greater degree of control over short term interest rates, they have failed in avoiding real exchange rate appreciation. The paper ends with some reflections, based on recent Latin American historical episodes, on the role of banks in intermediating capital inflows and on financial crises.
Handle: RePEc:nbr:nberwo:6800
Template-Type: ReDIF-Paper 1.0
Title: Who Should Buy Long-Term Bonds?
Classification-JEL: G12
Author-Name: John Y. Campbell
Author-Person: pca54
Author-Name: Luis M. Viceira
Author-Person: pvi31
Note: AP
Number: 6801
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6801
File-URL: http://www.nber.org/papers/w6801.pdf
File-Format: application/pdf
Publication-Status: published as Campbell, John Y. and Luis M. Viceira. "Who Should Buy Long-Term Bonds?," American Economic Review, 2001, v91(1,Mar), 99-127.
Abstract: According to conventional wisdom, long-term bonds are appropriate for long-term investors who value stability of income. We develop a model of optimal consumption and portfolio choice for infinitely-lived investors facing stochastic interest rates, solve it using an approximate analytical method, and evaluate the conventional wisdom. We show that the demand for long-term bonds has both a myopic component and an intertemporal hedging component. As risk aversion increases, the myopic component shrinks to zero but the hedging component does not. An infinitely risk-averse investor who is infinitely unwilling to substitute consumption intertemporally should hold a portfolio of long-term indexed bonds that is equivalent to an indexed perpetuity. This portfolio finances a riskless consumption stream and in this sense provides a stable income. We calibrate our model to postwar US data and compare consumption and portfolio rules with and without bond indexation, portfolio constraints, and the possibility of investment in equities. We find that when indexed bonds are not available, inflation risk leads investors to shorten their bond portfolios and increase their precautionary savings. This has serious welfare costs for conservative investors, who are much better off when they have the opportunity to buy indexed bonds. We also find that the ratio of bonds to equities in the optimal portfolio increases with the coefficient of relative risk aversion, which is consistent with conventional portfolio advice but inconsistent with the mutual fund theorem of static portfolio analysis. Our results illustrate the general point that static portfolio choice models should not be used to study the dynamic problems facing long-term investors.
Handle: RePEc:nbr:nberwo:6801
Template-Type: ReDIF-Paper 1.0
Title: The Case for a Populist Banker
Author-Name: Andres Velasco
Author-Name: Vincenzo Guzzo
Note: IFM
Number: 6802
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6802
File-URL: http://www.nber.org/papers/w6802.pdf
File-Format: application/pdf
Publication-Status: Published as "The Case for a Populist Central Banker", European Economic Review, Vol. 43, no. 7 (June 1999): 1317-1344.
Abstract: We present a general equilibrium optimizing model in which we study the joint effects of centralization of wage setting and central bank conservatism on economic performance. Several striking conclusions emerge. In relatively centralized labor markets employment and output are decreasing and inflation is initially increasing and then decreasing in the degree of central bank conservatism. A radical-populist central banker who cares not at all about inflation (alternatively, who is not conservative) maximizes social welfare. Economic performance is not U-shaped in the degree of centralization of the labor market, in contrast to conventional wisdom.
Handle: RePEc:nbr:nberwo:6802
Template-Type: ReDIF-Paper 1.0
Title: Aggregate Productivity Growth: Lessons from Microeconomic Evidence
Author-Name: Lucia Foster
Author-Person: pfo74
Author-Name: John Haltiwanger
Author-Person: pha231
Author-Name: C.J. Krizan
Author-Person: pkr69
Note: PR
Number: 6803
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6803
File-URL: http://www.nber.org/papers/w6803.pdf
File-Format: application/pdf
Publication-Status: published as as Haltiwanger, John C. "Measuring and Analyzing Aggregate Fluctuations: The Importance of Building from Microeconomic Evidence," The Federal Reserve Bank of St. Louis Review, Vol. 79, no. 3 (May/June 1997): 55-77
Publication-Status: published as Aggregate Productivity Growth: Lessons from Microeconomic Evidence, Lucia Foster, John C. Haltiwanger, C. J. Krizan. in New Developments in Productivity Analysis, Hulten, Dean, and Harper. 2001
Abstract: In this paper, we exploit establishment-level data to examine the relationship between microeconomic productivity dynamics and aggregate productivity growth. After synthesizing the evidence from recent studies, we conduct our own analysis using establishment-level data for U.S. manufacturing establishments as well for selected service industries. The use of longitudinal micro data on service sector establishments is one of the novel features of our analysis. Our main findings are summarized as follows: (i) the contribution of reallocation of outputs and inputs from less productive to more productive establishments plays a significant role in accounting for aggregate productivity growth; (ii) for the selected service industries considered, the contribution of net entry (more productive entering establishments displacing less productive exiting establishments) is dominant; (iii) the contribution of net entry to aggregate productivity growth is disproportionate and is increasing in the horizon over which the changes are measured since longer horizon yields greater differentials from selection and learning effects; (iv) the contribution of reallocation to aggregate productivity growth varies over time (e.g. is cyclically sensitive) and industries and is somewhat sensitive to subtle differences in measurement and decomposition methodologies.
Handle: RePEc:nbr:nberwo:6803
Template-Type: ReDIF-Paper 1.0
Title: Undertstanding the Home Market Effect and the Gravity Equation: The Role of Differentiating Goods
Classification-JEL: F10; F12
Author-Name: Robert C. Feenstra
Author-Person: pfe116
Author-Name: James A. Markusen
Author-Person: pma528
Author-Name: Andrew K. Rose
Author-Person: pro71
Note: ITI
Number: 6804
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6804
File-URL: http://www.nber.org/papers/w6804.pdf
File-Format: application/pdf
Abstract: This paper argues that the theoretical foundations for the gravity equation are general, while the empirical performance of the gravity equation is specific to the type of goods examined. Most existing theory for the gravity equation depends on the assumption of differentiated goods. We show that the gravity equation can also be derived from a reciprocal dumping' model of trade in homogeneous goods. The different theories have different testable implications. Theoretically, the gravity equation should have a lower domestic income elasticity for exports of homogeneous goods than of differentiated goods, because of a home market' effect which depends on barriers to entry. We quantify the home market effect empirically using cross-sectional gravity equations, and find that domestic income export elasticities are indeed substantially higher for differentiated goods than for homogeneous goods.
Handle: RePEc:nbr:nberwo:6804
Template-Type: ReDIF-Paper 1.0
Title: Welfare for the Elderly: The Effects of SSI on Pre-Retirement Labor Supply
Classification-JEL: H55; J18
Author-Name: David Neumark
Author-Person: pne16
Author-Name: Elizabeth Powers
Note: AG LS PE
Number: 6805
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6805
File-URL: http://www.nber.org/papers/w6805.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Public Economics, Vol. 78, no. 1-2 (October 2000): 51-80
Abstract: The elderly are one of the exceptional groups in American society with access to a significant cash safety net, a means-tested program called Supplemental Security Income (SSI). Little attention has been paid to the pre-eligibility-age labor market disincentives created by such a program. In particular, asset and income limits might induce individuals nearing the eligibility age to work less. There is little if any hard evidence on such incentive effects. We exploit variation in states' supplementation of the federal SSI benefit to estimate the effects of the SSI program on pre-retirement labor supply, using data from the 1984, 1990, and 1991 panels of the Survey of Income and Program Participation. We find some evidence that generous SSI benefits reduce the pre-retirement labor supply (and earnings) of men who are likely to participate in SSI after retirement as they near the eligibility age, especially that of men who have reached the age of eligibility for early Social Security benefits, which may be used to offset their reduced labor income.
Handle: RePEc:nbr:nberwo:6805
Template-Type: ReDIF-Paper 1.0
Title: Contagion and Trade: Why Are Currency Crises Regional?
Author-Name: Reuven Glick
Author-Person: pgl13
Author-Name: Andrew K. Rose
Author-Person: pro71
Number: 6806
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6806
File-URL: http://www.nber.org/papers/w6806.pdf
File-Format: application/pdf
Publication-Status: published as Journal of International Money and Finance, Vol. 18, no. 4 (August 1999): 603-617
Abstract: Currency crises tend to be regional; they affect countries in geographic proximity. This suggests that patterns of international trade are important in understanding how currency crises spread, above and beyond any macroeconomic phenomena. We provide empirical support for this hypothesis. Using data for five different currency crises (in 1971, 1973, 1992, 1994, and 1997) we show that currency crises affect clusters of countries tied together by international trade. By way of contrast, macroeconomic and financial influences are not closely associated with the cross-country incidence of speculative attacks. We also show that trade linkages help explain cross-country correlations in exchange market pressure during crisis episodes, even after controlling for macroeconomic factors.
Handle: RePEc:nbr:nberwo:6806
Template-Type: ReDIF-Paper 1.0
Title: Is There Discretion in Wage Setting? A Test Using Takeover Legislation
Author-Name: Marianne Bertrand
Author-Person: pbe697
Author-Name: Sendhil Mullainathan
Author-Person: pmu103
Number: 6807
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6807
File-URL: http://www.nber.org/papers/w6807.pdf
File-Format: application/pdf
Publication-Status: published as RAND Journal of Economics, Vol. 30, no. 3 (Autumn 1999): 535-554.
Abstract: Anecdotal evidence suggests that uncontrolled managers let wages rise above competitive levels. Testing this popular perception has proven difficult, however, because independent variation in the extent of managerial discretion is needed. In this paper, we use states' passage of anti-takeover legislation as a source of such independent variation. Passed in the 1980's, these laws seriously limited takeovers of firms incorporated in legislating states. Since many view hostile takeovers as an important disciplining device, these laws potentially raised managerial discretion in affected firms. If uncontrolled managers pay higher wages, we expect wages to rise following these laws. Using firm-level data, we find that relative to a control group, annual wages for firms incorporated in states passing laws did indeed rise by 1 to 2% or about $500 per year. The findings are robust to a battery of specification checks and do not appear to be contaminated by the political economy of the laws or other sources of bias. Our results suggest that discretion significantly affects wages. They challenge standard theories of wage determination which ignore the role of managerial preferences.
Handle: RePEc:nbr:nberwo:6807
Template-Type: ReDIF-Paper 1.0
Title: Using a Natural Experiment to Estimate the Effects of the Unemployment Insurance Payroll Tax on Wages, Employment, Claims, and Denials
Author-Name: Patricia M. Anderson
Author-Name: Bruce D. Meyer
Author-Person: pme273
Note: LS PE
Number: 6808
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6808
File-URL: http://www.nber.org/papers/w6808.pdf
File-Format: application/pdf
Publication-Status: published as Anderson, Patricia M. and Bruce D. Meyer. "The Effects Of The Unemployment Insurance Payroll Tax On Wages, Employment, Claims And Denials," Journal of Public Economics, 2000, v78(1-2,Oct), 81-106.
Abstract: The recent experience of Washington State provides a natural setting to examine the effects of the unemployment insurance payroll tax on wages, employment, claims and denials. During the 13 year period from 1972 through 1984, all employers in Washington paid the same unemployment insurance (UI) tax rate. As a by-product of Federal legislation, Washington was forced to adopt an experience-rated system in 1985. This paper takes advantage of this incidence and the effects of experience rating. Results based on individual-level quarterly earnings are supportive of the idea that industry average tax rates are largely passed on to workers in the form of lower earnings. However, our estimates imply that a firm can shift much less of the difference between its tax rate and the industry average rate. We then analyze the effect of experience rating on employment, UI claims, and UI denials by comparing the experience of Washington State before and after the 1985 change with that of other states. Our results are generally supportive of the prediction that experience rating reduces turnover and UI claims, and increases claim denials.
Handle: RePEc:nbr:nberwo:6808
Template-Type: ReDIF-Paper 1.0
Title: Organizational Flexibility and Employment Dynamics at Young and Old Plants
Classification-JEL: E24; L16
Author-Name: Jeffrey R. Campbell
Author-Person: pca89
Author-Name: Jonas D.M. Fisher
Author-Person: pfi4
Note: EFG
Number: 6809
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6809
File-URL: http://www.nber.org/papers/w6809.pdf
File-Format: application/pdf
Abstract: There are significant differences in the dynamics of employment over the business cycle between young and old manufacturing plants. Young plants are more sensitive to aggregate disturbances, and they respond to them along different margins. We interpret these differences as reflecting greater organizational flexibility at young plants due to the changing nature of a plant's environment as it ages. In the presence of aggregate uncertainty, differences between young and old plants' organizational flexibility allows the model to reproduce their distinct cyclical characteristics. Previous empirical studies show that small firms generally respond by more to aggregate shocks than do large firms. To the extent that small firms tend to operate young plants, our analysis suggests an alternative to conventional explanations of this evidence which appeal to imperfections in credit markets.
Handle: RePEc:nbr:nberwo:6809
Template-Type: ReDIF-Paper 1.0
Title: Not-For-Profit Entrepreneurs
Classification-JEL: L30; L31
Author-Name: Edward L. Glaeser
Author-Person: pgl9
Author-Name: Andrei Shleifer
Author-Person: psh93
Note: PE
Number: 6810
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6810
File-URL: http://www.nber.org/papers/w6810.pdf
File-Format: application/pdf
Publication-Status: published as Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
Abstract: Entrepreneurs who start new firms may choose not-for-profit status as a means of committing to soft incentives. Such incentives protect donors, volunteers, consumers and employees from ex post expropriation of profits by the entrepreneur. We derive conditions under which completely self-interested entrepreneurs opt for not-for-profit status, despite the fact that this status limits their ability to enjoy the profits of their enterprises. When entrepreneurs have a taste for producing high quality products, the incentives are even softer, and, moreover, non-profit status can serve as a signal of that taste. We also show that even in the absence of tax advantages, unrestricted donations would flow to non-profits rather than for-profit firms because donations have more significant influence on the decisions of the non-profits.
Handle: RePEc:nbr:nberwo:6810
Template-Type: ReDIF-Paper 1.0
Title: Population, Technology, and Growth: From the Malthusian Regime to the Demographic Transition and Beyond
Classification-JEL: J13; O11
Author-Name: Oded Galor
Author-Person: pga46
Author-Name: David N. Weil
Author-Person: pwe24
Note: EFG
Number: 6811
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6811
File-URL: http://www.nber.org/papers/w6811.pdf
File-Format: application/pdf
Publication-Status: published as American Economic Review (September 2000).
Abstract: This paper develops a unified model of growth, population, and technological progress that is consistent with long-term historical evidence. The economy endogenously evolves through three phases. In the Malthusian regime, population growth is positively related to the level of income per capita. Technological progress is slow and is matched by proportional increases in population, so that output per capita is stable around a constant level. In the post-Malthusian regime, the growth rates of technology and total output increase. Population growth absorbs much of the growth of output, but income per capita does rise slowly. The economy endogenously undergoes a demographic transition in which the traditionally positive relationship between income per capita and population growth is reversed. In the Modern Growth regime, population growth is moderate or even negative, and income per capita rises rapidly. Two forces drive the transitions between regimes: First, technological progress is driven both by increases in the size of the population and by increases in the size of the population and by increases in the average level of education. Second, technological progress creates a state of disequilibrium, which raises the return to human capital and induces patients to substitute child quality for quantity.
Handle: RePEc:nbr:nberwo:6811
Template-Type: ReDIF-Paper 1.0
Title: Putty-Clay and Investment: A Business Cycle Analysis
Classification-JEL: D24; E22
Author-Name: Simon Gilchrist
Author-Person: pgi28
Author-Name: John C. Williams
Author-Person: pwi23
Note: ME EFG
Number: 6812
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6812
File-URL: http://www.nber.org/papers/w6812.pdf
File-Format: application/pdf
Publication-Status: published as Gilchrist, Simon and John C. Williams. "Putty-Clay And Investment: A Business Cycle Analysis," Journal of Political Economy, 2000, v108(5,Oct), 928-960.
Abstract: This paper develops a dynamic stochastic general equilibrium model with putty-clay technology that incorporates embodied technology, investment irreversibility, and variable capacity utilization. Low short-run capital-labor substitutability native to the putty-clay framework induces the putty-clay effect of a tight link between changes in capacity and movements in employment and output. As a result, persistent shocks to technology or factor prices generate business cycle dynamics absent in standard neoclassical models, including a prolonged lump-shaped response of hours, persistence in output growth, and positive comovement in the forecastable components of output and hours. Capacity constraints result in nonlinear aggregate production function that implies asymmetric responses to large shocks with recessions steeper and deeper than expansions. Minimum distance estimation of a two-sector model that nests putty-clay and neoclassical production technologies supports a significant role for putty-clay capital in explaining business-cycle and medium-run dynamics.
Handle: RePEc:nbr:nberwo:6812
Template-Type: ReDIF-Paper 1.0
Title: Immigration and Welfare Magnets
Author-Name: George J. Borjas
Author-Person: pbo44
Note: PE LS
Number: 6813
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6813
File-URL: http://www.nber.org/papers/w6813.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Labor Economics, Vol. 17, no. 4, part 1 (October 1999): 607-637
Abstract: This paper investigates if the location choices made by immigrants when they arrive in the United States are influenced by the interstate dispersion in welfare benefits. Income-maximizing behavior implies that foreign-born welfare recipients unlike their native-born counterparts, may be clustered in the states that offer the highest benefits. The empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high-benefit states than the immigrants who do not receive welfare, or than natives. As a result, the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives.
Handle: RePEc:nbr:nberwo:6813
Template-Type: ReDIF-Paper 1.0
Title: Inherited Wealth, Corporate Control and Economic Growth: The Canadian Disease
Author-Name: Randall K. Morck
Author-Person: pmo146
Author-Name: David A. Stangeland
Author-Name: Bernard Yeung
Note: CF
Number: 6814
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6814
File-URL: http://www.nber.org/papers/w6814.pdf
File-Format: application/pdf
Publication-Status: published as Randall Morck & David Stangeland & Bernard Yeung, 2000. "III. ECONOMIC EFFECTS OF CONCENTRATED CORPORATE OWNERSHIP: 11. Inherited Wealth, Corporate Control, and Economic Growth The Canadian Disease?," NBER Chapters, in: Concentrated Corporate Ownership, pages 319-372 National Bureau of Economic Research, Inc.
Abstract: Countries in which billionaire heirs' wealth is large relative to G.D.P. grow more slowly, show signs of more political rent-seeking, and spend less on innovation than do other countries at similar levels of development. In contrast, countries in which self-made entrepreneur billionaire wealth is large relative to G.D.P. grow more rapidly and show fewer signs of rent seeking. We argue that this is consistent with wealthy entrenched families' having objectives other than creating public shareholder value. Also, the control pyramids through which they are entrenched give wealthy families preferential access to capital and enhanced lobbying power. Entrenched families also have vested interest in preserving the value of existing capital. To investigate these arguments, we use firm-level Canadian data. Heir-controlled Canadian firms show low industry-adjusted financial performance, labor capital ratios, and R&D spending relative to other firms the same ages and sizes. We argue that concentrated, inherited corporate control impedes growth, and dub this the Canadian disease.' Further research is needed to determine the international incidence of this condition. Finally, heir-controlled Canadian firms' share prices fell relative to those of comparable firms on the news that the Canada-U.S. free trade agreement would be ratified. A key provision of that treaty is capital market openness. Under the treaty, heir-controlled Canadian firms' labor capital ratios rose, while the incidence of heir-control fell. We suggest that openness, especially of capital markets, may mitigate the ill effects of concentrated inherited control. If so, capital market openness matters for reasons not captured by standard international trade and finance models.
Handle: RePEc:nbr:nberwo:6814
Template-Type: ReDIF-Paper 1.0
Title: Do Endowments Predict the Location of Production? Evidence from National and International Data
Classification-JEL: F11; R13
Author-Name: Jeffrey R. Bernstein
Author-Person: pbe327
Author-Name: David E. Weinstein
Author-Person: pwe34
Note: ITI
Number: 6815
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6815
File-URL: http://www.nber.org/papers/w6815.pdf
File-Format: application/pdf
Publication-Status: published as Bernstein, Jeffrey R. and David E. Weinstein. "Do Endowments Predict The Location Of Production," Journal of International Economics, 2002, v56(1,Jan), 55-76.
Abstract: Examining the relationship between factor endowments and production patterns using international and Japanese regional data, we provide the first empirical confirmation of Ethier's correlation approach to the Rybczynski theorem. Moreover, we find evidence of substantial production indeterminacy. Prediction errors are six to thirty times larger for goods traded relatively freely. A compelling explanation of this phenomenon is the existence of more goods than factors in the presence of trade costs. This result implies that regressions of trade or output on endowments have weak theoretical foundations. Furthermore, since errors are largest in data sets where trade costs are small, we explain why the common methodology of imputing trade barriers from regression residuals often leads to backwards results.
Handle: RePEc:nbr:nberwo:6815
Template-Type: ReDIF-Paper 1.0
Title: Technology Transfer and Spillovers? Does Local Participation with Multinationals Matter?
Classification-JEL: J23; O12
Author-Name: Magnus Blomstrom
Author-Person: pbl88
Author-Name: Fredrik Sjoholm
Author-Person: psj1
Note: LS PR
Number: 6816
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6816
File-URL: http://www.nber.org/papers/w6816.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Vol 43, nos.4-6 (April 1999): 915-923.
Abstract: This paper examines the effects on technology transfer and spillovers deriving from ownership sharing of foreign multinational affiliates. More specifically, we try to answer two questions, using unpublished Indonesian micro data. Firstly, do establishments with minority and majority ownership differ in terms of productivity levels? Secondly, does the degree of spillover differ with the degree of ownership in the FDI? Our results show that foreign establishments have comparable high levels of labor productivity and that domestic establishments benefit from spillovers. However, the degree of foreign ownership does neither affect the level of labor productivity in foreign establishments, nor the degree of spillovers.
Handle: RePEc:nbr:nberwo:6816
Template-Type: ReDIF-Paper 1.0
Title: Price Indexes for Medical Care Goods and Services: An Overview of Measurement Issues
Classification-JEL: I1; C8
Author-Name: Ernst R. Berndt
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Richard G. Frank
Author-Name: Zvi Griliches
Author-Name: Joseph P. Newhouse
Note: EH PR
Number: 6817
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6817
File-URL: http://www.nber.org/papers/w6817.pdf
File-Format: application/pdf
Publication-Status: published as Cutler, David and Ernst R. Berndt (eds.) Medical Output and Productivity. Chicago: University of Chicago Press for the National Bureau of Economic Research, 2001.
Publication-Status: published as Price Indexes for Medical Care Goods and Services -- An Overview of Measurement Issues, Ernst R. Berndt, David M. Cutler, Richard Frank, Zvi Griliches, Joseph P. Newhouse, Jack E. Triplett. in Medical Care Output and Productivity, Cutler and Berndt. 2001
Abstract: We review in considerable detail the conceptual and measurement issues that underlie construction of medical care price indexes in the U.S., particularly the medical care consumer price indexes (MCPIs) and medical-related producer price indexes (MPPIs). We outline salient features of the medical care marketplace, including the impacts of insurance, moral hazard, principal-agent relationships, technological progress and organizational changes. Since observed data are unlikely to correspond with efficient outcomes, we discuss implications of the failure of transactions data in this market to reveal reliable marginal valuations, and the consequent need to augment traditional transactions data with information based on cost-effectiveness and outcomes studies. We describe procedures currently used by the BLS in constructing MCPIs and MPPIs, including recent revisions, and then consider alternative notions of medical care output pricing that involve the price or cost of an episode of treatment, rather than prices of fixed bundles of inputs. We outline features of a proposed new experimental price index -- a medical care expenditure price index -- that is more suitable for evaluation and analyses of medical care cost changes, than are the current MCPIs and MPPIs. We conclude by suggesting future research and measurement issues that are most likely to be fruitful.
Handle: RePEc:nbr:nberwo:6817
Template-Type: ReDIF-Paper 1.0
Title: The Evolution of Price Dispersion in the European Car Market
Classification-JEL: F0; L0
Author-Name: Pinelopi Koujianou Goldberg
Author-Person: pgo1
Author-Name: Frank Verboven
Author-Person: pve137
Note: ITI
Number: 6818
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6818
File-URL: http://www.nber.org/papers/w6818.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economic Studies, Vol. 68, no. 4 (October 2001): 811-848
Publication-Status: published as as Goldberg, Pinelopi Koujianou, Frank Verboven, Fiona Scott Morton, John Fingleton. "Cross-country Price Dispersion In The Euro Era: A Case Study Of The European Car Market," Economic Policy, Vol. 19, no. 40 (October 2004): 484-521
Abstract: Car prices in Europe are characterized by large and persistent differences across countries. The purpose of this paper is to document and explain this price dispersion. Using a panel data set extending from 1980 to 1993, we first demonstrate two main facts concerning car prices in Europe: (1) The existence of significant differences in quality adjusted prices across countries, with Italy and the U.K. systematically representing the most expansive markets; (2) Substantial year-to-year volatility that is to a large extent accounted for by exchange rate fluctuation and the incomplete response of local currency prices to these fluctuations. These facts are analyzed within the framework of a multiproduct oligopoly model with product differentiation. The model identifies three potential sources for the international price differences: price elasticities generating differences in markups, costs, and import quota constraints. Local currency price stability can be attributed either to the presence of a local component in marginal costs, or to markup adjustment that is correlated with exchange rate volatility; the latter requires that the perceived elasticity of demand is increasing in price. We find that the primary reason for the higher prices in Italy is the existence of a strong bias for domestic brands that generates high markups for the domestic firm (Fiat). In the U.K. higher prices are mainly attributed to better equipped cars and/or differences in the dealer discount practices. The import quota constraints are found to have a significant impact on Japanese car prices in Italy, France, and the U.K. With respect to local currency price stability, 2/3 of the documented price inertia are attributed to local costs, and 1/3 to markup adjustment that is indicative of price discrimination. Based on these results, we conjecture that the EMU will substantially reduce the year-to -year volatility observed in the car price data, but without further measures to increase European integration, it will not completely eliminate existing cross-country price differences.
Handle: RePEc:nbr:nberwo:6818
Template-Type: ReDIF-Paper 1.0
Title: Trust and Opportunism in Close Corporations
Author-Name: Paul G. Mahoney
Note: CF
Number: 6819
Creation-Date: 1998-11
Order-URL: http://www.nber.org/papers/w6819
File-URL: http://www.nber.org/papers/w6819.pdf
File-Format: application/pdf
Publication-Status: published as Trust and Opportunism in Close Corporations, Paul G. Mahoney. in Concentrated Corporate Ownership, Morck. 2000
Abstract: The majority shareholder in a closely held corporation may use its control of the corporate machinery to appropriate wealth from the minority, and it is difficult for the majority to make a binding commitment not to do so. This paper models the interaction between majority and minority shareholders as a trust game in which the majority is constrained by the possibility of non-legal sanctions, including family or social disapproval and loss of reputation. The paper applies the analysis to the longstanding debate over appropriate exit rules for close corporation shareholders. Where the parties are well-informed and rational and judicial valuations are unbiased, giving the minority the unconditional right to e cashed out should reduce majority opportunism without producing opportunistic behavior by the minority. The paper suggests that the apparent failure of close corporation shareholders to bargain for such a right reflects the courts' success in using dissolution and fiduciary duty actions to deter majority misbehavior.
Handle: RePEc:nbr:nberwo:6819
Template-Type: ReDIF-Paper 1.0
Title: Does Mercosur Need a Single Currency
Classification-JEL: F0; F3
Author-Name: Barry Eichengreen
Author-Person: pei2
Note: IFM
Number: 6821
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6821
File-URL: http://www.nber.org/papers/w6821.pdf
File-Format: application/pdf
Abstract: The possibility of a single currency for the Mercosur countries was raised by Argentine President Menem in December 1997 and again at the regional summit this past June. This paper argues that whether Mercosur needs a common currency depends on what kind of integrated regional market its architects are creating. A customs union can be sustained despite the existence of separate national currencies that fluctuate against one another. But deeper integration extending beyond the border implies even more open domestic markets and more intense cross-border competition, making exchange-rate changes more disruptive. If South American policy makers intend to press ahead to deeper integration, then they like their European counterparts may have to contemplate monetary integration.
Handle: RePEc:nbr:nberwo:6821
Template-Type: ReDIF-Paper 1.0
Title: Estimating Equilibrium Models of Local Jurisdictions
Classification-JEL: C51; H31
Author-Name: Dennis Epple
Author-Person: pep21
Author-Name: Holger Sieg
Note: PE
Number: 6822
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6822
File-URL: http://www.nber.org/papers/w6822.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 107, no. 4 (August 1999): 645-681.
Abstract: Research over the past several years has led to development of models characterizing equilibrium in a system of local jurisdictions. An important insight from these models is that plausible single-crossing assumptions about preferences generate strong predictions about the equilibrium distribution of households across communities. To date predictions have not been subjected to formal empirical tests. The purpose of this paper is to provide an integrated approach for testing predictions from this class of models. We first test conditions for locational equilibrium implied by these models. In particular about the distribution of households by income across communities. We then test the models predictions about the relationships among locational equilibrium conditions and housing prices. By drawing inferences from a structural general equilibrium model approach of this paper offers a unified treatment of theory and empirical testing.
Handle: RePEc:nbr:nberwo:6822
Template-Type: ReDIF-Paper 1.0
Title: Covering Up Trading Losses: Opportunity-Cost Accounting as an Internal Control Mechanism
Classification-JEL: G2; G3
Author-Name: Edward J. Kane
Author-Person: pka853
Author-Name: Kimberly DeTrask
Note: CF
Number: 6823
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6823
File-URL: http://www.nber.org/papers/w6823.pdf
File-Format: application/pdf
Publication-Status: published as (Retitled "Breakdown of Accounting at Barings and Daiwa: Benefits of Using Opportunity Cost Measures for Trading Activity") Pacific Basin Finance Journal, Vol. 7 (August 1999): 203-228.
Abstract: This paper analyzes the methods of loss concealment used by rogue traders in the Barings and Daiwa scandals. The analysis clarifies how and why these firms' top managers and home-country regulators deserve blame for allowing cumulative losses to become so large. The central point is that information systems that focus exclusively on cash flows tempt amoral traders to build credits that generate a high level of accounting profits. Constructing opportunity-cost measures of profit imposes additional restraints on reporting activity. These restraints make it easier for higher-ups, auditors, and regulators to identify the true sources of accounting profit and to challenge counterfeit earnings.
Handle: RePEc:nbr:nberwo:6823
Template-Type: ReDIF-Paper 1.0
Title: Under What Circumstances, Past and Present, Have International Rescues of Countries in Financial Distress Been Successful?
Classification-JEL: O40
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Anna J. Schwartz
Note: IFM ME
Number: 6824
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6824
File-URL: http://www.nber.org/papers/w6824.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael D. and Anna J. Schwartz. "Under What Circumstances, Past And Present, Have International Rescues Of Countries In Financial Distress Been Successful?," Journal of International Money and Finance, 1999, v18(4,Aug), 683-708.
Abstract: Recent events in Asia and other parts of the globe have prompted calls from many quarters for international rescue of the monetary or fiscal authorities of distressed countries. We contrast the experience before 1973 of rescues of monetary authorities of advanced countries temporarily short of liquidity with recent experience of bailouts. International rescues in the past involved relatively small amounts of money, sufficient to stave off devaluation or abandonment of a fixed exchange rate, while remedial policies were put in place. Recent bailouts involve handing over relatively large amounts to both foreign lenders and domestic investors after devaluation of a pegged exchange rate to avoid their incurring wealth losses. We document past rescues, whether successful or unsuccessful, by monetary regimes different today from past experience.
Handle: RePEc:nbr:nberwo:6824
Template-Type: ReDIF-Paper 1.0
Title: Measuring Adverse Selection in Managed Health Care
Author-Name: Richard G. Frank
Author-Name: Jacob Glazer
Author-Person: pgl69
Author-Name: Thomas G. McGuire
Note: EH
Number: 6825
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6825
File-URL: http://www.nber.org/papers/w6825.pdf
File-Format: application/pdf
Publication-Status: published as Frank, Richard G., Jacob Glazer and Thomas G. McGuire. "Measuring Adverse Selection In Managed Health Care," Journal of Health Economics, 2000, v19(6,Nov), 829-854.
Abstract: Health plans paid by capitation have an incentive to distort the quality of services they offer to attract profitable and to deter unprofitable enrollees. We characterize plans' rationing as imposing a show that the profit maximizing shadow price depends on the dispersion in health costs, how well individuals forecast their health costs, the correlation between use in different illness categories, and the risk adjustment system used for payment. We further show how these factors can be combined in an empirically implementable index that can be used to identify the services that will be most distorted in competition among managed care plans. A simple welfare measure is developed to quantify the distortion caused by selection incentives. We illustrate the application of our ideas with a Medicaid data set, and conduct policy analyses of risk adjustment and other options for dealing with adverse selection.
Handle: RePEc:nbr:nberwo:6825
Template-Type: ReDIF-Paper 1.0
Title: Does Air Quality Matter? Evidence from the Housing Market
Classification-JEL: Q21; Q25
Author-Name: Kenneth Y. Chay
Author-Person: pch800
Author-Name: Michael Greenstone
Author-Person: pgr38
Note: PE
Number: 6826
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6826
File-URL: http://www.nber.org/papers/w6826.pdf
File-Format: application/pdf
Publication-Status: published as Kenneth Y. Chay & Michael Greenstone, 2005. "Does Air Quality Matter? Evidence from the Housing Market," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 376-424, April.
Abstract: This study exploits the quasi-random assignment of air pollution changes across counties induced by federally mandated air pollution regulations to identify the impact of particulate matter on property values. Two striking empirical regularities emerge from the analysis. First particulate matter declined substantially more in regulated than in unregulated counties during the 1970s and 1980s. At the same time, housing prices rose more in regulated counties. The evidence suggests that this approach identifies two causal effects: 1) the impact of regulation on air quality improvements, and 2) the impact of regulation on economic gains for home-owners. In addition, the results highlight the importance of choosing regulatory instruments that are orthogonal to unobserved housing price shocks that vary by county over long time horizons. It appears that using regulation-induced changes in particulate matter leads to more reliable estimates of the capitalization of air quality into property values. Whereas the conventional cross-sectional and unstable and indeterminate across specifications, the instrumental variables estimates are much larger, insensitive to specification of the model, and appear to purge the biases in the conventional estimates. The estimates imply that a one-unit reduction in suspended particulates results in a 0.7-1.5 percent increase in home values. In addition, it appears that air pollution regulations resulted in real economic benefits to home-owners in regulated counties.
Handle: RePEc:nbr:nberwo:6826
Template-Type: ReDIF-Paper 1.0
Title: European Technology Policy
Author-Name: Jonathan Eaton
Author-Person: pea5
Author-Name: Eva Gutierrez
Author-Name: Samuel Kortum
Author-Person: pko74
Note: PR
Number: 6827
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6827
File-URL: http://www.nber.org/papers/w6827.pdf
File-Format: application/pdf
Publication-Status: published as Economic Policy, Vol. 27 (October 1998): 405-438.
Abstract: European countries do less research than Japan and the United States. We use a quantitative multi-country growth model to ask: (i) Why is this so? (ii) Would there be any benefit to expanding research in Europe? (iii) What would various European research promotion policies do? We find that (i) Europe's lower research effort has more to do with the smaller markets facing European inventors than with lower research productivity. (ii) Europe has substantial research potential in that increased research effort in most European countries generates bigger income benefits there than increased effort in the United States and Japan of equivalent amounts. (iii) Policies to stimulate research in Europe raise productivity not only there but elsewhere. But a problem with pursuing these policies at the national level is the potential for free riding. A second possible problem with promoting research is distributional: While all countries within the European Union benefit, the countries that are already best at doing research, which tend to be the richer members, fare best. The benefits of policies that facilitate the adoption of innovations are more evenly spread.
Handle: RePEc:nbr:nberwo:6827
Template-Type: ReDIF-Paper 1.0
Title: Taxes and Income Distribution in Chile: Some Unpleasant Redistributive Arithmetic
Classification-JEL: H22; H24
Author-Name: Eduardo M.R.A. Engel
Author-Person: pen3
Author-Name: Alexander Galetovic
Author-Person: pga381
Author-Name: Claudio E. Raddatz
Author-Person: pra328
Note: EFG PE
Number: 6828
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6828
File-URL: http://www.nber.org/papers/w6828.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Development Economics, Vol. 59, no. 1 (June 1999).
Abstract: This paper quantifies the direct impact of taxes on income distribution at the household level in Chile and estimates the distributional effect of several changes in the tax structure. We find that income distributions before and after taxes are very similar (Gini coefficients of 0.448 and 0.496, respectively). Moreover, radical modifications of the tax structure, such as raising the value added tax from 18 to 25% or substituting a 20% flat tax for the present progressive income tax affect the after-tax distribution only slightly. We present some arithmetic showing that the scope for direct income redistribution through progressivity of the tax system is rather limited. By contrast, for parameter values observed in Chile, and possibly in most developing countries, the targeting of expenditures and the level of the average tax rate are far more important determinants of income distribution after government transfers. Thus, a high-yield proportional tax can have a far bigger equalizing impact than a low-yield progressive tax. Moreover, a simple model shows that the optimal tax system is biased against progressive taxes and towards proportional taxes, with a bias that grows with the degree of inequality of pre-tax incomes.
Handle: RePEc:nbr:nberwo:6828
Template-Type: ReDIF-Paper 1.0
Title: Propensity Score Matching Methods for Non-experimental Causal Studies
Classification-JEL: C81; C14
Author-Name: Rajeev H. Dehejia
Author-Person: pde179
Author-Name: Sadek Wahba
Note: LS
Number: 6829
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6829
File-URL: http://www.nber.org/papers/w6829.pdf
File-Format: application/pdf
Publication-Status: published as Dehejia, Rajeev H. and Sadek Wahba. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," Review of Economics and Statistics, 2002, v84(1,Feb), 151-161.
Abstract: This paper considers causal inference and sample selection bias in non-experimental settings in which: (i) few units in the non-experimental comparison group are comparable to the treatment units, and (ii) selecting a subset of comparison units similar to the treatment units is difficult because units must be compared across a high-dimensional set of pre-treatment characteristics. We propose the use of propensity score matching methods and implement them using data from the NSW experiment. Following Lalonde (1986), we pair the experimental treated units with non-experimental comparison units from the CPS and PSID and compare the estimates of the treatment effect obtained using our methods to the benchmark results from the experiment. We show that the methods succeed in focusing attention on the small subset of the comparison units comparable to the treated units and, hence, in alleviating the bias due to systematic differences between the treated and comparison units.
Handle: RePEc:nbr:nberwo:6829
Template-Type: ReDIF-Paper 1.0
Title: Executive Compensation and Incentives: The Impact of Takeover Legislation
Classification-JEL: D21; D80
Author-Name: Marianne Bertrand
Author-Person: pbe697
Author-Name: Sendhil Mullainathan
Author-Person: pmu103
Note: LS
Number: 6830
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6830
File-URL: http://www.nber.org/papers/w6830.pdf
File-Format: application/pdf
Abstract: We investigate the impact of changes in states' anti-takeover legislation on executive compensation. We find both pay for performance sensitivities and mean pay increase for the firms affected by the legislation (relative to a control group). These findings are partially consistent with an optimal contracting model of CEO pay as well as with a skimming model in which reduced takeover fears allow CEO's to skim more. We compute lower bounds on the relative risk aversion coefficients implied by our findings. These lower bounds are relatively high, indicating that the increase in mean pay may have been more than needed to maintain CEO's individual rationality constraints. Under both models however, our evidence shows that the increased pay for performance offsets some of the incentive reduction caused by lower takeover threats.
Handle: RePEc:nbr:nberwo:6830
Template-Type: ReDIF-Paper 1.0
Title: The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries
Author-Name: Dennis W. Carlton
Author-Person: pca14
Author-Name: Michael Waldman
Author-Person: pwa40
Note: IO
Number: 6831
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6831
File-URL: http://www.nber.org/papers/w6831.pdf
File-Format: application/pdf
Publication-Status: published as Carlton, Dennis W. and Michael Waldman. "The Strategic Use Of Tying To Preserve And Create Market Power In Evolving Industries," Rand Journal of Economics, 2002, v33(2,Summer), 194-220.
Abstract: This paper investigates how the tying of complementary products can be used to preserve and extend monopoly positions. We first show how a firm that is a monopolist of a product in the current period can use tying to preserve its monopoly position in future periods. We then show using related arguments how a monopolist in one market can employ tying to extend its monopoly position into a newly emerging market. The analysis focuses on the importance of entry costs and network externalities. The paper includes a discussion of antitrust implications.
Handle: RePEc:nbr:nberwo:6831
Template-Type: ReDIF-Paper 1.0
Title: Network Effects and Welfare Cultures
Classification-JEL: D83; H53
Author-Name: Marianne Bertrand
Author-Person: pbe697
Author-Name: Erzo F.P. Luttmer
Author-Person: plu27
Author-Name: Sendhil Mullainathan
Author-Person: pmu103
Note: PE
Number: 6832
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6832
File-URL: http://www.nber.org/papers/w6832.pdf
File-Format: application/pdf
Publication-Status: published as Bertrand, Marianne, Erzo F. P. Luttmer and Sendhil Mullainathan. "Network Effects And Welfare Cultures," Quarterly Journal of Economics, 2000, v115(3,Aug), 1019-1055.
Abstract: This paper empirically examines the role of social networks in welfare participation. Social theorists from across the political spectrum have argued that network effects have given rise to a culture of poverty. Empirical work, however, has found it difficult to distinguish the effect of networks from unobservable characteristics of individuals and areas. We use data on language spoken to better infer an individual's network within an area. Individuals who are surrounded by others speaking their language have a larger pool of available contacts. Moreover, the network influence of this pool will depend on their welfare knowledge. We, therefore, focus on the differential effect of increased contact availability: does being surrounded by others who speak the same language increase welfare use more for individuals from high welfare using language groups? The results strongly confirm the importance of networks in welfare participation. We deal with omitted variable bias in several ways. First, our methodology allows us to include local area and language group fixed effects and to control for the direct effect of contact availability; these controls eliminate many of the problems in previous studies. Second, we instrument for contact availability in the neighborhood with the number of one's language group in the entire metropolitan area. Finally, we investigate the effect of removing education controls. Both instrumentation and removal of education controls have little impact on the estimates.
Handle: RePEc:nbr:nberwo:6832
Template-Type: ReDIF-Paper 1.0
Title: What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview
Classification-JEL: F31; F33
Author-Name: Giancarlo Corsetti
Author-Name: Paolo Pesenti
Author-Person: ppe152
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: IFM
Number: 6833
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6833
File-URL: http://www.nber.org/papers/w6833.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "What Caused the Asian Currency and Financial Crisis?") Japan and the World Economy, Vol. 11 (1999): 305-373.
Abstract: The paper explores the view that the Asian currency and financial crises in 1997 and 1998 reflected structural and policy distortions in the countries of the region, even if market overreaction and herding caused the plunge of exchange rates, asset prices, and economic activity to be more severe than warranted by the initial weak economic conditions. The first part of the paper provides an overview of economic fundamentals in Asia on the eve of the crisis, with emphasis on current account imbalances, quantity and quality of financial overlending,' banking problems, and composition, maturity and size of capital inflows.
Handle: RePEc:nbr:nberwo:6833
Template-Type: ReDIF-Paper 1.0
Title: What Caused the Asian Currency and Financial Crisis? Part II: The Policy Debate
Classification-JEL: F31; F33
Author-Name: Giancarlo Corsetti
Author-Name: Paolo Pesenti
Author-Person: ppe152
Author-Name: Nouriel Roubini
Author-Person: pro145
Note: IFM
Number: 6834
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6834
File-URL: http://www.nber.org/papers/w6834.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "What Caused the Asian Currency and Financial Crisis?") Japan and the World Economy, Vol. 11 (1999): 305-373.
Abstract: The paper explores the view that the Asian currency and financial crises in 1997 and 1998 reflected structural and policy distortions in the countries of the region, even if market overreaction and herding caused the plunge of exchange rates, asset prices, and economic activity to be more severe than warranted by the initial weak economic conditions. The second part of the paper presents a reconstruction of the Asian meltdown -- from the antecedents in 1995-96 to the recent developments in the summer of 1998 -- in parallel with a survey of the debate on the strategies to recover from the crisis, the role of international intervention, and the costs and benefits of capital controls.
Handle: RePEc:nbr:nberwo:6834
Template-Type: ReDIF-Paper 1.0
Title: Did Late Nineteenth Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry
Classification-JEL: F13; N71
Author-Name: Dougas A. Irwin
Author-Person: pir25
Note: DAE ITI
Number: 6835
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6835
File-URL: http://www.nber.org/papers/w6835.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic History (June 2000).
Abstract: This paper examines the role of late nineteenth century U.S. tariffs in promoting infant industries by focusing on the much heralded example of the tinplate industry. After earlier failures, the tinplate industry became established and flourished after receiving protection in the McKinley tariff of 1890. Treating the entry and exit decisions of producers as endogenous, a probability model is estimated to determine the conditions under which domestic tinplate production will take place. Counterfactual simulations indicate that, in the absence of the McKinley duties, domestic tinplate production would have arisen about a decade later as U.S. iron and steel prices (comprising three-quarters of production costs) converged with those in Britain. While the tariff accelerated the industry's development, welfare calculations suggest that protection does not pass a cost-benefit test.
Handle: RePEc:nbr:nberwo:6835
Template-Type: ReDIF-Paper 1.0
Title: Distance to Hospitals and Children's Access to Care: Is Being Closer Better, and for Whom?
Classification-JEL: I1; H4
Author-Name: Janet Currie
Author-Person: pcu13
Author-Name: Patricia Reagan
Note: EH CH
Number: 6836
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6836
File-URL: http://www.nber.org/papers/w6836.pdf
File-Format: application/pdf
Publication-Status: published as Currie, Janet and Patricia B. Reagan. "Distance To Hospital And Children's Use Of Preventive Care: Is Being Closer Better, And For Whom?," Economic Inquiry, 2003, v41(3,Jul), 378-391.
Abstract: Distance to hospital may affect the utilization of primary preventative care if children rely on hospitals for such routine care. We explore this question using matched data from the National Longitudinal Survey of Youth's Child-Mother file and the American Hospital Association's 1990 Hospital Survey. Our measure of preventative care is whether or not a child has received a regular checkup in the past year. We find that distance to hospital has significant effects on the utilization of preventative care among central-city black children. For these children, each additional mile from the hospital is associated with a 3 percent decline in the probability of having had a checkup (from a mean baseline of 74 percent). This effect can be compared to the 3 percent increase in the probability of having a checkup which is associated with having private health insurance coverage. The size of this effect is similar for both the privately insured and those with Medicaid coverage, suggesting that even black urban children with private health insurance may have difficulty obtaining access to preventative care. In contrast, we find little evidence of a negative distance effect among white or Hispanic central-city children, suburban children, or rural children.
Handle: RePEc:nbr:nberwo:6836
Template-Type: ReDIF-Paper 1.0
Title: Regulatory Free Cash Flow and the High Cost of Insurance Company Failures
Author-Name: Brian J. Hall
Note: PE CF
Number: 6837
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6837
File-URL: http://www.nber.org/papers/w6837.pdf
File-Format: application/pdf
Publication-Status: published as Hall, Brian J. "Regulatory Free Cash Flow And The High Cost Of Insurance Company Failures," Journal of Risk and Insurance, 2000, v67(3,Sep), 415-438.
Abstract: Why is the cost of resolving insurance company failures so high? Evidence in this paper suggests that the state insurance regulatory bodies in charge of the liquidation process turn over an average of only 33 cents for each $1.00 of pre-insolvency assets to the guaranty funds (the state agencies responsible for paying claims). This very low ex ante regulatory failure -- the assets of the company are not worth much, reflecting regulatory problems prior to liquidation. Or the low recovery rate could reflect ex post regulatory failure -- a regulatory version of the 1986). In this latter case, cash-rich liquidators, who pay their own expenses out of the liquidation receipts first, are reluctant to turn over the money from asset sales to the guaranty funds. The evidence suggests that the low recovery rates arise from both types of regulatory failure.
Handle: RePEc:nbr:nberwo:6837
Template-Type: ReDIF-Paper 1.0
Title: Parity for Mental Health and Substance Abuse Care Under Managed Care
Author-Name: Richard G. Frank
Author-Name: Thomas G. McGuire
Note: EH
Number: 6838
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6838
File-URL: http://www.nber.org/papers/w6838.pdf
File-Format: application/pdf
Publication-Status: published as Frank, R. G. and T. G. McGuire. “Parity for Mental Health and Substance Abuse Care under Managed Care." The Journal of Mental Health Policy and Economics 1 (1998): 153-159.
Abstract: Background: Parity in insurance coverage for mental health and substance abuse has been a key goal of mental health and substance abuse care advocates in the United States during most of the past 20 years. The push for parity began during the era of indemnity insurance and fee for service payment when benefit design was the main rationing device in health care. The central economic argument for enacting legislation aimed at regulating the insurance benefit was to address market failure stemming from adverse selection. The case against parity was based on inefficiency related to moral hazard. Empirical analyses provided evidence that ambulatory mental health services were considerably more responsive to the terms of insurance than were ambulatory medical services. Aims: Our goal in this research is to reexamine the economics of parity in the light of recent changes in the delivery of health care in the United States. Specifically managed care has fundamentally altered the way in which health services are rationed. Benefit design is now only one mechanism among many that are used to allocate health care resources and control costs. We examine the implication of these changes for policies aimed at achieving parity in insurance coverage. Method: We develop a theoretical approach to characterizing rationing under managed care. We then analyze the traditional efficiency concerns in insurance, adverse selection and moral hazard in the context of policy aimed at regulating health and mental health benefits under private insurance. Results: We show that since managed care controls and utilization in new ways Parity in benefit design no longer implies equal access to and quality of mental health and substance abuse care. Because costs are controlled by management under managed care and not primarily by out of pocket prices paid by consumers, demand response recedes as an efficiency argument against parity. At the same time parity in benefit design may accomplish less with respect to providing a remedy to problems related to adverse selection.
Handle: RePEc:nbr:nberwo:6838
Template-Type: ReDIF-Paper 1.0
Title: Individual Risk and Intergenerational Risk Sharing in an Investment-Based Social Security Program
Classification-JEL: H55
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Elena Ranguelova
Note: AG PE
Number: 6839
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6839
File-URL: http://www.nber.org/papers/w6839.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Elena Ranguelova. "Individual Risk In An Investment-Based Social Security System," American Economic Review, 2001, v91(4,Sep), 1116-1125.
Abstract: This paper examines the risk aspects of a fully phased-in investment-based defined contribution Social Security plan. Individuals save a fraction of wages in a Personal Retirement Account (PRA) invested in a 60:40 equity-debt mix and receive a similarly invested variable annuity from age 67. The value of the portfolio follows a random walk with historic (1946-1995) mean log real return of 5.5 percent and standard deviation of 12.5 percent. We study 10,000 stochastic distributions of this process for the 80 year experience from 1998 to 2077. With a nonstochastic 5.5 percent rate of return, individuals could purchase the future benefits promised in the current Social Security law (the benchmark' level of benefits) by saving 3.1 percent of earnings, just one-sixth of the payroll tax that Social Security actuaries project will be needed in the paygo system. A higher saving rate provides a cushion' that reduces the risk of unacceptably low benefits. For example, saving 6 percent implies a median annuity at age 67 or 2.1 times the benchmark benefits and only a 17 percent chance that the annuity is less than the benchmark. In 95 percent of the potential investment experience the annuity exceeds 61 percent of the benchmark benefit. With a 9 percent saving rate (half of the tax rate required in a pay- as-you-go system), there is only a 6 percent chance that the annuity is less than the benchmark and in 95 percent of the potential investment experience the annuity exceeds 92 percent of the benchmark benefit. We also study a modified plan in which retirees face no risk of receiveing less than the benchmark benefit because the government provides a conditional pension transfer to any retiree whose annuity is less in any year than the benchmark level of benefits. With a six percent saving rate, a conditional transfer is required in only about 40 percent of the simulations. The expected value of the transfers is substantially less than the expected incremental corporate tax revenue that results from the Personal Retirement Account saving. Additional tax revenue is needed in fewer than one percent of the simulations. In short, a pure defined contribution plan, with a saving rate equal to one third of the long-run projected payroll tax, invested in a 60:40 equity-debt Personal Retirement Account could provide a retirement annuity that is likely to be substantially more than the benchmark benefit while exposing the retiree to relatively little risk that the annuity will be less than the benchmark. Even this risk can be completely eliminated by a conditional guarantee plan that imposed only a very small risk on future taxpayers.
Handle: RePEc:nbr:nberwo:6839
Template-Type: ReDIF-Paper 1.0
Title: Discrimination in the Small Business Credit Market
Author-Name: David G. Blanchflower
Author-Person: pbl22
Author-Name: Phillip B. Levine
Author-Person: ple553
Author-Name: David J. Zimmerman
Author-Person: pzi72
Note: LS
Number: 6840
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6840
File-URL: http://www.nber.org/papers/w6840.pdf
File-Format: application/pdf
Publication-Status: published as David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 2003. "Discrimination in the Small-Business Credit Market," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 930-943, 09.
Abstract: This paper uses data from the 1993 National Survey of Small Business Finances to determine the extent to which minority-owned small businesses face constraints in the credit market beyond those faced by white-owned small businesses. First, we present qualitative evidence indicating that black- and white-owned firms report similar concerns about the factors that may affect their businesses except that blacks are far more likely to report problems with credit availability. Second, we conduct an econometric analysis of loan denial probabilities by race and find that black-owned small businesses are almost three times more likely to have a loan application denied. Even after controlling for the differences in credit-worthiness and other factors that exist between black- and white-owned firms, blacks are still about twice as likely to be denied credit. A series of specification checks indicates that this gap is unlikely to be largely attributed to omitted variable bias. Third, we conduct a similar analysis regarding interest rates charged to approved loans and find black-owned firms pay higher interest rates as well. Finally, even these results are likely to understate differences in credit access because many potential black-owned firms are not in operation due to the lack of credit and those in business may be too afraid to apply. These results indicate that the racial disparity in credit availability is likely caused by discrimination.
Handle: RePEc:nbr:nberwo:6840
Template-Type: ReDIF-Paper 1.0
Title: Inequality
Classification-JEL: O31
Author-Name: Jan Eeckhout
Author-Person: pee1
Author-Name: Boyan Jovanovic
Note: PR
Number: 6841
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6841
File-URL: http://www.nber.org/papers/w6841.pdf
File-Format: application/pdf
Publication-Status: published as Eeckhout, Jan and Boyan Jovanovic. "Knowledge Spillovers And Inequality," American Economic Review, 2002, v92(5,Dec), 1290-1307.
Abstract: In a growth model, rent-grabbing and free riding can give rise to inequality in productivity and firm size. Inequality among firms affects a firm's incentive to free ride or to grab rents, and, hence, the incentive to invest in research and training We follow Lucas and Prescott (1971) and Hayashi (1982) and assume constant returns in production and in adjustment costs for investment, and perfect capital markets. Our conclusion, however, differs starkly from theirs: Average Tobin's q generally exceeds marginal q. That is, the unit value of capital is lower in big firms, and evidence dating back to Fazzari, Hubbard, and Petersen (1988) supports this claim quite decisively. Such evidence is usually taken to imply that small firms invest at a rate lower than its perfect capital market rate. In our model, however, it arises because small firms rely more on copying than big firms do: The marginal product of capital is equal across firms, but its average product is higher than that because small firms get a disproportionately high external benefit.
Handle: RePEc:nbr:nberwo:6841
Template-Type: ReDIF-Paper 1.0
Title: Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States
Classification-JEL: H24; H31
Author-Name: James Poterba
Author-Person: ppo19
Note: PE
Number: 6842
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6842
File-URL: http://www.nber.org/papers/w6842.pdf
File-Format: application/pdf
Publication-Status: published as Poterba, James. “Estate and Gift Taxes and Incentives for Inter Vivos Giving in the United States,” Journal of Public Economics 79 (January 2001), 237-264.
Abstract: This paper describes the current estate and gift tax rules that apply to intergenerational transfers in the United States. It summarizes the incentives for inter vivos giving as a strategy for reducing estate tax liability. It shows that the current level of intergenerational transfers is much lower than the level that would be implied by simple models of dynastic utility maximization. Moreover, it demonstrates that even among elderly households with net worth in excess of $2.5 million, roughly four times the net worth at which the estate tax takes effect, only about forty-five percent take advantage of the opportunity for tax-free inter vivos giving. Cross-sectional regressions using the 1995 Survey of Consumer Finances suggest that transfers rise with household net worth, possibly reflecting the impact of progressive estate taxes. In addition, households with a preponderance of their net worth in illiquid forms, such as a private business, are less likely to make transfers than their equally wealthy counterparts with more liquid wealth. Households with substantial unrealized capital gains, for whom the benefits of capital asset basis step-up at death are greatest, are less likely to make large inter vivos transfers than similarly wealthy households with higher basis assets. Nevertheless, the aggregate flow of intergenerational transfers is much smaller than the level that would result if all households that were likely to face the estate tax attempted to transfer resources through inter vivos gifts.
Handle: RePEc:nbr:nberwo:6842
Template-Type: ReDIF-Paper 1.0
Title: Emerging Market Crises: An Asset Markets Perspective
Classification-JEL: G00; E4
Author-Name: Ricardo J. Caballero
Author-Person: pca44
Author-Name: Arvind Krishnamurthy
Author-Person: pkr393
Note: IFM
Number: 6843
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6843
File-URL: http://www.nber.org/papers/w6843.pdf
File-Format: application/pdf
Abstract: Although internal policy mismanagements can be cited in most recent emerging market crises, they seldom account fully for the severity of these crises. The reluctance of international investors to provide the resources that would limit the extent of the reversal almost invariably plays a key role in bringing a previously (over?)-heated economy to a costly halt. Domestic assets experience dramatic depreciation and otherwise solvent investment projects and production, especially in the nontradeables sector, find no financiers and are wastefully shutdown. Ultimately, the reason for this breakdown of a country's access to international capital markets must lie in the inadequacy (real or perceived) of its international collateral. We build a framework where this insufficiency and its consequences stem from microeconomic contractual problems. Fire sales of domestic assets naturally arise as a result of desperate competition for scarce international collateral. This begs the question of why the private sector does not take steps to ensure sufficient international collateral when crises are likely. The answer lies in the presence of a pecuniary externality. We show that contractual problems also lead to a problem of insufficient domestic collateral, which restricts the transfer of surplus arising from the use of international collateral between the users and providers of this international collateral. The interaction between domestic and international collateral also sheds light on when pre-crisis capital flows ought to be regulated and on whether there is scope for currency support measures during the crisis or not.
Handle: RePEc:nbr:nberwo:6843
Template-Type: ReDIF-Paper 1.0
Title: How Relevant is Volatility Forecasting for Financial Risk Management?
Classification-JEL: G1; C5
Author-Name: Peter F. Christoffersen
Author-Person: pch343
Author-Name: Francis X. Diebold
Author-Person: pdi1
Note: AP
Number: 6844
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6844
File-URL: http://www.nber.org/papers/w6844.pdf
File-Format: application/pdf
Publication-Status: published as Review of Economics and Statistics, Vol. 82 (2000): 12-23.
Abstract: It depends. If volatility fluctuates in a forecastable way, then volatility forecasts are useful for risk management; hence the interest in volatility forecastability in the risk management literature. Volatility forecastability, however, varies with horizon, and different horizons are relevant in different applications. Moreover, existing assessments of volatility forecastability are plagued by the fact that they are joint assessments of volatility forecastability and an assumed model, and the results vary not only with the horizon, but also with the assumed model. To address this problem, we develop a model-free procedure for assessing volatility forecastability across horizons. Perhaps surprisingly, we find that volatility forecastability decays quickly with horizon. Volatility forecastability, although clearly of relevance for risk management at the short horizons relevant for, say, trading desk management, may not be important for risk management more generally.
Handle: RePEc:nbr:nberwo:6844
Template-Type: ReDIF-Paper 1.0
Title: Real-Time Multivariate Density Forecast Evaluation and Calibration: Monitoring the Risk of High-Frequency Returns on Foreign Exchange
Classification-JEL: G1; C5
Author-Name: Francis X. Diebold
Author-Person: pdi1
Author-Name: Jinyong Hahn
Author-Person: pha1189
Author-Name: Anthony S. Tay
Author-Person: pta22
Note: IFM AP
Number: 6845
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6845
File-URL: http://www.nber.org/papers/w6845.pdf
File-Format: application/pdf
Publication-Status: published as (Published as "Multivariate Density Forecast Evaluation and Calibration in Financial Risk Management: High Frequency Returns on Foreign Exchange") Review of Economics and Statistics, Vol. 81 (1999): 661-673.
Abstract: We provide a framework for evaluating and improving multivariate density forecasts. Among other things, the multivariate framework lets us evaluate the adequacy of density forecasts involving cross-variable interactions, such as time-varying conditional correlations. We also provide conditions under which a technique of density forecast forecasts. Finally by recent advances in financial risk management, we provide a detailed application to multivariate high-frequency exchange rate density forecasts.
Handle: RePEc:nbr:nberwo:6845
Template-Type: ReDIF-Paper 1.0
Title: Does Venture Capital Spur Innovation?
Author-Name: Samuel Kortum
Author-Person: pko74
Author-Name: Josh Lerner
Author-Person: ple60
Note: CF PR
Number: 6846
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6846
File-URL: http://www.nber.org/papers/w6846.pdf
File-Format: application/pdf
Publication-Status: published as Kortum, Samuel and Joseph Lerner. "Assessing The Contribution Of Venture Capital To Innovation," Rand Journal of Economics, 2000, v31(4,Winter), 674-692.
Abstract: While policymakers often assume venture capital has a profound impact on innovation, that premise has not been evaluated systematically. We address this omission by examining the influence of venture capital on patented inventions in the United States across twenty industries over three decades. We address concerns about causality in several ways, including exploiting a 1979 policy shift that spurred venture capital fundraising. We find that the amount of venture capital activity in an industry significantly increases its rate of patenting. While the ratio of venture capital to R&D has averaged less than 3% in recent years, our estimates suggest that venture capital accounts for about 15% of industrial innovations. We address concerns that these results are an artifact of our use of patent counts by demonstrating similar patterns when other measures of innovation are used in a sample of 530 venture-backed and non-venture-backed firms.
Handle: RePEc:nbr:nberwo:6846
Template-Type: ReDIF-Paper 1.0
Title: Conflict of Interest in the Issuance of Public Securities: Evidence from Venture Capital
Author-Name: Paul Gompers
Author-Person: pgo301
Author-Name: Josh Lerner
Author-Person: ple60
Note: CF
Number: 6847
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6847
File-URL: http://www.nber.org/papers/w6847.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Law and Economics, Vol. 42, no. 1, part 1 (April 1999): 1-29.
Abstract: In this paper we investigate potential conflicts of interest in the issuance of public securities in a setting analogous to a universal bank, i.e., the underwriting of initial public offerings by investment banks that hold equity in a firm through a venture capital subsidiary. We contrast two hypotheses. Under anticipate the conflict. The suggests that investment banks are able to utilize superior information when they underwrite securities. The evidence supports the rational discounting hypothesis. Initial public offerings that are underwritten by affiliated investment banks perform as well or better than issues of firms in which none of the investment banks held a prior equity position. Investors do, however, require a greater discount at the offering to compensate for potential adverse selection. We also provide evidence that investment bank-affiliated venture firms address the potential conflict by investing in and subsequently underwriting less information-sensitive issues. Our evidence provides no support for the prohibitions on universal banking instituted by the Glass-Steagall Act of 1933.
Handle: RePEc:nbr:nberwo:6847
Template-Type: ReDIF-Paper 1.0
Title: The Size and Scope of Government: Comparative Politics with Rational Politicians
Classification-JEL: D7; E6
Author-Name: Torsten Persson
Author-Person: ppe28
Author-Name: Guido Tabellini
Author-Person: pta37
Note: PE
Number: 6848
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6848
File-URL: http://www.nber.org/papers/w6848.pdf
File-Format: application/pdf
Publication-Status: published as European Economic Review, Alfred Marshall Lecture, Vol. 43 (1999): 699-735.
Abstract: We try to demonstrate how economists may engage in research on comparative politics, relating the size and composition of government spending to the political system. A Downsian model of electoral competition and forward-looking voting indicates that majoritarian -- as opposed to proportional -- elections increase competition between parties by focusing it into some key marginal districts. This leads to less public goods, less rents for politicians, more redistribution and larger government. A model of legislative bargaining and backward-looking voting indicates that presidential -- as opposed to parliamentary -- regimes increase competition between both politicians and voters. This leads to less public goods, less rents for politicians redistribution, and smaller government. We confront these predictions with cross-country data from around 1990, controlling for economic and social determinants of government spending. We find strong and robust support for the prediction that the size of government is smaller under presidential regimes, and weaker support for the prediction that majoritarian elections are associated with less public goods.
Handle: RePEc:nbr:nberwo:6848
Template-Type: ReDIF-Paper 1.0
Title: Geography and Economic Development
Classification-JEL: O11; O13
Author-Name: John Luke Gallup
Author-Name: Jeffrey D. Sachs
Author-Name: Andrew D. Mellinger
Note: ITI
Number: 6849
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6849
File-URL: http://www.nber.org/papers/w6849.pdf
File-Format: application/pdf
Publication-Status: published as International Regional Science Review, Vol. 22, no. 2 (August 1999): 179-232.
Publication-Status: published as Harvard International Review (Winter 1998/1999).
Abstract: This paper addresses the complex relationship between geography and macroeconomic growth. We investigate the ways in which geography may matter directly for growth, controlling for economic policies and institutions, as well as the effects of geography on policy choices and institutions. We find that location and climate have large effects on income levels and income growth, through their effects on transport costs, disease burdens, and agricultural productivity, among other channels. Furthermore, geography seems to be a factor in the choice of economic policy itself. When we identify geographical regions that are not conducive to modern economic growth, we find that many of these regions have high population density and rapid population increase. This is especially true of populations that are located far from the coast, and thus that face large transport costs for international trade, as well as populations in tropical regions of high disease burden. Furthermore, much of the population increase in the next thirty years is likely to take place in these geographically disadvantaged regions.
Handle: RePEc:nbr:nberwo:6849
Template-Type: ReDIF-Paper 1.0
Title: Contagion, Bank Lending Spreads and Output Fluctuations
Classification-JEL: E44; F36
Author-Name: P.R. Agenor
Author-Person: pag16
Author-Name: J. Aizenman
Author-Person: pai8
Author-Name: A. Hoffmaister
Author-Person: pho135
Note: IFM
Number: 6850
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6850
File-URL: http://www.nber.org/papers/w6850.pdf
File-Format: application/pdf
Abstract: This paper studies the effects of contagion on bank lending spreads and output fluctuations in Argentina. The first part presents the analytical framework, which analyzes the determination of bank lending spreads in the presence of verification and enforcement costs of loan contracts. The second part presents estimates of a vector autoregression model that relates the ex ante bank lending spread, the cyclical component of output, the real bank lending rate, and the external interest rate spread. The effects of a contagious shock (modeled as a positive historical shock in the external interest rate spread) are analyzed using generalized impulse response functions. The sock is shown to lead to an increase in domestic spreads and a reduction in the cyclical component of output. These results are consistent with the predictions of our analytical framework.
Handle: RePEc:nbr:nberwo:6850
Template-Type: ReDIF-Paper 1.0
Title: Empirical Implications of Physician Authority in Pharmaceutical Decisionmaking
Classification-JEL: D23; I11
Author-Name: Scott Stern
Author-Name: Manuel Trajtenberg
Author-Person: ptr35
Note: AG EH
Number: 6851
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6851
File-URL: http://www.nber.org/papers/w6851.pdf
File-Format: application/pdf
Abstract: This paper studies the consequences of physician authority on pharmaceutical prescribing. Physicians engage in a costly process of particular conditions and characteristics. The relative efficiency of this matching process results from the diagnostic skill of the physician along with the investments made by the doctor in learning about different drugs. While the underlying level of physician skill or knowledge cannot be observed, differences among physicians in terms of these attributes are reflected in their prescribing behavior. We provide evidence for two major findings regarding the exercise of physician authority in this context. First, there is substantial variation in the degree to which physician prescribing is concentrated (i.e., some physicians prescribe a more diverse portfolio of drugs than others). Second, this concentration is correlated with observable drug characteristics. In particular, concentrated prescribers tend to prescribe drugs with high levels of advertising, low prices, and high (lagged) market shares. Our empirical results provide evidence for the importance of both physician effort and diagnostic ability in the prescribing process. In particular, physicians who differentiate among their patients more finely are more likely to have less concentrated prescribing portfolios and to be less sensitive to information sources which promote the use of drugs for the
Handle: RePEc:nbr:nberwo:6851
Template-Type: ReDIF-Paper 1.0
Title: Three Sides of Harberger Triangles
Classification-JEL: H21; D61
Author-Name: James R. Hines, Jr.
Author-Person: phi111
Note: PE
Number: 6852
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6852
File-URL: http://www.nber.org/papers/w6852.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Economic Perspectives, Vol. 13, no. 2 (Spring 1999): 167-188.
Abstract: Harberger triangles are used to calculate the efficiency costs of taxes, government regulations, monopolistic practices, and various other market distortions. This paper considers the historical development of Harberger triangles, the associated theoretical controversies, and the contribution of Harberger triangles to subsequent empirical work and theories of market imperfections. Prior to the publication of Arnold Harberger's papers, economists very rarely estimated deadweight losses. The empirical deadweight loss literature expanded greatly since the 1960s now quite common. Meanwhile, critical evaluation of deadweight loss estimates led to new theories of rent-seeking and other inefficiencies of economies with multiple distortions.
Handle: RePEc:nbr:nberwo:6852
Template-Type: ReDIF-Paper 1.0
Title: What is Driving US and Canadian Wages: Exogenous Technical Change or Endogenous Choice of Technique?
Classification-JEL: J3; O3
Author-Name: Paul Beaudry
Author-Person: pbe35
Author-Name: David Green
Author-Person: pgr285
Note: LS
Number: 6853
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6853
File-URL: http://www.nber.org/papers/w6853.pdf
File-Format: application/pdf
Abstract: This paper proposes a new and unified explanation for the following trends observed over the last 25 years: (1) the increased returns to education, (2) the slow measured growth in TFP in an economy undergoing massive changes in its methods of production, and (3) the poor wage performance, relative to TFP growth, of both young high school and college educated workers. The explanation we propose downplays the role of exogenous skill-biased technological change and instead emphasizes how the endogenous choice of modes of organization, influenced by changes in factor supplies, can generate the above observations. For example, we argue that increased education attainment, through its effect of the choice production techniques, may have been the major cause for the increased differential between more and less educated workers over the last quarter of a century. The evidence we examine to test our hypothesis is based on US and Canadian data over the period 1971 - 95. We pay particular attention to explaining the difference between our results and those associated with the skill-biased technical change hypothesis.
Handle: RePEc:nbr:nberwo:6853
Template-Type: ReDIF-Paper 1.0
Title: Changing Pensions in Cross-Section and Panel Data: Analysis with Employer Provided Plan Descriptions
Classification-JEL: J14; J26
Author-Name: Alan L. Gustman
Author-Person: pgu327
Author-Name: Thomas L. Steinmeier
Note: AG LS
Number: 6854
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6854
File-URL: http://www.nber.org/papers/w6854.pdf
File-Format: application/pdf
Publication-Status: published as Proceedings, National Tax Association (November 8-10, 1998): 371-377.
Abstract: This study analyzes changes in the value of defined benefit (DB) pension plans over time. It uses summary plan descriptions provided by the employers of respondents to the Survey of Consumer Finances (SCF) in 1983 and in 1989, applying them to similar earnings histories. Pension changes between 1990 and 1995 are also analyzed, using employer plan descriptions for large firms published by the Watson Wyatt Company. Substantial changes are found in pension values and pension accruals between the two SCF cross-sections. For example, the median value of DB plans at age 55 is 40 percent higher in 1989 than in 1983. Also, early retirement age falls over the time period. Because there are important changes in the composition of the pensions in each cross-section, those who are covered by the same plan in both years experience smaller changes than are suggested by comparing cross-section data from two different time periods. Nevertheless, those who are continuously covered by the same pension also experience important pension changes over the period. For example, a fifth of those continuously covered by a defined benefit plan experiences a substantial change in early retirement date and early retirement benefits. In addition, subgroups of continuously covered workers experience pension changes in opposite directions. These changes will have a substantial influence on retirement behavior, but are dampened when comparing the differences over time in the means and medians of plan features and plan values. Using the data from Watson Wyatt on the pensions offered by thirty-nine of the fifty largest companies, we also find similar evidence of important changes over the period 1990 to 1995. Again a sizable minority of firms experience very large changes in their plans. These findings suggest that changes in successive cross-sections of pensions will exaggerate the changes in continuing plans. Nevertheless, substantial errors will be introduced into retirement studies if pension incentives and pension values are estimated from a single cross-section under the assumption that pension plans remain stable over time.
Handle: RePEc:nbr:nberwo:6854
Template-Type: ReDIF-Paper 1.0
Title: Hours of Work and the Fair Labor Standards Act: A Study of Retail and Wholesale Trade, 1938-1950
Classification-JEL: J33; J38
Author-Name: Dora L. Costa
Author-Person: pco358
Note: LS DAE
Number: 6855
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6855
File-URL: http://www.nber.org/papers/w6855.pdf
File-Format: application/pdf
Publication-Status: published as Industrial and Labor Relations Review, Vol. 53, no. 4 (July 2000): 648-664
Abstract: I examine the impact of the overtime provisions of the Fair Labor Standards on weekly hours worked between 1938 and 1950 by comparing workers in wholesale trade, a sector which was covered by the Act, with those in retail trade, a sector which was not. I find that the Act reduced hours worked, with a 5 percent reduction in the length of the standard work week reducing by at least 18 percent the proportion of men and women working more than 40 hours per week. I find that employers responded to the overtime provisions of the Act by adjusting straight-time wages, but that this adjustment did not completely offset the overtime provisions. Employers in the south were less able to adjust straight-time wages because the minimum wage provisions of the Act raised wages much more in the south than in the north. The fall in southern hours was therefore greater. Reductions in hours did not translate into increased employment. Although the overtime provisions of the Act may have increased employment in wholesale trade minimum wage provisions of the Act probably reduced it.
Handle: RePEc:nbr:nberwo:6855
Template-Type: ReDIF-Paper 1.0
Title: The Earned Income Tax Credit and the Labor Supply of Married Couples
Classification-JEL: H24; H31
Author-Name: Nada Eissa
Author-Name: Hilary Williamson Hoynes
Author-Person: pho278
Note: PE
Number: 6856
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6856
File-URL: http://www.nber.org/papers/w6856.pdf
File-Format: application/pdf
Publication-Status: published as Eissa, Nada and Hilary Wiliamson Hoynes. "Taxes And The Labor Market Participation Of Married Couples: The Earned Income Tax Credit," Journal of Public Economics, 2004, v88(9-10,Aug), 1931-1958.
Abstract: Over 18 million taxpayers are projected to receive the Earned Income Tax Credit (EITC) in tax year 1997, at a total cost to the federal government of about 25 billion dollars. The EITC is refundable, so that any amount of the credit exceeding the family's tax liability is returned in the form of a cash refund. Advocates of the credit argue that this redistribution occurs with much less distortion to labor supply than that caused by other elements of the welfare system. This popular view that the credit is unlikely to hold among married couples. Theory suggests that primary earners (typically men) would increase labor force participation, but secondary earners would reduce their labor supply in response to an EITC. We study the labor supply response of married couples to several EITC expansions between 1984 and 1996. While our primary interest is the response to changes in the budget set induced by the EITC, our estimation strategy takes account of budget set changes caused by federal tax policy, and by cross-sectional variation in wages, income, and family size. We use both quasi-experimental and reduced form labor supply models to estimate the impact of EITC induced tax changes. The results suggest that EITC expansions between 1984 and 1996 increased married men's labor force participation only slightly but reduced married women's labor force participation by over a full percentage point. Overall, the evidence suggests that family labor supply and pre-tax family earnings fell among married couples. Our results imply that the EITC is effectively subsidizing married mothers to stay at home, and therefore have implications for the design of the program.
Handle: RePEc:nbr:nberwo:6856
Template-Type: ReDIF-Paper 1.0
Title: Firm Behavior and Market Access in a Free Trade Area with Rules of Origin
Classification-JEL: F12; F13
Author-Name: Jiandong Ju
Author-Person: pju209
Author-Name: Kala Krishna
Author-Person: pkr26
Note: ITI
Number: 6857
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6857
File-URL: http://www.nber.org/papers/w6857.pdf
File-Format: application/pdf
Publication-Status: published as Jiandong Ju & Kala Krishna, 2005. "Firm behaviour and market access in a Free Trade Area with rules of origin," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 290-308, February.
Abstract: We develop a model to study the behavior of firms in a Free Trade Area with Rules of Origin and the consequences of this behavior on the market equilibrium and outcome. We show that firms will choose to specialize, and that an FTA with strict ROOs on the intermediate good raises imports and hence improves market access in the final good market reduces imports and hence harms market access in the intermediate good market. More restrictive ROOs on the final good first raise and then lower imports of the final good lower than raise imports of the intermediate good. Their turning point is common so that imports of the final good are maximized and imports of the intermediate good are minimized at a common level of restrictiveness of the rules of origin. We show that our model can be reinterpreted to show that more restrictive ROOs on the final good first improves and then harms the fortunes of labor, and to cast light on a particular policy to improve market access. Other problems with a similar structure could also be analyzed using our techniques; we expect similar results.
Handle: RePEc:nbr:nberwo:6857
Template-Type: ReDIF-Paper 1.0
Title: Malthus to Solow
Classification-JEL: O1; O4
Author-Name: Gary D. Hansen
Author-Person: pha52
Author-Name: Edward C. Prescott
Author-Person: ppr10
Note: EFG
Number: 6858
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6858
File-URL: http://www.nber.org/papers/w6858.pdf
File-Format: application/pdf
Publication-Status: published as Hansen, Gary D. and Edward C. Prescott. "Malthus To Solow," American Economic Review, 2002, v92(4,Sep), 1205-1217.
Abstract: A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. This transition is inevitable given positive rates of total factor productivity growth. We use a standard growth model with one good and two available technologies. The first, denoted the capital as inputs. The second, denoted the does not require land. We show that in the early stages of development, only the Malthus technology is used and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable and both technologies are employed. At this point, living standards improve since population growth has less influence on per capita income growth. In the limit, the economy behaves like a standard Solow growth model.
Handle: RePEc:nbr:nberwo:6858
Template-Type: ReDIF-Paper 1.0
Title: Understanding the Twentieth Century Decline in Chronic Conditions Among Older Men
Author-Name: Dora L. Costa
Author-Person: pco358
Note: DAE AG
Number: 6859
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6859
File-URL: http://www.nber.org/papers/w6859.pdf
File-Format: application/pdf
Publication-Status: published as Demography, Vol. 37, no. 1 (February 2000): 53-72.
Abstract: I use a sample of Union Army veterans to trace the impact of a high infant mortality rate in area of enlistment, such infectious disease as acute respiratory infections, measles, typhoid fever, tuberculosis, rheumatic fever, diarrhea, and malaria while in the army, occupation at enlistment, and occupation at older ages on chronic respiratory problems, various heart conditions, and joint and back problems at older ages. I find that between 1900 and the present the prevalence of respiratory conditions at older ages fell by 70 percent, that of arrhythmias, murmurs, and valvular heart disease by 90 percent, atherosclerosis by 60 percent, and joint and back problems by 30 percent. Occupational shifts accounted for 15 percent of the decline in joint problems, over 75 percent of the decline in back problems, and 25 percent of the decline in respiratory difficulties. Reduced exposure to infectious disease accounted for at least 10 to 25 percent of the decline in chronic conditions. I also find that the duration of chronic conditions has remained unchanged since the early 1900s but that if disability is measured by difficulty in walking, men with chronic conditions are now less disabled than they were in the past.
Handle: RePEc:nbr:nberwo:6859
Template-Type: ReDIF-Paper 1.0
Title: Unemployment Insurance Savings Accounts
Classification-JEL: H5; J65
Author-Name: Martin Feldstein
Author-Person: pfe112
Author-Name: Daniel Altman
Note: LS PE
Number: 6860
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6860
File-URL: http://www.nber.org/papers/w6860.pdf
File-Format: application/pdf
Publication-Status: published as Feldstein, Martin and Dan Altman. "Unemployment Insurance Savings Accounts." Tax Policy and the Economy 21 (2006).
Publication-Status: published as Unemployment Insurance Savings Accounts, Martin Feldstein, Daniel Altman. in Tax Policy and the Economy, Volume 21, Poterba. 2007
Abstract: We examine a system of Unemployment Insurance Saving Accounts (UISAs) as an alternative to the traditional unemployment insurance system. Individuals are required to save up to 4 percent of wages in special accounts and to draw unemployment compensation from these accounts instead of taking state unemployment insurance benefits. If the accounts are exhausted, the government lends money to the account. Positive accounts earn the return on commercial paper and negative accounts are charged that rate. Positive UISA balances are converted into retirement income or bequeathed if the individual dies before retirement age. Negative account balances are forgiven at retirement age. Money taken by an unemployed individual from a UISA with a positive balance reduces the individual's personal wealth by an equal amount. In this case, individuals fully internalize the cost of unemployment compensation. UISAs provide the same protection to the unemployed as the current UI system but with less of the adverse incentives. The key empirical question is whether accounts based on a moderate saving rate can finance a significant share of unemployment payments or whether the concentration of unemployment among a relatively small number of individuals implies that the UISA balances would typically be negative, forcing individuals to rely on government benefits with the same adverse effects that characterize the current UI system. To resolve this issue we use the Panel Study on Income Dynamics to simulate the UISA system over a 25 year historic period. Our analysis indicates that almost all individuals have positive UISA balances and therefore remain sensitive to the cost of unemployment compensation. Even among individuals who experience unemployment, most have positive account balances at the end of their unemployment spell. Although about half of the benefit dollars would go to individuals whose accounts are negative at the end of their working life, less than one third of the benefits go to individuals who also have negative account balances when unemployed. These facts suggest a substantial potential improvement in the incentives of the unemployed. The cost to taxpayers of forgiving the negative balances is substantially less than half of the taxpayer cost of the current UI system. Our analysis of the distribution of lifetime UISA payments and taxes of household heads shows the top quintile gaining a small cumulative amount while those in the bottom quintile lose a very small cumulative amount. Other quintiles are small net gainers.
Handle: RePEc:nbr:nberwo:6860
Template-Type: ReDIF-Paper 1.0
Title: Trade, Investment, and Growth: Nexus, Analysis, and Prognosis
Classification-JEL: F43; O47
Author-Name: Kala Krishna
Author-Person: pkr26
Author-Name: Ataman Ozyildirim
Author-Name: Norman R. Swanson
Author-Person: psw10
Note: ITI
Number: 6861
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6861
File-URL: http://www.nber.org/papers/w6861.pdf
File-Format: application/pdf
Publication-Status: published as Krishna, Kala & Ozyildirim, Ataman & Swanson, Norman R., 2003. "Trade, investment and growth: nexus, analysis and prognosis," Journal of Development Economics, Elsevier, vol. 70(2), pages 479-499, April.
Abstract: This paper looks at the patterns of causation between income, export, import, and investment growth for 25 developing countries. Our approach differs from previous efforts in a number of ways. First, we examine each country individually in order to allow for complete heterogeneity and properly account for the stochastic trending properties of the data. Second, we apply novel model selection techniques which are based on in-sample goodness-of-fit criteria and ex-ante predictive ability criteria to identify the best model for each country. Finally, we propose a rather novel device based on simple contingency tables which allows us to assess whether our models are capable of accurately predicting turning points in GDP growth. We find that countries with high trade exposure fare poorly in this dimension and posit that the GDP growth in such countries is best modeled using an index of global business cycle conditions, in addition to the above variables. Overall, we find that in around two thirds of the countries examined, growth is best explained by exports and/or imports. Further, and in contrast to previous findings of bi-directional causality, around 70% of the countries exhibit uni-directional causality.
Handle: RePEc:nbr:nberwo:6861
Template-Type: ReDIF-Paper 1.0
Title: What If Alexander Hamilton Had Been Argentinean? A Comparison of the Early Monetary Experiences of Argentina and the United States
Classification-JEL: F41; N16
Author-Name: Michael D. Bordo
Author-Person: pbo243
Author-Name: Carlos A. Vegh
Author-Person: pve34
Note: DAE ME
Number: 6862
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6862
File-URL: http://www.nber.org/papers/w6862.pdf
File-Format: application/pdf
Publication-Status: published as Bordo, Michael D. and Carlos A. Vegh. "What If Alexander Hamilton Had Been Argentinean? A Comparison Of The Early Monetary Experiences Of Argentina And The United States," Journal of Monetary Economics, 2002, v49(3,Apr), 459-494.
Abstract: The contrast between the early nineteenth century Argentinean experience of high inflation and the American experience of low inflation is interpreted in terms of a dynamic monetary model of optimal taxation. It is argued that the two countries' experiences diverged because of the different constraints they faced in financing wartime government expenditures. In the presence of frequent wars, ever-tightening access to foreign capital, and an inadequate tax base, Argentina's use of the inflation tax may be viewed as an optimal solution to its wartime problems. By contrast, with the exception of the Revolutionary War, the absence of such constraints in the United States required full-tax smoothing, with only a temporary use of the inflation tax during wartime. Such policies were embodied in Alexander Hamilton's fiscal package of 1790, which allowed the United States to bond-finance most subsequent wartime expenditures.
Handle: RePEc:nbr:nberwo:6862
Template-Type: ReDIF-Paper 1.0
Title: In a World Without Borders: The Impact of Taxes on Internet Commerce
Author-Name: Austan Goolsbee
Author-Person: pgo49
Note: PE
Number: 6863
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6863
File-URL: http://www.nber.org/papers/w6863.pdf
File-Format: application/pdf
Publication-Status: published as Goolsbee, Austan. "In A World Without Borders: The Impact Of Taxes On Internet Commerce," Quarterly Journal of Economics, 2000, v115(2,May), 561-576.
Abstract: The rapid rise in sales over the Internet has generated debate over the taxation of such transactions since the buyers usually pay no sales tax. This paper uses new data on the purchase decisions of approximately 25,000 online users to examine the effects that local sales taxes have on Internet commerce. The results show that, controlling for many observable characteristics, people who live in locations with high sales taxes are significantly more likely to buy things over the Internet. The estimated tax responsiveness of both participation and spending are large and resemble the tax effects found in previous research on retail sales in geographic border areas. The results are quite robust; the tax sensitivity is clear nationally, within regions, within states, and even within metropolitan areas. Further results suggest that the tax effect cannot be explained by unobserved heterogeneity across cities. The magnitudes in the paper suggest that to apply existing sales taxes to Internet commerce would reduce the number of online buyers by 25% and spending by more than 30% with some specifications suggesting even larger effects.
Handle: RePEc:nbr:nberwo:6863
Template-Type: ReDIF-Paper 1.0
Title: Exchange Rates and Jobs: What Do We Learn from Job Flows?
Classification-JEL: E52; F16
Author-Name: Pierre-Olivier Gourinchas
Author-Person: pgo28
Note: IFM
Number: 6864
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6864
File-URL: http://www.nber.org/papers/w6864.pdf
File-Format: application/pdf
Publication-Status: published as Gourinchas, Pierre-Olivier. "Exchange Rates Do Matter: French Job Reallocation And Exchange Rate Turbulence, 1984-1992," European Economic Review, 1999, v43(7,Jun), 1279-1316.
Publication-Status: published as Exchange Rates and Jobs: What Do We Learn from Job Flows?, Pierre-Olivier Gourinchas. in NBER Macroeconomics Annual 1998, volume 13, Bernanke and Rotemberg. 1999
Abstract: Currency fluctuations provide a substantial source of movements in relative prices that is largely exogenous to the firm. This paper evaluates empirically and theoretically the importance of exchange rate movements on job reallocation across and within sectors. The objective is (1) to provide accurate estimates of the impact of exchange rate fluctuations and (2) to further our understanding of how reallocative shocks propagate through the economy. The empirical results indicate that exchange rates have a significant effect of gross and net job flows in the traded goods sector. Moreover, the paper finds that job creation and destruction comove positively, following a real exchange rate shock. Appreciations are associated with additional turbulence, and depreciations with a existing non-representative agent reallocation models have a hard time replicating the salient features of the data. The results indicate a strong tension between the positive comovements of gross flows in response to reallocative disturbances and the negative comovement in response to aggregate shocks.
Handle: RePEc:nbr:nberwo:6864
Template-Type: ReDIF-Paper 1.0
Title: Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second Best in Health Care Markets
Author-Name: Martin Gaynor
Author-Person: pga1
Author-Name: Deborah Haas-Wilson
Author-Name: William B. Vogt
Author-Person: pvo14
Note: EH
Number: 6865
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6865
File-URL: http://www.nber.org/papers/w6865.pdf
File-Format: application/pdf
Publication-Status: published as Journal of Political Economy, Vol. 108, no. 5, (October 2000): 992-1005
Abstract: The nature, and normative properties, of competition in health care markets has long been the subject of much debate. In particular, policymakers have exhibited a great deal of reservation toward competition in health care markets, as demonstrated by the plethora of regulations governing the health care sector. Currently, as consolidation rapidly occurs in health care markets, concern about reduced competition has arisen. This concern, however, cannot be properly evaluated without a normative standard. In this paper we consider what the optimal benchmark is in the presence of moral hazard effects on consumption due to health insurance. Moral hazard is widely recognized as one of the most important distortions in health care markets. Moral hazard due to health insurance leads to excess consumption, therefore it is not obvious that competition is second best optimal given this distortion. Intuitively, it seems that imperfect competition in the health care market may constrain this moral hazard by increasing prices. We show that this intuition cannot be correct if insurance markets are competitive. A competitive insurance market will always produce a contract that leaves consumers at least as well off under lower prices as under higher prices. Thus, imperfect competition in health care markets can not have efficiency enhancing effects if the only distortion is due to moral hazard.
Handle: RePEc:nbr:nberwo:6865
Template-Type: ReDIF-Paper 1.0
Title: Demographics and Medical Care Spending: Standard and Non-Standard Effects
Author-Name: David M. Cutler
Author-Person: pcu64
Author-Name: Louise Sheiner
Note: EH
Number: 6866
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6866
File-URL: http://www.nber.org/papers/w6866.pdf
File-Format: application/pdf
Publication-Status: published as Auerbach, Alan and Ron Lee (eds.) Demographic Change and Fiscal Policy. Cambridge: Cambridge University Press, 2001.
Abstract: In this paper, we examine the effects of likely demographic changes on medical spending for the elderly. Standard forecasts highlight the potential for greater life expectancy to increase costs: medical costs generally increase with age, and greater life expectancy means that more of the elderly will be in the older age groups. Two factors work in the other direction, however. First, increases in life expectancy mean that a smaller share of the elderly will be in the last year of life, when medical costs generally are very high. Furthermore, more of the elderly will be dying at older ages, and end-of-life costs typically decline with age at death. Second, disability rates among the surviving population have been declining in recent years by 0.5 to 1.5 percent annually. Reductions in disability, if sustained, will also reduce medical spending. Thus, changes in disability and mortality should, on net, reduce average medical spending on the elderly. However, these effects are not as large as the projected increase in medical spending stemming from increases in overall medical costs. Technological change in medicine at anywhere near its historic rate would still result in a substantial public sector burden for medical costs.
Handle: RePEc:nbr:nberwo:6866
Template-Type: ReDIF-Paper 1.0
Title: Fixed vs. Floating Exchange Rates: How Price Setting Affects the Optimal Choice of Exchange-Rate Regime
Classification-JEL: F3; F4
Author-Name: Michael B. Devereux
Author-Person: pde32
Author-Name: Charles Engel
Author-Person: pen14
Note: IFM
Number: 6867
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6867
File-URL: http://www.nber.org/papers/w6867.pdf
File-Format: application/pdf
Abstract: We investigate the welfare properties of fixed and floating exchange rate regimes in a two-country, dynamic, infinite-horizon model with agents optimizing in an environment of uncertainty created by monetary shocks. The optimal exchange rate regime may depend on whether prices are set in the currency of producers or the currency of consumers. When prices are set in consumers' currency, the variance of home consumption is not influenced by foreign monetary variance under floating exchange rates, while there is transmission of foreign disturbances under floating rates if prices are set in producers' currencies, or under fixed exchange rates. An important feature of the model is the exchange rate regime affects not just the variance of consumption and output, but also their average levels. When prices are set in producer's currency, as in the traditional framework, we find that there is a trade-off between floating and fixed exchange rates. Exchange rate adjustment under floating rates allows for a lower variance of consumption, but exchange rate volatility itself leads to a lower average level of consumption. When prices are set in consumer's currency, floating exchange rates always dominate fixed exchange rates.
Handle: RePEc:nbr:nberwo:6867
Template-Type: ReDIF-Paper 1.0
Title: CEO Incentives and Firm Size
Author-Name: George P. Baker
Author-Name: Brian J. Hall
Note: CF LS
Number: 6868
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6868
File-URL: http://www.nber.org/papers/w6868.pdf
File-Format: application/pdf
Publication-Status: published as Baker, George P. and Brian J. Hall. "CEO Incentives and Firm Size," Journal of Labor Economics, 2004, v22(4,Oct), 767-798.
Abstract: What determines CEO incentives? A confusion exists among both academics and practitioners about how to measure the strength of CEO incentives, and how to reconcile the enormous differences in pay sensitivities between executives in large and small firms. We show that while one measure of CEO incentives (the dollar change in CEO wealth per dollar change in firm value) falls by a factor of ten between firms in the smallest and largest deciles in our sample, another measure of CEO incentives (the value of CEO equity stakes) increases by roughly the same magnitude. We resolve the confusion about which of these measures better reflects CEO incentives by developing and solving a model that allows CEO productivity to differ for firms of different sizes. The crucial parameter is shown to be the elasticity of CEO productivity with respect to firm size. Our empirical results suggest that CEO marginal products rise significantly, and overall CEO incentives are roughly constant or decline slightly with firm size. We also show that the appropriate measure of incentives depends on the type of CEO activity being considered. For activities whose dollar impact is the same for large and small firms (such as the purchase of a corporate jet), the dollars-on-dollars measure is appropriate, and large firms suffer significant agency problems due to their weak incentives. For activities whose percentage impact is similar across firms of different sizes (such as a corporate reorganization) the equity stake measure is better, and the incentive problem faced by large firms is not as severe. Finally, using a multi-task model, we discuss the implication of our findings for the design of control systems.
Handle: RePEc:nbr:nberwo:6868
Template-Type: ReDIF-Paper 1.0
Title: The Effects of Class Size and Composition on Student Achievement: New Evidence from Natural Population Variation
Author-Name: Caroline M. Hoxby
Author-Person: pho46
Note: CH
Number: 6869
Creation-Date: 1998-12
Order-URL: http://www.nber.org/papers/w6869
File-URL: http://www.nber.org/papers/w6869.pdf
File-Format: application/pdf
Publication-Status: published as Hoxby, Caroline M. "The Effects Of Class Size On Student Achievements: New Evidence From Population Variation," Quarterly Journal of Economics, 2000, v115(4,Nov), 1239-1285.
Abstract: I use natural population variation to identify the effects of class size and composition on student achievement. I isolate the credibly random component of population variation in each grade and school district and use this component to generate instrumental variables for class size and composition. I also exploit the discontinuous changes in class size that occur when natural population variation triggers a change in the number of classes in a grade in a school. Discontinuity-based results are both consistent and precise only when applied to within-district changes in class size and population. I find that reductions in class size from a base of 15 to 30 students have no effect on student achievement. The estimates are precise enough to identify improvements in math, reading, or writing achievement of just 3/100ths of a standard deviation. I find that the presence of black students in a class, in an of itself, has no effect on achievement. I demonstrate that estimates of the effect of racial composition that rely on between-district comparisons suffer from substantial bias. Finally, I show that more female classes perform significantly better in writing in the 4th through 8th grades and in math in the 4th grade. Comparison of the effects to average male-female differences in test scores suggest that gender composition alters classroom conduct.
Handle: RePEc:nbr:nberwo:6869