Robert E. Lucas

Bio: Robert E. Lucas is an academic researcher from University of Chicago. The author has contributed to research in topics: Population & General equilibrium theory. The author has an hindex of 81, co-authored 204 publications receiving 94081 citations. Previous affiliations of Robert E. Lucas include National Bureau of Economic Research & Boston University.

On the welfare cost of inflation

Abstract: Estimates are provided for the social cost of inflation in the U.S. economy. The estimated cost, expressed as a fraction of income, is proportional to the square root of the nominal interest rate. This approximation assigns much higher costs to low rates of inflation than does the familiar welfare triangle formula. ; These estimates are rationalized using Sidrauski's model, in which real balances yield utility, and also using the McCallum-Goodfriend model, in which real balances and time are combined via a transactions technology to support a given spending flow. The latter formulation is related to the Baumol and Miller-Orr inventory-theoretic models of money demand. Second-best modifications to take into account fiscal complications are also considered, but turn out to be quantitatively minor.

Optimal Management of a Research and Development Project

Abstract: This paper offers a series of models designed to aid in the evaluation and control of an individual research and development project. The project under consideration is assumed to involve costs incurred over a period [0, T] and a return earned at T (or discounted to T) when the project is completed. In two of the models discussed below, the completion time T is regarded as known; in two others, T is taken to be a random variable with a known distribution. In two models, the costs per unit of time of operating the project are assumed to be fixed; in the other two, costs are variable, with increased expenditure resulting in a decreased completion time. Each of the four possible combinations of assumptions is treated in a separate section. The last section contains a summary and discussion of results.

General Equilibrium Analysis of the Eaton-Kortum Model of International Trade

Abstract: We study a variation of the Eaton-Kortum model, a competitive, constant-returns-to-scale multicountry Ricardian model of trade. We establish existence and uniqueness of an equilibrium with balanced trade where each country imposes an import tariff. We analyze the determinants of the cross-country distribution of trade volumes, such as size, tariffs and distance, and compare a calibrated version of the model with data for the largest 60 economies. We use the calibrated model to estimate the gains of a world-wide trade elimination of tariffs, using the theory to explain the magnitude of the gains as well as the differential effect arising from cross-country differences in pre-liberalization of tariffs levels and country size.

Migration amongst the batswana

Abstract: The hypothesis presented in Todaro (1 969), that the likelihood of finding work in town influences the rate of rural-urban migration, now enjoys the status of a received doctrine. Assuming potential migrants indeed respond to this employment probability, the model of Harris and Todaro (I970) demonstrates that, in certain parametric ranges, urban job creation may actually exacerbate unemployment and even reduce national product. This result has had considerable influence on policy formulation in LDCs, by emphasising that, in the urban sector, the social opportunity cost of labour may not be insignificant despite burgeoning unemployment. Yet neither the Todaro hypothesis nor prevalence of the Harris-Todaro parametric range has been adequately, empirically explored. Many estimates of macro migration equations do exist, normally relating the proportion of population migrating to average wages in differing locations and occasionally to average population characteristics. But in Lucas (I 975), I show that the popular nonlinear specification of such macro functions may well display serious specification error bias; a nonlinear function of the aggregate variables is not simply the average of underlying micro migration decisions related to the disaggregated variables. Thus, although a few estimates of macro migration equations have also incorporated average unemployment rates, usually in developed country contexts and with mixed results, these analyses are at best very circumscribed tests of the Todaro and Harris-Todaro theories. On the other hand, surprisingly few estimates of micro migration response functions have appeared. In part, this probably reflects the difficulty of dealing with unobserved variables. For example, suppose whether or not each person moves to town is to be related to his or her wage at home compared to the relevant wage in town. In a typical survey, for those individuals who remain in the village the wage they would command in town is not observed; for those who have moved to town, the prior rural wage is usually not reported. DaVanzo (I976) deals with this problem of unobserved variables, in a US context, by introducing a multivariate wage equation to predict potential wages in alternative locations for each person using their observed personal characteristics. However, this broad approach suggested by DaVanzo has not previously been extended to incorporate unobserved employment probabilities in alternative locations. IThus, in surveying the literature in i980, DaVanzo concludes:

Social Capital in the Creation of Human Capital

Abstract: In this paper, the concept of social capital is introduced and illustrated, its forms are described, the social structural conditions under which it arises are examined, and it is used in an analys...

A Contribution to the Empirics of Economic Growth

Abstract: This paper examines whether the Solow growth model is consistent with the international variation in the standard of living. It shows that an augmented Solow model that includes accumulation of human as well as physical capital provides an excellent description of the cross-country data. The paper also examines the implications of the Solow model for convergence in standards of living, that is, for whether poor countries tend to grow faster than rich countries. The evidence indicates that, holding population growth and capital accumulation constant, countries converge at about the rate the augmented Solow model predicts. This paper takes Robert Solow seriously. In his classic 1956 article Solow proposed that we begin the study of economic growth by assuming a standard neoclassical production function with decreasing returns to capital. Taking the rates of saving and population growth as exogenous, he showed that these two vari- ables determine the steady-state level of income per capita. Be- cause saving and population growth rates vary across countries, different countries reach different steady states. Solow's model gives simple testable predictions about how these variables influ- ence the steady-state level of income. The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country. This paper argues that the predictions of the Solow model are, to a first approximation, consistent with the evidence. Examining recently available data for a large set of countries, we find that saving and population growth affect income in the directions that Solow predicted. Moreover, more than half of the cross-country variation in income per capita can be explained by these two variables alone. Yet all is not right for the Solow model. Although the model correctly predicts the directions of the effects of saving and

Endogenous Technological Change

Abstract: Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

Endogenous Technological Change

Abstract: Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.