The intertemporal elasticity of investment for long-lived capital goods is nearly infinite. Consequently, investment prices should fully reflect temporary tax subsidies, regardless of the investment supply elasticity. Since prices move one-for-one with the subsidy, elasticities can be inferred from quantities alone. This paper uses a recent tax policy—bonus depreciation—to estimate the investment supply elasticity. Investment in qualified capital increased sharply. The estimated elasticity is high—between 6 and 14. There is no evidence that market prices reacted to the subsidy, suggesting that adjustment costs are internal, or that measurement error masks the price changes.

We investigate well-being changes for single mother headed families targeted by recent tax and welfare reforms. Measured income changes sharply differ from consumption changes. We examine disaggregated consumption, time use, and health insurance coverage. Increases in housing and transportation spending mostly account for the rise in consumption in the bottom quintiles. We find modest improvement in housing quality, but the evidence is less strong at the very bottom. The consumption of nonmarket time for those in the bottom half of the consumption distribution falls sharply, indicating a loss in utility for those families if nonmarket time is valued above $3 per hour.

An Examination of the Influence of Theory and Individual Theorists on Empirical Research in Microeconomics by Pierre-André Chiappori and Steven D. Levitt. Published in volume 93, issue 2, pages 151-155 of American Economic Review, May 2003

A unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies. Our theory also explains the industrial revolution, which is the transition from an era when per capita incomes are stagnant to one with sustained growth. This transition is inevitable given positive rates of total factor productivity growth. We use a standard growth model with one good and two available technologies. The first, denoted the capital as inputs. The second, denoted the does not require land. We show that in the early stages of development, only the Malthus technology is used and, due to population growth, living standards are stagnant despite technological progress. Eventually, technological progress causes the Solow technology to become profitable and both technologies are employed. At this point, living standards improve since population growth has less influence on per capita income growth. In the limit, the economy behaves like a standard Solow growth model.

Growing Up in the Projects: The Economic Lives of a Cohort of Men Who Came of Age in Chicago Public Housing by Steven D. Levitt and Sudhir Alladi Venkatesh. Published in volume 91, issue 2, pages 79-84 of American Economic Review, May 2001

Why are observed contracts so often incomplete in the sense that they leave contracting parties' obligations vague or unspecified? Traditional answers to this question invoke transaction costs or bounded rationality. In contrast, we argue that such incompleteness is often an essential feature of a well-designed contract. Specifically, once some aspects of performance are unverifiable, it is often optimal to leave other verifiable aspects of performance unspecified. We explore the conditions under which this occurs, and investigate the structure of optimal contracts when these conditions are satisfied.

Research on the labor-supply consequences of childbearing is complicated by the endogeneity of fertility. This study uses parental preferences for a mixed sibling-sex composition to construct instrumental variables (IV) estimates of the effect of childbearing on labor supply. IV estimates for women are significant but smaller than ordinary least-squares estimates. The IV are also smaller for more educated women and show no impact of family size on husbands' labor supply. A comparison of estimates using sibling-sex composition and twins instruments implies that the impact of a third child disappears when the child reaches age 13.

In economics, the standard mechanism for allocating scarce resources is the market. A smoothly functioning market, however, is built upon legally enforceable contracts and property rights. In the absence of law, it is likely that violence (or the threat thereof), rather than prices, is the means by which resources will be allocated. Interactions among animals provide clear evidence for this claim. Dominance hierarchies based on fighting ability, also sometimes known as pecking orders, have been documented across a wide variety of species (e.g., primates, chickens and other birds, reptiles, lobsters) and a broad range of resources including food, nesting sites, and access to mates (Warder C. Allee, 1938; John Alcock, 1993). Evidence suggests that violence also plays a critical role in human interactions when property rights are not legally enforceable (e.g., drug dealing and extortion) (see e.g., Peter Reuter, 1983; Geoffrey Canada, 1995). In this paper, we analyze the determinants of the efficiency with which illegal markets allocate scarce resources. We develop a stylized model in which players compete for a fixed prize, with the winner determined by fighting ability. Efficiency in this context is determined by the amount of resources spent on fighting. Two factors affecting efficiency emerge from the model: lethality and predictability. Perhaps surprisingly, the use of more lethal mechanisms for resolving disputes does not have a clear impact on the social costs of violence. The intuition underlying this result is that, as the costs of losing a fight rise, the willingness to fight falls. We show that holding other factors constant, the resources spent on fighting are lowest when the cost of losing is either very low or very high (e.g., nuclear deterrence), but over a wide range of lethality levels, the overall social costs of fighting are fairly stable. In contrast, the costs of violence are critically linked to the predictability of dispute outcomes (i.e. the certainty with which potential combatants know who will be victorious ex ante). When the outcome of a conflict is highly correlated with observable characteristics such as strength or size, there is little need to actually fight. Thus unpredictability, all else equal, increases the expected payoff to fighting for the lower-ranked member, leading to more conflicts.