Knowledge that Transforms

We analyze a bias in transaction-based price indexes due to the presence of seller reservation prices. We develop a model in which the ratio of sellers' reservation prices to the market value affects trading volume and biases of observed transaction prices: when trading volume decreases (increases), index returns are estimated with an upward (downward) bias. We propose a new econometric procedure to mitigate the bias, and use simulations to demonstrate the effectiveness of the procedure. We construct a reserve-conditional unbiased index for the Los Angeles housing market, which substantially differs from a traditional repeat sale index.

A large body of empirical research indicates that countries with low policy-induced trade barriers tend to enjoy rapid growth, ceteris paribus. In contrast, alternative theoretical models suggest that the relationship between trade barriers and growth may be contingent on the level of development. Employing a direct trade-barrier measure—ad valorem tariff rates—we find evidence of such a contingency: the marginal effect of tariffs on growth is declining in the level of per capita income. Moreover, evidence of a negative relationship between tariffs and growth is apparent only among the world's rich countries.

We estimate wage gaps using nonparametric matching methods and detailed measures of field of study for university graduates. We find a modest portion of the wage gap is the consequence of measurement error in the Census education measure. For Hispanic and Asian men, the remaining gap is attributable to premarket factors—primarily differences in formal education and English language proficiency. For black men, only about one-quarter of the wage gap is explained by these same factors. For a subsample of black men born outside the South to parents with some college education, these factors do account for the entire wage gap.

The connection between changes in earnings inequality of individuals and changes in family earnings involves several links: the movements in the employment of different family members, the association between changes in husbands' and in wives' earnings, and patterns of assortative mating. A decomposition of the logarithm of the coefficient of variation in family earnings identifies these links. The data on the dispersion of family earnings are organized not simply over time, but also by age. The growth in wives' relative employment and earnings has partly offset the effects on family earnings inequality of the increase in husbands' earnings inequality.

Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices, while others maintain that such convergence will not occur because of a variety of forms of path-dependence. With new data on governance in 24 developing countries as well as data on laws protecting shareholders and creditors in 49 developed and developing countries, we search for evidence that globalization is correlated with similarity in corporate governance. We find robust evidence of de jure similarity in governance. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries - especially if the countries are both economically developed - appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, we find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels. This is consistent with either the proposition that complementarities result in different national systems appropriately having different corporate governance systems, or the proposition that globalization is not strong enough to overcome local vested interests. We conclude that globalization may have induced the adoption of some common corporate governance standards but that there is little evidence that these standards have been implemented.

This paper explores new roles that traditionally rural kinship networks organized around the marriage institution might play in improving labor market outcomes in urban Africa. Using new data from Kisumu, Kenya, and controlling for selection into marriage, we find that marriage significantly increases employment levels and incomes in our sample of migrants. At the same time, marriage increases the remittances that migrants send to the extended family, consistent with the view that the benefits of the network come with additional social obligations. These obligations appear to be borne disproportionately by high-ability individuals, who consequently defer marriage. The negative selection into marriage that we uncover has consequences for the future viability of the urban networks, with implications for long-term growth and distribution in this economy.

We study the effects of a change in financial aid policy introduced by an anonymous university in 1998. Prior to that time, the university's financial aid packages for low-income students consisted of grants, loans, and campus jobs. After the change, the entire loan portion of the package for low-income students was replaced with grants. We find the program increased the likelihood of matriculation by low-income students by approximately 3 percentage points, although the effect is not statistically significant. The effect among low-income minority students was between 8 and 10 percentage points and statistically significant at the 10% level.

Labor market conditions at the time and place of potential entry into the labor market are shown to have a substantial and persistent effect on adult employment prospects. Individuals who face particularly depressed local labor markets when they graduate from secondary education, are—other things equal—subject to relatively high rates of nonemployment during their whole prime-age work career. Building on a unique combination of micro and macro data from Norway, we show that these effects are robust with respect to model specification and conditioning variables, and that they are not limited to individuals with a particularly disadvantaged background.

Using a unique set of household level panel data, we estimate the effect of capital gains on saving by asset type, controlling for observable and unobservable household specific fixed effects. The results suggest that the decline in the personal saving rate since 1984 is largely due to the significant capital gains in corporate equities experienced over this period. Over five-year periods, the effect of capital gains in corporate equities on saving is substantially larger than the effect of capital gains in housing or other assets. Failure to differentiate wealth affects across asset types results in a significant understatement or overstatement of the size of their impact, depending on the asset.