Knowledge that Transforms

This paper reviews the current evidence supporting the benefits of improving automobile safety by regulation of product design, and proceeds to an independent evaluation of the effects. Technological studies imply that annual highway deaths would be 20 percent greater without legally mandated installation of various safety devices on automobiles. However, this literature ignores offsetting effects of nonregulatory demand for safety and driver response to the devices. This article indicates that these offsets are virtually complete, so that regulation has not decreased highway deaths. Time-series (but not cross-section) data imply some saving of auto occupants' lives at the expense of more pedestrian deaths and more nonfatal accidents, a pattern consistent with optimal driver response to regulation.

This paper presents a theoretical model of slavery and manumission in which the effective labor provided by slaves is a function of both the level of supervision costs incurred by the owner and the incentive payments received by the slaves. The optimal combination of supervision costs and incentive payments is determined together with the input of physical capital. The length of time it would take for a slave to purchase his freedom out of savings from his incentive payments is derived and is shown to vary inversely with the rate of interest.

Parameters defining Richardson-type reaction functions for missile stocks are derived, for both deterrers and attackers, as explicit functions of certain underlying technical and timing factors in a simulated missile war. With two deterrers there generally exists a stable equilibrium of mutual assured destruction, where the equilibrium missile stocks depend on technical and timing factors; with two attackers an unstable equilibrium generally exists; and with a deterrer and an attacker no equilibrium exists. Above the stable equilibrium there exists a cone of mutual deterrence, while below it there exist regions of war initiation. Arms control and disarmament measures are treated using this framework.

This paper investigates whether and how the distribution of income affects the fraction of disposable income which is consumed. It is shown that a slight generalization of the permanent income or "life-cycle" model of consumption makes each individual's lifetime marginal propensity to consume a fraction of his lifetime disposable resources unless two taste parameters are equal. In considering what this implies for the aggregate consumption function, the tenuous connection between theoretical constructs and observed facts is stressed. Previous empirical work on the subject is criticized for failing to define properly either "income distribution" or "consumption," and a new test, based on the theory, is outlined. Because of data limitations, a number of compromises with this ideal test must be made, and several alternative models are estimated. On the whole, they suggest that equalizing the distribution of income would either leave aggregate consumption unchanged or diminish it slightly.

The hypothesis that megafauna extinction some 10,000 years ago was due to "overkill" by Paleolithic hunters is examined using an economic model of a replenishable resource. The large herding animals that became extinct, such as mammoth, bison, camel, and mastodon, presented low hunting cost and high kill value. The absence of appropriation provided incentives for the wastage killing evident in some kill sites, while the slow growth, long lives, and long maturation of large animals increased their vulnerability to extinction. Free-access hunting is compared with socially optimal hunting and used to interpret the development of conservationist ethics, and controls, in more recent primitive cultures.

An economic theory of the effectiveness of industrial pressure groups in obtaining favorable tariffs is developed and tested for the United States Tariff Act of 1824. Import duties bestow nonexclusive benefits on factors of production or costs on product users. From the theory of public goods, it is postulated that small, homogeneous, geographically concentrated groups would react more intensely to the expected effects of tariffs in attempting to influence the legislature. However, in Congress (where majority support was necessary) it was a disadvantage for an import duty to be identified as too local or narrow an interest. This paper attempts empirically to sort out these conflicting forces, and finds inter alia that the ideal industry pressure groups in 1824 had low proprietorial income shares and geographically concentrated production units, but that political effectiveness required the group to speak for many establishments with output spread fairly evenly across states.

Nonmonetary factors are expected to assume an increasingly important role in determining the demand for medical care as the out-of-pocket money price falls (due to spreading health insurance coverage or the enactment of the federal health insurance legislation). A utility maximization model is used to develop predictions for the demand for "free" and nonfree care. A simultaneous-equation system is estimated on a survey of users of New York City's "free" outpatient departments and municipal hospitals. The empirical results support the major predictions that nonmonetary factors such as travel distance will function as prices in discouraging demand and that earned and nonearned income have different impacts. A number of implications for public policy are suggested, including the possibility of substituting income maintenance for the direct provision or insurance of medical care.

Empirical studies of covered interest arbitrage suggest that the parity condition is not always satisfied and thus implying unexploited profit opportunities. This paper provides a procedure for estimating transaction costs in the markets for foreign exchange and for securities. Allowance for these costs accounts for most of the apparent profit opportunities. It is shown that in addition to transaction costs, demand and supply elasticities in the various markets and lags in executing arbitrage can account for all of the apparent profit opportunities. It is concluded that empirical data are consistent with the interest parity theory and that covered interest arbitrage does not entail unexploited profit opportunities.

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