Knowledge that Transforms

This paper models ancademic department as an internal labor market. The major problem facing the university administration is to ensure that members of its departments are willing to hire the best possible candidates. Academic tenure is seen to be a necessary condition for this. The analysis is also consistent with other aspects of the academic environment including "tenure-track" appointments, contract buy-outs, early retirement plans, and, when a budget crunch hits, the elimination of entire departments. The results extend in a simple way to other organizations in which members have an input into overall decisions.

The paper is concerned with economies in which agents find sellers and employers in a time-consuming search process while they simultaneously trade with their current partners. A symmetric steady-state equilibrium does not exist, but asymmetric steady-state equilibria exist and are such that larger firms offer higher wages and charge lower prices than smaller firms, but still make more profits. These profits can be seen as rents from a superior market position.

Adult equivalence scales are supposed to measure differences in the "needs" of households of different demographic composition. Formally, they purport to measure the change in the cost of attaining a certain welfare level when the family composition varies. This paper shows that the definition and the measurement of these scales depend crucially on the concept of welfare used. When welfare is the utility parents derive from their own consumption, one has to assume separability of parents' and children's consumption. This assumption implies that the only way of imputing the intrafamily allocation of resources is by observing the consumption patterns of adult goods. Regardless of the definition used, one cannot separate the factors reflecting home technology (i.e., "needs") from those determining the intrafamily distribution rule (i.e., "wants") out of consumption data.

We develop a two-sector general equilibrium model in which equilibrium unemployment arises endogenously because of trading frictions in the labor market of one sector. Externalities inherent in the search process lead to inefficient equilibria, and this has important implication for the basic structure of the economy. In particular, the relationship between factor rewards and commodity prices is fundamentally different from the analogous relationship in a frictionless economy. One implication is that the economy's relative supply curve may be downward sloping, especially when the search sector is small. We also present several applications of the analysis.

[The existence of backwardation in futures markets has remained an intriguing and controversial issue since Keynes first argued that it was the "normal" state of affairs. Most theoretical explanations for the existence of backwardation are quite restrictive. Among the assumptions are pure forward as opposed to true futures trading, differences in probability beliefs, degrees of risk aversion, or the level of commodity commitments among long and short hedgers. In a simple model of short and long commodity hedgers, we show that a backwardation equilibrium can occur in a true futures (as opposed to forward) market even when hedgers are identical in these respects and speculators hold the same probability beliefs as hedgers. This result is driven by Houthakker's completely neglected intuitive notion that one possible explanation for backwardation is the high correlation between cash and futures prices when inventories of a commodity are large. While the simple existence of such an "inventory effect" does not necessarily imply backwardation, we prove that backwardation will occur under an appropriately specified inventory effect.]

This paper derives three empirical implications of a well-specified model of consumer behavior, a model that nests both Ricardian equivalence and an alternative, non-Ricardian theory. Ricardian equivalence is then tested against this alternative. The tests reveal that Ricardian equivalence cannot be rejected.

One of the important determinants of the response of saving and consumption to the real interest rate is the elasticity of intertemporal substitution. That elasticity can be measured by the response of the rate of change of consumption to changes in the expected real interest rated. A detailed study of data for the twentieth-century United States shows no strong evidence that the elasticity of intertemporal substitution is positive. Earlier findings of substantially positive elasticities are reversed when appropriate estimation methods are used.