Knowledge that Transforms

This paper reports the results of an experiment that was designed to test the impact of fairness on market prices. Prices were determined in a one-sided oral auction, with buyers as price-makers. Upon acceptance of an offer, sellers determined the quality of the good. Buyers offered prices that were substantially above the market-clearing level and expected sellers to respond with high quality levels. This expectation was, on average, confirmed by the behavior of sellers. These results provide, therefore, experimental support for the fair wage-effort theory of involuntary unemployment.

We propose an explanation for the wide variation in rates of taxation across developed economies, based on differences in labor market institutions. In "corporatist" economies, which feature centralized labor markets, taxes on labor input will be less distortionary than when labor supply is determined individually. Since the level of labor supply is set by a small group of decision-makers, these individuals will recognize the linkage between the taxes that workers pay and the benefits that they receive. Labor tax burdens are indeed higher in more corporatist nations, and non-labor taxes are lower, which is consistent with this theory. There is also some evidence that the distortionary effects of labor taxes are lower in more corporatist economies.

In this paper we study the connections between product .market conditions. negotiated wage settlements. and union employment in the presence of foreign competition shocks. We exploit the fact that in a small open economy such as Canada the price of imports and exports should represent pure demand shocks. We specify wage and employment determination equations for a sample of collective bargaining agreements from 1965 to 1983. Our estimation strategy consists of specifying the wage as a function of firm-specific value added per worker instrumented with the price of imports and the price of exports in the industry. The OLS specification is rejected in favor of the instrumental variables specification using standard specification tests. The instrumental variables estimates imply that a 1% change in value-added per worker increases the negotiated wage settlements by 0.25%. Similarly, we specify union employment as a function of firm-specific sales instrumented by the price of imports and exports in the industry. The instrumental variables estimates are imprecise and the specification test fails to reject the OLS specification. The OLS estimates imply that a 1% change in firm-specific sales increases employment by 0.19%. We use our estimates to trace the effects of foreign competition on the industry and firm-level sales and value-added measures.

Revised July 7, 1991

Given a finite set of alternatives, players alternate making offers. Player 1 offers some alternative that 2 can accept or veto. If 2 accepts, it is enforced, and the game ends. Otherwise, 2 makes a counteroffer among the remaining alternatives, and so on. If all alternatives are vetoed, a disagreement alternative is enforced. First, we characterize the unique outcome of any subgame perfect equilibrium of this game. Then, we show that this outcome converges to the Area Monotonie Solution if the alternatives are uniformly distributed over the bargaining set, and as the number of alternatives tends to infinity.

The purpose of this note is to clarify and complement several comments on my work [Chichilnisky, 1980, 1982a], which appeared in this Journal: Baigent [1987], Nitzan [1989], and Baigent [1989]. I shall offer two new results. The first result constructs a continuous, anonymous social selection rule that respects unanimity and the proximity of preferences, for a large family of preferences (Theorem 1). This complements the result of Nitzan [1989] and Baigent's [1989] extension of it and is achieved by accepting, as they do, that social outcomes be optimal choices, rather than rankings of all possible choices or social preferences This result is of interest because it appears to contradict the original impossibility theorem of Chichilnisky, which establishes that, for the same family of preferences, social aggregation rules with these properties do not exist (Theorem 2).

The steady state and transitional dynamics of two-sector models of endogenous growth are analyzed in this paper. We describe necessary conditions for endogenous growth. The conditions allow us to reduce the dynamics of the solution to a system with one state-like and two control-like variables. We analyze the determinants of the long run growth rate. We use the Time-Elimination Method to analyze the transitional dynamics of the models. We find that there are transitions in real time if the point-in-time production possibility frontier is strictly concave, which occurs, for example, if the two production functions are different or if there are decreasing point-in-time returns in any of the sectors. We also show that if the models have a transition in real time, the models are globally saddle path stable. We find that the wealth or consumption smoothing effect tends to dominate the substitution or real wage effect so that the transition from relatively low levels of physical capital is carried over through high work effort rather than high savings. We develop some empirical implications. We show that the models predict conditional convergence in that, in a cross section, the growth rate is predicted to be negatively related to initial income but only after some measure of human capital is held constant. Thus, the models are consistent with existing empirical cross country evidence.

We compare the geographic location of patent citations with that of the cited patents, as evidence of the extent to which knowledge spillovers are geographically localized. We find that citations to domestic patents are more likely to be domestic, and more likely to come from the same state and SMSA as the cited patents, compared with a “control frequency” reflecting the pre-existing concentration of related research activity. These effects are particularly significant at the local (SMSA) level. Localization fades over time, but only very slowly. There is no evidence that more “basic” inventions diffuse more rapidly than others.