This paper treats racial integration as an innovation in economic process in which economic entities find it advantageous to utilize potentially more productive inputs previously unavailable due to law, custom, or managerial discretion. Data on the racial integration of Major League Baseball and Atlantic Coast Conference basketball are employed to address this issue. The central question examined is which type of team integrated first—losers or winners? The results strongly support the idea that entrepreneurship trumps competitive rivalry; that is, winning teams led the process of racial integration.
Welfare, Employment, and Income: Evidence on the Effects of Benefit Reductions from California by V. Joseph Hotz, Charles H. Mullin and John Karl Scholz. Published in volume 92, issue 2, pages 380-384 of American Economic Review, May 2002
Using Electoral Cycles in Police Hiring to Estimate the Effect of Police on Crime: Comment by Justin McCrary. Published in volume 92, issue 4, pages 1236-1243 of American Economic Review, September 2002
We present new tests of three theories of the labor market: intertemporal substitution, hours restrictions, and implicit contracts. The intertemporal substitution test we implement is an exclusion test robust to many specification errors and we consistently reject this model. We model hours restrictions as part of an endogenous switching model. We compare the implicit probit equation to an unrestricted probit equation for unemployment and reject the hours restriction model. For the implicit contracts model, we estimate nonseparable within-period labor-supply and consumption equations. We test a cross-equation restriction of the model and cannot reject the implicit contracts model.
The Importance of Bequests and Life-Cycle Saving in Capital Accumulation: A New Answer by Karen E. Dynan, Jonathan Skinner and Stephen P. Zeldes. Published in volume 92, issue 2, pages 274-278 of American Economic Review, May 2002
Bilateral trade deficits are a perennial policy issue. Former Deputy Assistant U.S. Trade Representative for Japan and China, Merit Janow (1994 p. 55), notes that during the first George Bush administration, “High deficits coupled with the continuing allegations from U.S. business interests about the closed nature of the Japanese market were resulting in serious domestic political pressures for improved access to the Japanese market.” Recently Robert C. Feenstra et al. (1998 p. 1) made similar comments vis-a-vis China: “Some analysts have interpreted the large U.S.–China bilateral trade deficit as prima facie evidence of unacceptably high levels of protectionism in China, and have advocated stringent entry conditions for China’s admission into WTO.” Given the policy salience of bilateral trade deficits, it is peculiar that no one has ever examined them empirically for a broad set of countries. One reason for the scant study is that economists are naturally (and sensibly) loath to accept the terms of the policy debate, which considers bilateral trade deficits ipso facto harmful. A second reason is that economists believe there may be very natural explanations for bilateral imbalances. One such explanation finds its origins in macroeconomic identities that equate current-account deficits to an excess of investment over saving. From this, it may be argued that bilateral imbalances will arise naturally in trade between countries in aggregate surplus and those in aggregate deficit. Indeed, this is the principal explanation that the profession has given policymakers, and it forms the foundation of many U.S. bilateral trade initiatives such as the Structural Impediments Initiative and the Framework talks. Janow (1994 p. 55) observes that “there was (and is) little disagreement among economists that the causes of large aggregate and bilateral deficits are largely attributable to macroeconomic factors” [italics added]. A second account may rely on what may be termed “triangular trade,” in which cross-country differences in the patterns of demand and supply mean that a country will run bilateral deficits with those countries that are unusually important suppliers of the goods for which the deficit country happens to be an unusually strong demander. In this paper, we use the canonical “gravity model” of bilateral trade to form predictions about bilateral trade balances. We develop two key variants of the model, in which bilateral trade imbalances arise due to aggregate macroeconomic imbalances or due to “triangular trade,” and we implement these empirically for a broad set of countries. Our results paint a dismal picture. The central explanations that economists provide to explain bilateral balances perform miserably. There are two key failures. First, actual bilateral trade imbalances are much larger than those predicted; there is a “mystery of excess trade balances.” Second, even after we allow for both macroeconomic imbalances and idiosyncrasies in the structure and levels of demand and production, the models perform poorly in explaining bilateral trade balances. These failures of economists’ standard explanations of bilateral trade imbalances require that we move beyond the simple gravity framework to consider alternative explanations: homogeneous goods, highly specialized intermediates, and the role of policy.
Faced with aging populations, tax rates on labor income rose in most industrial countries in the 1970's and 1980's, in large part to fund burgeoning social-security systems. The growth of the welfare state coincided with increased returns to education, and thus broader wage differentials between workers with relatively high levels of skills or education and those without. This paper provides a theoretical framework which connects these phenomena. We show that the aging of the population and the return to education both affect the politicaleconomy determination of tax rates and the generosity of transfers in a democratic framework. Using panel data on the United States and nine European countries, we provide supportive empirical evidence.
One, Two, (Three), Infinity, ...: Newspaper and Lab Beauty-Contest Experiments by Antoni Bosch-Domènech, José G. Montalvo, Rosemarie Nagel and Albert Satorra. Published in volume 92, issue 5, pages 1687-1701 of American Economic Review, December 2002
In an important paper, Timothy J. Feddersen and Wolfgang Pesendorfer (1996) investigate the “swing voter’s curse.” In a model of elections in which voters have common preferences and private information, they show that, when indifferent, less informed voters are better off abstaining than voting for either alternative, even without a cost of voting—the “swing voter’s curse.” They go on to show that even though significant abstention occurs in large electorates, the outcome of the election is almost always the same as with perfect information. Unfortunately, the proof of the proposition that establishes the “swing voter’s curse” phenomenon contains an error. In this comment we identify the error and give a correct proof of the proposition.
Economists measure the cost of protection in terms of static efficiency, growth rates and firm- or industry-level productivity effects. This survey is devoted exclusively to the literature on the static efficiency. A key preliminary point to note is that estimates in this literature are not derived econometrically from pre- and post- liberalization data. Instead, they are based on simulations of partial- or general-equilibrium models that are parameterized using estimates from the literature and calibrated around a pre-liberalization base year. This paper explores alternate measures of protection and thei welfare costs.