Showing papers in "Journal of Economic Literature in 2002"

Time Discounting and Time Preference: A Critical Review

Abstract: This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

What can economists learn from happiness research

Abstract: In recent years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

Technical Change, Inequality, and the Labor Market

Abstract: This essay discusses the effect of technical change on wage inequality. I argue that the behavior of wages and returns to schooling indicates that technical change has been skill-biased during the past sixty years. Furthermore, the recent increase in inequality is most likely due to an acceleration in skill bias. In contrast to twentieth-century developments, much of the technical change during the early nineteenth century appears to be skill-replacing. I suggest that this is because the increased supply of unskilled workers in the English cities made the introduction of these technologies profitable. On the other hand, the twentieth century has been characterized by skill-biased technical change because the rapid increase in the supply of skilled workers has induced the development of skillcomplementary technologies. The recent acceleration in skill bias is in turn likely to have been a response to the acceleration in the supply of skills during the past several decades.

Can We Trust Social Capital

Abstract: This essay looks at the literature on social capital from the perspective of game theory. It reviews Bowling Alone by Robert Putnam and Social Capital: A Multifaceted Approach edited by Partha Dasgupta and Ismail Serageldin.

Enterprise Restructuring in Transition: A Quantitative Survey

Abstract: We survey the empirical literature analyzing the process of enterprise restructuring in transition economies. The survey provides new insights into the relative effectiveness of different reform policies, and into how this effectiveness varies across regions. We study the effects of privatization, the importance of different types of owners, the effects of foreign and domestic competition, the consequences of soft budgets, and the role of managerial incentives and managerial human capital, with regard to enterprise restructuring.

Identity and Schooling: Some Lessons for the Economics of Education

Abstract: This review culls noneconomic literature on education-by sociologists, anthropologists, and practitioners to present a new economic theory of students and schools. This theory elaborates two themes that have eluded economic analysis. First is the student as decision-maker whose primary motivation is her identity. Second is a conception of the school as a social institution. This framework suggests a new perspective on questions such as resource allocation and school reform. It explains why some educational policies succeed and others fail. We show how sociological variables may affect outcomes, and suggest ways economists can incorporate them into theoretical and empirical research.

Evaluating Welfare Reform in the United States

Abstract: This paper reviews the economic literature on welfare reform over the 1990s. A brief summary of the policy changes is followed by a discussion of the methodological techniques that analyze the effects of these changes on outcomes. The paper then critically reviews the econometric and experimental literature on caseload changes, labor force changes, poverty and income changes, and family formation changes. A growing body of evidence suggests that recent policy changes have influenced economic behavior and well-being. One particular set of "new-style" welfare programs seems to show especially promising results, with significantly increased work and earnings and reduced poverty.

Schools and Skills in Developing Countries: Education Policies and Socioeconomic Outcomes

Abstract: This paper reviews recent research on the determinants of educational outcomes, and the impact of those outcomes on other socioeconomic phenomena. It addresses three questions: 1) What sch...

Growth in transition: what we know , what we don't, and what we should

Abstract: This essay surveys macroeconomic issues that marked the transition from planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish stylized facts of the transition so far. We then critically survey the theoretical literature on transition, discussing explanations for the initial output fall, and mediumterm issues such as optimal speed of transition, disorganization, institutions and sectoral reallocation as source of output dynamics. We review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. We conclude with suggestions for future research.

Modern Hyper- and High Inflations

Abstract: Since 1947, hyperinflations (by Cagan's definition) in market economies have been rare. Much more common have been longer inflationary processes with inflation rates above 100 percent per annum. Based on a sample of 133 countries, and using the 100 percent threshold as the basis for a definition of very high inflation episodes, this paper examines the main characteristics of such inflations. Among other things, we find that (i) close to 20 percent of countries have experienced inflation above 100 percent per annum; (ii) higher inflation tends to be more unstable; (iii) in high inflation countries, the relationship between the fiscal balance and seigniorage is strong both in the short and long-run; (iv) inflation inertia decreases as average inflation rises; (v) high inflation is associated with poor macroeconomic performance; and (vi) stabilizations from high inflation that rely on the exchange rate as the nominal anchor are expansionary.

Who talks to whom? Intra-and interdisciplinary communication of economics journals

Abstract: Citation patterns between 42 journals in economics from 1995 to 1997 are examined, plus between economics and anthropology, political science, psychology, sociology and five business disciplines. Building on social network theory, we identify a hierarchical organization of journals in economics and seven journal clusters. Major citation flows are found from all areas of economics to the general interest and theory and method clusters, but not the other way around. Economics emerges as a significant source of interdisciplinary knowledge for the other social sciences and business. However, no area of economics appears to build substantially on insights from its sister disciplines.

Equality, Efficiency, and Market Fundamentals: The Dynamics of International Medical Care Reform.

Abstract: Public opinion surveys uniformly show low support for medical-care systems in developed countries. The longstanding conflict between equal access to care and efficient service provision partly explains this dissatisfaction. But the trade-off is particularly acute in medical care, as new technologies developed over time have increased the cost of care and made the equity commitment even more expensive. Countries first dealt with rising costs by maintaining equal access and restricting total spending. Efficiency suffered, however. As a result, many countries are considering a move away from spending controls and toward incentive-based medical-care reform.

Delegated Monitors, Large and Small: Germany's Banking System, 1800-1914

Abstract: Banks play a greater role in the German financial system than in those of the United States or Britain. Germany's large universal banks are admired by those who advocate bank deregulation in the United States. Others admire the universal banks for their supposed role in corporate governance and industrial finance. Many discussions distort the German banking system by overstressing one of several types of banks, and ignore the competition and cooperation between the famous universal banks and other banking groups. Tracing the historical development of the German banking system from the early nineteenth century places the large universal banks in context.

Looking Inside the Labor Market: A Review Article

Abstract: When unemployed workers are available, why don't firms cut wages until the excess supply is eliminated? In his book, Why Wages Don't Fall During a Recession, Truman F. Bewley concludes, based on interviews with managers and labor leaders, that the most important factor inhibiting wage cuts is the psychological factor of morale. Bewley's field research has made an outstanding contribution to our knowledge of labor markets, by providing a close-up view of exactly what happens from the vantage point of the participants.

Review of Easterly's The Elusive Quest for Growth

Abstract: 1. The Failure of Development Panaceas All-encompassing hypotheses concerning the sources of economic growth periodically surface, and with the support of adequately chosen cross-country correlations, enjoy their fifteen minutes of fame. Over the last few decades, the list of proposed panaceas for growth in per-capita income has included high rates of physical-capital investment, rapid human-capital accumulation, low income inequality, low fertility, being located far from the equator, a low incidence of tropical diseases, access to the sea, favorable weather patterns, hands-off governments, trade-policy openness, capital-markets development, political freedom, economic freedom, ethnic homogeneity, British colonial origins, a common-law legal system, the protection of property rights and the rule of law, good governance, political stability, infrastructure, market-determined prices (including exchange rates), foreign direct investment, and suitably conditioned foreign aid. This is a growing and non-exhaustive list.

Strategic foundations of general equilibrium: Dynamic matching and bargaining games.

Abstract: Adam Smith’s classic treatise An Inquiry into the Nature and Causes of the Wealth of Nations effectively laid down the foundations of the economics discipline. Implicit in his analyses lies a theory of perfect competition, which was subsequently developed by Alfred Marshall and Leon Walras. The theory of perfectly competitive equilibrium (or competitive equilibrium, for short), which was built on the key insights of these great economic thinkers, was developed by Kenneth Arrow, Gerard Debreu and Lionel McKenzie. There is no doubt that this theory of competitive equilibrium occupied until very recently a central place in economic theory and analysis. It is a theory of resource allocation achieved via the market mechanism. This theory, it can be argued, formally and rigorously established an important fundamental insight provided by Adam Smith that individuals acting in their own self-interest, will through the invisible hand of the market mechanism, achieve an efficient allocation of resources. This is an amazingly deep insight, and even today fills one with much awe.

States and Power in Africa by Jeffrey I. Herbst: A Review Essay

Abstract: Herbst argues that Africa is plagued by "state failure" to provide certain public goods in society, such as law and order, defense, contract enforcement, and infrastructure. Herbst has provided a bold, historically informed theoretical analysis, essential reading for economists interested in comparative institutions and development.

Review of Grossman and Helpman' s Special Interest Politics

Abstract: In Special Interest Politics Gene Grossman and Elhanan Helpman examine how special-interest groups influence political outcomes for the benefit of their members. The authors take interest groups seriously by considering a range of theories and supporting evidence on interest group activity. Their book provides perspectives on how to study interest group politics and a set of methods for that study. Although the authors present a number of standard models, the book contains much that is new. The reader takes away a multitude of results, tools, models, and new research ideas. The result is an outstanding book full of insight, useful methods, and perspective.

Review of Skidelsky's John Maynard Keynes: Fighting for Britain

Abstract: Skidelsky's three-volume biography of Keynes, of which this is the third, gives us Keynes, entire. The meat of the biography lies in the well-constructed narrative and in the magnificent portraits of Keynes and his age. Robert Skidelsky has given us a superb intellectual biography.

Anatomy of The Anatomy of Racial Inequality

Abstract: In this review, I summarize and offer thoughts about two arguments key to Glenn Loury's analysis of the anatomy of racial inequality. The first concerns the idea that many negative stereotypes held about blacks in the United States are self-fulfilling, despite little evidence of inherent differences between the races in human potential. The second argument concerns the proposition that the racial stigmatization of blacks is deeply embedded in the public consciousness and that such stigma racially biases socially cognitive processes to the severe detriment of African-Americans.

Review of Shleifer's Inefficient Markets

Abstract: This excellent book provides the reader with a broad introduction to, and a powerful advocacy of, behavioral finance. In the tradition of the best of the Clarendon Lecture Series, Andrei Shleifer provides a clear context and motivation for a collection of his influential ideas in this field, emphasizing central themes that link together the wide scope of this work. Topics include: investor sentiment, the limits of arbitrage, the closed-end fund puzzle, positive feedback investment, and both market overreaction and underreaction to news, as well as general discussions on the motivation for this research and promising future directions.