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Showing papers in "Quarterly Journal of Economics in 1996"


Journal ArticleDOI
TL;DR: In this paper, the causal links between exporting and productivity using plant-level data were analyzed. And the authors concluded that relatively efficient erms become exporters; however, in most industries, erms' costs are not affected by previous exporting activities.
Abstract: Do erms become more efficient after becoming exporters? Do exporters generate positive externalities for domestically oriented producers? In this paper we tackle these questions by analyzing the causal links between exporting and productivity using plant-level data. We look for evidence that erms’cost processes change after theybreak into foreign markets. We end that relatively efficient erms become exporters; however, in most industries, erms’ costs are not affected by previous exporting activities. So the well-documented positiveassociation between exporting and efficiency is explained by the self-selection of the moreefficient erms intothe exportmarket. Wealsoend some evidence of positive regional externalities.

2,115 citations


Journal ArticleDOI
TL;DR: This paper presented a model where social interactions create enough covariance across individuals to explain the high cross-city variance of crime rates, which suggests that the amount of social interactions is highest in petty crimes, moderate in more serious crimes, and almost negligible in murder and rape.
Abstract: The high variance of crime rates across time and space is one of the oldest puzzles in the social sciences; this variance appears too high to be explained by changes in the exogenous costs and benefits of crime. We present a model where social interactions create enough covariance across individuals to explain the high cross-city variance of crime rates. This model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes, moderate in more serious crimes, and almost negligible in murder and rape.

1,495 citations


Journal ArticleDOI
TL;DR: This paper found that the rates of real, per capita growth in income and output increase significantly following intrastate branch reform and argued that the observed changes in growth are the result of changes in the banking system.
Abstract: This paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the United States. We find that the rates of real, per capita growth in income and output increase significantly following intrastate branch reform. We also argue that the observed changes in growth are the result of changes in the banking system. Improvements in the quality of bank lending, not increased volume of bank lending, appear to be responsible for faster growth.

1,325 citations


Journal ArticleDOI
TL;DR: In this article, the authors developed a model of electoral competition in which citizens choose whether or not to run as candidates, and the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning.
Abstract: The authors develop a model of electoral competition in which citizens choose whether or not to run as candidates. A winner implements her favorite policy. The equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning. For some parameter values, all equilibria under plurality rule have exactly two candidates, whose positions are distinct. Two-candidate elections are more likely under plurality rule than under a runoff system. The candidates' positions are less differentiated under a runoff system. There exist equilibria under both systems in which some candidates have no chance of winning.

1,234 citations


Journal ArticleDOI
Abstract: We develop a framework for quantifying the amount of risk sharing among states in the United States, and construct data that allow us to decompose the cross-sectional variance in gross state product into several components which we refer to as levels of smoothing. We find that 39 percent of shocks to gross state product are smoothed by capital markets, 13 percent are smoothed by the federal government, and 23 percent are smoothed by credit markets. The remaining 25 percent are not smoothed. We also decompose the federal government smoothing into subcategories: taxes, transfers, and grants to states.

855 citations


Journal ArticleDOI
TL;DR: In this paper, the authors estimate that approximately 50 percent of the increase in Medicaid coverage was associated with a reduction in private insurance coverage, largely because employees took up employer-based insurance less frequently.
Abstract: The cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured, or will crowd out existing private insurance coverage. We estimate the extent of crowd-out arising from the expansions of Medicaid to pregnant women and children over the 1987–1992 period. We estimate that approximately 50 percent of the increase in Medicaid coverage was associated with a reduction in private insurance coverage. This occurred largely because employees took up employer-based insurance less frequently. There is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents.

846 citations


ReportDOI
TL;DR: This article examined the impact of the Tax Reform Act of 1986 (TRA86), which included an expansion of the earned income tax credit, on the labor force participation and hours of work of single women with children.
Abstract: This paper examines the impact of the Tax Reform Act of 1986 (TRA86), which included an expansion of the earned income tax credit, on the labor force participation and hours of work of single women with children. We identify the impact of TRA86 by comparing the change in labor supply of single women with children to the change for single women without children. We find that between 1984–1986 and 1988–1990, single women with children increased their relative labor force participation by up to 2.8 percentage points. We observe no change in the relative hours worked by single women with children who were already in the labor force.

681 citations


Journal ArticleDOI
TL;DR: This paper found that the market value of a closed-end fund is more likely to deviate from the value of its assets when interest rates are high, which is consistent with noise trader models of asset pricing.
Abstract: Arbitrage costs lead to large deviations of prices from fundamentals. Using a sample of closed-end funds, I find that the market value of a fund is more likely to deviate from the value of its assets (1) for funds with portfolios that are difficult to replicate, (2) for funds that pay out smaller dividends, (3) for funds with lower market values, and (4) when interest rates are high. These factors are related to the magnitude of the deviation, as opposed to the direction (i.e., whether discount or premium), and explain a quarter of cross-sectional mispricing variation. These findings are consistent with noise trader models of asset pricing.

655 citations


Journal ArticleDOI
TL;DR: In this article, two economists applied data from the Current Population Survey and the National Health Interview Survey and state-level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization and health effects of Medicaid eligibility on low income children.
Abstract: Two economists applied data from the Current Population Survey and the National Health Interview Survey and state-level data on child mortality to a simulation model of utilization of medical care that varies only with the states legislative environment to examine the utilization of medical care and health effects of Medicaid eligibility on low income children. The models took into consideration the recent expansions of Medicaid to low income children. 38% of those ineligible for Medicaid in 1984 who became eligible due to changes during 1984-1992 were uninsured. Between 1984 and 1992 expansions of the Medicaid program increased the proportion of children eligible for Medicaid almost two-fold (16.1% vs. 31.2%); yet coverage rates were always lower than eligibility rates (13.2% vs. 16.1% in 1984 and 20.3% vs. 31.2% in 1992) and the increase in coverage rates was only about 50% of the increase in eligibility rates. During 1984-1992 the probability that a child was eligible for Medicaid increased the probability of health insurance coverage by 29.77%. When the model considered bias in variables (e.g. a recession in a state) the take-up rate was only 22.73%. Nevertheless Medicaid markedly increased use of medical care. For example eligibility for Medicaid increased the likelihood of making a visit to a physicians office in the last two weeks by about 50%. It also increased the probability of a child visiting the hospital suggesting inefficiency in the way that providers deliver care to Medicaid enrollees. Medicaid eligibility had a significant effect on reducing child mortality. The 15.1 percentage point increase in eligibility during 1984-1992 reduced child mortality by 4.5%. When the researchers examined parent-assessed subjective health measures Medicaid eligibility had no effect on child health. Medicaid eligibility reduced race and education-based disparities in the number of visits and racial differences in mortality; yet it may actually intensify current disparities in health care delivery site.

655 citations


Journal ArticleDOI
TL;DR: In this paper, the authors used prison overcrowding litigation in a state as an instrument for changes in the prison population and found that the social benefits associated with crime reduction equal or exceed the social costs of incarceration for the marginal prisoner.
Abstract: Simultaneity between prisoner populations and crime rates makes it difficult to isolate the causal effect of changes in prison populations on crime. To break that simultaneity, this paper uses prison overcrowding litigation in a state as an instrument for changes in the prison population. The resulting elasticities are two to three times greater than those of previous studies. A one-prisoner reduction is associated with an increase of fifteen Index I crimes per year. While calculations of the costs of crime are inherently uncertain, it appears that the social benefits associated with crime reduction equal or exceed the social costs of incarceration for the marginal prisoner.

622 citations


Journal ArticleDOI
TL;DR: This article developed a dynamic model of learning about worker ability in a competitive labor market, which produces three testable implications regarding wage dynamics: (1) although the role of schooling in the labor market's inference process declines as performance observations accumulate, the estimated effect of schooling on the level of wages is independent of labor-market experience; (2) time invariant variables correlated with ability but unobserved by employers ( such as certain test scores) are increasingly correlated with wages as experience increases; and (3) wage residuals are a martingale.
Abstract: We develop a dynamic model of learning about worker ability in a competitive labor market. The model produces three testable implications regarding wage dynamics: (1) although the role of schooling in the labor market's inference process declines as performance observations accumulate, the estimated effect of schooling on the level of wages is independent of labor-market experience; (2) timeinvariant variables correlated with ability but unobserved by employers ( such as certain test scores) are increasingly correlated with wages as experience increases; and (3) wage residuals are a martingale. We present evidence from the NLSY that is broadly consistent with the model's predictions.

Journal ArticleDOI
TL;DR: This article developed a multicommunity model and analyzed policies that affect spending on public education and its distribution across communities, finding that policies that on net increase the fraction of the (relatively) wealthiest residents in the poorest community are welfare enhancing; policies that decrease this fraction can make all worse off.
Abstract: This paper develops a multicommunity model and analyzes policies that affect spending on public education and its distribution across communities. We find that policies that on net increase the fraction of the (relatively) wealthiest residents in the poorest community are welfare enhancing; policies that decrease this fraction can make all worse off. Appropriately financed policies to (i) redistribute income toward the poorest, (ii) increase spending on education in the poorest community, and (iii) make the poorest community more attractive to relatively wealthier individuals, produce chain reactions in which the quality of education increases and tax rates fall in all communities.

Journal ArticleDOI
TL;DR: In this paper, the relative importance of cyclical fluctuations in labor and capital utilization, increasing returns to scale, and technology shocks as explanations for procyclical productivity was investigated, and it was shown that cyclical factor utilization is very important.
Abstract: This paper investigates the relative importance of cyclical fluctuations in labor and capital utilization, increasing returns to scale, and technology shocks as explanations for procyclical productivity. It exploits the intuition that materials inputs do not have variable utilization rates, and materials are likely to be used in fixed proportions with value added. Therefore, materials growth is a good measure of unobserved changes in capital and labor utilization. Using this measure shows that cyclical factor utilization is very important, returns to scale are about constant, and technology shocks are small and have low correlation with either output or hours growth.

Journal ArticleDOI
TL;DR: It is concluded that liability reforms can reduce defensive medical practices and that malpractice reforms that directly reduce provider liability pressure lead to reductions of 5 to 9 percent in medical expenditures without substantial effects on mortality or medical complications.
Abstract: "Defensive medicine" is a potentially serious social problem: if fear of liability drives health care providers to administer treatments that do not have worthwhile medical benefits, then the current liability system may generate inefficiencies much larger than the costs of compensating malpractice claimants. To obtain direct empirical evidence on this question, we analyze the effects of malpractice liability reforms using data on all elderly Medicare beneficiaries treated for serious heart disease in 1984, 1987, and 1990. We find that malpractice reforms that directly reduce provider liability pressure lead to reductions of 5 to 9 percent in medical expenditures without substantial effects on mortality or medical complications. We conclude that liability reforms can reduce defensive medical practices.

Journal ArticleDOI
TL;DR: In this article, the authors proposed a micro-foundation for social increasing returns in human capital accumulation, which is a pecuniary externality due to the interaction of ex ante investments and costly bilateral search in the labor market.
Abstract: This paper proposes a microfoundation for social increasing returns in human capital accumulation. The underlying mechanism is a pecuniary externality due to the interaction of ex ante investments and costly bilateral search in the labor market. It is shown that the equilibrium rate of return on the human capital of a worker is increasing in the average human capital of the workforce even though all the production functions in the economy exhibit constant returns to scale, there are no technological externalities, and all workers are competing for the same jobs.

Journal ArticleDOI
TL;DR: In this article, the authors relate the erosion of the custom of shotgun marriage to the legalization of abortion and the increased availability of contraception to unmarried women in the United States, and argue that the decline in shotgun marriage accounts for a significant fraction of the increase in out-of-wedlock first births.
Abstract: This paper relates the erosion of the custom of shotgun marriage to the legalization of abortion and the increased availability of contraception to unmarried women in the United States. The decline in shotgun marriage accounts for a significant fraction of the increase in out-of-wedlock first births. Several models illustrate the analogy between women who do not adopt either birth control or abortion and the hand-loom weavers both victims of changing technology. Mechanisms causing female immiseration are modeled and historically described. This technology-shock hypothesis is an alternative to welfare and job-shortage theories of the feminization of poverty. (EXCERPT)

Journal ArticleDOI
TL;DR: The authors examined shares of fixed capital formation in GOP and rates of economic growth for more than 100 countries over successive 5-year periods between 1965 and 1985 to determine the direction of causality between them.
Abstract: This paper examines shares of fixed capital formation in GOP and rates of economic growth for more than 100 countries over successive 5-year periods between 1965 and 1985 to determine the direction of causality between them. Simple regressions and multiple regressions including several standard determinants of growth, as well as a simple causality test, provide more evidence that increases in growth precede rises in rates of capital formation than that increases in capital formation precede increases in growth. High rates of fixed capital formation accompany rapid growth in per capita income, but we find no evidence that fixed investment is the only or main source of ignition for economic growth.

Journal ArticleDOI
TL;DR: In an audit study of sex discrimination in hiring, comparably matched pairs of men and women applied for jobs as waiters and waitresses at restaurants in Philadelphia as discussed by the authors, finding that job applications from women had an estimated probability of receiving a job offer that was lower by about 0.4 and an interview that was higher by about 1.35.
Abstract: In an audit study of sex discrimination in hiring, comparably matched pairs of men and women applied for jobs as waiters and waitresses at restaurants in Philadelphia. In high-price restaurants (where earnings are higher), job applications from women had an estimated probability of receiving a job offer that was lower by about 0.4, and an estimated probability of receiving an interview that was lower by about 0.35. Both estimated differentials are statistically significant. Additional evidence suggests that customer discrimination partly underlies the hiring discrimination.

Journal ArticleDOI
TL;DR: In this paper, a new test for rent-sharing in the U.S. labor market is proposed, and it is shown that a rise in a sector's profitability leads after some years to an increase in the long-run level of wages in that sector.
Abstract: The paper suggests a new test for rent-sharing in the U.S. labor market. Using an unbalanced panel from the manufacturing sector, it shows that a rise in a sector's profitability leads after some years to an increase in the long-run level of wages in that sector. The paper controls for workers' characteristics, for industry fixed-effects, and for unionism. Lester's range of wages is estimated, for rent-sharing reasons alone, at approximately 24 per cent of the mean wage.

Journal ArticleDOI
TL;DR: This article examined the impact of technological innovation on wages using a panel of British firms and found that firms with major innovations have higher average wages, but rival innovation tends to depress own wages, consistent with a model where wages are partly determined by a sharing in the rents generated by innovation.
Abstract: This paper examines the impact of technological innovation on wages using a panel of British firms. A head-count measure of major innovations between 1945 and 1983 is combined with share price and accounting information. Innovating firms are found to have higher average wages, but rival innovation tends to depress own wages. This appears consistent with a model where wages are partly determined by a sharing in the rents generated by innovation. In other words, innovation may be a good instrument for proxies for rents such as profitability, quasi rents, or Tobin's (average) Q. Instrumental variable estimates of the elasticity between wages and quasi rents are about 0.29.

Journal ArticleDOI
TL;DR: In this article, the authors show how opportunities for future expansion or contraction can be valued as options, how their valuation relates to the q theory of investment, and their effect on the incentive to invest.
Abstract: Capital investment decisions must recognize the limitations on the firm's ability to later sell or expand capacity. This paper shows how opportunities for future expansion or contraction can be valued as options, how their valuation relates to the q theory of investment, and their effect on the incentive to invest. Generally, the option to expand reduces the incentive to invest, while the option to disinvest raises it. We show how these options determine the effect of uncertainty on investment, how they are changed by shifts of the distribution of future profitability, and how the q-theory and option pricing approaches are related.

Journal ArticleDOI
Abstract: As traders learn about the true distribution of some asset's dividends, a speculative premium occurs as each trader anticipates the possibility of reselling the asset to another trader before complete learning has occurred. Small differences in prior beliefs lead to large speculative premiums during the learning process. This phenomenon helps explain a paradox concerning the pricing of initial public offerings. The result casts light on the significance of the common prior assumption in economic models.

ReportDOI
TL;DR: In this paper, the authors provided an upper bound estimate of the rate of convergence to purchasing power parity using a panel of 51 prices from 48 cities in the United States, and found that convergence rates substantially higher than typically found in cross-country data.
Abstract: Using a panel of 51 prices from 48 cities in the United States, we provide an upper bound estimate of the rate of convergence to purchasing power parity. We find convergence rates substantially higher than typically found in cross-country data. We investigate some potentially serious biases induced by i.i.d. measurement errors in the data, and find our estimates to be robust to these potential biases. We also present evidence that convergence occurs faster for larger price differences. Finally, we find that rates of convergence are slower for cities farther apart. However, our estimates suggest that distance alone can only account for a small portion of the much slower convergence rates across national borders.

Journal ArticleDOI
TL;DR: This article found that teachers' unions increase school inputs but reduce productivity sufficiently to have a negative overall effect on student performance, and that union effects are magnified where schools have market power.
Abstract: This study helps to explain why measured school inputs appear to have little effect on student outcomes, particularly for cohorts educated since 1960. Teachers' unionization can explain how public schools simultaneously can have more generous inputs and worse student performance. Using panel data on United States school districts, I identify the effect of teachers' unionization through differences in the timing of collective bargaining, especially timing determined by the passage of state laws that facilitate teachers' unionization. I find that teachers' unions increase school inputs but reduce productivity sufficiently to have a negative overall effect on student performance. Union effects are magnified where schools have market power.

Journal ArticleDOI
TL;DR: This article studied the extent to which immigrants in the United States over the past 30 years participated in the many programs that make up the welfare state and found that 21 percent of immigrant households receive some type of assistance as compared with only 14 percent of native households.
Abstract: This paper documents the extent to which immigrants [in the United States over the past 30 years] participate in the many programs that make up the welfare state. The immigrant-native difference in the probability of receiving cash benefits is small but the gap widens once other programs are included in the analysis: 21 percent of immigrant households receive some type of assistance as compared with only 14 percent of native households. The types of benefits received by earlier immigrants influence the types of benefits received by newly arrived immigrants. Hence there might be ethnic networks that transmit information about the availability of particular benefits to new immigrants. (EXCERPT)

Journal ArticleDOI
TL;DR: In this article, the authors analyze the timing, pace, and efficiency of ongoing job reallocation that results from product and process innovation and propose an optimal combination of both policies to restore economic efficiency.
Abstract: We analyze the timing, pace, and efficiency of ongoing job reallocation that results from product and process innovation. There are strong reasons why an efficient economy ought to concentrate both job creation and destruction during recessions, when the opportunity cost of reallocation is lowest. Incomplete contracting between labor and capital can disrupt this synchronized pattern and decouple creation and destruction. Transactional difficulties also lead to technological "sclerosis," characterized by excessively slow renovation. Government incentives to production may alleviate high unemployment but exacerbate sclerosis. In contrast, creation incentives increase the pace of reallocation. An optimal combination of both policies restores economic efficiency.

Journal ArticleDOI
TL;DR: Early public health efforts may allow societies to reach more favorable steady states, and the composition of the pool of available partners will worsen, creating positive feedbacks, and possibly multiple steady states.
Abstract: Increased HIV risk creates incentives for people with low sexual activity to reduce their activity but may make high-activity people fatalistic leading them to reduce their activity only slightly or actually increase it. If high-activity people reduce their activity by a smaller proportion than low-activity people the composition of the pool of available partners will worsen creating positive feedbacks and possibly multiple steady states. Early public health efforts may allow societies to reach more favorable steady states. (EXCERPT)

Journal ArticleDOI
TL;DR: The authors showed that the augmented Solow model, including accumulation of human as well as physical capital, provides a good description of cross-country data, with the exception of the OECD subsample.
Abstract: Mankiw, Romer, and Weil [1992] showed that the augmented Solow model, including accumulation of human as well as physical capital, provides a good description of cross-country data, with the exception of the OECD subsample. The textbook Solow model explains about 60 percent of the cross-country variation in per worker GDP in a comprehensive sample of 98 nonoil-producing countries. By including human capital, the augmented Solow model accounts for almost 80 percent of the variation in this sample. For the OECD subsample, explanatory power of the models is rather poor. The textbook Solow model explains very little of the variation in per capita income levels (less than 6 percent). The performance of the Mankiw-Romer-Weil [1992] human capital augmented model is somewhat better but still less than 30 percent. Differences in explanatory power between samples largely disappear in specifications that allow for departures from the steady state. Mankiw, Romer, and Weil interpret this finding by conjecturing that OECD countries are perhaps farther from their steady-state levels than countries in the broader sample. The difference in explanatory power of the augmented Solow model in a broader sample versus the OECD sample is possibly due to the similarity of the OECD countries and the limited variation in explanatory variables. An alternative explanation offered here is that not all relevant factors of production are included. We therefore suggest a further augmentation of the Solow model by explicitly including the (endogenous) accumulation of technological know-how.

Journal ArticleDOI
TL;DR: Despite a surplus of candidates for most teaching jobs, a strong academic record does little for an applicants job prospects as discussed by the authors. But this does not appear to result from lukewarm interest on the part of such applicants or choosiness about the positions they accept.
Abstract: Despite a surplus of candidates for most teaching jobs, a strong academic record does little for an applicants job prospects. This does not appear to result from lukewarm interest on the part of such applicants or choosiness about the positions they accept. Administrators' lack of interest in these candidates may reflect the weakness of competitive pressures in public education. Policies intended to improve teacher quality need to consider incentives on both the demand and supply sides of the market.

Journal ArticleDOI
TL;DR: In this paper, the authors report experiments on how players select among multiple Pareto-ranked equilibria in a coordination game, and they find that participants appear to use a "loss-avoidance" selection principle: they expect others to avoid strategies that will always result in losses.
Abstract: We report experiments on how players select among multiple Pareto-ranked equilibria in a coordination game. Subjects initially choose inefficient equilibria. Charging a fee to play (which makes initial equilibria money-losing) creates coordination on better equilibria. When fees are optional, improved coordination is consistent with forward induction. But coordination improves even when subjects must pay the fee (forward induction does not apply). Subjects appear to use a "loss-avoidance" selection principle: they expect others to avoid strategies that always result in losses. Loss-avoidance implies that "mental accounting" of outcomes can affect choices in games.