Knowledge that Transforms

We argue that the effect of wives' earnings can be assessed meaningfully only by comparing the observed distribution of income with a reference distribution. The components of the standard decomposition of the Gini coefficient have no implicit reference distribution and therefore should not be interpreted as a measure of the effect of an income source on inequality. We suggest several intuitive counterfactual reference distributions and illustrate their use with 1979 and 1989 U.S. data. We conclude that wives' earnings reduced inequality in that the income distribution would have been less equal in their absence. Alternative measures of the impact have mixed results.

This paper examines the relationship between productivity, investment, and plant age for over 14,000 plants in the U.S. manufacturing sector for the period of 1972 to 1988. Productivity patterns vary significantly due to plant heterogeneity. Initially productivity increases with respect to plant age, but then it decreases. Productivity and growth in productivity are found to be systematically correlated with plant size and industry. However, there is virtually no observable relationship between investment and productivity or productivity growth. Overall the results indicate that plant heterogeneity and fixed effects are more important determinants of observable productivity patterns than sunk costs or capital reallocation.

During the spring and the fall of 1993, respondents to a national household survey were asked to report expectations of spring 1994 weekly earnings. Elicited in the form of subjective probabilities, these data are potentially much more informative than are typical reports of economic expectations. Subjective probability distributions of future weekly earnings are estimated for each respondent, based on his or her reports of a series of subjective probabilities. This paper analyzes the cross-sectional variation in expectations, revisions of expectations between the spring and the fall of 1993, and the relationship between 1993 expectations and the distribution of spring 1994 earnings realizations. Generally positive findings on the validity of the data bode well for the prospects of eliciting expectations in future surveys.

In this paper we develop a switching regression model of investment, in which the probability of a firm facing a high premium on external finance is endogenously determined. This approach allows one to address the potential problem of static and dynamic misclassification encountered where firms are sorted using a criteria chosen a priori. We use U.S. firm level data to analyze the effects of variables that capture each firm's credit worthiness, asymmetric information, and agency problems on the probability of being in the high- or low-premium regime. The role of macroeconomic conditions and monetary policy is also discussed.

Economists' productivity over their careers and as measured by publication in leading journals declines very sharply with age. There is no difference by age in the probability that an article submitted to a leading journal will be accepted. Rates of declining productivity are no greater among the very top publishers than among others, and the probability of acceptance is increasingly related to the author's quality rather than the author's age.

This study provides new evidence of the importance of financing constraints for explaining the dramatic cycles in inventory investment. We compare the empirical performance of different financial variables (coverage ratio, cash stocks, and cash flow) used in previous research to test for the presence of financing constraints. The comparison is undertaken in a common framework with an identical sample and high-frequency (quarterly) firm panel data. Cash flow is much more successful than cash stocks or coverage in explaining the facts about inventory investment across firm size, different inventory cycles, and different manufacturing sectors.

Most households persistently invest in riskless assets but not stocks, and may do so because they perceive information required for market participation to be costly relative to expected benefits. In a Consumption Capital Asset Pricing Model (CCAPM) increased risk aversion, income risk, and lower resources reduce the information expense sufficient to deter stockholding. Bivariate probit analysis using the 1983–1989 Survey of Consumer Finances shows that households with lower risk aversion, higher education, and greater wealth who were nonstockholders in 1983 had an increased conditional probability of entering by 1989, whereas 1983 stockholders with lower resources, more limited education, and greater risk aversion were more likely to be nonstockholders by 1989.

The paper develops an efficiency-wage model in which input prices affect the equilibrium rate of unemployment. We show that a simple framework based on only two prices (the real price of oil and the real rate of interest) is able to explain the main postwar movements in the rate of U.S. joblessness. The equations do well in forecasting unemployment many years out of sample, and provide evidence that the oil-price spike associated with Iraq's invasion of Kuwait appears to be a component of the “mystery” recession that followed.

This paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals, both at introduction and after 4, 6, and 8 years. Most important is the extent of therapeutic advance embodied in a new product. For drugs which represent important therapeutic gains, launch prices can be two or three times those of existing drugs used for the same purposes, while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels. In addition, the number of branded substitutes has a substantial negative effect on launch prices, which reflects the importance of competitive pressures. Duplicate products thereby play an important economic role in pharmaceutical markets.

Previous tests for liquidity constraints using consumption Euler equations have frequently split the sample on the basis of wealth, arguing that low-wealth consumers are more likely to be constrained. We propose alternative tests using different and more direct information on borrowing constraints obtained from the 1983 Survey of Consumer Finances. In a first stage we estimate probabilities of being constrained, which are then utilized in a second sample, the Panel Study of Income Dynamics, to estimate switching regression models of the Euler equation. Our estimates indicate stronger excess sensitivity associated with the possibility of liquidity constraints than the sample splitting approach.