Knowledge that Transforms

Many people have noticed that it's getting too hot lately. But most suggested remedies have been micro oriented and have neglected the role of macro policies. To see how these policies would work, I construct a simple macroeconomic theory based on efficiency wages.' This choice of framework is natural because the efficiency-wage model has already been successful in analyzing unemployment, which is another social problem. The adaptation of the model to the weather suggests that many other applications would also be fruitful. The key observation is that workers' supply of effort depends on their wage, relative to that available elsewhere, and on the temperature. If firm i employs Ni workers, the effective supply of labor input can be written as

The authors develop a multicountry, dynamic general equilibrium model of product innovation and international trade to study the creation of comparative advantage through R$50D and the evolution of world trade over time. In their model, firms must incur resource costs to introduce new products, and forward-looking potential producers conduct R$50D and enter the product market whenever profit opportunities exist. Trade has both intraindustry and interindustry components, and the different incentives that face agents in different countries for investment and savings decisions give rise to intertemporal trade. The authors derive results on the dynamics of trade patterns and trade volume and on the temporal emergence of multinational corporations.

The problems of estimation and interpretation of union wage differentials are examined. The properties of cross-section and longitudinal estimators are compared. Estimates are presented and those in the literature summarized. Conflicting results are obtained. Longitudinal estimators typically produce results smaller than those of OLS, while cross-section methods (instrumental variables or inverse Mills ratio) raise the estimate. The paper offers a reconciliation of these results. It supports a more optimistic conclusion than that reached in reviews by Freeman and Lewis, who argued that little has been learned from attempts to deal with the endogeneity issue. Comparisons between estimators are used to throw light on the process governing union status and to suggest interpretations of "union differentials" consistent with the current evidence.

In raising revenues, governments of poor countries affect farm gate prices for export crops. Because agriculture is dispersed, interventions have spatial effects, leading to an integrated analysis of taxation, marketing, and transportation. Policies to be used singly or together include land, export, and transportation taxes/subsidies and variants of state marketing, in which only government procures crops. An export tax and a transport subsidy may be optimal. With state marketing, important aspects of buying depots are numbers, locations, spatial pattern of prices paid, and movement of output toward or away from the ultimate market. These policies also affect transport investment strategies.

This paper incorporates rational expectations, full price flexibility, and currency substitution into the usual small-economy model, taking explicit account of inflation abroad. Not only will the steady-state terms of trade be affected by an increase in the rate of monetary expansion when the inflation rate abroad is assumed to be nonzero, but its dynamic path may also be different from the usual case in which inflation abroad is ignored. It has been shown that if the import demands are relatively inelastic, the terms of trade will undershoot their equilibrium value; if the import demands are elastic, the terms of trade will overshoot. The key to these diametrically opposite results is the degree of ultimate deterioration in the terms of trade, which, in turn, turn on the size of the two import demand elasticities.

In the mid-1970s the International Whaling Commission concluded that the increased harvest by Alaskan Eskimos threatened the existence of the bowhead whale, which was slowly recovering from a period of open-access exploitation (1848-1914). This paper briefly discusses the economic history of the bowhead whale fishery in the western Arctic, simulates the population from 1848-1988, and presents a bioeconomic model that may be used to determine optimal Eskimo harvest for alternative rates of discount and weights on the bowhead population.

A theoretical analysis of "optimal" (Nash equilibrium) tariff rates is presented. A numerical general equilibrium model is then used to find Nash equilibrium tariff rates for the United States and Canada. The Nash equilibrium tariffs are small relative to partial equilibrium estimates: 18 percent for the United States and 6 percent for Canada. The United States is essentially indifferent between the Nash equilibrium and free trade, while Canada is better off at the latter by $4 billion. Empirical results support theoretical predictions that the optimal tariff is smaller when the country is smaller, there are scale economies and free entry, and capital is internationally mobile.

Liberal political philosophy, represented classically by John Locke and today by libertarians, defends great inequality of economic outcome on the basis that people own themselves and are entitled to establish private property in the external world by virtue of that self-ownership. Contemporary nonlibertarian political philosophers, such as John Rawls and Ronald Dworkin, achieve their relatively egalitarian conclusion by effectively denying self-ownership as a premise. An alternative challenge to liberalism, which does not take the radical starting point of denying self-ownership, is to declare that while certain rights to benefit by virtue of superior skill should be protected (a degree of self-ownership), productive assets in the external world be viewed as publicly owned and not privately appropriable. What allocation mechanisms on a space of possible economies satisfy axioms that are necessary to guarantee both private ownership of self and public or joint ownership of the external world? We propose an axiomatic method for modeling problems in political philosophy of this sort and answer the question posed for a simple model. The result shows that the degree of inequality defended by neo-Lockeanism can be challenged without denying, a priori, self-ownership, its relatively attractive postulate.

In an environment with private information, spatial separation, and limited communication, a currency-like object and more standard named credits can be distinguished. The credit objects can be used among agents in an enduring relationship, that is, among agents with known trading histories, whereas the currency-like object must be used among relative strangers. In this environment, collectively determined Pareto-optimal rules make the level of the currency-like object and the mix of currency to named credits responsive to individual needs and to economywide states. Total indebtedness is determined by the number of lenders, that is, by preference or demand shock, and the mix of currency to credits is determined by transaction patterns among the agents.