Knowledge that Transforms

In 1954, the Internal Revenue Service stipulated that employer contributions to the health insurance plans of their employees were to be excluded from employee taxable income. Today, the tax subsidy is major feature of the U.S. health care market. This paper examines the initial effects of the tax subsidy on the demand for health insurance using previously unexamined data from 1953 and 1958. Results suggest that the tax subsidy increased the growth of group insurance, particularly among union members and employed persons. This is a critical effect because group insurance is not only less expensive than individual insurance, but it is also easier to obtain, and households with access to group health insurance are far more likely to purchase health insurance coverage than those without similar access. By increasing access to group insurance, the tax subsidy fostered an increase in the purchase of group health insurance by people who may not have purchased individual coverage, and generated institutional change as it cemented an employment-based system of group health insurance in the United States.

The Interaction of Public Retirement Income Programs in the United States by Elizabeth T. Powers and David Neumark. Published in volume 93, issue 2, pages 261-265 of American Economic Review, May 2003

This paper explores the general-equilibrium impact of social security portfolio diversification into private securities, either through the trust fund or private accounts. The analysis depends critically on heterogeneities in saving, production, assets, and taxes. Limited diversification weakly increases interest rates, reduces the expected return on short-term investment (and the equity premium), decreases safe investment, increases risky investment, and increases a suitably weighted social welfare function. However, the effects on aggregate investment, long-term capital values, and the utility of young savers hinges on assumptions about technology. Aggregate investment and long-term asset values can move in opposite directions.

We reconcile trade theory with plant-level export behavior, extending the Ricardian model to accommodate many countries, geographic barriers, and imperfect competition. Our model captures qualitatively basic facts about U.S. plants: (i) productivity dispersion, (ii) higher productivity among exporters, (iii) the small fraction who export, (iv) the small fraction earned from exports among exporting plants, and (v) the size advantage of exporters. Fitting the model to bilateral trade among the United States and 46 major trade partners, we examine the impact of globalization and dollar appreciation on productivity, plant entry and exit, and labor turnover in U.S. manufacturing.

The Effects of Environmental Regulation on Technology Diffusion: The Case of Chlorine Manufacturing by Lori D. Snyder, Nolan H. Miller and Robert N. Stavins. Published in volume 93, issue 2, pages 431-435 of American Economic Review, May 2003

Explaining patterns of asset ownership is a central goal of both organizational economics and industrial organization. We develop a model of asset ownership in trucking, which we test by examining how the adoption of different classes of on-board computers (OBCs) between 1987 and 1997 influenced whether shippers use their own trucks for hauls or contract with for-hire carriers. We find that OBCs' incentive-improving features pushed hauls toward private carriage, but their resource-allocation-improving features pushed them toward for-hire carriage. We conclude that ownership patterns in trucking reflect the importance of both incomplete contracts and of job design and measurement issues.

The probit is generally considered to be one of the easiest nonlinear maximum likelihood problems. Nonetheless, in the course of at-tempting to replicate G. S. Maddala’s (1992, pp. 335–38) probit example, Houston Stokes (2003) encountered great difficulty. Of the six coeffi-cients, five coefficients/standard errors he could duplicate, but the sixth was off by more than rounding error. So he tried another package. And another. And another.... Finally, five dif-ferent packages had declared convergence to five solutions that differed only in the sixth coefficient. Estimates of the sixth coefficient ranged from 4.4 to 8.1, and estimates on its standard error ranged from 46 to 114,550.

We use a model of boundedly rational learning to account for the observations of recurrent hyperinflations in the 1980’s. In a standard monetary model we replace the assumption of full rational expectations by a formal definition of quasi-rational learning. The model under learning matches some crucial stylized facts observed during the recurrent hyperinflations experienced by several countries in the 1980’s remarkably well. We argue that, despite being a small departure from rational expectations, quasi-rational learning does not preclude falsifiability of the model, it does not violate reasonable rationality requirements, and it can be used for policy evaluation.