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Showing papers in "The American Economic Review in 2016"


Posted Content
TL;DR: In this article, the authors present a simple formal analysis which incorporates these elements, and show how it can be used to shed some light on some issues which cannot be handled in more conventional models.
Abstract: For some time now there has been considerable skepticism about the ability of comparative cost theory to explain the actual pattern of international trade. Neither the extensive trade among the industrial countries, nor the prevalence in this trade of two-way exchanges of differentiated products, make much sense in terms of standard theory. As a result, many people have concluded that a new framework for analyzing trade is needed.' The main elements of such a framework-economies of scale, the possibility of product differentiation, and imperfect competition-have been discussed by such authors as Bela Balassa, Herbert Grubel (1967,1970), and Irving Kravis, and have been "in the air" for many years. In this paper I present a simple formal analysis which incorporates these elements, and show how it can be used to shed some light on some issues which cannot be handled in more conventional models. These include, in particular, the causes of trade between economies with similar factor endowments, and the role of a large domestic market in encouraging exports. The basic model of this paper is one in which there are economies of scale in production and firms can costlessly differentiate their products. In this model, which is derived from recent work by Avinash Dixit and Joseph Stiglitz, equilibrium takes the form of Chamberlinian monopolistic competition: each firm has some monopoly power, but entry drives monopoly profits to zero. When two imperfectly competitive economies of this kind are allowed to trade, increasing returns produce trade and gains from trade even if the economies have identical tastes, technology, and factor endowments. This basic model of trade is presented in Section I. It is closely related to a model I have developed elsewhere; in this paper a somewhat more restrictive formulation of demand is used to make the analysis in later sections easier. The rest of the paper is concerned with two extensions of the basic model. In Section II, I examine the effect of transportation costs, and show that countries with larger domestic markets will, other things equal, have higher wage rates. Section III then deals with "home market" effects on trade patterns. It provides a formal justification for the commonly made argument that countries will tend to export those goods for which they have relatively large domestic markets. This paper makes no pretense of generality. The models presented rely on extremely restrictive assumptions about cost and utility. Nonetheless, it is to be hoped that the paper provides some useful insights into those aspects of international trade which simply cannot be treated in our usual models.

4,876 citations


Posted Content
TL;DR: In this article, a nonparametric programming method (activity analysis) is used to compute the Malmquist productivity indexes, which are decomposed into two component measures, namely, technical change and efficiency change.
Abstract: This paper analyzes productivity growth in 17 OECD countries over the period 1979-1988. A nonparametric programming method (activity analysis) is used to compute Malmquist productivity indexes. These are decomposed into two component measures, namely, technical change and efficiency change. We find that U.S. productivity growth is slightly higher than average, all of which is due to technical change. Japan's productivity growth is the highest in the sample, with almost half due to efficiency change. (JEL C43, D24) In this paper we apply recently developed

3,434 citations


Posted Content
TL;DR: For example, this article showed that the intergenerational correlation in long-run income is at least 0.4, indicating dramatically less mobility than suggested by earlier research, indicating less mobility.
Abstract: Social scientists and policy analysts have long expressed concern about the extent of intergenerational income mobility in the United States, but remarkably little empirical evidence is available. The few existing estimates of the intergenerational correlation in income have been biased downward by measurement error, unrepresentative samples, or both. New estimates based on intergenerational data from the Panel Study of Income Dynamics imply that the intergenerational correlation in long-run income is at least 0.4, indicating dramatically less mobility than suggested by earlier research. Copyright 1992 by American Economic Association.

1,710 citations


Posted Content
TL;DR: In this paper, the authors discuss several of Takayama's criticisms in addition to showing that the so-called "A-J Effect" cannot be derived from the basic assumptions made by both Averch and Johnson and also present a new formulation which leads to the A-J result quoted above.
Abstract: A recent article by Akira Takayama discusses an earlier paper by Harvey Averch and Leland L. Johnson on fair rate of return regulation of public utilities. Although Takayama (p. 255) agrees with Averch and Johnson's general conclusions "that a firm will tend to increase its investment with the introduction of an active constraint" on its rate of return, he criticizes the A-J argument as being "confusing, ambiguous, and in error." Takayama then attempts a clarification, and presents a new formulation which leads to the A-J result quoted above. This comment will discuss several of Takayama's criticisms in addition to showing that the so-called "A-J Effect" cannot be derived from the basic assumptions made by both Averch and Johnson and Takayama.1 We will show that the very assumptions used to prove the A-J Effect, by defining the region of X, require an assumption that the A-J Effect exists in the first place.

1,609 citations


Posted Content
TL;DR: The authors in this paper extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage, and see entrepreneurs, irrespective of class origin, as heroic figures, with the dream and will to found a private kingdom, to conquer adversity, to achieve success for its own sake, and to experience the joy of creation.
Abstract: Development economists have been preoccupied with the problem of increasing the size of the GNP pie to the relative neglect of its distribution. Despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth, empirical data on the distribution of income, business opportunity, and economic power are in short supply. Many of the studies on entrepreneurship and economic development, when they are not apologetics for ruthless capitalist exploitation as Paul Baran suggests, extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage. Joseph Schumpeter sees entrepreneurs, irrespective of class origin, as heroic figures, with the dream and will to found a private kingdom, to conquer adversity, to achieve success for its own sake, and to experience the joy of creation. For Gustav Papanek (1967), the private entrepreneur, who is frugal, diligent, far-sighted, remarkably able, and willing to take political risks, is in large part responsible for the "success" of Pakistan in achieving rapid industrialization.

1,588 citations



Posted Content
TL;DR: In this paper, the authors examined the desirability of aggregate production efficiency in a wide variety of circumstances provided that taxes are set at the optimal level, and an examination of that optimal tax structure.
Abstract: Theories of optimal production in a planned economy have usually assumed that the tax system can allow the government to achieve any desired redistribution of property.' On the other hand, some recent discussions of public investment criteria have tended to ignore taxation as a complementary method of controlling the economy.2 Although lump sum transfers of the kind required for full optimality3 are not feasible today, commodity and income taxes can certainly be used to increase welfare.4 We shall therefore examine the maximization of social welfare using both taxes and public production as control variables. In doing so, we intend to bring together the theories of taxation, public investment, and welfare economics. There are two main results of the study: the demonstration of the desirability of aggregate production efficiency in a wide variety of circumstances provided that taxes are set at the optimal level; and an examination of that optimal tax structure. It is widely known that aggregate production efficiency is desired as one part of achieving a Pareto optimum. It is also widely known that when the desired Pareto optimum cannot be achieved, aggregate production efficiency may not be desirable. Our conclusion differs from these results in that production efficiency is desirable although a full Pareto optimum is not achieved. In the optimum position, the presence of commodity taxes implies that marginal rates of substitution are not equal to marginal rates of transformation. Furthermore, the absence of lump sum taxes implies that the income distribution is not the best that can be conceived. Yet, the presence of optimal commodity taxes will be shown to imply the desirability of aggregate production efficiency. This result is similar to that derived by Marcel Boiteux, although he considered an economy where lump sum redistributions of income were possible. Boiteux also examined the optimal tax structure that was necessary for this result. The optimal tax structure for the case of a single consumer (or equivalently with lump sum redistribution) has also been examined by Frank * The authors are at Massachusetts Institute of Technology and Nuffield College, Oxford, respectively. During some of the work, Diamond was at Churchill College, Cambridge and Nuffield College, Oxford and Mirrlees was at M.I.T. Earlier versions of this paper were given at Econometric Society winter meetings at Washington and Blaricum, 1967, at the University Social Science Council Conference, Kampala, Uganda, December 1968, and to the Game Theory and Mathematical Economics Seminar, Hebrew University, Jerusalem'i. The authors wish to thank M.A.H. Dempster, D. K. Foley, P. A. Samuelson, K. Shell, and participants in these seminars for helpful discussions on this subject, and referees for valuable comments. Diamond was supported in part by the National Science Foundation under grant GS 1585. The authors bear sole responsibility for opinions and errors. 1 For a discussion of this literature, see Abram Bergson.

1,480 citations


Journal ArticleDOI
TL;DR: It is found that moving to a lower-poverty neighborhood when young (before age 13) increases college attendance and earnings and reduces single parenthood rates, and moving as an adolescent has slightly negative impacts.
Abstract: The Moving to Opportunity (MTO) experiment offered randomly selected families housing vouchers to move from high-poverty housing projects to lower-poverty neighborhoods. We analyze MTO’s impacts on children’s long-term outcomes using tax data. We find that moving to a lower-poverty neighborhood when young (before age 13) increases college attendance and earnings and reduces single parenthood rates. Moving as an adolescent has slightly negative impacts, perhaps because of disruption effects. The decline in the gains from moving with the age when children move suggests that the duration of exposure to better environments during childhood is an important determinant of children’s long-term outcomes. (JEL I31, I38, J13, R23, R38)

1,441 citations


Posted Content
TL;DR: In this article, it was shown that consumer's surplus can be used to estimate the unobservable compensating and equivalent variations, the correct theoretical measures of the welfare impact of changes in prices and income on an individual.
Abstract: The purpose of this paper is to settle the controversy surrounding consumer's surplus' and, by so doing, to validate its use as a tool of welfare economics. I will show that observed consumer's surplus can be rigorously utilized to estimate the unobservable compensating and equivalent variations-the correct theoretical measures of the welfare impact of changes in prices and income on an individual. I derive precise upper and lower bounds on the percentage errors of approximating the compensating and equivalent variations with consumer's surplus. These bounds can be explicitly calculated from observable demand data, and it is clear that in most applications the error of approximation will be very small. In fact, the error will often be overshadowed by the errors involved in estimating the demand curve. The results in no way depend upon arguments about the constancy of the marginal utility of income. Consequently, this paper supplies specific empirical criteria which can replace the apologetic caveats frequently employed by those who presently apply consumer's surplus. Moreover, the results imply that consumer's surplus is usually a very good approximation to the appropriate welfare measures. To preview, below I establish the validity of these rules of thumb: For a

1,286 citations


Posted Content
TL;DR: Averch and Johnson as mentioned in this paper argued that the introduction of an "active" constraint of a fair rate of return type would induce the firm to invest more than the original profit maximizing value of capital, and this would create an inefficient allocation of inputs.
Abstract: A recent article in this Review by Averch and Johnson [3] on the fair rate of return regulation in public utilities industries (or more generally "regulated industries") attracted the attention of many economists. In essence, Averch-johnson argues that the introduction of an "active" constraint of a fair rate of return type would induce the firm to invest more than the original profit maximizing value of capital, and this would create an inefficient allocation of inputs. In addition to frequent citations in verbal arguments, it has invited some thieoretical extensions by economists such as WVestfield [8] and Klevorick [5]. All of the writers seem to accept the basic theoretical foundations set by Averch and Johnson. For example, Klevorick [5] recently proposed that the fair rate of return should be inversely related to the size of the capital of a firm. The intuitive basis for this is apparent, for it in effect creates a penalty as the amount of capital used by the firm increases.' However, it seems to me that AverchJohnson's original arguments are sketchy and contain somewhat ambiguous logic at several important points. Although their conclusion, for which they tried to find empirical support, that a firm will tend to increase its investment with the introduction of an active constraint seems to be correct, it does not follow from their arguments. In particular, there seems to be a serious error which arises from confusing movements along a curve and shifts of a curve. In Section II, we clarify those ambiguities, and if necessary, correct the mistakes. In the third section of this paper, we shall provide a new formulation of the problem. We shall find that the new formulation will give the same answer as AverchJohnson, namely that a firm will tend to invest more with the iiltroductioin of an active constraint. It should be noted however that while the conclusion happens to be the same, this was not the necessity, for we needed a completely new formulation to obtain the old conclusion.

1,194 citations


Posted Content
TL;DR: The authors found that cooperative policies show much higher levels of emissions reductions than do non-cooperative strategies, and that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries.
Abstract: outcomes, and noncooperative equilibria. This study finds that cooperative policies show much higher levels of emissions reductions than do noncooperative strategies; that there are substantial differences in the levels of controls in both the cooperative and the noncooperative policies among different countries; and that high-income countries may be the major losers from cooperation. (JEL H41, Q4, Q2, Q20)

Posted Content
TL;DR: In this article, the problem of using taxation and government production to maximize a social welfare function was studied, and the first-order conditions were derived and the argument for efficiency in aggregate production was considered.
Abstract: set out the problem of using taxation and government production to maximize a social welfare function. We derived the first-order conditions, and considered the argument for efficiency in aggregate production. Here in Part II we consider the structure of optimal taxes in more detail. Part I contained five sections, and Part II begins at Section VI. In the sixth and seventh sections we consider commodity taxation in one- and many-consumer economies. In the eighth section we consider other kinds of taxes; and in the ninth, public consumption. In the tenth section we consider a rigorous treatment of the problem, giving a sufficient condition for the validity of the first-order conditions. To begin, we shall restate the notation and basic problem. Notation

Posted Content
TL;DR: The impact of government size on economic performance and growth is discussed in this article, where the authors identify some points of view that assign to the government a critical role in the process of economic development, and argue that a larger government size is likely to be a more powerful engine of economic growth.
Abstract: A study of the impact of government size on economic performance and growth is important. Theoretically, one point of view suggests that a larger government size is likely to be detrimental to efficiency and economic growth because, for example, (i) government operations are often conducted inefficiently, (ii) the regulatory process imposes excessive burdens and costs on the economic system, and (iii) many of government's fiscal and monetary policies tend to distort economic incentives and lower the productivity of the system. At the other extreme, one can identify some points of view that assign to the government a critical role in the process of economic development, and could argue that a larger government size is likely to be a more powerful engine of economic development. There are several arguments on which the latter point of view is based. These include, besides others, (i) role of the government in harmonizing conflicts between private and social interests, (ii) prevention of exploitation of the country by foreigners, and (iii) securing an increase in productive investment and providing a socially optimal direction for growth and development.


Posted Content
TL;DR: The authors found that the intergenerational correlation in lifetime earnings between fathers and sons was on the order of 0.4, which suggests considerably less inter-generational mobility than previously believed.
Abstract: This paper provides estimates of the correlation in lifetime earnings between fathers and sons. Intergenerational data from the National Longitudinal Survey are used. Earlier studies, conducted for the United States, report elasticities of children's earnings with respect to parent's earnings of 0.2 or less, suggesting extensive integenerational mobility. These estimates, however, are biased downward by error-contaminated measures of lifetime economic status. Estimates presented in this paper correct for the problem of measurement error and find the intergenerational correlation in income to be on the order of 0.4. This suggests considerably less intergenerational mobility than previously believed. (JEL J62)

Posted ContentDOI
TL;DR: In this article, the authors focus on situations involving repeated decisions with time inconsistent behavior and illustrate several "pathological" modes of individual and group behavior: procrastination in decision making, undue obedience to authority, membership of seemingly normal individuals in deviant cult groups, and escalation of commitment to courses of action that are clearly unwise.
Abstract: In this lecture I shall focus on situations involving repeated decisions with time inconsistent behavior. Although each choice may be close to maximizing and therefore result in only small losses, the cumulative effect of a series of repeated errors may be quite large. Thus, in my examples, decision makers are quite close to the intelligent, well-informed individuals usually assumed in economic analysis, but cumulatively they make seriously wrong decisions that do not occur in standard textbook economics. This lecture discusses and illustrates several "pathological" modes of individual and group behavior: procrastination in decision making, undue obedience to authority, membership of seemingly normal individuals in deviant cult groups, and escalation of commitment to courses of action that are clearly unwise. In each case, individuals choose a series of current actions without fully appreciating how those actions will affect future perceptions and behavior. The standard assumption of rational, forwardlooking, utility maximizing is violated. The nonindependence of errors in decision making in the series of decisions can be explained with the concept from cognitive psychology of undue salience or vividness. For example, present benefits and costs may have undue salience relative to future costs


Posted Content
TL;DR: In this paper, each member of a population is characterized by values for the variables (YA, YB' Z, x), where x is a vector describing a person and z is a binary variable indicating which of two treatments this person receives.
Abstract: Assume that each member of a population is characterized by values for the variables (YA, YB' Z, x). Here x is a vector describing a person and z is a binary variable indicating which of two treatments this person receives. The treatments are labelled A and B. The variables YA and YB are scalar measures of the outcomes of the two treatments. For example, a cancer patient might be treated by (A) drug therapy or (B) surgery. The relevant outcome y might be life span following treatment. An unemployed worker might be given (A) vocational training or (B) job search assistance. Here the relevant outcome might be labor force status following treatment. Assume that a random sample is drawn and that one observes the realizations of (z, x) and of the outcome under the treatment received. Thus YA is observed if treatment A is received but is a latent variable if treatment B is received. Similarly, YB is either observed or latent. Suppose that one wants to learn the difference in expected outcome if all persons with attributes x were assigned to treatment A or B. This "treatment effect" is

Posted Content
TL;DR: Fisher as discussed by the authors argued that the economic rate of return is an indicator of the economic power and market performance of a company and that it is the only appropriate measure of the profit rate for economic analysis.
Abstract: Accounting rates of return are frequently used as indices of monopoly power and market performance by economists and lawyers.' Such a procedure is valid only to the extent that profits are indeed monopoly profits, accounting profits are in fact economic profits, and the accounting rate of return equals the economic rate of return. The large volume of research investigating the profits-concentration relationship uniformly relies on accounting rates of return, such as the ratio of reported profits to total assets or to stockholders' equity as the measure of profitability to be related to concentration.2 Many users of accounting rates of return seem well aware that profits as reported by accountants may not be consistent from firm to firm or industry to industry and may not correspond to economists' definitions of profits. Likewise, they recognize that accountants' statements of assets, hence also stockholders' equity, may fail to correspond to economically acceptable definitions, because accounting practices do not provide for the capitalization of certain activities such as research and development and do not incorporate allowances for inflation. This is to say they are well aware of certain measurement problems which arise in using available accounting information to measure profitability. They seem, however, totally unaware of a much deeper conceptual problem, namely, that accounting rates of return, even if properly and consistently measured, provide almost no information about economic rates of return.3 The economic rate of return on an investment is, of course, that discount rate that equates the present value of its expected net revenue stream to its initial outlay. Putting aside the measurement problems referred to above, it is clear that it is the economic rate of return that is equalized within an industry in long-run industry competitive equilibrium and (after adjustment for risk) equalized everywhere in a competitive economy in long-run equilibrium. It is an economic rate of return (after risk adjustment) above the cost of capital that promotes expansion under competition and is produced by output restriction under monopoly. Thus, the economic rate of return is the only correct measure of the profit rate for purposes of economic analysis.4 Accounting rates of return are useful only insofar as they yield information as to economic rates of return.5 *Fisher is professor of economics, Massachusetts Institute of Technology. McGowan was Vice-President, Charles River Associates. He died on April 7, 1982. This paper is based on work done for Fisher's testimony as a witness for IBM in U.S. v. IBM (69 Civ. 200, U.S. District Court, Southern District of New York). We are indebted to Larry Brownstein, Steven Hendrick, and especially Karen Larson and Leah Hutten for computational and programming assistance. Any errors are our responsibility. 'Aside from U.S. v. IBM, see, for example, Joseph Cooper, p. 15; the various industry studies in Walter Adams; and the discussion in Philip Areeda and Donald Turner, Vol. II, pp. 331-41. 2See the comprehensive reviews of this literature by Leonard Weiss and more recently by F. M. Scherer, pp. 267-95. Additional accounting problems raised by attempting to measure profitability by line of business are discussed extensively in George Benston. 3A referee suggests that even the crudest accounting information tells us IBM is more profitable than American Motors (AMC), but we disagree. Surely accounting information tells us IBM generates more dollars of profits per dollar of assets than does AMC but, as the examples below demonstrate, that information alone does not tell us which firm is more profitable in the sense of having a higher economic rate of return. 4This is literally true only if the cost of capital is first subtracted. In what follows below, we follow the usual empirical practice of measuring all rates of return before such subtraction. sThe existence of a uniquely defined economic rate of return-which we now assume for the theoretical analysis below and which occurs in all the examples-is


Posted Content
TL;DR: In this article, the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income was measured by using time-series information on regional rainfall.
Abstract: This paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income Time-series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks The relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income (JEL D91, 016) The incomes of farm households in developing countries are notorious for being both low and uncertain Policies that increase the incomes of farmers may well be different


Posted Content
TL;DR: In this article, a simple market model in which rational buyer behavior in the face of imperfect information about product quality can give long-lived advantages to pioneering brands is presented, and the analysis has some implications for the variation in the strength of such advantages across markets with different basic conditions.
Abstract: tively simple market model in which rational buyer behavior in the face of imperfect information about product quality can give longlived advantages to pioneering brands. The analysis has some implications for the variation in the strength of such advantages across markets with different basic conditions. Two sorts of evidence provide the motivation for this research. First, Joe Bain's seminal empirical study of conditions of entry led him to conclude that "the advantage to established sellers accruing from buyer preferences for their products as opposed to potential entrant products is on average larger and more frequent in occurrence at large values than any other barrier to entry" (p. 216). Treating advertising as a proxy for product differentiation, a large literature has attempted to test this assertion by relating advertising to profitability in cross section.' It is interesting to note, however, that Bain concluded that

Book ChapterDOI
TL;DR: In this article, a positive rate of frictional unemployment may exist in equilibrium, denoted as the "natural" rate, which is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand.
Abstract: Since the publication of Edmund Phelps' volume, the "new" macroeconomics has treated the labor market as a dynamic process of rational search by unemployed workers for available vacancies. Wages are viewed as at least potentially flexible, though free contracting between workers and firms may lead to fixed wages in the short run. Imperfect information is a crucial element of the theory, for it implies both a need for contracting and a need for rational search rather than simple market clearing in each period. A positive rate of frictional unemployment may exist in equilibrium, denoted as the "natural" rate. This unemployment is due to the frictions in the search process and imperfections in information rather than to any deficiency in aggregate demand. Milton Friedman defined the natural rate as

Posted Content
TL;DR: This paper examined the marginal excess burden of all major taxes in the United States, using a multisector, dynamic computational general equilibrium model, and found that the marginal welfare effects of individual income taxes, corporate taxes, payroll taxes, sales and excise taxes, and other smaller sources of revenue.
Abstract: In recent years, increasing attention has been paid by public finance economists to the marginal excess burden (MEB)1 per additional dollar of tax revenue. Estimates of MEBs stand in contrast to estimates of the welfare cost of taxes which are calculated by totally removing existing taxes and replacing them with equal yield lump sum taxes. Instead, an MEB estimate measures the incremental welfare costs of raising extra revenues from an already existing distorting tax. Earlier estimates of MEBs have either concentrated on particular portions of the tax system, or have employed partial equilibrium methods. Here, we examine the MEB of all major taxes in the United States, using a multisector, dynamic computational general equilibrium model. This allows us to calculate simultaneously the marginal welfare effects of individual income taxes, corporate taxes, payroll taxes, sales and excise taxes, and other smaller sources of revenue. We find that the marginal excess burden

Posted Content
TL;DR: In this paper, money is incorporated into a real business cycle model using a cash-in-advance constraint and the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money.
Abstract: Money is incorporated into a real business cycle model using a cash-in-advance constraint. The model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money. In addition, the welfare cost of the inflation tax is measured and the steady-state properties of high and low inflation economies are compared.

Posted Content
TL;DR: In this paper, the impact of the European Economic Community (EEC) and the European Free Trade Association (EFTA) on member trade over the period 1951-67 is investigated.
Abstract: Utilizing a cross-sectional trade flow model of the type developed by Hans Linnemann and Jan Tinbergen, this study attempts to isolate empirically the major forces which have shaped European trade relations over the period 1951-67. We first estimate via the use of dummy variables the impact of the European Economic Community (EEC) and the European Free Trade Association (EFTA) on member trade. For each year of the European integration period (1959-67), a crosssectional equation is estimated ancl used to test for the existence and approximate size of the respective integration effects. The equation is also calculated for the eight years prior to the integration period to obtain a clear picture of the forces which were at work before the formation of the EEC. Secondly, a base year equation is used to make projection estimates of the gross trade creation and European trade diversion effects of the two communities.

Journal ArticleDOI
TL;DR: In this paper, a structural spatial equilibrium model was proposed to determine causes and welfare consequences of this increased skill sorting, which was further fueled by endogenous increases in amenities within higher skill cities.
Abstract: From 1980 to 2000, the rise in the US college/high school graduate wage gap coincided with increased geographic sorting as college graduates concentrated in high wage, high rent cities This paper estimates a structural spatial equilibrium model to determine causes and welfare consequences of this increased skill sorting While local labor demand changes fundamentally caused the increased skill sorting, it was further fueled by endogenous increases in amenities within higher skill cities Changes in cities' wages, rents, and endogenous amenities increased inequality between high school and college graduates by more than suggested by the increase in the college wage gap alone (JEL D31, I26, J24, J31, J61, R23)


Journal ArticleDOI
TL;DR: In this article, the authors examined the efficiency of ride sharing services vis-a-vis taxis by comparing the capacity utilization rate of UberX drivers with that of traditional taxi drivers in five cities.
Abstract: In most cities, the taxi industry is highly regulated and utilizes technology developed in the 1940s. Ride sharing services such as Uber and Lyft, which use modern internet-based mobile technology to connect passengers and drivers, have begun to compete with traditional taxis. This paper examines the efficiency of ride sharing services vis-a-vis taxis by comparing the capacity utilization rate of UberX drivers with that of traditional taxi drivers in five cities. The capacity utilization rate is measured by the fraction of time a driver has a fare-paying passenger in the car while he or she is working, and by the share of total miles that drivers log in which a passenger is in their car. The main conclusion is that, in most cities with data available, UberX drivers spend a significantly higher fraction of their time, and drive a substantially higher share of miles, with a passenger in their car than do taxi drivers. Four factors likely contribute to the higher capacity utilization rate of UberX drivers: 1) Uber’s more efficient driver-passenger matching technology; 2)the larger scale of Uber than taxi companies; 3) inefficient taxi regulations; and 4) Uber’s flexible labor supply model and surge pricing more closely match supply with demand throughout the day.