Knowledge that Transforms

Gender gaps may be observed in a variety of economic and social environments. One of the possible determining factors is that men are more competitive than women and so, when the competitiveness of the environment increases, the performance of men increases relative to that of women. We test this hypothesis in a field study conducted with 9-year old children, running on a track. They first run alone and then in pairs over a short distance with different gender composition of the pairs. The results support the hypothesis that performance in competition varies according to gender. When children ran alone, there was no difference in performance. In competition boys, but not girls, improved their performance. This finding relates to the discussion regarding single sex schools: the outcomes of examinations in a mixed sex school can show a gender gap in favor of boys, even when this gap does not reflect actual abilities. Girls who are as talented as boys will end up performing worse just because they are not as competitive, and will not achieve as high scores in examinations as boys.

This paper analyzes Pareto-efficient international tax regimes. Because every country faces its own national budget constraint, the Diamond-Mirrlees production-efficiency theorem, which underlies key tenets of policy advice in international taxation—the desirability of destination basis for commodity taxation, of the residence principle for capital income taxation, and of free trade—does not apply. The paper establishes conditions—relating to the availability of explicit or implicit devices for reallocating tax revenues across countries—under which production efficiency is nevertheless desirable, and characterizes the precise ways in which Pareto-efficient international taxation may require violation of established tenets.

Are deflation and depression empirically linked? No, concludes a broad historical study of inflation and real output growth rates. Deflation and depression do seem to have been linked during the 1930s. But in the rest of the data for 17 countries and more than 100 years, there is virtually no evidence of such a link.

Identifying the Effects of the Americans with Disabilities Act Using State-Law Variation: Preliminary Evidence on Educational Participation Effects by Christine Jolls. Published in volume 94, issue 2, pages 447-453 of American Economic Review, May 2004

Design Choices in Privatized Social-Security Systems: Learning from the Swedish Experience by Henrik Cronqvist and Richard H. Thaler. Published in volume 94, issue 2, pages 424-428 of American Economic Review, May 2004

Social Comparisons and Pro-social Behavior: Testing "Conditional Cooperation" in a Field Experiment by Bruno S. Frey and Stephan Meier. Published in volume 94, issue 5, pages 1717-1722 of American Economic Review, December 2004

We investigate the effect of scale on performance in the active money management industry. We first document that fund returns, both before and after fees and expenses, decline with lagged fund size, even after accounting for various performance benchmarks. We then explore a number of potential explanations for this relationship. This association is most pronounced among funds that have to invest in small and illiquid stocks, suggesting that these adverse scale effects are related to liquidity. Controlling for its size, a fund's return does not deteriorate with the size of the family that it belongs to, indicating that scale need not be bad for performance depending on how the fund is organized. Finally, using data on whether funds are solo-managed or team-managed and the composition of fund investments, we explore the idea that scale erodes fund performance because of the interaction of liquidity and organizational diseconomies.

Griliches’ 1994 presidential address considers the limited success economists had in trying to account for the productivity slowdown of the 1970’s and 1980’s, and “urges us toward the task of observation and measurement.” In the 1990’s, the high rates of productivity growth emphasized the need for new models of productivity, this time turning to estimating organization-level determinants of productivity focusing on businesses’ use of new computerbased information technologies (IT), and new methods of work organization (Timothy Bresnahan et al., 2002). In this paper, we take up the charge to develop new data and new methods for modeling the productivity of organizations. We summarize three methods for assembling data for an “insider econometrics” study of the productivity of organizations, and we illustrate one method that we refer to as “informed survey analysis.”

Since the seminal work of Lawrence F. Katz and Kevin M. Murphy (1992), the study of wage inequality has taken as its starting point a neoclassical constant-elasticity-of-substitution production function using as inputs capital and lowand high-skill labor. This approach assumes that the organization of production is fixed and determined by a particular specification of technology, and it ignores both the source of the interaction between workers and the organizational aspects of this interaction. These shortcomings are particularly important in light of growing empirical evidence that points, first, to the importance of decreases in the cost of processing and communicating information and, second, to the complementarity between organizational change and adjustments in the distribution of wages (e.g., Timothy F. Bresnahan et al., 2002). This paper argues that theories that seek to guide empirical research on these areas must put knowledge and information at the center of the analysis of organizations and link the organizational structure with aggregate variables via equilibrium frameworks. In Garicano and Rossi-Hansberg (2003), we present a model of this kind. It determines the patterns of organization, as manifested by the communication and specialization patterns, and the implied wage structure, that result from different costs of acquiring and communicating information. Here, we present a simple variant of this theory that allows us to focus on one of the main aspects of that framework: the sorting of agents into teams and the wage and organizational structure that accompanies that sorting. We use this simple model to analyze the changes in organization and wages that result from a very specific type of technological change: a reduction in the cost of communicating knowledge or information. This model allows us to consider the effect on within-class wage inequality, and the impact of information technology on the creation and form of organizations (e.g., size distribution of hierarchies). However, because knowledge is exogenously given, and agents cannot invest in learning, an important margin of the model in Garicano and Rossi-Hansberg (2003) is fixed, namely, the degree of “decentralization” or the extent to which problems are solved at lower levels. That model allows the simultaneous study of the acquisition of knowledge, spans of control, and matching in equilibrium. Moreover, it goes beyond the current analysis in that it allows for organizations with an unconstrained number of layers, and in that it studies two aspects of the impact of information technology: communication technology (like here) and the technology to acquire knowledge or information (e.g., processing power through cheaper database access).

We examine some basic data on the evolution of aggregate short interest, both during the dot-com era, and at other times in history. Total short interest moves in a countercyclical fashion. For example, short interest in NASDAQ stocks actually declines as the NASDAQ index approaches its peak. Moreover, this decline does not seem to reflect a substitution away from outright short-selling and towards put options, as the ratio of put-to-call volume displays the same countercyclical tendency. The evidence suggests that: i) arbitrageurs are reluctant to bet against aggregate mispricings; and ii) short-selling does not play a particularly helpful role in stabilizing the overall stock market.