Knowledge that Transforms

The double auction trading institution has been highly efficient across diverse marginal-cost market structures, whether human subjects or 'zero-intelligence' robots populated those markets. Accordingly, many researchers suspect that double auction performance transcends market structure and agent strategy. But the authors show that large avoidable costs undermine the efficiency and stability of human subject double auctions and these low human efficiencies are simultaneously well above zero-intelligence efficiencies. Their results dramatically illustrate the potential havoc wrought by highly competitive institutions when they must cope with nonconvex technologies. Copyright 1996 by American Economic Association.

It is routine for growth economists to appeal to the British industrial revolution as motivation for their papers. This overview draws implications from this important experience for how economists think about growth, empirical growth economics, and policy based on recent historical research. The update it provides may also help to improve the plausibility of future economic interpretations of early industrialization. Technological change is, of course, central to the years 1760-1830, a period to which Thomas Ashton (1948) attached the label first industrial revolution. Thus, it is not surprising that new growth models of the endogenous-innovation variety are much more helpful for the analysis of this period than those that envisage endogenous growth without explicit reference to total-factor-productivity (TFP) growth (Crafts, 1995). It follows that it is important to consider Britain's social capability for growth (i.e., the impact of institutions and policy choices on TFP growth), rather than simply focusing on investment in human and physical capital.

The television game show The Price Is Right is used as a laboratory to conduct a preference-free test of rational decision theory in an environment with substantial economic incentives. It is found that contestants' strategies are transparently suboptimal. In response to this evidence, simple rules of thumb are developed that are shown to explain observed bidding patterns better than rational decision theory. Further, learning during the show reduces the frequency of strategic errors. This is interpreted as evidence of bounded rationality. Finally, there is no evidence that a concern for fairness significantly alters bidding behavior. Copyright 1996 by American Economic Association.

Private wage returns to schooling in South Africa in 1993 are twice as high for nonwhites as for whites and substantially higher at advanced levels of schooling for both races. To explore how these returns might be expected to change as the proportion of Africans with secondary and higher education increases quantile regressions for the wage function are estimated for African males and white males. If the residuals based on a standard wage function specification are interpreted as omitted ability and it is assumed that ability increases (decreases) returns to schooling then we expect quantile returns to increase (decrease) at higher quantiles. This is not observed for Africans at the higher and secondary school level but is evident among whites at higher educational levels. The opposite pattern of differential returns favoring the least able (i.e. lowest deciles) is reported for the lower tail of the educational distribution that is for Africans at the level of primary school and for whites at secondary school. (authors)

This paper provides general conditions for aggregating commodities without separable utility. These conditions impose weaker and more empirically plausible restrictions on price movements than the currently existing alternative to separability, the Hicks-Leontief composite commodity theorem. The idea is to allow departures from Hicks-Leontief that take the form of well-behaved error terms. Utility functions that permit generalized composite commodity aggregation include the AIDS model, the translog, all homothetic utility functions, and any utility function when demands are aggregated to two groups of goods. Implications of empirical nonstationarity of relative prices for aggregation and demand estimation are considered. Copyright 1996 by American Economic Association.