Knowledge that Transforms

Author(s): Kletzer, Kenneth M.; Wright, Brian D. | Abstract: Borrowing and lending between sovereign parties is modeled as intertemporal barter that smoothes the consumption of a risk-averse party subject to endowment shocks. The surplus anticipated in the relationship offers sufficient incentive for cooperation by all parties, including any other competitive agents who are potential lenders to the sovereign. The sole punishments consist of renegotiation-proof changes in the path of future payments. We show that intertemporal trade can be sustained in the absence of any exogenous enforcement of lending relationships whatsoever. That is, borrowing and lending are possible under anarchy, and are supported by punishments that consist of cheating any cheater. Long-term implicit relationships may be fulfilled as the continual renegotiation of simple incomplete short-term loans. The analysis suggests that the crucial role of the explicit loan contract is the identification of the relationship and the parties involved.

Genuine change in the economic and social status of U.S. women did not emanate simply from their increased labor force participation but, rather, from their increase in professions and as “career women. ” Those changes first began in the late 1960s and early 1970s. We examine here one factor of momentous importance in this break with the past. The Economist (December 31, 1999) recently named it the greatest science and technology advance in the twentieth century. It is the oral contraceptive, known worldwide by its moniker “the pill.” In 1960 18.4 percent of professionals were women, as were 4.7 percent of “high powered professionals.”1 But in 1998 36.4 percent of professionals were women and 25.1 percent of the “high powered ” subset were. We explore in this article a series of connections that link the birth control pill to the increase of women in professional occupations. Our evidence for the impact of the pill relies largely on the timing of various changes. Changes in laws giving minors certain adult rights and lowering the age of majority enabled young and unmarried women to obtain the pill. Young women’s control over their fertility directly reduced the costs to them of engaging in long-term career investments. The pill also served to increase the age at first marriage and thus indirectly reduced a potential penalty of

This paper is a brief evaluation of the Eurosystem's monetary-policy regime after its first year, in particular of the extent to which it is similar to inflation targeting as practiced by an increasing number of central banks. I examine the Eurosystem's goals, framework for monetary-policy decisions and communication with outsiders. Criteria for evaluation are whether the goals are unambiguous and appropriate; whether the decision framework is efficient in collecting and processing information and reaching decisions that are appropriate relative to the goals; and whether the communication is effective in motivating decisions, simplifying external evaluation and thereby improving transparency and accountability. I also consider whether the actual instrument setting has been appropriate, given the informaion available at the times of decision.

Requiem for the Representative Consumer? Aggregate Implications of Microeconomic Consumption Behavior by Christopher D. Carroll. Published in volume 90, issue 2, pages 110-115 of American Economic Review, May 2000

135 Despite the importance of this issue, not much systematic research appears to have been devoted to assessing the relative susceptibility of national and local governments to interestgroup capture. Here we describe a model of two-party electoral competition with “probabilistic” voting behavior and lobbying by specialinterest groups based on David Baron (1994) and Gene Grossman and Elhanan Helpman (1996) that helps identify determinants of relative capture at different levels of government. These include relative levels of voter awareness and interest-group cohesiveness, electoral uncertainty, electoral competition, heterogeneity of districts with respect to inequality, and the electoral system. While some of these uphold the traditional Madisonian presumption, others are likely to create a tendency for lower capture at the local level, so the net effect is theoretically ambiguous. This suggests that the extent of relative capture may be context-specific and needs to be assessed empirically.

When a production process requires two extremely complementary inputs, conventional wisdom holds that a firm would always upgrade them simultaneously. We show, however, that if upgrading each input involves a fixed cost, the firm may upgrade them at different dates, “asynchronously.” This insight helps us understand why productivity rises with the age of a plant, why investment in structures is more spiked than equipment investment, and why plants have spare capacity. The bigger point of the paper is that complementarity does not necessarily imply comovement—not even for a single decision maker.

We study a collective decision-making process in which people interested in an issue may participate, at a cost, in a meeting, and the resulting decision is a compromise among the participants' preferences. We show that the equilibrium number of participants is small and their positions are extreme, and when the compromise is the median, the outcome is likely to be random. The model and its equilibria are consistent with evidence on the procedures and outcomes of U.S. regulatory hearings.

This paper analyzes the effects of international openness on vertical integration. Vertical integration can confer a negative externality, by thinning the market for inputs and thus worsening opportunism problems; this induces strategic complementarity and multiple equilibria in the integration decision, thus providing a theory of different “industrial systems” or “industrial cultures” in ex ante identical countries. International openness thickens the market, facilitating leaner, less integrated firms, thus providing gains from international openness quite different from those that are familiar from trade theory. This may be taken as one theory of “outsourcing,” “downsizing,” and “Japanization” as consequences of “globalization.”

Variable pay is usually defined as pay that is tied to some measure of worker output. The most typical form of variable pay historically was the piece rate, which was more prevalent during the early part of the 20th century than it is at the beginning of the 21st. There is a resurgence in variable pay, particularly as it relates to executives, whose pay is tied to output through some mechanism like stock options or bonuses that depend on individual or firm performance. Why use variable pay? The typical reaction is that variable pay provides incentives to put forth effort. Although true, discrete-pay schemes also generate incentives. Much of the confusion in the literature results from the use of the terms high-powered and low-powered incentives, which connote difference in ability to elicit worker effort.' It is more informative to make distinctions between discrete and continuous pay and between inputbased and output-based pay.2 Pay structures can be summarized by the following equation:

The countercyclical pattern of inventory-sales ratios is a striking feature of inventory behavior. In a model where inventories are productive for sales, both the markup of price over marginal cost and expected changes in marginal cost are key determinants of that ratio. This paper argues that costly variation in factor utilization gives rise to countercyclical markups in production-to-stock manufacturing industries. The markup turns out to be more important than intertemporal substitution in explaining the behavior of inventory-sales ratios.