Studies have suggested that urban agglomeration enhances productivity by facilitating the firm‐worker matching process. This article develops a model that formalizes this notion and demonstrates that, when firm capital and worker skill are complementary in production, urban agglomeration will tend to generate more efficient, yet segregated matches. As a result, not only will local market size be positively associated with average productivity, it will also generate greater between‐skill‐group wage inequality and a higher expected return to skill acquisition. Recent data from the counties and metropolitan areas of the United States is consistent with each of these implications.

Why do countries that impose employer sanctions to deter the illegal entry of foreign workers nevertheless grant amnesty to illegal immigrants? In this article, I provide a positive theory of amnesty provision in a model where the constrained optimal immigration reform, involving the joint use of employer sanctions and border interdictions, is time‐inconsistent. In particular, my framework demonstrates that host countries of immigration can enhance the credibility of their immigration reforms by “binding their own hands” and strategically granting a socially excessive amount of amnesty to illegal workers.

Empirical studies of the relation between uncertainty and the length of union‐firm contracts have focused on the effects of inflation, money‐supply, or industry‐specific uncertainty. This article describes two extensions of previous work. First, real, aggregate uncertainty arising from oil shocks is incorporated into a contract‐duration model. Oil shocks significantly affect contract length in seven of 21 U.S. manufacturing industries. Second, the model is used to test whether the duration of reopenable bargains is positively related to uncertainty associated with large shocks, as has been described in Danziger. The evidence indicates some qualified support for this proposition.

A claim is commonly made that cash flow and accrual accounting methods for valuing equities must always yield equivalent valuations. A recent paper by Lundholm and O'Keefe 2001, for example, claims that, because of this equivalence, there is nothing to be learned from empirical comparison of valuation models. So they dismiss recent research that has shown that accrual accounting residual income models and earnings capitalization models perform, over a range of conditions, better than cash flow or dividend discount models. This paper demonstrates, with examples, that the claim is misguided. Practice inevitably involves forecasting over finite, truncated horizons, and the accounting specified in a model — cash versus accrual accounting in particular — is pertinent to valuation with finite-horizon forecasting. Indeed, the issue of choosing a valuation model is an issue of specifying pro forma accounting, and so, for finite-horizon forecasts, one cannot be indifferent to the accounting.

A claim is commonly made that cash flow and accrual accounting methods for valuing equities must always yield equivalent valuations. A recent paper by Lundholm and O'Keefe 2001, for example, claims that, because of this equivalence, there is nothing to be learned from empirical comparison of valuation models. So they dismiss recent research that has shown that accrual accounting residual income models and earnings capitalization models perform, over a range of conditions, better than cash flow or dividend discount models. This paper demonstrates, with examples, that the claim is misguided. Practice inevitably involves forecasting over finite, truncated horizons, and the accounting specified in a model — cash versus accrual accounting in particular — is pertinent to valuation with finite‐horizon forecasting. Indeed, the issue of choosing a valuation model is an issue of specifying pro forma accounting, and so, for finite‐horizon forecasts, one cannot be indifferent to the accounting.

In a general equilibrium model, we allow for households with several, typically heterogeneous, members; households that make (efficient) collective consumption decisions where different households may use different collective decision mechanisms; yet households that operate within a competitive market environment. The interaction of two allocation mechanisms, collective decisions and competitive markets, is investigated, with a focus on the efficiency properties and decentralization possibilities of the dual allocation mechanism.

The majority of U. S. temporary help supply (THS) firms offer nominally free, unrestricted computer skills training, a practice inconsistent with the competitive model of training. I propose and test a model in which firms offer general training to induce self-selection and perform screening of worker ability. The model implies, and the data confirm, that firms providing training attract higher ability workers yet pay them lower wages after training. Thus, beyond providing spot market labor, THS firms sell information about worker quality to their clients. The rapid growth of THS employment suggests that demand for worker screening is rising.