We measure the economic impact of climate on land prices. Using cross-sectional data on climate, farmland prices, and other economic and geophysical data for almost 3,000 counties in the United States, we find that higher temperatures in all seasons except autumn reduce average farm values, while more precipitation outside of autumn increases farm values. Applying the model to a global-warming scenario shows a significantly lower estimated impact of global warming on U.S. agriculture than the traditional production-function approach and, in one case, suggests that, even without CO_2 fertilization, global warming may have economic benefits for agriculture.

Price-discrimination practices are common, but they typically are analyzed in a framework in which firms sell directly to end users (Louis Phlips, 1981; Richard Schmalensee, 1981; Hal Varian, 1985; Gerstner and Holthausen, 1986). This direct-channel framework is valid for service industries such as entertainment and travel, where senior citizens buy reduced-price tickets to musical concerts, and children receive discounts on airfares and movietheater tickets. In the packaged-goods and durable-goods industries, however, manufacturers sell to retailers who sell to consumers. In indirect channels like these, price discrimination occurs when manufacturers target discounts1 to price-conscious consumers in the form of coupons and rebates. Consumers who do not use these discounts pay higher net prices. Because manufacturers cannot dictate consumer prices to retailers, analysis of price discrimination ought to take into account the pricing behavior of retailers (Michael Katz, 1987; Gerstner and Hess, 1991). While some researchers have studied coupons as a means for price discrimination (William Levedahl, 1984; Chakravarthi Narasimhan, 1984), they have done so in a direct-channel context and have ignored the role of retailers or other middlemen in the pricing and couponing process. In this paper we study price discrimination within a channel of distribution consisting of a single manufacturer and competitive retailers. In the model, the manufacturer pricediscriminates using a pull discount targeted at consumers with low reservation prices to reduce the net price these consumers pay for the product. Some consumers with higher reservation prices, who self-select not to use the discount, pay the full retail price for the product. The manufacturer chooses the wholesale price for the firm's product and the size of the price-discriminating pull discount, taking as given the markup percentage used by retailers. Joint determination of the manufacturer discount and retail markup is also considered. The paper's major finding is that a higher retail markup percentage influences the manufacturer to use price discrimination in a less intensive way (i.e., to reduce the size of the equilibrium pull discount as well as the wholesale price). The intuition behind this result is as follows. The greater the retail markup percentage, for a given wholesale price, the greater will be the retail price. The greater the retail price, the larger the pull discount will have to be to keep the low-reservation-price consumers in the market. But the manufacturer bears the entire cost of the discount, and a larger discount induces more nontargeted customers to use it. These two effects make price discrimination less profitable when markup percentage increases, so the manufacturer reduces its pull discount and in*Gerstner: Graduate School of Management, University of California, Davis, CA 95616, and Department of Economics, Haifa University, Haifa 31999, Israel; Hess: Department of Business Administration, University of Illinois, Champaign, IL 61820; Holthausen: Department of Economics, North Carolina State University, Box 7507, Raleigh, NC 27695. We thank Alastair Hall, Jeongwen Chiang, Randy Cooke, and Nick Ruotolo for their comments and assistance. 1Manufacturers who distribute products through retailers use push or techniques to increase sales. Under push, manufacturers offer inducements to retailers. When consumers shop for the product, the retailer has an incentive to promote the brand, thus pushing it through to consumers. Under pull, manufacturers offer incentives such as coupons or rebates directly to consumers. The manufacturers hope that demand will be pulled through the channel by consumers asking retailers for the promoted brand.

The U.S. labor market has recently experienced two dramatic trends: a falling male-female pay gap and a rising level of labor-market inequality. After decades of near-constancy at about 60 percent, the ratio of women's to men's pay has risen steadily since the late 1970's. At the same time, there were substantial increases in overall wage inequality for both men and women (Lawrence F. Katz and Kevin M. Murphy, 1992; Blau and Kahn, 1993). Wage inequality rose both within and between education and experience groups, and this has been interpreted as reflecting primarily higher returns to both measured and unmeasured labor-market skills (Katz and Murphy, 1992; Chinhui Juhn et al., 1993). This paper addresses the connection between these two important developments. When analyzing gender differentials in pay, economists commonly focus on malefemale differences in skills and on differences in the treatment of equally qualified men and women (i.e., discrimination). Both of these may be considered gender-specific factors influencing the pay gap. Research on these gender-specific factors suggests that women tend to be less skilled than men, on average, and to be located in lower-paying industries and occupations. This in turn suggests that overall wage structure can also have an important effect on the gender pay gap. (Wage structure describes the array of prices set for various labor-market skills, measured and unmeasured, and the rents received for employment in particular sectors of the economy.) For example, since women on average have less experience than men, an increase in the return to experience (as in fact occurred over the 1970s and 1980s) would cause the gender pay gap to rise, even if women's relative level of experience and their gender-specific treatment by employers remained the same. Similarly, an increase in the returns to employment in male occupations and industries would widen the gender differential, all else equal. In earlier work, we found overall wage inequality to be very important in explaining international differences in the gender pay gap (Blau and Kahn, 1992, 1994). In particular, we addressed a paradox. On the one hand, U.S. women compare favorably to those in other countries in terms of their relative qualifications and occupational status. Further, the United States has had a longer and often stronger commitment to equal pay and equal employment policies than most other industrialized countries. Yet the gender pay gap in the United States is larger than in most of these countries. An important part of the explanation for this pattern is the high level of wage inequality (i.e., high returns to skill) in the United States, which puts an exceptionally large penalty on being below average in the wage distribution. Our results suggest that the U.S. gap would be similar to that in countries like Sweden or Australia (the countries with the smallest gaps) if the United States had their level of wage inequality. The implication of our earlier research on international differences in the gender gap is that in recent years American women have been swimming upstream in a labor market that was growing increasingly unfavorable to low-wage workers. In the face of this rising inequality, women's relative skills and treatment have to improve merely for the pay gap to remain constant; still larger gains are necessary for it to be reduced. * Blau: Institute of Labor and Industrial Relations, University of Illinois, Champaign, IL 61820, and NBER; Kahn: Institute of Labor and Industrial Relations, University of Illinois. We thank Claudia Goldin and participants at the NBER Labor Studies meeting and the University of Illinois and Cornell Labor Economics Workshops for helpful comments, and Jennifer Berdahl for excellent research assistance. Portions of this work were completed while the authors were visiting fellows at the Australian National University, Canberra.

In the three months following the Iraqi invasion of Kuwait, the University of Michigan's Index of Consumer Sentiment (ICS) fell an unprecedented 24.3 index points, to its lowest level since the 1981-1982 recession.' This collapse in household confidence became the focus of a great deal of economic commentary and, indeed, frequently was cited as an important-if not the leading-cause of the economic slowdown that ensued. Concern was fueled by the well-known contemporaneous correlation between the ICS and the growth of household spending. Figure 1 shows quarterly averages of the index, 1978-1993, together with the quarterly growth in real personal consumption expenditures as measured in the national income accounts (Bureau of Economic Analysis). The correlation is impressive. Of course, it is not surprising that sentiment and the growth of spending are positively correlated. This correlation may simply reflect that, when economic prospects are poor, households curtail their spending and also give gloomy responses to interviewers. Thus, the contemporaneous correlation between sentiment and spending does not refute traditional life-cycle or permanentincome models of consumption. Nor does it necessarily make the job of forecasting changes in consumption any easier. From the point of view of an economic forecaster, the questions of interest are first, whether an index of consumer sentiment has any predictive power on its own for future changes in consumption spending, and second, whether it contains information about future changes in consumer spending aside from the information contained in other available indicators. In Section I, we present evidence that the answer to the first question is a clear yes: we find that lagged values of the ICS, taken on their own, explain about 14 percent of the variation in the growth of total real personal consumption expenditures over the post1954 period. Further investigation shows that the answer to the second question is probably yes as well, though here the margin is narrower and the evidence more murky. The ICS contributes about 3 percent to the R2 of a simple reduced-form equation for total personal consumption expenditures in the longer of the two sample periods we examine, but nothing in the shorter sample period (though the latter result is heavily influenced by the observation for 1980:2). For the major subcategories of spending, the contribution generally ranges between 1 percent and 8 percent. Overall, we read the evidence as pointing toward at least some significant incremental explanatory power. Therefore, we take as given for the remainder of the paper that sentiment forecasts spending, and we turn to the issue of how that statistical relationship should be interpreted. One possible interpretation is that sentiment is an independent driving factor in the economy, and that changes in * Carroll: Division of Research and Statistics, Stop 80, Federal Reserve Board, Washington, DC 20551: Fuhrer: Research Department, Federal Reserve Bank of Boston, Boston, MA 02106: Wilcox: Division of Monetary Affairs, Stop 71, Federal Reserve Board, Washington, DC 20551. We have benefited from the research assistance of Stephen Helwig and Christopher Geczy and the comments of an anonymous referee. The views expressed in this paper are those of the authors and not of the Federal Reserve Board, the Federal Reserve Bank of Boston, or the other members of the staff of either institution. IThe Conference Board's Consumer Confidence Index also plunged at the same time.