Knowledge that Transforms

The standard profit-maximizing multiunit auction intersects the submitted demand curve with a preset reservation supply curve, which is determined using the distribution from which the buyers' valuations are drawn. However, when this distribution is unknown, a preset supply curve cannot maximize monopoly profits. The optimal pricing mechanism in this situation sets a price for each buyer on the basis of the demand distribution inferred statistically from other buyers' bids. The resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity, and convergence can be substantially faster than with sequential price experimentation.

Three things happen when emerging economies open their stock markets to foreign investors. First, the aggregate dividend yield falls by 240 basis points. Second, the growth rate of the capital stock increases by an average of 1.1 percentage points per year. Third, the growth rate of output per worker rises by 2.3 percentage points per year. Since the cost of capital falls, investment booms, and the growth rate of output per worker increases when countries liberalize the stock market, the increasingly popular view that capital account liberalization brings no real benefits seems untenable.

Some Evidence on Race, Welfare Reform, and Household Income by Marianne P. Bitler, Jonah B. Gelbach and Hilary W. Hoynes. Published in volume 93, issue 2, pages 293-298 of American Economic Review, May 2003

Development economics has been the beneÞciary of a rich tradition of Þeld research. Within this broad tradition there is a huge variety of methods, from short qualitative studies in which the primary interaction between the researcher and the participants is relatively unstructured conversation to large-scale surveys designed by and perhaps loosely supervised by economists. In this note, however, I focus on one point in this broad space of research methodologies iterative Þeld research in which the collection of data through surveys is combined with detailed observation and conversation to elicit knowledge about institutions. A highly artiÞcial, but I hope useful typology is provided in Figure 1. Typically, empirical work in economics relies on existing data. However, it is becoming more common in development economics to complement existing data with relatively short, often less structured visits to the Þeld site in order to clarify aspects of the data, to better deÞne the economic environment, or to collect limited amounts of complementary data. For example, ICRISAT hosted and provided institutional support for a series of visiting scholars during the collection of the Village Level Surveys. This proved to be a relatively inexpensive mechanism that generated an important sequence of insights regarding economic institutions India (Rosenzweig (1998 EJ), Pender (1996) are examples of papers emerging from this

This paper explores the effect of discretion in estate valuation techniques on the effective estate tax burden on different asset classes. For some assets, such as liquid securities, there is relatively little discretion in valuation. For other assets, such as partial interests in closely-held businesses, family limited partnerships, and real assets or collectibles that are traded in thin markets, estate valuations may be more difficult to establish. Estate tax filers may therefore be able to select valuations that reduce the reported value of the estate assets, and therefore the effective estate tax burden. In 1998, estates that invoked the doctrine of "minority discounts" in valuing non-controlling interests in limited partnerships claimed an average discount of 36 percent for these assets, relative to their estimated market value. More than half of all limited partnership assets reported on estate tax returns were valued using this doctrine. This suggests that for a given statutory estate tax rate, the effective estate tax burden may be greater on assets that are easily valued than on difficult-tovalue assets. A comparison of the mix of assets reported on estate tax returns, and the mix the estate tax returns would be predicted to hold, given data from the Survey of Consumer Finances, is consistent with lower relative valuations for difficult-to-value assets.

Ever since the Mexican, Asian, and Russian crises of the mid-1990’s, efforts have been underway to find means for more effective prevention and resolution of currency-financial crises. Much has been done with respect to crisis prevention: exchange-rate flexibility is much greater than it was; there is increased transparency and improved oversight of the financial system; and greater attention is paid to unsustainable policy stances. Work continues to strengthen economies’ immunity to crises. However, no matter how much is done, there will inevitably be a crisis or crises. Much has already been learned with respect to crisis resolution, and the international financial community is better equipped to cope with crises than was the case earlier. But, as with prevention, more can be done. One item on the agenda, which should contribute both to prevention and to resolution, is dealing with unsustainable debt burdens of sovereign nations. Two of the hallmarks of most of the 1990’s crises were, first, the importance of private capital flows, and their reversals, in triggering the crises and in intensifying their severity; and second, the involvement of the financial systems in them. The countries afflicted by these crises were ones that had succeeded in raising per capita incomes and rates of economic growth. That success hinged in significant part on their having put in place economic policies that are conducive to economic growth, including a predictable legal framework, respect for property rights, openness to the international economy, and much more. The fact that the policy framework was generally appropriate implied, among other things, that there were relatively high real returns to investment in these economies. That is of course the main reason why private investors were interested in them. At the same time, capital inflows permitted more rapid development than would otherwise be possible. These associations of high real returns, growth, and appropriate policy stances continue. For these reasons, there is typically a strong stake for emerging markets to maintain international creditworthiness, and policymakers go to great lengths to maintain their international reputations and market standings. An efficient private international capital market benefits both developing countries, which are thereby able to invest more than domestic savings at high real rates of return, and investors in high-income countries, who can realize higher real returns and greater portfolio diversification than they could achieve without these investment opportunities. Because countries are sovereign, their high stakes in maintaining creditworthiness are crucial for attracting international capital flows. This is because foreign creditors do not have the rights they do in domestic courts and hence must have other protections against default on the part of borrowers. This is especially true for sovereign borrowers; international lenders to private entities in emerging markets normally have the same protection as is afforded to domestic lenders. For sovereign borrowing, however, the chief protection foreign creditors have is the losses that would accrue to the sovereign debtor (both directly, through the future reduction in access to international credit markets, and through the effects on private economic activity of a sovereign default) in the event of † Discussants: Guillermo Calvo, InterAmerican Development Bank and University of Maryland; Morris Goldstein, Institute for International Economics; Michael Mussa, Institute for International Economics; Ann Harrison, University of California–Berkeley.

A common explanation offered for the observed wage differential between men and women is that women are less attached to the labor market; they exhibit a greater degree of labor-market intermittency than do men. There are several theories that explain this link between intermittency and lower wages, including differences in human-capital attainment, atrophy of skills during absences, and preferences of employers (see e.g., Solomon W. Polachek and W. Stanley Siebert, 1993; Joyce P. Jacobsen and Laurence M. Levin, 1995; James W. Albrecht et al., 2000). The goal of this paper is to explore in greater depth the role past labormarket intermittency plays in the determination of a woman’s current wage and at what level of intermittent activity women can expect to have that activity affect her wage. Previous methods employed to measure the penalty associated with intermittent activity have either classified workers as intermittent if they have at least one spell of absence from the labor market (Jacobsen and Levin, 1995) or have relied on the percentage of time out of the labor force to classify intermittent workers (Elaine J. Sorenson, 1993). However, if employers perceive intermittent behavior as a signal, then both the frequency of intermittent spells and the duration of the spells should be taken into account. We contribute to this literature by creating an intermittency index that captures both of these factors. We also statistically determine at what level of intermittency a woman will incur a penalty for absence from the labor force. This index is used to determine the magnitude of the penalty associated with intermittent participation in the labor force. The analysis is limited to women as intermittent behavior is more prevalent for women and to avoid potential confounding factors associated with gender discrimination.

The paper investigates the common dynamic properties of business-cycle fluctuations across countries, regions, and the world. We employ a Bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates (output, consumption, and investment) in a 60-country sample covering seven regions of the world. The results indicate that a common world factor is an important source of volatility for aggregates in most countries, providing evidence for a world business cycle. We find that region-specific factors play only a minor role in explaining fluctuations in economic activity. We also document similarities and differences across regions, countries, and aggregates.

Macroeconomics was born as a distinct field in the 1940s, as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades. There remain important gains in welfare from better fiscal policies, but I argue that these are gains from providing people with better incentives to work and to save, not from better fine tuning of spending flows. Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from better long-run, supply side policies exceeds by far the potential from further improvements in short-run demand management. My plan is to review the theory and evidence leading to this conclusion. Section I outlines the general logic of quantitative welfare analysis, in which policy comparisons

We show how a Schumpeterian process of creative destruction can induce rational, herd behavior by entrepreneurs across diverse sectors as if fueled by “animal spirits.” Consequently, a multisector economy, in which productivity improvements are made by independent, profit-seeking entrepreneurs, exhibits regular booms, slowdowns, and downturns as part of the long-run growth process. Our cyclical equilibrium has higher average growth, but lower welfare than the corresponding acyclical one. We show how a negative relationship can emerge between volatility and growth across cycling economies, and assess the extent to which our model matches several features of actual business cycles.