Knowledge that Transforms

Hereditary economic inequality is unknown among mobile foragers, but hereditary class distinctions between elites and commoners exist in some sedentary foraging societies. With agriculture, such stratification tends to become more pronounced. We develop a model to explain the associations among productivity, population, property rights, and inequality. Using Malthusian dynamics, we show that regional productivity growth leads to enclosure of the best sites first, creating inequality between insiders and outsiders. Hereditary elite and commoner classes subsequently arise at the best sites. Food consumption becomes more unequal and commoners become poorer. These predictions are consistent with a wide range of archaeological evidence.

When I teach monetary economics, one of the topics I discuss is coexistence of money and higher-return assets. My list of potentially serious explanations includes (i) a structure of Shapley-Shubik trading posts that gives a special role to one object (see Krishna [1] for an argument that a structure of posts that favors a low rate-of-return object is not robust); (ii) Zhu-Wallace [6], which, as carefully described by Lagos, divides the gains from trade in pairwise meetings between buyers and sellers in a way that can favor the holding of a low rate-of-return object; and (iii) the possibility that the higher-return assets are counterfeits (see, for example, Li et. al. [4]). Here, after setting out the Lagos idea in a simple way, I explain why I will not add it to this list. Because the main idea applies to any model, I set it out against the background of the alternating-endowments model (see [5]). There is one good per discrete date, a unit measure of people, and each person maximizes expected discounted utility of consumption with discount factor β ∈ (0, 1) and period utility function u: R++ → R, where u is twice differentiable and u ′ ′ < 0 < u ′.

It is folklore among monetary theorists that, under laissez faire, without ad hoc assumptions that favor money over bonds, there do not exist equilibria in which government-issued fiat money coexists with nominal default-free, interest-bearing government bonds with similar physical characteristics. This proposition is the basis for the strongest version of the rate-of-return-dominance puzzle. In this paper I show that if—as has been the case throughout monetary history—the physical object used as fiat money is heterogeneous in an extraneous attribute, then there exist equilibria in which money coexists with interest-bearing bonds.

We revisit two well-known facts regarding life cycle expenditures: the “hump”-shaped profile of nondurable expenditures and the increase in cross-household consumption inequality. We document that the behavior of total nondurables masks surprising heterogeneity in the life cycle profile of individual consumption subcomponents. We provide evidence that the categories driving life cycle consumption either are inputs into market work or are amenable to home production. Using a quantitative model, we document that the disaggregated life cycle consumption profiles imply a level of uninsurable permanent income risk that is substantially lower than that implied by a model using a composite consumption good.

Monopoly”. While many colleagues have provided valuable and in some cases detailed comments, special debts are due to Kevin Murphy (who originally inspired the work), Tony Atkinson and Faruk Gul (for suggesting the subtitle and title of the article, respectively), Luciano de Castro and Michael Salinger (for excellent formal conference discussions), Mark Armstrong, David Atkin and Dave Donaldson (for suggesting new results), Jesse Shapiro (for suggesting ways of reframing the paper) and above all Jeremy Bulow (for more things than can be listed here). Weyl is grateful

This paper studies the optimal redistribution of income inequality caused by the presence of search and matching frictions in the labor market. We study this problem in the context of a directed search model of the labor market populated by homogeneous workers and heterogeneous firms. The optimal redistribution can be attained using a positive unemployment benefit and an increasing and regressive labor income tax. The positive unemployment benefit serves the purpose of lowering the search risk faced by workers. The increasing and regressive labor tax serves the purpose of aligning the cost to the firm of attracting an additional applicant with the value of an application to society.

SCOPUS: ar.j

We propose a theory of the market for venture capital that links the excess return to venture equity to the scarcity of venture capitalists (VCs). High returns make the VCs more selective and eager to terminate nonperforming ventures because they can move on to new ones. The scarcity of VCs enables them to internalize their social value, and the competitive equilibrium is socially optimal. Moreover, the bilaterally efficient contract is a simple equity contract. We estimate the model for the period 1989–2001 and compute the excess return to venture capital, which turns out to be 8.6 percent. Finally, we back out the return of solo entrepreneurs, which is increasing in their wealth and ranges between zero and 3.5 percent.

We study criminal recidivism in Argentina by focusing on the rearrest rates of two groups: individuals released from prison and individuals released from electronic monitoring. Detainees are randomly assigned to judges, and ideological differences across judges translate into large differences in the allocation of electronic monitoring to an otherwise similar population. Using these peculiarities of the Argentine setting, we argue that there is a large, negative causal effect on criminal recidivism of treating individuals with electronic monitoring relative to prison.

We introduce a model in which agents in a network can trade via bilateral contracts. We find that when continuous transfers are allowed and utilities are quasi-linear, the full substitutability of preferences is sufficient to guarantee the existence of stable outcomes for any underlying network structure. Furthermore, the set of stable outcomes is essentially equivalent to the set of competitive equilibria, and all stable outcomes are in the core and are efficient. By contrast, for any domain of preferences strictly larger than that of full substitutability, the existence of stable outcomes and competitive equilibria cannot be guaranteed.