Knowledge that Transforms

Two models of wage and employment determination in unionized markets are routinely exposited. According to one, wage and employment outcomes are on the firm's labor demand curve; according to the other, wages and employment are on the partie' contract curve. This paper spells out an empirical procedure that discriminates between these two models and applies this procedure to the particular case of the newspaper industry and the International Typographical Union. The labor demand curve model is inconsistent with our data, while the contract curve model comes closer to describing our observations.

The presence of distributional effects in macroeconomic equations is shown to coincide with nonlinearity in micro behavioral relationships. Parameters estimated with aggregate data, as in representative agent models, contain distributional biases that are not measurable using aggregate data alone. Tests for distributional effects and other measures of the extent of aggregation problems are derived using distributional data observed over time. Significant distributional effects are noted for a model of annual aggregate U.S. commodity expenditure data. A static model that accommodates individual heterogeneity is found to be statistically equivalent to a simply dynamic model that accommodates first-order autocorrelation.

The paper reexamines the question of the guilt of subordinates in large organizations, a question posed with special force by Hannah Arendt in her book on Adolf Eichmann. He consistently claimed innocence on the ground that he was only following orders. Arendt accepted this picture of the regime but nevertheless indicted him for "crimes against humanity." The paper suggests that this model of the Nazi bureaucracy is false: in the Nazi bureaucracy of murder, as in other large bureaucracies, subordinates competed with each other to advance the goals of superiors they trusted. In this context, their guilt is easily established.

Recent public policy debate has focused concern on the equity dimensions of categorical discrimination based on sex, age, or race in insurance and similar markets. We consider the efficiency effects of such discrimination and establish that costless imperfect categorization always enhances efficiency. When categorization entails a non-negligible resource cost, however, no unambiguous efficiency ranking of informational regimes is possible. When categorization is costless, we demonstrate that government, having no better information than market participants, can effect redistribution without assuming dictatorial control of the market, implying that a market equilibrium with costless categorization is potentially Pareto superior to one without it. When categorization is costly, however, the market may categorize when Pareto improvements are not possible.

Gresham's law often takes two forms: the rule that bad money drives out good money and a qualified version of that rule that requires a fixed exchange rate between the two monies. Yet history contradicts both of these forms. In fact, the exchange rate has never been fixed, and we doubt it ever could be. We propose a new version of the law that is more feasible and more consistent with the evidence. It requires a fixed transaction cost of using currencies at nonparprices for the rule to apply. Then denomination determines the fate of good money.

With data from the 1980 census, earnings of artists are investigated. It is found that, contrary to widely held beliefs, artists do not appear to earn less than other workers of similar training and personal characteristics. Artists in 1980 are significantly younger than the general work force, probably because of the rapid growth of the artistic professions in recent years.

This paper reports the results of tests of the major implications of the two-parameter capital asset pricing model. The findings indicate that the relationship between stock returns and systematic risk contains important nonlinearities during 1935-82. These nonlinearities cannot be ascribed to previously documented anomalies related to firm size or January seasonality. Moreover, the test results appear to be sensitive to the choice of the proxy for the market portfolio.

From automobile insurance data for Alberta over the period 1974-81, we find thatpremiums are highly correlated across driver classes in a given year, but that premiums for a given driver class are not correlated over a period of more than 5 years. Firms' relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums.In these driver classes, the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured. From these results we conclude that the price dispersion in automobile insurance in Alberta is based on costly consumer search.

The purpose of this cross-national study is twofold. First, it introduces income distribution and sociopolitical instability as arguments in the savings function. Second, it presents some empirical evidence in relation to their quantitative effects on savings. It is shown that sociopolitical instability has profound effects on the savings ratio. It is also shown that the bulk of savings is produced by the middle income class. As a result a redistribution of income at the expense of the upper income class yields a constant or an increased savings ratio developing on whether such a redistribution includes the lower income class or not.

New data on probated wealth, landownership, debts, and occupations extend our view of the distribution of English wealth back from 1911 to 1670. There were widening gaps in mean wealth between the top landed-plus-merchant classes and the middle classes across the Industrial Revolution century. Size distributions for individual assets also widened. So did those for income or total wealth (including human). But nonhuman net worth did not become more unequal because of important shifts in the land share. All inequality measures before 1914 exceeded all those since 1950. The estimates illuminate classical theories of distribution.