Knowledge that Transforms

This paper examines the relationship between population and economic growth. It analyzes the implications of the effects of higher population density on per capita incomes and other variables in different countries and other geographic regions. Several statistical models that interpolate population to cities investment in human capital and economic growth were utilized to help analyze population growth. Generally economists along with others have believed that higher population lowers per capita incomes by diminishing returns. On the contrary there are few proofs demonstrating that higher population in more developed economies reduce per capita incomes. Population may reduce productivity secondary to traditional diminishing returns from more intensive use of land and other natural resources. However large populations encourage greater specialization and increased investments in knowledge. Therefore the net relation between greater population and per capita incomes relies on whether the inducements to human capital and expansion of knowledge are stronger than diminishing returns to natural resources.

Developing countries with highly unequal income distributions, such as Brazil or South Africa, face an uphill battle in reducing inequality. Educated workers in these countries have a much lower birth rate than uneducated workers. Assuming children of educated workers are more likely to become educated, this fertility differential increaases the proportion of unskilled workers, reducing their wages, and thus their opportunity cost of having children, creating a vicious cycle. A model incorporating this effect generates multiple stedy-state levels of inequality, suggesting that in some circumstances, temporarily increasing access to educational opportunities could permanently reduce inequality. Empirical evidence suggests that the fertility differential between the educated and uneducated is greater in less equal countries, consistent with the model. An earlier version of this paper was published in the AEA Papers and Proceedings, May 1999 and is also available here.

In the pre-reform period, agriculture was heavily subsidized in most Central and Eastern European countries (CEEC's). Around 1989, most CEEC's began to open up their markets, liberalize prices, and reduce subsidies, and the level of support provided to agriculture declined drastically. While not questioning the direction of economic reforms, there was concern that the decline in profitability in farning would slow down the impetus for farm restructuring, in particular, the drive for privatization of land as demanded by potential new farmers. However, after pursuing rather liberal agricultural policies at the beginning of the transition period, some CEEC's in recent years have reintroduced higher levels of support (Stefan Tangerman, 1996). In this paper, based on estimates of various support indicators for the period beginning roughly in 1994, I will address some of the more important questions regarding agricultural support: What has been the impact of trade and price policy interventions on the net income of farmers and government budgets? How level has the playing field been since the reintroduction of support? Does the current economic environment provide an appropriate and sound basis for adjustment toward a more competitive agricultural sector? This analysis is part of a comparative study by the World Bank, which covers Bulgaria, Poland, Romania, Ukraine, and Russia (in progress), plus Germany and Turkey, two reference cases geographically located at the border of the CEEC' s. For each country, employing the same methodology, the study considers approximately eight commodities which are representative of the country's major import-competing and export products.

Can Affirmative Action Be Cost Effective? An Experimental Examination of Price-Preference Auctions by Allan Corns and Andrew Schotter. Published in volume 89, issue 1, pages 291-305 of American Economic Review, March 1999

We examine self-control problems—modeled as time-inconsistent, present-biased preferences—in a model where a person must do an activity exactly once. We emphasize two distinctions: Do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate—do too soon—immediate-reward activities. Sophistication mitigates procrastination, but exacerbates preproperation. Moreover, with immediate costs, a small present bias can severely harm only naive people, whereas with immediate rewards it can severely harm only sophisticated people. Lessons for savings, addiction, and elsewhere are discussed.

This paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world: life insurance. We report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information. We conjecture that sellers may know their costs of production better than consumers in this market, as in those for most other products.

Theories of organization of legislatures have mainly focused on the U.S. Congress, explaining why committee systems emerge there, but not explaining variance in organization across legislatures of different countries. To analyze the effects of different constitutional features on the internal organization of legislatures, we adopt a vote-buying model and consider the incentives to delegate decision rights in a game among legislative chambers. We show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules, while a unicameral structure can encourage legislators to delegate power to a leader.

Medicare is the second-largest federal entitlement program after Social Security, and the single largest health insurer in the United States. In 1999, the Medicare program will spend $230 billion, about 13 percent of the federal budget, on behalf of some 39 million elderly and disabled individuals. For the past three decades, Medicare spending has grown substantially faster than the economy and faster than private health spending. That growth has been a continuing concern to policymakers. Financial pressures on the Medicare program will grow dramatically in the next few decades due to changing demographics and to the growth of medical technology. Aging baby-boomers will place unprecedented demands on the program as they reach age 65, beginning in 2011. Enrollment is projected to be 47 million people by 2010, growing to about 75 million people by 2030. Medicare will have more beneficiaries, and more at older ages as longevity increases, than ever before. And the cost per beneficiary of providing health care, which has risen dramatically in the past, is likely to be significantly higher than it is today. Assuming no change in policy, Medicare spending will grow from 2.6 percent of GDP in 1995 to 6.3 percent of GDP in 2030, as the last of the boomers enroll in the program. Meanwhile, the ratio of active workers to retirees will fall, making the current system of financing difficult to maintain without tax increases or substantial cost reductions.