Knowledge that Transforms

Rising educational attainment and research intensity in recent decades suggest that the U.S. economy is far from its steady state. This paper develops a model reconciling these facts with the stability of U.S. growth rates. In the model, long-run growth arises from the worldwide discovery of ideas, which depends on population growth. Nevertheless, constant growth can temporarily proceed at a faster rate, provided research intensity and educational attainment rise steadily over time. Growth accounting reveals that these factors explain 80 percent of recent U.S. growth, with less than 20 percent coming from world population growth.

One of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness. We investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from Indonesia that combines excellent measures of health status with consumption information. We find that there are significant economic costs associated with major illness, and that there is very imperfect insurance of consumption over illness episodes. These estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance.

The goal of this paper is to use a semiparametric reduced form model to estimate the effects of various tuition subsidies. This approach expands on the tuition subsidy example in Ichimura and Taber (2000) in a number of dimensions. It has become common practice in the empirical literature to refer to any nonstructural empirical analysis as "reduced form." This is not the traditional sense of the phrase. A classic reduced form analysis (see e.g. Marschak, 1953) first specifies a structural model and then derives the reduced form parameters in terms of the structural parameters. While many recent studies have asserted to taking a reduced form approach, the structural parameters. While many recent studies have asserted to taking a reduced form approach, the structural model which the reduced form model should correspond is rarely specified. We explicitly specify a structural model and use the implied reduced form structure to estimate the effect of tuition subsidy policies. Specifying the underlying model has the advantage of being explicit about the assumptions that justify the analysis. This avoids Rosenzweig and Wolpin's (2000) criticism of work on natural 'natural experiments' that often leaves these conditions implicit. Our structural model is based on the model studied by Keane and Wolpin (1999). It is highly nonlinear and allows for more unobserved heterogeneity than the typical simultaneous equations framework that most previous work has used in reduced form estimation. Using hte specified structural model, we examine the assumptions discussed in Ichimura and Taber (2000) to justify reduced form estimation of the policy effects

The pattern of disagreement between bond raters suggests that banks and insurance firms are inherently more opaque than other types of firms. Moody's and S&P split more often over these financial intermediaries, and the splits are more lopsided, as theory here predicts. Uncertainty over the banks stems from certain assets, loans and trading assets in particular, the risks of which are hard to observe or easy to change. Banks' high leverage, which invites agency problems, compounds the uncertainty over their assets. These findings bear on both the existence and reform of bank regulation.

Losing Sleep at the Market: The Daylight Saving Anomaly: Reply by Mark J. Kamstra, Lisa A. Kramer and Maurice D. Levi. Published in volume 92, issue 4, pages 1257-1263 of American Economic Review, September 2002

Asymmetric Information in Community Banking and Its Relationship to Credit-Market Discrimination by Christopher Henderson. Published in volume 92, issue 2, pages 315-319 of American Economic Review, May 2002

This paper investigates the distribution of well being among world citizens during the last two centuries. The estimates show that inequality of world distribution of income worsened from the beginning of the 19th century to World War II and after that seems to have stabilized or to have grown more slowly. In the early 19th century most inequality was due to differences within countries; later, it was due to differences between countries. Inequality in longevity, also increased during the 19th century, but then was reversed in the second half of the 20th century, perhaps mitigating the failure of income inequality to improve in the last decades.

This paper constructs a new data set of repeated sales of artworks and estimates an annual index of art prices for the period 1875-2000. Contrary to earlier studies, we find art outperforms fixed income securities as an investment, though it significantly under-performs stocks in the US. Art is also found to have lower volatility and lower correlation with other assets, making it more attractive for portfolio diversification than discovered in earlier research. There is strong evidence of underperformance of masterpieces, meaning expensive paintings tend to underperform the art market index. The evidence is mixed on whether the law of one price holds in the New York auction market.

Daniel Trefler’s article in this journal (Daniel Trefler, 1995) is an excellent investigation of observed patterns and volumes of trade. He identifies the theoretical predictions of factorproportions models of international trade put forward by Eli F. Heckscher (1991), Bertil G. Ohlin (1991), and Jaroslav Vanek (1968) and summarizes these as the HOV model. These theoretical predictions lead to a number of “mysteries” when examined empirically— “mystery” being a code word for rejection by the data. He then introduces a number of extensions of the HOV model, and gauges empirically the extent to which the modified HOV model is rejected relative to each extension. For each extension, he examines the persistence of the mysteries; in his favored specification of country-specific neutral technological difference and preference for home goods in demand, the anomalies in the data are found to be greatly reduced. In this paper, I demonstrate that there are alternative explanations for the mysteries that Trefler identified. I indicate the features of the data that lead to the mysteries and provide an intuitive separation of the mysteries into those observed in the pattern of trade and those observed in the volume of trade. Econometric tests demonstrate that explanations other than those put forward by Trefler are better supported by the data. There are three specific contributions of this Comment. First, alternative explanations of the success of Trefler’s preferred specification in modeling variation in trade data are put forward. Second, a nonparametric method for calculating the degree of mismeasurement of factor scarcity is introduced and the improvement in explanatory power of that method is measured. Third, statistical comparison of an explanation of the observed antitrade bias rooted in factor-specific differences in domestic factor mobility with Trefler’s explanation based upon country-specific productivity differences and home bias in expenditures yields the conclusion that differences in domestic factor mobility is the preferred explanation. These results, taken together, suggest that theories designed to explain observed trade patterns and volumes should reexamine the proxy for factor scarcity derived in the HOV model and should allow for the impact of factor-specific differences in the domestic mobility of factors of production.

On average, roughly 5-10 percent of the firms in a given market leave that market over the span of a single year. At least so data for a broad range of industries in several economies tell us. What is it, other than random shocks, that determines the probability of survival for a firm in a given market? We start by decomposing the forces that affect survival into industry and firm attributes. Industry attributes, we hypothesize, encompass variables that exert their influence both over time and across markets. The variables that operate over time are defined by the life cycle of the industry. Life cycles of the industry affect mainly the characteristics of demand and the rate and form of technical change. Variations across firms, we hypothesize, arise mainly from learning-by-doing, Darwinian survival of the fittest, and the obsolescence of initial endowments. These variables are linked to the life cycle of the firm. How these industry and firm life cycles define patterns of survival is the story