Knowledge that Transforms

BY MOST CRITERIA the arts comprise a significant area of economic activity. In 1990, American consumers spent $5 billion on admissions to theater, opera, galleries, and other nonprofit arts events (more than on admissions to spectator sports), $4.1 billion on movie admissions, and $17.6 billion on books. Because of difficulties in defining boundaries around the arts industry, statistics on its contribution to GDP are problematical, but available data suggest that the arts (theater, music, opera, dance, visual arts, crafts, literature, community, and folk arts) account for a little under one percent of the United States GDP and a little over one percent of the civilian labor force. If the net is cast somewhat wider, defining the cultural industries as including the arts, motion pictures, radio and television, and printing and publishing, an aggregate value of output can be measured for 1988 of about $130 billion or 2.5 percent of GDP (National Endowment for the Arts 1992). Likewise, support for the arts and culture in the U. S. through government and voluntary contributions amounts to a significant annual commitment of funds. Combined federal, state, and local government expenditure on the arts and museums in 1987 amounted to about $0.8 billion, and in 1990, 6.4 percent of charitable giving was channeled to arts, culture, and the humanities, yielding a total level of voluntary contributions in these areas of $7.9 billion in that year. Private markets in the arts, too, are of significant size. Looking at the international art trade, for example, we can note that the worldwide net sales of the two major art auction houses (Christie's and Sotheby's) amounted to $6.6 billion in 1989-90.1 Yet, despite the fact that production and consumption of art have been elements of human activity for longer than most of the phenomena that have en-

The authors employ the Cooley-Prescott adaptive model to examine for functional misspecification in three commonly used exchange rate expectation models. They also test for heterogeneity among forecasts. The authors find no serious misspecification problem but some heterogeneity in expectations. These test results are confirmed by various other regression specification tests. Copyright 1994 by MIT Press.

This article investigates changes over time in the substitutability of paralegals for other employees within the law firm. The substitutability between paralegals and associate lawyers does not seem to have increased over time; if anything, the increased role for paralegals has been accompanied by increased specialization of tasks performed. In fact, in the largest legal markets and the legal practices employing the most specialized attorneys, paralegals and associates appear to be complementary inputs. In contrast, there is some evidence that secretarial and clerical workers have become more substitutable for professional workers in the law firm. Copyright 1994 by MIT Press.

Willard F. Mueller and Frederick E. Geithman (1991) test the competing free-rider (efficiency) and market-power explanations of certain vertical restraints once used by the Sealy mattress company and declared illegal after 1980. They estimate that eliminating the restraints increased sales and argue that this supports only the market-power explanation. However, Mueller and Geithman overlook the rise in Sealy's profits that occurred after 1980, a fact which renders their test inconclusive. Copyright 1994 by MIT Press.

This paper considers two problems that frequently arise in dynamic discrete choice problems but have not received much attention with regard to simulation methods. The first problem is how to simulate unbiased simulators of probabilities conditional on past history. The second is simulating a discrete transition probability model when the underlying dependent variable is really continuous. Both methods work well relative to reasonable alternatives in the application discussed. However, in both cases, for this application, simpler methods also provide reasonably good results. Copyright 1994 by MIT Press.

This paper used a general equilibrium framework to examine the macroeconomic consequences of the recent failures and subsequent bailout in the savings and loan industry. We distinguish between the losses in the capital stock, the economic effects of alternative methods of funding those real losses, and the intertemporal transfer of real resources implicit in backing the financial assets used. We then embed the analysis in a general equilibrium, multi-country model with intertemporal budget constraints that allows for the interaction of intertemporal adjustment and expectation revisions. The more complete model is used to explore the consequences of the S&L debacle on the evolution of the U.S. economy during the 1980's and 1990s.

The major emphasis in previous money demand studies has been at the aggregate level, with little systematic attention paid to sectoral differences in money holding behavior. This paper attempts to address the latter issue by focusing on more homogeneous subgroups to gauge money holding patterns. We apply cointegration theory to identify long-run money demand functions for the household and business sectors of the U.S. economy. In general, our results, which are based on the 1960-1990 U.S. monetary experience, suggest substantial sectoral divergences in long-run relationships. In particular, the household sector reveals more stable relationships. The business sector indicates strong interest elasticities, which are found to be negligible for the household case. These findings are invariant to alternative money definitions and for different sample periods. Copyright 1994 by MIT Press.

Jeffrey I. Bernstein, Exports, Margins and Productivity Growth: With an Application to the Canadian Softwood Lumber Industry, The Review of Economics and Statistics, Vol. 76, No. 2 (May, 1994), pp. 291-301