Showing papers in "Journal of Economic Literature in 1997"
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TL;DR: The authors argue that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth, and that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sidehow, responding passively to economic growth.
Abstract: This critique argues that the preponderance of theoretical reasoning and empirical evidence suggests a positive, first-order relationship between financial development and economic growth. The body of work would push even most skeptics toward the belief that the development of financial markets and institutions is a critical and inextricable part of the growth process and away from the view that the financial system is an inconsequential sideshow, responding passively to economic growth. Many gaps remain, however, and the paper highlights areas in acute need of additional research.
4,571 citations
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TL;DR: In this article, event study methods are described including some of the potential complications of the approach, and an example is included to illustrate the approach and to illustrate how the impact of an economic event can be measured by examining security prices surrounding the event.
Abstract: The event study is an important research tool in economics and finance. The goal of an event study is to measure the effects of an economic event on the value of firms. Event study methods exploit the fact that, given rationality in the marketplace, the effects of an event will be reflected immediately in security prices. Thus the impact can be measured by examining security prices surrounding the event. In this paper event study methods are described including some of the potential complications. An example is included to illustrate the approach.
4,193 citations
TL;DR: The authors of this paper were deeply grateful to Mario Rizzo, Peter Boettke, and Yat Nyarko, for their helpful comments on an earlier version of the paper.
Abstract: The aiithlor is deeply grateful to Mario Rizzo, Peter Boettke, andc1 Yat Nyarko, for exte.tsive and helpful comm7ents o an earlier draft Firther helpful coniiiiienit.s were provided by Joseph T Salernio, and by othier iaiemiibers of the Aiustriani Economizics Colloquiumi71 at New York UniverOity. Several anioniymtouis referee.s provided m1anzy additionial valiuable suggestions. The auithlor is gr-atefiul to the Sarah Scaife Foundation for researchi support. I THE AUSTRIAN TRADITION is represented in modern economics by a "very vocal, feisty and dedicated subset of the economics profession" (Karen Vaughn 1994, p. xi). Much of the work of this group of scholars is devoted to the most fundamental problems of microeconomics.1 This Austrian work, therefore, differs in character and content from a good deal of neoclassical theory which, despite widespread and growing awareness of its limitations, continues to serve as the analytical core of main
2,873 citations
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TL;DR: In this paper, the authors present a longer version of an essay under preparation for possible publication in the Journal of Economic Literature, which they refer to as their work on reference-dependent utility.
Abstract: UNTVERSITY OF CALIFORNIA AT BERKELEY Department of Economics Berkeley, CaHfornia 94720-3880 Working Paper No. 97-251 Psychology and Economics Matthew Rabin Department of Economics University of California, Berkeley January 1997 Key words: bounded rationality, decision making, fairness, framing effects, heuristics and biases, preferences, psychology, reciprocity, reference-dependent utility JEL Classification: A12, B49, D i l , D60, D81, D83, D91 This is a longer version of an essay under preparation for possible publication in the Journal of Economic Literature. I thank John Pencavel and anonymous referees for earlier comments on its structure and content. For comments on this draft, I thank Steven Blatt, Colin Camerer, Peter Diamond, Erik Eyster, Ernst Fehr, Danny Kahneman, George Loewenstein, Ted O'Donoghue, and John Pencavel. For helpful conversations over the past several years on topics covered in this essay, I thank George Akerlof, Gary Chamess, Eddie Dekel, Peter Diamond, David Laibson, David I. Levine, George Loewenstein, Rob MacCoun, James Montgomery, Vai-Lam Mui, Drazen Prelec, and especially Colin Camerer, Danny Kahneman, and Richard Thaler. Co-authors on research related to the topics of this essay include David Bowman, Deborah Minehart, Ted O'Donoghue, and Joel Schrag. Helpful research assistance was provided by Gadi Barlevy, Nikki Blasberg, Gail Brennan, Paul Ellickson, April Franco, Marcus Heng, Bruce Hsu, Jin Woo Jung, and especially Steven Blatt, Jimmy Chan, Erik Eyster, and Clara Wang. I am extremely grateful for financial support from the Russell Sage and Alfred P. Sloan Foundations.
2,426 citations
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TL;DR: In this article, the authors trace the time series ("Growth of Firms") tradition in the study of market structure, and look at how recent studies on entry and the size distribution of firms have modified thinking in this area.
Abstract: This paper traces the time series ("Growth of Firms") tradition in the study of market structure, and looks at how recent studies on entry and the size distribution of firms have modified thinking in this area.
1,515 citations
TL;DR: This famous passage from Marshall's Principles of Economics (it first appeared in the fifth edition which came out in 1907) nicely brings out two issues which are as germane to economics today as they were when Marshall wrote as mentioned in this paper.
Abstract: This famous passage from Marshall’s Principles of Economics (it first appeared in the fifth edition which came out in 1907) nicely brings out two issues, which are as germane to economics today as they were when Marshall wrote. The first is the heavy reliance by economists in their formal theorizing on the notion of “equilibrium”. The other is the appeal that “biological conceptions3x201D; have for many economists, particularly when their focus is on economic change.
1,430 citations
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TL;DR: This article reviewed the evidence on cross-national comparisons of earnings and income inequality in OECD countries, concluding with a call for more work on empirically testable structural models of household income distribution.
Abstract: This article reviews the evidence on cross-national comparisons of earnings and income inequality in OECD countries. It begins with a series of stylized facts which are then examined and supported by recent studies in the field. Economic, demographic, institutional and policy-related influences on earnings and income distribution are reviewed. The paper concludes with a call for more work on empirically testable structural models of household income distribution.
1,320 citations
TL;DR: This paper examined the trends in the well-being of American women over the last 25 years, a time of significant changes in the relative economic status of women and in the labor market as a whole.
Abstract: This paper examines the trends in the well-being of American women over the last 25 years, a time of significant changes in the relative economic status of women and in the labor market as a whole. A broad range of indicators are considered to capture changes in women's well-being in the family as well as in the labor market. For virtually all age and education groups, substantial evidence is obtained of rising gender equality in labor market outcomes, notably labor force participation, wages, and occupational distributions. Broad evidence is also found of greater gender parity within married couple families as the housework time of husbands increased relative to wives' and the relative wages of wives rose compared to their husbands'. However, parallel to the recent evidence of the declining labor market position of lower skilled men, there has been a similar deterioration in the economic status of less educated women, especially high school dropouts. Their labor force participation rates and wages have risen at a much slower pace than those of more highly educated women, while their incidence of single headship has increased much more rapidly. These findings for less educated women serve to underscore the widening gap between more and less skilled Americans of both sexes, as well as to emphasize its broad dimensions.
485 citations
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TL;DR: In this article, the authors present evidence on the teaching and learning of economics at the undergraduate level, and describe what economists are doing in classrooms, and discuss the consequences of their failure to do more.
Abstract: Economists are singled out for their lack of interest in teaching. Yet, in teaching economics to undergraduates, the work of some economists is innovative and recognized, although not necessarily appreciated by those who are missing the current realities in higher education. This article presents evidence on the teaching and learning of economics at the undergraduate level. It describes what economists are doing in classrooms, and discusses the consequences of their failure to do more. It reviews what research offers teachers and considers alternative measures of educational outputs. Consideration is given to nonlecture teaching methods that are more prevalent in other disciplines.
348 citations
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TL;DR: The implications for labor markets of contracts to avoid hold-up of investments are assessed in this article, where the authors assess the implications of employment contracts for avoiding hold up of investments.
Abstract: The implications for labor markets of contracts to avoid hold-up of investments are assessed. Employment at will protects the returns on a firm's general and specific investments without wages increasing with tenure. With turnover costs, fixed but renegotiable wages can protect general investments by both firm and employee, and generage wage stickiness without adversely affecting employment. Employment contracts that induce efficient specific investments by both firm and employee are problematic so it makes sense, wherever possible, for one side to make all such investments. With private information, fixed wages may induce fewer inefficient separations than employment at will.
332 citations
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TL;DR: The Tax Reform Act of 1986 constituted the most sweeping postwar change in the U.S. federal income tax and its implications for future tax policy are discussed in this article, where the authors consider the evidence of the Act's impact on economic activity and how this evidence squares with initial predictions.
Abstract: The Tax Reform Act of 1986 constituted the most sweeping postwar change in the U.S. federal income tax. This paper considers what the Act accomplished and its implications for future tax policy. After a review of the Act itself, and why it happened, we consider the evidence of the Act's impact on economic activity and how this evidence squares with initial predictions. Where appropriate, we draw out how consideration of the impact of TRA86 has contributed to the development of the methodology of economic analysis. We conclude with an overall evaluation of the Act.
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TL;DR: This article examined past evaluations of government training programs for the economically disadvantaged and offered an agenda for future research, concluding that government-provided training programs are producing modest increases in earnings for adult men and women, but are probably not producing positive effects for youth.
Abstract: This article examines past evaluations of government training programs for the economically disadvantaged and offers an agenda for future research. It is found that government training programs are producing modest increases in earnings for adult men and women, but are probably not producing positive effects for youth. Future research must better document links between program-provided training and acquisition of valuable skills and must explore potential returns from increased scale. The recent adoption of random assignment has improved the accuracy of field evaluations but would benefit from an economic theory of evaluation to guide research into increasing training effectiveness.
Journal Article•
TL;DR: In this paper, the authors argue that the economic performance in Sweden from about 1970 was to some extent the result of a number of exogenous shocks and "unnecessary" policy mistakes, and that problematic political, economic, and social mechanisms had become embedded in the long-term dynamics of the system itself.
Abstract: The deterioration of the economic performance in Sweden from about 1970 was to some extent the result of a number of exogenous shocks and "unnecessary" policy mistakes. It was, however, also related to basic changes in the economic and social system in Sweden in the late 1960s and early 1970, when government spending, taxes, and regulations started to expand dramatically. It is also argued in the paper that problematic political, economic, and social mechanisms had become embedded in the long-term dynamics of the system itself. These various experiences are the background for recent reforms and retreats of "the Swedish experiment."
Journal Article•
TL;DR: In this paper, the authors present a number of leading examples in the empirical literature that use simulation-based estimation methods and discuss the significance of each of the examples discussed and commenting on potential future areas of interest.
Abstract: In this paper, I present a number of leading examples in the empirical literature that use simulation-based estimation methods. For each example, I describe the model, why simulation is needed, and how to simulate the relevant object. There is a section on simulation methods and another on simulations-based estimation methods. The paper concludes by considering the significance of each of the examples discussed a commenting on potential future areas of interest.
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TL;DR: The straightforward economic answer is that neither the gains from trade nor the benefits from appropriate regulation are compromised if other countries impose standards that are weaker than your own as discussed by the authors, and the only serious argument in favor or regulation is political: regulation which is in the national interest may not be politically feasible unless other countries do the same.
Abstract: In recent years there have been growing demands to make trade liberalization contingent on adoption of common labor and environmental standards. The straightforward economic answer is that this makes little sense: neither the gains from trade nor the gains from appropriate regulation are compromised if other countries impose standards that are weaker than your own. It is possible to offer second-bet economic rationales for harmonization, but these are empirically unconvincing. The only serious argument in favor or regulation is political: that regulation which is in the national interest may not be politically feasible unless other countries do the same.
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TL;DR: In this article, the impact of distorted policy patterns on agricultural production and rural poverty is analyzed and conditions under which policy reforms meant to bring about greater efficiency and equity are likely to be initiated and sustained.
Abstract: The paper describes and, as far as possible, explains variations in policies, programs, and institutions that influence agricultural growth, agrarian relations, and rural welfare across developing countries and over time. It evaluates the impact of distorted policy patterns on agricultural production and rural poverty and identifies conditions under which policy reforms meant to bring about greater efficiency and equity are likely to be initiated and sustained. It draws upon a broad range of literature to show how material conditions, missing markets, and government policies affect static welfare outcomes, patterns of accumulation, state formation, and the establishment of political institutions. It suggests ways to improve policy advice and proposes directions for future research.
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TL;DR: Hayek was a life-long opponent of socialism and his contributions to economics were surveyed and placed within historical context as discussed by the authors, including debates in the 1930s with the market socialists, his political critique of socialism in The Road to Serfdom, and his evolutionary arguments against "rationalist constructivists".
Abstract: Friedrich A. Hayek was a life-long opponent of socialism. Three of his contributions are surveyed and placed within historical context: his debates in the 1930s with the market socialists, his political critique of socialism in The Road to Serfdom, and his evolutionary arguments against "rationalist constructivists." Recent discussions that use the economics of information to analyze the prospects for socialism are also reviewed. It is argued that theorists working in the economics of information have not recognized just how far Hayek's conceptualization of the appropriate theoretical constructs for economics deviates from those of mainstream economists. As such they have misunderstood what may constitute an independent set of arguments against socialism.
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TL;DR: Early economic models assumed that the maximizing behavior of individual actors was the primary determinant of political as well as market outcomes as discussed by the authors, but this approach revolved several long-standing puzzles in political science, but created new anomalies in place of the old: why do citizens vote in large elections? Why are democratic legislatures as stable as they are?
Abstract: Early economic models assumed that the maximizing behavior of individual actors was the primary determinant of political as well as market outcomes This approach revolved several long-standing puzzles in political science, but created new anomalies in place of the old: why do citizens vote in large elections? Why are democratic legislatures as stable as they are? Partly in response to these anomalies, the emphasis has shifted from the study of self-interested choice, to the study of constraints on self-interested choice This has opened new doors for the study of bureaucracies, parties, and other fundamental political institutions
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TL;DR: Famines have happened with and without crop failures or wars, but they invariably entail a collapse in the command over food of vulnerable subgroups within a society, whether through loss of endowment or a contraction in the amount of food that can be acquired from given endowments as mentioned in this paper.
Abstract: Famines have happened with and without crop failures or wars. But they invariably entail a collapse in the command over food of vulnerable subgroups within a society, whether through loss of endowment or a contraction in the amount of food that can be acquired from given endowments. Thus economic analysis can help understand famines, viewed as tragic aperiodic magnifications of normal market and governmental failures. Recent literature in economics and other fields has reflected this change in the conceptualization of famines, and it has come with policy implications for famine relieve and prevention.
TL;DR: The Nafplion Symposium as discussed by the authors was a small but distinguished conference of a somewhat unusual nature, where instead of ascending into the stratosphere of pure speculation, the organizers of the conference decided to focus their principal attention on two fields, the history of physical science and economics respectively; and by concentrating on theories and progress in these subjects to bring greater concreteness to the discussion of the general problem.
Abstract: In September 1974 there took place, at Nafplion in Greece, a gratifyingly small but distinguished conference of a somewhat unusual nature. Its object was to examine the general grounds of appraisal of the status and the progress of scientific theories, particularly with reference to the views of the late Imre Lakatos embodied in his conception of the Methodology of Scientific Research Programmes as developed in his notable contribution to the Symposium Criticism and the Growth of Knowledge, edited by himself and Alan Musgrave [5, 1970]. But instead of ascending into the stratosphere of pure speculation, the organizers of the conference decided to focus their principal attention on two fields, the history of physical science and economics respectively; and by concentrating on theories and progress in these subjects to bring greater concreteness to the discussion of the general problem. This volume, splendidly edited by one of the principal organizers and contributors to the conference, Dr. Spiro Latsis, embodies the papers contributed and evoked by the sessions devoted to economics. A companion volume, Method and Appraisal in the Physical Sciences, edited by Colin Howson [2, 1976], does the same thing for the other sessions. Together they are records of an occasion that I personally found more stimulating than any other conference I have ever attended.