Knowledge that Transforms

We specify a demand function for longevity, or "quantity of life," along with corresponding demand functions for indicators of "quality of life" and a value-of-health and life extension function. We show that the demand for health must be derived in conjunction with that for longevity and the related consumption plan, and that all choices depend on initial individual endowments and terminal conditions. Our comparative dynamics predictions indicate that optimal health and longevity are increasing functions of endowed wealth rather than, necessarily, current income; that improvements in opportunities to produce health can accentuate the differences between endowed health and attained longevity levels; and that the value individuals ascribe to their health may be increasing over a good portion of their life cycle. We use this model to analyze observed empirical variations in levels and trends of life expectancy and in exposure to health risks across different population groups.

This paper presents a simple general equilibrium model in which unemployed workers search for jobs and vacant firms search for employees. Formally, I develop a two-sector, constrained efficient version of the Diamond-Mortensen-Pissarides matching model of trade coordination. This approach to modeling factor market search appears promising since its algebraic development parallels Jones's treatment of the two-sector model of production, and the latter framework underlies most applied general equilibrium analyses. Some illustrative short-run and steady-state results are presented concerning the behavior of open and closed economies that exhibit unemployment and vacancies.

The Wonderful Wizard of Oz, perhaps America's favorite children's story, is also an informed comment on the battle over free silver in the 1890s. The characters in the story represent real figures such as William Jennings Bryan. This paper interprets the allegory for economists and economic historians, illuminating a number of elements left unexplained by critics concerned with the politics of the allegory. It also reexamines Bryan and the case for free silver. Far from being monetary cranks, the advocates of free silver had a strong argument on both theoretical and empirical grounds.

Classical stable population theory, the standard model of population age structure and growth, is ill suited to addressing many issues that concern economists and demographers because it is a "one-sex" theory. This paper investigates the existence, uniqueness, and dynamic stability of equilibrium in the birth matrix-mating rule (BMMR) model, a new model of age structure and growth for two-sex, monogamously mating, populations. The paper shows, by means of examples, that the BMMR model can have multiple nontrivial equilibria and establishes sufficient conditions for uniqueness. It generalizes a theorem of W. Brian Arthur to nonlinear systems and uses it to establish sufficient conditions for local dynamic stability.

The nature of the British racetrack betting market provides a distinctly different opportunity for testing market efficiency. On the basis of data from a single racing season, we compare the returns to two similar forms of betting: (1) starting price bets placed with bookmarkers and (2) pari-mutuel tote bets. Our analysis indicates that tote returns are consistently higher than starting price returns, even though both betting forms are of similar risk and the payoffs are widely reported. The persistently higher tote returns suggest that the British racetrack betting market does not satisfy the conditions of semistrong efficiency. Our results also provide indirect support that the market fails to meet the conditions for strong efficiency.

In this paper we evaluate the impact of the Tax Reform Act of 1986 on U.S. economic growth. We first calculate effective tax rates on income from capital employed in corporate, noncorporate, and household sectors. We then project the future growth of the U.S. economy with and without the 1986 tax reform. We find that much of the potential gain in welfare was dissipated through failure to index the income tax base for inflation. The most promising avenue for future reform is to include income from household assets in the tax base, while reducing tax rates on business income.

The logic of revenue comparisons for different types of common-value auctions is substantially altered if the number of participants, rather than being fixed, responds endogenously to the expected profitability from participating. In a thoroughly symmetric model, a seller may prefer that competition be indirect: an auction procedure in which fewer participants are needed to drive the expected profitability from participating down to the level obtainable in other auctions in the economy can attain higher expected revenue if a sale is sufficiently likely. This insight allows a complete revenue ranking of standard auction procedures, with endogenous entry.

The standard formulation of a spot market subject to uncertain excess demand uses a tatonnement process that restricts trade until the market-clearing price is found. Here I present a model in which there is no restriction on trade during the process of the resolution of uncertainty about aggregate excess demand. The idea is to enlarge the commodity space and define goods by the probability that they will sell, in addition to other characteristics. The probability of sale characteristic is the spot market analogue of the contingencies under which delivery will take place in the Arrow-Debreu model. A failure to distinguish goods by the probability of sale characteristic can lead to the rejection of the competitive paradigm even when everyone is a price taker and the allocation is efficient.

A model is presented in which scale economies give market production a cost advantage over household production, but in which market production is limited by the extent of the market. The production process is viewed as a series of stages, each further refining and specializing the product of the previous stage. As processing proceeds, the number of intermediate goods increases and markets thin out. Firms specialize in the early stages of production and house-holds in the later stages. As an economy grows, production shifts out of households and into the market. Several other changes associated with economic development are also accounted for.

The U.S. Coinage Act of 1873 eliminated provision for the free coinage of silver. That act cast the die for a gold standard. The conventional view is that "the act of 1873 was a piece of good fortune." This paper indicates that it was the opposite--a mistake that had highly adverse consequences. This is a judgment about 1873, not 1896. By 1896, when William Jennings Bryan ran for president on a "free-silver ticket," it was too late to undo the damage. Bryan was trying to close the barn door after the horse had been stolen.