Knowledge that Transforms

This paper describes how wealth inequality may distort public resource allocation. A government seeks to allocate limited resources to productive sectors, but sectoral productivity is privately known by agents with vested interests in those sectors. They lobby the government for preferential treatment. The government—even if it honestly seeks to maximize economic efficiency—may be confounded by the possibility that both high wealth and true economic desirability create loud lobbies. Broadly speaking, both poorer economies and unequal economies display greater public misallocation. The paper warns against the conventional wisdom that this is so because such governments are more “corrupt.”

The phenomenon of choice shifts in group decision-making has received attention in the social psychology literature. Faced with a risky group decision, individuals appear to support more extreme choices relative to those they would make on their own. This paper demonstrates that from a decision-theoretic perspective, choice shifts are intimately connected to failures of expected utility theory. In the model studied here, the Allais paradox is equivalent to a well-studied configuration of choice shifts. Thus, our results marry two well-known behavioral regularities, one in individual decision theory and another in the social psychology of groups.

Over the postwar period, many industrialized countries have experienced significant medium-frequency oscillations between periods of robust growth versus relative stagnation. Conventional business cycle filters, however, tend to sweep these oscillations into the trend. In this paper we explore whether they may, instead, reflect a persistent response of economic activity to the high-frequency fluctuations normally associated with the cycle. We define as the medium-term cycle the sum of the high- and medium-frequency variation in the data, and then show that these kinds of fluctuations are substantially more volatile and persistent than are the conventional measures. These fluctuations, further, feature significant procyclical movements in both embodied and disembodied technological change, and research and development (R&D), as well as the efficiency and intensity of resource utilization. We then develop a model of medium-term business cycles. A virtue of the framework is that, in addition to offering a unified approach to explaining the high- and medium-frequency variation in the data, it fully endogenizes the movements in productivity that appear central to the persistence of these fluctuations. For comparison, we also explore how well an exogenous productivity model can explain the facts.

This paper summarizes the main findings and perspectives emerging from a collective research project on the dynamics of income and wealth distribution. The primary objective of this project is to construct a high-quality, longrun, international database on income and wealth concentration, using historical tax statistics. The resulting database now includes annual series covering most of the twentieth century for a number of (mostly Western) countries. 1 The main motivation for this project comes from a general dissatisfaction with existing income inequality databases. Existing international databases display little homogeneity over time or across countries. They cover only a few isolated years per country, generally restricted to the post-1970 or post-1980 period. They almost never offer any decomposition of income inequality into a labor-income and a capitalincome component. Economic mechanisms can be very different for the distribution of labor income (demand and supply of skills, labor market institutions, etc.) and the distribution of capital income (capital accumulation, credit constraints, inheritance law and taxation, etc.), so that it is difficult to test any of these mechanisms using existing data. The fact that existing data are not long run is also problematic, because structural changes in income and wealth distribution often span several decades.

Trade sanctions are often criticized as ineffective because they create incentives for evasion or as harmful to the target country's population. Loan sanctions, in contrast, could be self-enforcing and could protect the population from being saddled with “odious debt” run up by looting or repressive dictators. Governments could impose loan sanctions by instituting legal changes that prevent seizure of countries' assets for nonrepayment of debt incurred after sanctions were imposed. This would reduce creditors' incentives to lend to sanctioned regimes. Restricting sanctions to cover only loans made after the sanction was imposed would help avoid time-consistency problems.

In spite of the inexorable march of democracy around the globe, just how democratic institutions a¤ect human well-being is open to debate. The evidence that democracy promotes prosperity is neither strong nor robust. Moreover which aspects of policy making and human well-being are promoted by

hourly wage, and employment status using the NSBA and the MCSUI. Lighter skin tone is clearly associated with higher employment rates for women and higher educational attainment for both women and men. The employment rate for women with very dark skin tone in the NSBA is strikingly lower than for women with lighter skin tone. In contrast, evidence that skin tone affects wages is limited. For both sexes, in both datasets, those in the light category have the highest average hourly wage, but this value is significantly different from those with darker skin only for men in the NSBA. Furthermore, the pattern for women based on the MCSUI does not show an increasing wage from darker to lighter skin tone, but instead shows that women in the medium-skin-tone category have the lowest average wage.

In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change came into force, but without participation by the United States. Its impacts on emissions of greenhouse gases—including carbon dioxide (CO2), the primary anthropogenic driver of climate change—will be trivial; but scientific (Robert T. Watson, 2001) and economic (Charles D. Kolstad and Michael A. Toman, 2001) analyses point to the need for a credible international approach. Because the Kyoto Protocol’s ambitious targets apply only to the short term (2008–2012) and only to industrialized nations, the agreement will impose relatively high costs and generate only modest short-term benefits, while failing to provide a real solution (Joseph E. Aldy et al., 2003). For these reasons, most economists see the agreement as deeply flawed (Richard N. Cooper, 1998; David G. Victor, 2001; Warwick J. McKibbin and Peter J. Wilcoxen, 2002), although some see it as an acceptable first step (Axel Michaelowa, 2003). Virtually all agree, however, that the Protocol is not sufficient to the overall challenge. We describe the basic features of a postKyoto international global climate agreement, which addresses three crucial questions: who, when, and how. The respective elements are: first, a means to ensure that key nations—industrialized and developing—are involved; second, an emphasis on an extended time path of action (employing a cost-effective pattern over time); and third, inclusion of market-based policy instruments. I. Who—Expand Participation to Include All Key Countries

siders the importance of the family as an institution. Little attention, however, has been given to the impact of the family structure and its dynamics on institutions. This limits our ability to understand distinct institutional developments-and hence growth-in the past and present. This paper supports this argument by highlighting the importance of the European family structure in one of the most fundamental institutional changes in history and reflects on its growth-related implications. What constituted this change was the emergence of the economic and political corporations in late medieval Europe. Corporations are defined as consistent with their historical meaning: intentionally created, voluntary, interest-based, and self-governed permanent associations. Guilds, fraternities, universities, communes, and city-states are some of the corporations that have historically dominated Europe; businesses and professional associations, business corporations, universities, consumer groups, counties, republics, and democracies are examples of corporations in modern societies. The provision of corporation-based institutions to mitigate problems of cooperation and conflict constituted a break from the ways in which institutions had been provided in the past. Historically, large kinship groups-such as clans, lineages, and tribes-often secured the

This paper estimates effects of increases in incarceration length on employment and earnings prospects of individuals after their release from prison. I utilize a variety of research designs including controlling for observable factors and using instrumental variables for incarceration length based on randomly assigned judges with different sentencing propensities. The results show no consistent evidence of adverse labor market consequences of longer incarceration length using any of the analytical methods in either the state system in Florida or the federal system in California.