Showing papers in "The American Economic Review in 1992"

A sensitivity analysis of cross-country growth regressions

Abstract: A vast literature uses cross-country regressions to search for empirical linkages between long-run growth rates and a variety of economic policy, political, and institutional indicators. This paper examines whether the conclusions from existing studies are robust or fragile to small changes in the conditioning information set. The authors find that almost all results are fragile. They do, however, identify a positive, robust correlation between growth and the share of investment in GDP and between the investment share and the ratio of international trade to GDP. The authors clarify the conditions under which there is evidence of per capita output convergence.

Protection For Sale

Abstract: The authors develop a model in which special-interest groups make political contributions in order to influence an incumbent government's choice of trade policy. The interest groups bid for protection with their campaign support. Politicians maximize their own welfare, which depends on total contributions collected and on the welfare of voters. The authors study the structure of protection that emerges in the political equilibrium and the contributions by different lobbies that support the policy outcome. They also discuss why the lobbies may in some cases prefer to have the government use trade policy to transfer income, rather than more efficient means. Copyright 1994 by American Economic Association.

Earnings Losses of Displaced Workers

Abstract: The authors exploit administrative data combining workers' earnings histories with information about their firms to estimate the magnitude and temporal pattern of displaced workers' earnings losses. They find that high-tenure workers separating from distressed firms suffer long-term losses averaging 25 percent per year. In addition, the authors find that displaced workers' losses (1) begin mounting before their separations; (2) depend only slightly on their age and sex; (3) depend more on local labor-market conditions and their former industries; (4) are not, however, limited to those in a few sectors; and (5) are large even for those who find new jobs in similar firms. Copyright 1993 by American Economic Association.

Changes in the structure of wages in the 1980's: an evaluation of alternative explanations.

Abstract: During the 1980's, a period in which the average level of real wage rates was roughly stagnant, there were large changes in the structure of relative wages, most notably a huge increase in the relative wages of highly educated workers. This paper attempts to assess the power of several alternative explanations of the observed relative wage changes in the context of a theoretical framework that nests all of these explanations. Our conclusion is that their major cause was a shift in the skill structure of labor demand brought about by biased technological change.

Research Joint Ventures and R&D Cartels

Abstract: We analyze the effects of R&D cartelization and research joint ventures on firms that engage in either Cournot or Bertrand competition in their product market. Research efforts, which precede production, are directed to reducing unit cost and are subject to various degrees of spillovers. It is shown that creating a competitive research joint venture reduces the equilibrium level of technological improvement and increases equilibrium prices compared to when firms conduct R&D independently. A research joint venture that cooperates in its R&D decisions yields the highest consumer plus producer surplus under Cournot competition and, in most cases, under Bertrand competition. (JEL 031)

Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance

Abstract: In this paper we use the relative movements in bank loans and commercial paper to provide evidence on the existence of a loan supply channel of monetary policy transmission. A first necessary condition for monetary policy to work through a lending channel is that banks must view loans and securities as imperfect substitutes, so that monetary tightening does affect the availability of bank loans. We find that tighter monetary policy leads to a shift in firms' mix of external financing -- commercial paper issuance rises while bank loans fall, suggesting that loan supply has indeed been reduced. Furthermore, these shifts in the financing mix seem to affect investment (even controlling for interest rates). This implies that bank and non-bank sources of finance are also not perfect substitutes for businesses. We also argue that this view of the transmission mechanism can help explain why interest rate spreads involving commercial paper rates have had considerable predictive power for many measures of economic activity.

Rural Reforms and Agricultural Growth in China.

Abstract: This paper employs province-level panel data to assess the contributions of decollectivization, price adjustments, and other reforms to China's agricultural growth in the reform period. Decollectivization is found to improve total factor productivity and to account for about half of the output growth during 1978-84. The adjustment in state procurement prices also contributed positively to output growth. Its impact came mainly from the responses in input use. The effect of other market-related reforms on productivity and output growth was very small. Reasons for slowdown in agricultural growth after 1984 are also analyzed. Copyright 1992 by American Economic Association.

Mortgage Lending in Boston: Interpreting HMDA Data

Abstract: The Home Mortgage Disclosure Act was enacted to monitor minority and low-income access to the mortgage market. The data collected for this purpose show that minorities are more than twice as likely to be denied a mortgage as whites. Yet variables correlated with both race and creditworthiness were omitted from these data, making any conclusion about race's role in mortgage lending impossible. The Federal Reserve Bank of Boston collected additional variables important to the mortgage lending decision and found that race continued to play an important, though significantly diminished, role in the decision to grant a mortgage. Copyright 1996 by American Economic Association.

International Evidence on the Historical Properties of Business Cycles

Abstract: We contrast properties of real quantities with those of price levels and stocks of money for ten countries over the last century. Although the magnitude of output fluctuations has varied across countries and periods, relations among real quantities have been remarkably uniform. Properties of price levels, however, exhibit striking differences between periods. Inflation rates are more persistent after World War II than before, and price-level fluctuations are typically procyclical before World War II and countercyclical afterward. Fluctuations in money are less highly correlated with output in the postwar period but are no more persistent than in earlier periods. (JEL E32, E31)

Current Real-Business-Cycle Theories and Aggregate Labor Market Fluctuations

Abstract: Hours worked and the return to working are weakly correlated. Traditionally, the ability to account for this fact has been a litmus test for macroeconomic models. Existing real-business-cycle models fail this test dramatically. We modify prototypical real-business-cycle models by allowing government consumption shocks to influence labor-market dynamics. This modification can, in principle, bring the models into closer conformity with the data. Our empirical results indicate that it does.

Money, Income, Prices and Interest Rates

Abstract: Including data from the 1980s sharply weakens the postwar time-series evidence indicating significant relationships between money (however defined) and nominal income or between money and either real income or prices separately. Focusing on data from 1970 onward destroys this evidence altogether. Evidence indicating cointegration of real income and real money balances, with due allowance for the effect of interest rates, also deteriorates when the sample extends through the 1980s. A positive finding is that the spread between the commercial paper rate and the Treasury bill rate consistently contains highly significant information about future movements in real income. Copyright 1992 by American Economic Association.

Cooperation, Conflict, and Power in the Absence of Property Rights.

Abstract: This paper examines interaction in the absence of property rights when agents face a trade-off between productive and coercive activities. In this setting, conflict is not the necessary outcome of one-time interaction, and cooperation is consistent with domination of one agent over another. Other things being equal, an agent's power, a well-defined concept in this paper, is inversely related to an agent's resources when resources are valued according to marginal-productivity theory. Some implications for the evolution of property rights are drawn. The model is applicable to a variety of situations in which directly unproductive activities are prevalent. (JEL C70, D23, D30, D74) Without complete assignment of enforceable property rights, as assumed in the competitive paradigm of economics, voluntary exchange may not exist; any single agent cannot be prevented from coercing another agent. No such constraints as property rights exist in the philosopher's hypothetical state of nature, where coercion and conflict are the presumed results. Unlike the competitive paradigm or the state of nature, prop

Capital Mobility in Neoclassical Models of Growth

Abstract: The main purpose of this paper is to construct a model of economic growth that is consistent with the growing body of evidence on convergence. We want in particular to explain gradual convergence in output and income per person while allowing for an international credit market that equates the real interest rates across economies. The key to our model is that capital is only partially mobile: borrowing is possible to finance accumulation of physical capital but not accumulation of human capital. We show that the assumption of partial capital mobility imbedded in an open-economy version of the neoclassical growth model can explain the evidence on convergence. Perhaps the model in this paper is best applied not to countries or even states but to families. The model may in this context be useful for explaining the dynamics and distribution of wealth. It would predict that the most patient families would tend to be the most highly educated and they would own most of the economys physical capital. Physical non-human wealth would be more highly concentrated than human wealth. (authors)

Anatomy of an Experimental Political Stock Market

Abstract: Results from the Iowa Political Stock Market are analyzed to ascertain how well markets work as aggregators of information. The authors find that the market worked extremely well, dominating opinion polls in forecasting the outcome of the 1988 presidential election, even though traders in the market exhibited substantial amounts of judgment biases. Their explanation is that judgment bias refers to average behavior, while in markets it is marginal traders who influence price. They present evidence that in this market a sufficient number of traders were free of judgment bias so that the market was able to work well. Copyright 1992 by American Economic Association.

The design of an optimal insurance policy

Abstract: Almost every phase of economic behavior is affected by uncertainty. The economic system has adapted to uncertainty by developing methods that facilitate the reallocation of risk among individuals and firms. The most apparent and familiar form for shifting risks is the ordinary insurance policy. Previous insurance decision analyses can be divided into those in which the insurance policy was exogenously specified (see John Gould, Jan Mossin, and Vernon Smith), and those in which it was not (see Karl Borch, 1960, and Kenneth Arrow, 1971, 1973). In this paper, the pioneering work of Borch and Arrow—the derivation of the optimal insurance contract form from the model—is synthesized and extended.

Real Effects of Academic Research: Comment

Abstract: Compares Jaffe's work on the use of patents as a measure of the spillover of university research with the work of Acs and Audretsch in which innovation activity is measured by number of innovations. Jaffe's work, which modified the knowledge production function proposed by Griliches, showed a positive relationship between corporate patent activity and commercial spillovers from university research. This research approach was criticized by many. In 1987, Acs and Audretsch proposed measuring innovative activity by the number of innovations recorded in 1982 by the U.S. Small Business Administration. It was believed that using number of innovations, using those provided a more direct measure than Jaffe's work because inventions that were not patented but were introduced into the market were counted and inventions that were patented but never introduced were not counted. This analysis seeks to compare the two works. Jaffe used a pool of data that spanned an eight-year period while Acs and Audretsch considered a single year, 1982. It is shown that using a single year sample in Jaffe's model does not greatly alter the results, which means that both private corporate expenditures on R&D and university expenditures on research both positively and significantly influence patent activity. The impact of university spillovers is greater on innovations than patents using Jaffe's model. By directly substituting the innovation measure for the patent measure, this research approach shows further support for Jaffe's findings and arguments. (SRD)

The Electronic Mail Game: Strategic Behavior Under "Almost Common Knowledge"

Abstract: The paper addresses a paradoxical game-theoretic example which is closely related to the coordinated attack problem. Two players have to play one of two possible coordination games. Only one of them receives information about the coordination game to be played It is shown that the situation with "almost common knowledge" is very different from when the coordination game played is common knowledge.

International Comparisons of Pricing-to-Market Behavior

Abstract: This paper measures the degree of price discrimination across export destinations that is associated with exchange-rate changes using U.S., U.K, German, and Japanese industry-level data. Given the industries sampled, more price discrimination across destinations is observed in the U.K, German, and Japanese data. For industries that match across source countries, however, behavior is very similar across source countries. Furthermore, destination-specific price adjustment on exports to the United States from Germany and Japan is similar to price adjustment observed on shipments to other destinations. Most variation in the data appears to be related to industry. Copyright 1993 by American Economic Association.

Is the Extended Family Altruistically Linked? Direct Tests Using Micro Data

Abstract: This paper uses Panel Study of Income Dynamics data on parents and their adult children to test the standard altruism model. This model predicts that, within the extended family, the distribution of consumption is independent of the distribution of resources. The authors' findings strongly reject this prediction. Copyright 1992 by American Economic Association.

Seigniorage and Political Instability

Abstract: The importance of seigniorage relative to other sources of government revenue differs markedly across countries. This paper tries to explain this regularity by studying a political model of tax reform. The model implies that countries with a more unstable and polarized political system will have more inefficient tax structures and, thus, will rely more heavily on seigniorage. This prediction of the model is tested on cross-sectional data for seventy countries. The authors find that, after controlling for other variables, political instability is positively associated with seigniorage. Copyright 1992 by American Economic Association.

Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China

Abstract: Several experimental sessions were conducted to elicit certainty equivalents for a sequence of lotteries involving real monetary outcomes. The opportunity to conduct sessions in the People's Republic of China afforded the ability to offer very large monetary incentives relative to subjects' living costs; in the highest payoff condition, subjects earned three times their normal monthly revenue in the course of a two-hour experiment. Results indicate a statistically significant impact of the level of monetary incentives on revealed risk preferences. However, even under extreme monetary incentives, subjects demanded amounts well in excess of expected value for low-probability gain prospects. Copyright 1992 by American Economic Association.

Some economics of global warming

Abstract: The greenhouse effect itself is simple enough to understand and is not in any real dispute. What is in dispute is its magnitude over the coming century, its translation into changes in climates around the globe, and the impacts of those climate changes on human welfare and the natural environment. These are beyond the professional understanding of any single person. The sciences involved are too numerous and diverse. Demography, economics, biology, and the technology sciences are needed to project emissions; atmospheric chemistry, oceanography, biology, and meteorology are needed to translate emissions into climates; biology, agronomy, health sciences, economics, sociology, and glaciology are needed to identify and assess impacts on human societies and natural ecosystems. And those are not all. There are expert judgments on large pieces of the subject, but no single person clothed in this panoply of disciplines has shown up or is likely to. This article makes an attempt to forecast the economic and social consequences of global warming due to anthropogenic greenhouse gases, and attempting to prevent it.

Workfare versus Welfare Incentive Arguments for Work Requirements in Poverty-Alleviation Programs

Abstract: Whether those who claim benefits should face a work requirement has been an issue of long-standing social concern. Important examples of schemes which require work are the Californian workfare program, Indian food security schemes and the English Poor Law of 1834. We present two arguments for demanding work for benefits: first, a work requirement can scree the truly needy from those who are not in need of support and second, it can provide incentives for people to invest in skills which enable them to avoid poverty. In the context of a simple model of a target population with two ability types we find conditions under which a work requirement reduces the costs of poor relief, and those when it does not. We concentrate on a case when work done in return for benefits has no social value, showing that even if this is true, work requirements may be a valuable policy tool.

Liquidity Effects and the Monetary Transmission Mechanism

Abstract: Several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment. Existing quantitative general equilibrium models, which allow for capital accumulation, are inconsistent with this view. There does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates, output, and employment to a money supply shock. However, a key shortcoming of these models is that they cannot rationalize persistent liquidity effects. This paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence. We argue that once a simplified version of the model in Christiano and Eichenbaum (1991) is modified to allow for extremely small costs of adjusting sectoral flow of funds, positive money shocks generate long-lasting, quantitatively significant liquidity effects, as well as persistent increases in aggregate economic activity.

The toxic intensity of industrial production: Global patterns, trends, and trade policy

Abstract: This paper exploits a newly developed data set to investigate recent changes in the international distribution of industrial pollution. In particular, the authors examine three issues: (1) the relationship between the toxic intensity of industrial production and the level of economic development, (2) the impact of OECD environmental regulation on global changes in toxic intensity, and (3) the relationship between trade policy and the toxic intensity of industrial production in LDC's. 10 refs.

Cooperative and Noncooperative R&D in an Oligopoly with Spillovers

Abstract: This paper examines the positive and normative effects of cooperative R&D--whereby member firms commit themselves to the joint profit-maximizing level of R&D in a "precompetitive stage" but remain fierce competitors in the product market--vis-a-vis noncooperative R&D, socially first-best R&D, and socially second-best R&D. In the presence of sufficiently large R&D spillovers, neither noncooperative nor cooperative equilibria achieve even second-best R&D levels. In the absence of spillover effects, however, while the cooperative R&D level remains socially insufficient, the noncooperative level may overshoot first- and second-best levels of R&D. Copyright 1992 by American Economic Association.

Target Zones and Realignments

Abstract: Recent contributions emphasize that the presence of exchange-rate target zones has important effects on the within-band behavior of exchange rates when agents are forward-looking. The authors find that the implications of available models are inconsistent with European exchange-rate data, and they suggest that the frequent realignments occurring in the period they consider may be responsible for this. They construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence. Copyright 1992 by American Economic Association.

Employment tenure and earnings profiles in Japan and the United States : comments

Abstract: The relationship between job tenure and annual earnings in Japan has received considerable attention from social scientists examining employment contracts and the Japanese compensation system. In their widely cited article, Masanori Hashimoto and John Raisian (1985), using data for 1980, showed that Japanese men have greater job tenure than comparable workers in the United States and that the earnings of Japanese men rise more rapidly with increased tenure. They found that an additional year of tenure increases earnings in both small and large firms in Japan more than does an additional year of general market experience. Their results for the United States indicate that general market experience increases earnings more than an additional year of job tenure. The 1970's and 1980's were a period of substantial change in Japanese labor markets, due to the rapid aging of the population and the restructuring of the economy following the oil crisis. The present analysis extends the work of Hashimoto and Raisian by estimating earnings equations for Japanese men for the years 1971, 1976, 1981, and 1986. Specifically, we wish to investigate whether Hashimoto and Raisian's findings have been stable over time or whether changes in the labor market have altered the importance of tenure relative to total labor-market experience in the Japanese labor market. I. Changes in the Labor Market

The Uses of Money: Money in the Theory of an Exchange Economy

Abstract: One of the oldest unresolved problems of monetary theory is to explain the use and holding of money. Resolution of the problem is central to an understanding of the difference between a monetary and a nonmonetary or barter economy, and there have been numerous attempts at resolution. The use of money or the existence of a positive demand has been made to depend on such diverse factors as the anticipation of price or interest rate changes, uncertainty, the embarrassment of default, legal restrictions, or some undefined set of "services"—such as "liquidity"— that money provides. Probably the dominant, current explanation posits the existence of a number of ostensibly separate "motives for holding money." This explanation coexists with vestiges of an earlier preferred explanation that made the use and/or holding of money depend on the "functions" performed by money, such as medium of exchange, store of value and unit of account.