Although microeconomic studies find a positive relationship between R&D and skill premia, much of the recent rise in U.S. wage inequality was accompanied by slowing labor-productivity growth and relatively slow introduction of new technologies. These conflicting observations are consistent with the effects of a skewed distribution of “absorptive capacities”—the rate at which technology-specific skills can be acquired—in a model of endogenous technological change. The framework is used to assess whether the productivity slowdown and the rise in wage inequality can be jointly accounted for by the contemporaneous decline in the growth rate of labor quality. (JEL E24, J31, O3)

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.

Does attendance affect performance in college economics courses? David Romer (1993) found that attendance did contribute significantly to the academic performance of students in a large intermediate macroeconomics course that he taught in the fall of 1990. (See the Summer 1994, Journal of Economic Perspectives [vol. 8, no. 3, pp. 205-15] for numerous comments on Romer.) This conclusion held even after controlling for student motivation which, it may be argued, is the true factor determining performance and is only approximated by attendance. An earlier study by Kang Park and Peter Kerr (1990) found that attendance was a determinant of student performance in a money and banking course, but not as important as a student's GPA and the percentile rank on a college entrance exam. A study by Robert Schmidt (1983) reported that time spent attending lectures contributed positively to performance in a macroeconomic Principles course. On the other side of the ledger is evidence from Neil Browne et al. (1991) showing that students who did not attend a typically structured class with lectures did just as well on the Test of Understanding College Economics (TUCE) as those students who attended a standard microeconomic Principles course. They also reported, however, that those students who attended the lectures performed better on essay questions than those who did not. A similar study by Campbell McConnell and C. Lamphear (1969) found no significant difference in the performance of students with no classroom attendance vis-a-vis those attending class. Finally, Stephen Buckles and M. E. McMahon (1971) found attendance at lectures that simply explained material covered in reading assignments did not enhance students' understanding of economics. In this paper we present new evidence on the effects of class attendance on student performance. Our results pertain to the Principles of Economics course as it is taught in a two-semester sequence at a medium-size, comprehensive state university.

We present a decision-theoretic analysis of an agent's understanding of the interdependencies in her choices. We provide the foundations for a simple and flexible model that allows the misperception of correlated risks. We introduce a framework in which the decision maker chooses a portfolio of assets among which she may misperceive the joint returns, and present simple axioms equivalent to a representation in which she attaches a probability to each possible joint distribution over returns and then maximizes subjective expected utility using her ( possibly misspecified) beliefs. (JEL D11, D81, D83, G11)

The dynamics of house prices, sales, construction, and population growth in response to city-specific income shocks are characterized for 106 US cities. A dynamic model of search in the housing market in which construction, the entry of buyers, house prices, and sales are determined in equilibrium is then developed. The theory generates dynamics qualitatively consistent with the observations and a version calibrated to match key features of the US housing market offers a substantial quantitative improvement over models without search. In particular, variation in the time it takes to sell induces transaction prices to exhibit serially correlated growth. (JEL D83, R21, R23, R31)

Experiments suggest that people fail to take into account interdependencies between their choices—they do not broadly bracket. Researchers often instead assume people narrowly bracket, but existing designs do not test it. We design a novel experiment and revealed preference tests for how someone brackets their choices. In portfolio allocation under risk, social allocation, and induced-value shopping experiments, 40–43 percent of subjects are consistent with narrow bracketing, and 0–16 percent with broad bracketing. Adjusting for each model’s predictive precision, 74 percent of subjects are best described by narrow bracketing, 13 percent by broad bracketing, and 6 percent by intermediate cases. (JEL D12, D81, D91)

Too-big-to-fail" is consistent with policies followed by private bank clearing houses during financial crises in the U.S. National Banking Era prior to the existence of the Federal Reserve System. Private bank clearing houses provided emergency lending to