Knowledge that Transforms

We investigate the impact of passenger shipping cartels on trans-Atlantic migration during the early twentieth century. We assemble from primary sources a detailed database of passenger flows and cartel operations and show that cartel operation reduced migratory flows by approximately 20% to 25%. Further, we show that there was no strong intertemporal substitution in migration to North America (at least in the short run) and, therefore, that the effects of cartel operation were not “undone” by later migration. Lastly, we find that cartel operation had no appreciable effect on the variability of migration flows, providing evidence against the notion that unfettered competition was destabilizing to turn-of-the-century transportation markets.

One of the best-established empirical results in international economics is that bilateral trade decreases with distance. Although well known, this result has not been systematically analyzed before. We examine 1,467 distance effects estimated in 103 papers. Information collected on each estimate allows us to test hypotheses about the causes of variation in the estimates. Our most interesting finding is that the estimated negative impact of distance on trade rose around the middle of the century and has remained persistently high since then. This result holds even after controlling for many important differences in samples and methods.

In this paper, we examine the sources of the productivity growth in the U.S. computer industry from 1978 to 1999. We estimate a joint production model of output quantity and quality that distinguishes two types of technological changes: process and product innovations. Based on the estimation results, we decompose total factor productivity (TFP) growth rate into the contributions of process and product innovations and scale economies. We find that product innovation associated with better quality accounts for about 30% of the TFP growth in the computer industry. Furthermore, the TFP acceleration in the computer industry in the late 1990s is mainly derived from a rapid increase in product innovation.

This paper provides an answer to an important empirical puzzle in the retirement literature: while most people know little about their own pension plans, retirement behavior is strongly affected by pension incentives. We combine administrative and self-reported pension data to measure the retirement response to actual and perceived financial incentives and document an important role for self-reported pension data in determining retirement behavior. Well-informed individuals are far more responsive to pension incentives than the average individual. Ill-informed individuals seem to respond systematically to their own misperceptions of pension incentives.

We examine the effect of corruption on foreign direct investment (FDI). Starting out from the theory of FDI, we show that corruption can have different effects on horizontal investments, which are primarily aimed at sales to the local market, compared with vertical investments, which are made to access lower factor costs for export sales. Using Swedish firm-level data, we find that corruption reduces the probability that a firm will invest in a country. Moreover, when studying the different types of investments, we find that horizontal investments, measured by affiliate local sales, are deterred by corruption to a larger extent than are vertical investments. We are also able to establish a causal effect of corruption on FDI.

Empirical researchers sometimes misinterpret how additional regressors, heterogeneity corrections, and multilevel factors impact the interpretation of the estimated parameters in binary outcome models such as logit and probit. This can result in incorrect inferences about the importance of incorporating such features in these nonlinear statistical models. Some reports of biases in binary outcome models appear related to the arbitrary variance normalization required in binary outcome models. A focus on readily interpretable numerical quantities, rather than conveniently chosen “effects” as measured by arbitrarily scaled coefficients, would eliminate nearly all of the interpretation problems we highlight in this paper.

This article estimates marginal propensities to consume (MPC) out of current and lagged income for U.S. states using panel data regressions that control for time-specific and state-level fixed effects. The MPCs vary across states; in particular, the MPC out of current income is higher in states where income is more persistent, and the MPC out of lagged income is lower in agricultural states. We show that the estimated MPCs can be matched by a model of forward-looking consumers that includes all of the following features: time aggregation, durable goods, impatience, credit constraints, and risk sharing.

Results from the incentive literature suggest that performance measures are often distorted, eliciting dysfunctional and unintended responses. The existence of these responses, however, is difficult to demonstrate in practice because this behavior is typically hidden from the researcher. We present a simple model showing that one can test for the existence of distortions by estimating the change in the association between a performance measure and the true goal of the organization with the measure's introduction. Using data from a public-sector organization, we find evidence consistent with the existence of distortions. We draw implications for the selection of performance measures.

This paper brings historical evidence to bear on the stylized fact that the yield curve predicts future growth. The spread between corporate bonds and commercial paper reliably predicts future growth over the period 1875–1997. This predictability varies over time, however, and has been strongest in the post–World War II period.

Using information on birth and kindergarten start dates to generate an exogenous measure of the relative age of a student's peer group, we find that, controlling for age, females with older peers are more likely to use substances than females with younger peers. Because there is no reason to suspect that birth and kindergarten start dates should be correlated with the choice of school, the socioeconomic status of a child's peers, or neighborhood unobservables, we view our results with regard to females as providing support for the idea that peer behavior can be contagious. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.