Knowledge that Transforms

1 University of Minnesota and the World Bank. I thank the following people for comments, discussions,

This review culls noneconomic literature on education--by sociologists, anthropologists, and practitioners to present a new economic theory of students and schools. This theory elaborates two themes that have eluded economic analysis. First is the student as decision-maker whose primary motivation is her identity. Second is a conception of the school as a social institution. This framework suggests a new perspective on questions such as resource allocation and school reform. It explains why some educational policies succeed and others fail. We show how sociological variables may affect outcomes, and suggest ways economists can incorporate them into theoretical and empirical research.

This paper reviews the economic literature on welfare reform over the 1990s. A brief summary of the policy changes is followed by a discussion of the methodological techniques that analyze the effects of these changes on outcomes. The paper then critically reviews the econometric and experimental literature on caseload changes, labor force changes, poverty and income changes, and family formation changes. A growing body of evidence suggests that recent policy changes have influenced economic behavior and well-being. One particular set of "new-style" welfare programs seems to show especially promising results, with significantly increased work and earnings and reduced poverty.

SOCIAL CAPITAL describes circumstances in which individuals can use membership in groups and networks to secure benefits. This formulation follows

We survey the empirical literature analyzing the process of enterprise restructuring in transition economies. The survey provides new insights into the relative effectiveness of different reform policies, and into how this effectiveness varies across regions. We study the effects of privatization, the importance of different types of owners, the effects of foreign and domestic competition, the consequences of soft budgets, and the role of managerial incentives and managerial human capital, with regard to enterprise restructuring.

This essay discusses the effect of technical change on wage inequality. I argue that the behavior of wages and returns to schooling indicates that technical change has been skill-biased during the past sixty years. Furthermore, the recent increase in inequality is most likely due to an acceleration in skill bias. In contrast to twentieth century developments, most technical change during the nineteenth century appears to be skill-replacing. I suggest that this is because the increased supply of unskilled workers in the English cities made the introduction of these technologies profitable. On the other hand, the twentieth-century has been characterized by skill-biased technical change because the rapid increase in the supply of skilled workers has induced the development of skill-complementary technologies. The recent acceleration in skill bias is in turn likely to have been a response to the acceleration in the supply of skills during the past several decades.

This essay discusses the effect of technical change on wage inequality. I argue that the behavior of wages and returns to schooling indicates that technical change has been skill-biased during the past sixty years. Furthermore, the recent increase in inequality is most likely due to an acceleration in skill bias. In contrast to twentieth-century developments, much of the technical change during the early nineteenth century appears to be skill-replacing. I suggest that this is because the increased supply of unskilled workers in the English cities made the introduction of these technologies profitable. On the other hand, the twentieth century has been characterized by skill-biased technical change because the rapid increase in the supply of skilled workers has induced the development of skill-complementary technologies. The recent acceleration in skill bias is in turn likely to have been a response to the acceleration in the supply of skills during the past several decades.

In recent years, there has been a steadily increasing interest on the part of economists in happiness research. We argue that reported subjective well-being is a satisfactory empirical approximation to individual utility and that happiness research is able to contribute important insights for economics. We report how the economic variables income, unemployment and inflation affect happiness as well as how institutional factors, in particular the type of democracy and the extent of government decentralization, systematically influence how satisfied individuals are with their life. We discuss some of the consequences for economic policy and for economic theory.

This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.