Knowledge that Transforms

The existing empirical evidence on the role of gender in economic education has resulted in a variety of findings. Two-thirds of the studies that examined students' level of understanding, or stock of knowledge, report significant gender differences, with men outperforming women on measures of economic knowledge (John Siegfried, 1979). These gender effects do not appear in analyses of economic learning or knowledge using elementary (Donald Davison and John Kilgore, 1971; William Walstad, 1979) or junior high students (Michael MacDowell et al., 1977; Stephen Buckles and Vera Freeman, 1984). However, the evidence suggests that by the time students reach high school, significant gender differences exist in both the learning and understanding of economic knowledge (Robert Highsmith, 1974; Daniel Thornton and George Vredeveld, 1977; M. E. Moyer and D. W. Paden, 1968). The existing literature suggests that men demonstrate a higher level of economic understanding than women, but that this difference appears during adolescence. (An exception is a study by Michael Watts, 1987, in which gender differences appeared as early as the fifth grade among some students.) Beyond the high school years, men still exhibit a higher level of knowledge than women, but the knowledge appears to accumulate at equivalent rates. Thus, the high school years are crucial in the establishment of these observed gender differences, differences that persist well into college. The explanation that is typically advanced for the origination of these gender differences is a cultural milieu that discourages girls from engaging in analytical thought or taking an interest in the business world, a stereotype that would be particularly strong during adolescence (Siegfried and Stephen Strand, 1977). However, there is some evidence that gender differences in tests of economic knowledge are more pronounced when student performance is tested by means of a multiple-choice instrument. Female students may, in fact, outperform their male counterparts when performance is measured by essay questions, a result explained by females' higher verbal skills and males' higher spatial and quantitative skills (Keith Lumsden and Alex Scott, 1987). As discussed above, previous studies of the gender differences on most performance tests have generally found that males score higher than females. However, these studies may actually be overestimating the level of understanding of the population of all women students, thereby causing a serious downward bias in estimates of gender differences. If participation in an economics course is voluntary, students who take the course have selected themselves into it, making it possible that they differ from students who did not choose to take the course. Results based on these nonrandom samples are tDiscussants: Thomas Kniesner, University of North Carolina-Chapel Hill; George Tauchen, Duke University; Michael K. Salemi, University of North CarolinaChapel Hill.

While taxes may be certain, U.S. tax policy has certainly not been. Furthermore, intrinsic economic risk makes investment decisions risky. Therefore, a serious examination of the effects of tax policy on dynamic economic behavior should consider both sources of uncertainty. This paper presents a simple theoretical and computational model that can analyze both intrinsic risk and uncertain taxation. Furthermore, it will be clear that these techniques will be useful for examining general problems of taxation and risk. When studying the impact of past and/or proposed tax changes, one of two extreme assumptions are usually made: either agents are perfectly aware of future tax policy, a perfect foresight assumption, or they always believe that no change will ever occur, a myopic foresight assumption. These two assumptions yield substantially different views of recent tax experience, as Alan Auerbach and James Hines (1987) demonstrate in a partial-equilibrium context. Both are clearly wrong. The myopic specification assumes that individuals believe at each point in time that the current tax law will surely continue forever, even after they have been hit repeatedly with tax changes. On the other hand, it is absurd to think that in, say, 1977, a significant number of individuals perfectly knew the various tax changes that would occur during the following decade. This paper analyzes a dynamic general equilibrium model wherein taxpayers understand the uncertainty in tax policy when making their deci-

This paper presents a theory of inventory investment by stage-of-processing, and uses it to examine the role of inventory investment in economic fluctuations. The model, in which inventories are treated as factors of production, is estimated for four durable goods industries. Three conclusions emerge from the estimation. First, the estimates generally satisfy the theoretical restrictions. Second, the elasticity of inventory demand with respect to output is high, indicating an important accelerator effect. Finally, the estimates suggest that shifts in the demand for inventories are an important source of economic fluctuations.

In estimating intersectoral productivity differences, Kuznets concludes that ...per worker product in agriculture is significantly lower than in industry and services. Agriculture's productivity backlog is explained by labor market failure especially in developing (structural dualism). However, by analyzing agriculture as economic activity organized by farm households competing with off-farm and household production, efficient allocation of resources in agriculture can be demonstrated. Therefore, productivity measurements based on the concept of the farm as a firm are misleading. A model of the farm household and empirical evidence are presented. In his seminal book Economic Growth of Nations, Simon Kuznets (1971) has systematically analyzed intersectoral productivity differences to be observed in almost all countries.' With respect to labor productivity in agriculture (A) as compared to industry and services (I+ S), he has found out that ... worker product in the A sector is significantly lower than in the I + S sector and intersectoral inequality in per worker product is greatest at the low per capita product and smallest at the high per capita product levels (p. 236). Hollis Chenery and Moises Syrquin (1975, p. 53) have confirmed, but somewhat modified Kuznets' findings by explaining that ... relative labor productivity in the primary sector falls from about 70 percent to 50 percent at income level of $500 and then gradually rises as agricultural technology is modernized and the surplus agricultural labor is absorbed by the rest of the economy. As far as developing are concerned, Kuznets (p. 156) illustrates this explanation by ...the most plausible combination... of economic determinants affecting ... an absolute decline in per worker product in the A sector resulting from increased pressure of population on land under conditions of relatively stagnant agricultural technology, and some rise in per worker product in the I + S sector resulting from a growth of modern components in industry and services. In discussing ... several explanations of intersectoral differentials in per worker product... (p. 238), Kuznets finally comes to the conclusion that ... whatever the formulation, the discussion tended justifiably to emphasize various aspects of duality in structure in the less developed countries (p. 247). He, thereby, confirms the dogma of structural dualism as the main source of disguised unemployment in agriculture, seen as ... the cornerstone of the theory of development of underdeveloped since the 1940s according to Paul Rosenstein-Rodan (1957, p. 1). Already in 1954, Arthur Lewis has generated a micro-model of agriculture within Economic Development with Unlimited Supplies of Labour, (1954), which during following years has been extended and modified by various development economists. 2 With respect to developed *Professor of Agricultural Economics, University of Gottingen, Federal Republic of Germany, Platz der Gottinger Sieben 5, D-3400 Gottingen. The author acknowledges helpful comments of two unknown referees to earlier draft of this article. 'Wide-ranging international differences in intersectoral productivity discrepancies have been already observed and discussed mainly with respect to agriculture by Marc Latil (1956), J. R. Bellerby (1956), and Colin Clark (1957). But none of them has provided a consistent explanation. Therefore, Clark (p. 254) had to admit that ...no immediate deductions can be drawn from the data. More recent information on far-reaching sectoral productivity differences between OECD-countries are provided by OECD (see Table 1). 2Various models of agriculture in a dual economy are discussed inter alia by Hans-Bemd Schafer (1983).

Prize Lecture to the memory of Alfred Nobel, December 7, 1989.

Two hundred years ago the United States Constitution replaced the Articles of Confederation as the fundamental law of the land when New Hampshire became the ninth state to ratify the Constitution on June 21, 1788. The document represented the successful culmination of a movement to strengthen the national government. Scholars long have debated the possible causes for this important change in political institutions (see James Hutson, 1984), a change which was to have major consequences for the development of the nation (Douglass North, 1981, ch. 14). Despite the intense debate, few scholars have either offered any theoretical model of the delegates' voting behavior or employed formal statistical analysis to test their hypotheses about voting behavior at the 13 state ratifying conventions. These omissions are surprising, particularly since Charles A. Beard (1913) long ago stated that the contest over ratification represented the ultimate test of the role of economic interests in the making of the Constitution, a test he never conducted. Given the recent interest exhibited by economists in explaining political behavior, the absence of a rigorous analysis of voting at the 13 ratifying conventions is even more surprising. Economists and economic historians have all but ignored the ratification process. In a progress report on our study of the making of the Constitution, we (Robert McGuire and Robert Ohsfeldt, 1984) recently provided a tentative theoretical model and summarized preliminary indications, drawn from incomplete data, of delegates' voting behavior during the drafting and ratification of the Constitution. More recently, we (McGuire and Ohsfeldt, 1986; McGuire, 1988) presented the final results of our econometric studies of the voting behavior during the drafting of the Constitution at the Federal Convention of 1787. In the present paper, we offer a principalagent model and econometric tests of voting behavior during the ratification of the Constitution at the 13 state conventions. An analysis of voting at the ratification stage allows for a stronger test of the factors influencing voting behavior than an analysis of the Federal Convention of 1787, because of a greater number of delegates (over 1200 versus 55) and a more straightforward voting process.' The paper not only addresses an important and controversial issue in economic history (the role of economic interests in the ratification of the Constitution), it also advances our general understanding of polit-

At any point in time over the last decade, approximately 37 percent of nonelderly adult women were not employed, while 18 percent worked part-time and 45 percent worked full time. While much research has explored the static labor market participation and hours decisions of women,1 there has been almost no exploration of how the pattern of labor market involvement varies among individual women over time. Is there one group of women who always work full time, and another that is always out of the labor market? Or do most individual women move between different levels of labor market involvement over time? Part-time work may be particularly important in labor market dynamics. It has been suggested that part-time work provides a bridge or a stepping-stone into fulltime employment for women who have been absent from the labor market. Yet, knowing little about the dynamics of individual labor supply, we do not know if most part-timers are in that state transitionally, or if they are permanently involved in part-time work. This paper focuses on labor market changes over a nine-year period among a sample of adult women. The questions it addresses are: 1) What are the patterns of labor market involvement that we find among individual women over time? 2) What role does part-time work play in the dynamic patterns of women's labor market involvement, and is there evidence that part-time work is a more transitional category than full-time work or nonwork? 3) What factors induce women to move between part-time work, full-time work, and nonwork?

During the post-World War II era, U.S. governmental policy has often been based on the idea that (in the absence of government action) access to college and, to a lesser extent, high school education may be limited because of liquidity constraints. The federal and state and local governments have instituted a number of policies to overcome these constraints. These policies include the Basic Opportunity Grants, loan programs that have been issued at or below market interest rates, the expansion of state-supported colleges that charge below-market tuitions rates, and the inception and expansion of local community or county colleges that also charge below-market tuition rates. While there may be noneconomic reasons that explain these changes or their magnitude, economic reasons, that rely on differences between private and social costs and benefits, can also be advanced. These include: (a) wiser societal choices made by a more educated society; (b) recoupment of social costs from higher tax revenues; (c) the reduction of private risks from lending arising from the pooling of risks thereby making the social supply of funds curve available to all individuals at the social discount rate; and (d) state and local economic development. Reason c implies that in the absence of governmental initiative some children would be restricted from achieving their socially optimal amount of education because parents' income and wealth limit their children's choices. Gary Becker (1975), Arthur Okun (1975), and Jere Behrman and myself (1985) argue that governmental policy to reduce private borrowing costs to the level of social costs reduces inefficiency while increasing equity-a rare result in the realm of economics. In this paper I consider why parental income might influence offspring's educational attainment and the policy implications of such an influence.