Knowledge that Transforms

This paper uses a formal model of search over multiattribute alternatives, analyzed in a product market setting, to investigate the theoretical foundations of the empirical literature on duration of search and turnover in product markets, labor markets, and marriage markets. A number of specific emirical predictions are also derived. In particular, whether "quality" is a "search" attribute or an "experience" attribute is related to the cost of search, the cost of inspection, the price of the good, and certain properties of the market distribution of price and quality.

This paper develops and estimates a model of the joint determination of the exchange rate, international reserves, and the rate of inflation under a crawling-peg system. The framework presented, which is an extension of previous work on the monetary approach, generates short-run deviations from purchasing power parity that occur simultaneously with movements in both international reserves and the exchange rate. The model is estimated by full-information maximum likelihood on the basis of quarterly data for Brazil.

This paper examines the market for human capital created by the institution of indentured servitude in colonial America. The indenture system allowed English emigrants to obtain passage to the colonies by selling claims on their future labor. With the size of the debt approximately equal for all emigrants, the length of the term for which a servant was bound is predicted to have varied inversely with expected productivity in the colonies. Analysis of two collections of contracts made in the seventeenth and eighteenth centuries supports the prediction. Age, skill, and literacy were negatively related to length of indenture. Women received shorter terms than men at young ages, while servants bound for the West Indies and those bound in periods of high colonial demand for labor also received reductions.

This paper builds upon some well-known facts about state government to generate new conclusions about social choice on the national level of a federal republic. Citizens vote against national laws that restrict their state's ability to export costs but support laws that reduce the costs imposed on them. Individuals may seek to extend the laws passed in some states to the entire nation or may oppose preemptive laws because they benefit from variety. Since these motivations are absent in a unitary system, national support for a law will depend upon whether a unitary or a federal structure prevails.

Both economic theory and casual empirical observation of the U.S. economy suggest that spending propensities from temporary tax changes are smaller than those from permanent ones, but neither provides much guidance about the magnitude of this difference. This paper offers new empirical estimates of this difference and finds it to be quite substantial. The analysis is based on an amendment of the standard distributed lag version of the permanent income hypothesis that distinguishes temporary taxes from other income on the grounds that the former are "more transitory." This amendment, which is broadly consistent with rational expectations, leads to a nonlinear consumption function. Though the standard error is unavoidably large, the point estimate suggests that a temporary tax change is treated as a 50-50 blend of a normal income tax change and a pure windfall. Over a 1-year planning horizon, a temporary tax change is estimated to have only a little more than half the impact of a permanent tax change of equal magnitude, and a rebate is estimated to have only about 38 percent of the impact.

We explore the conditions under which the welfare benefits of local public goods projects will be capitalized into land values. We find two types of sufficient conditions, one involving similar communities and the other involving differentiated communities. The form of capitalization differs between these cases, and we explore the nature of these differences. We also examine intermediate cases and identify models in which there will be no capitalization.

This paper estimates a reduced-form exchange-rate equation whose estimates are used to address questions on exchange-rate overshooting, intermediate-run exchange-rate dynamics, and long-run proportionality relationships between relative money supplies and exchange rates. Based on Swiss-U.S. data from the period 1973-79, the major findings are that following a monetary shock there is short-run exchange-rate overshooting by a factor of about two and that subsequent exchange-rate adjustments to a new long-run equilibrium take longer than 2 years and exhibit nonmonotonic patterns.