Knowledge that Transforms

The prices of for-profit academic journals have increased rapidly over the past decade (Barbara Albee and Brenda Dingley, 2001). There remains substantial debate as to the explanation for these increases. Among those put forward are the increased concentration of the journal industry (see e.g., McCabe, 2002) and the relatively recent effort by major publishers to bundle print and electronic journals (Aaron S. Edlin and Rubinfeld, 2004). While both explanations are undoubtedly important, what is missing is the significant role of the primary customers of journal publishers—the academic libraries. As agents of college and university faculties, libraries serve the interests of their principals while having only limited information about faculty journal demands. Facing little or no hard budget constraint, faculty are unlikely or unwilling to make difficult allocative choices. As a result, libraries have been making hard choices for years (between journals and books, and among journals), in a world of increasing budgetary pressure. Given that electronic transmission of knowledge is becoming increasingly important, an understanding of the reasons for the increases in journal prices is a vital element in the ongoing discussion of best mechanisms by which scholarly communications can be disseminated. In this paper, we formulate a model of library journal demand and suggest how it can be used to analyze the optimal pricing of journals by publishers. This represents part of a larger project whose long-range goal is to explain the pattern of journal pricing over time, and to

In a model of career concerns for experts, when is a principal hurt from observing more information about her agent? This paper introduces a distinction between information on the consequence of the agent’s action and information directly on the agent’s action. When the latter kind of information is available, the agent faces an incentive to disregard useful private signals and act according to how an able agent is expected to act a priori. This conformist behavior hurts the principal in two ways: the decision made by the agent is less likely to be the right one (discipline) and ex post it is more difficult to evaluate the agent’s ability (sorting). The paper identifies a necessary and sufficient condition on the agent signal structure under which transparency on action is detrimental to the principal. The paper also shows the existence of complementarities between transparency on action and transparency on consequence. The results on the distinction between transparency on action and transparency on consequence are then used to interpret existing disclosure policies in politics, corporate governance, and delegated There is a widespread perception, especially among economists, that transparency is a beneficial

This paper attempts to provide an overview of how one can combine the insights from the property-rights approach with the apparatus of international trade theory to study the location and control decisions of the multinational fi rm in a uni fi ed framework.

Relative purchasing power parity (PPP) holds for pure price inflations, which affect prices of all goods and services by the same proportion, while leaving relative prices unchanged. Pure price inflations also affect nominal returns of all traded financial assets by exactly the same amount. Recognizing that relative PPP may not hold for the official inflation data constructed from commodity price indices because of relative price changes and other frictions that cause prices to be “sticky,” we provide a novel method for extracting a proxy for realized pure price inflation from stock returns. We find strong support for relative PPP in the short run using the extracted inflation measures.

Gasoline taxes are widely perceived as the most efficient instrument for reducing gasoline consumption because they exploit all behavioral responses for reducing fuel use, including reduced driving and improved fuel economy. At present, however, higher fuel taxes are viewed as a political nonstarter. Pay-as-you-drive (PAYD) auto insurance, which involves replacing existing lump-sum premiums with premiums that vary in proportion to miles driven, should be more practical, since they do not raise driving costs for the average motorist. We show that when impacts on a broad range of motor vehicle externalities are considered, PAYD also induces significantly higher welfare gains than comparable gasoline tax increases, for fuel reductions below 9%. The reason is that under PAYD, all of the reduction in fuel use, rather than just a fraction, comes from reduced driving; this produces a substantial additional efficiency gain because mileage-related external costs (especially congestion and accidents) are relatively large in magnitude.(This abstract was borrowed from another version of this item.)

We analyze the colonial land revenue institutions set up by the British in India, and show that differences in historical property rights institutions lead to sustained differences in economic outcomes. Areas in which proprietary rights in land were historically given to landlords have significantly lower agricultural investments and productivity in the post-independence period than areas in which these rights were given to the cultivators. These areas also have significantly lower investments in health and education. These differences are not driven by omitted variables or endogeneity problems; they probably arise because differences in historical institutions lead to very different policy choices.

Many programs reward or penalize schools based on students' average performance. Mean reversion is a potentially serious hindrance to the evaluation of such interventions. Chile's 900 Schools Program (P-900) allocated resources based on cutoffs in schools' mean test scores. This paper shows that transitory noise in average scores and mean reversion lead conventional estimation approaches to overstate the impacts of such programs. It further shows how a regressiondiscontinuity design can be used to control for reversion biases. It concludes that P-900 had significant effects on test score gains, albeit much smaller than is widely believed

ing from complicated signaling behavior by informed authors. Lerner and Tirole show that adding upstream private information does not alter their basic analysis (their Proposition 4). 454 AEA PAPERS AND PROCEEDINGS MAY 2005

To study how a firm can capitalize on a long-term customer relationship, we characterize the optimal contract between a monopolist and a consumer whose preferences follow a Markov process. The optimal contract is nonstationary and has infinite memory, but is described by a simple state variable. Under general conditions, supply converges to the efficient level for any degree of persistence of the types and along any history, though convergence is history-dependent. In contrast, as with constant types, the optimal contract can be renegotiation-proof, even with highly persistent types. These properties provide insights into the optimal ownership structure of the production technology.

We develop a positive theory of the adoption of child labor laws. Workers who compete with children in the labor market support a child labor ban, unless their own working children provide a large fraction of family income. Fertility decisions lock agents into specific political preferences, and multiple steady states can arise. The introduction of child labor laws can be triggered by skill-biased technological change, which induces parents to choose smaller families. The theory can account for the observation that, in Britain, regulations were first introduced after a period of rising wage inequality, and coincided with rapid fertility decline.