Recently in this Review, John Pencavel and P. J. Lloyd have given insights into the measurement of real wages. Their work is an application of the concepts of true cost of living indices to a joint labor supply and commodity demand decision. Pencavel (1977) and Lloyd (1979) offer several forms of real wage indices which are derived from explicit functional forms for utility. This paper examines the theory of real wage indices in a more general setting and derives bounding indices which are independent of the functional form for utility.
The article presents a reply to the comments of economist Richard Cothren on a paper related to efficient market theory written by the authors. According to the author Cothren's assertion that the authors incorrectly derived an informed trader's risky asset demand function is false. They permitted borrowing and short selling. For this reason there is no nonnegativity constraint on a trader's holdings of risky or risk-free assets. A trader's initial wealth is not the limit on the value of the risky assets that he can purchase. The trader can borrow, and in so doing finance a large purchase of risky assets. The goal of their paper was to show that when information is costly, a perfectly competitive equilibrium will not exist which completely transmits the informed traders' information to uninformed traders. It would have been trivial to prove that constraints on borrowing, or on short sales, prevent perfect arbitrage from occurring. They proved a more interesting result, which is that even in the absence of constraints on borrowing or short sales, markets cannot be fully arbitraged, when information about the arbitrage opportunity is costly.
This analysis suggests several distinctive policy recommendations about environmental problems. One is that some of the alarms about ecological catastrophes cannot simply be dismissed, even when some of those who sound the alarms seem almost fanatic. The information needed to be sure one way or another is simply lacking, and may not be attainable at reasonable cost for a long time. We are therefore left with inevitable risk. Ecological systems could also be incomparably more robust than the alarmists claim, so we might also be worrying needlessly. The implication for environmental and ecological research is that we should not exprect that it will produce conclusive information, but should fund a lot of it anyhow. If previous research has produced few compelling results, valid information about these problems is scarce and therefore more valuable. The harvest of research in the areas characterized by indivisibilities is then poor but precious knowledge. If it is important to be able to change behavior quickly, when and if we finally get the information that the ecosystem can't take any more, then it is important that we have the open-mindedness needed to change our views and policies the moment decisive information arrives. Those who shout wolfmore » too often, and those who are sure there are no wolves around, could be our undoing.« less
The recent White House Conference on Aging graphically demonstrated public concern over the welfare of the growing elderly segment of the U.S. population. How is this group faring economically? Have they suffered from the stagflation of the last decade, or have they been sheltered from economic harm by a combination of government programs and fortuitous asset holdings? How vulnerable were they as a group to the inflation of the 1970's? We answer some of these questions by focusing on the economic welfare of the elderly over the last decade. We assess the level and composition of real income and wealth of the elderly; we compare their incomes to those of the general population; and we compute a measure of their vulnerability to unexpected increases in the price level. We note, however, that there are many other important indicators of the welfare of the elderly, such as the increasing life expectancy, changing living arrangements and housing, trends towards earlier retirement, and decreasing intergenerational contact. We do not consider these issues, so our results do not give a complete assessment of the welfare of the elderly. We believe our results provide a good assessment of how their economic position changed over the decade.