Knowledge that Transforms

I assess the impact of losing public health insurance on labor market decisions of women by examining a series of Medicaid eligibility expansions targeted toward young children. These targeted expansions severed the historical tie between AFDC and Medicaid eligibility. The reforms allowed a mother's earnings to increase without losing public health insurance for her young children. Increasing the income limit for Medicaid resulted in a decrease in AFDC participation and an increase in labor force participation among these women. The effects were large for ever married women, and negligible for never married women.

In this paper, we consider two measures of the relative effectiveness of public and Catholic schools: finishing high school and starting college. These measures are potentially more important indicators of school quality than standardized test scores in light of the economic consequences of obtaining more education. Single-equation estimates suggest that for the typical student, attending a Catholic high school raises the probability of finishing high school or entering a four-year college by thirteen percentage points. In bivariate probit models we find almost no evidence that our single-equation estimates are subject to selection bias.

It is a common belief that the existence of involuntary unemployment implies that wages are too high and that wage moderation should be encouraged as a way to keep unemployment down. This paper argues for a reconsideration of this view by showing that it is possible for a binding minimum wage to reduce unemployment or increase employment even if there is involuntary unemployment.

Field research attempted to measure the risky environments, the information structures, the institutions, and the risk-response mechanisms of ten villages in northern Thailand. Various key features are then modeled in an abstract but realistic way, either with a full-information risk-sharing model or an information-constrained version of the same model. Observations from some of the villages seem consistent with one or the other of these models, but in many of the villages one is left with risk-response variations across households which suggest that Pareto improvements are possible.

I investigate the factors that fostered rising retirement rates prior to social security and most private-sector pensions by estimating the income effect of the first major pension program in the United Sates, that covering Union Army veterans. The elasticity of nonparticipation with respect to Union Army pension income was 0.73. The findings suggest that secularly rising income explains a substantial part of increased retirement rates. Comparisons with elasticities of nonparticipation with respect to social security income suggest that the elasticity of labor force nonparticipation may have decreased with time, perhaps because of the increasing attractiveness of leisure.

We show that lowering the cost of acquisition of information that a principal obtains about the performance of an agent may make it more difficult for the principal to commit to threats. Hence it will weaken incentives and can therefore be counterproductive. This phenomenon is explored in a framework where improving the quality of information makes a commitment not to renegotiate less credible. Applications to the theory of the firm are briefly explored.

According to endogenous growth theory, permanent changes in certain policy variables have permanent effects on the rate of economic growth. Empirically, however, U. S. growth rates exhibit no large persistent changes. Therefore, the determinants of long-run growth highlighted by a specific growth model must similarly exhibit no large persistent changes, or the persistent movement in these variables must be offsetting. Otherwise, the growth model is inconsistent with time series evidence. This paper argues that many AK-style models and R&D-based models of endogenous growth are rejected by this criterion. The rejection of the R&D-based models is particularly strong.

Experiments on privately provided public goods generally find that subjects are far more cooperative than predicted, while experiments on oligopolies and the commons almost always obtain the Nash-equilibrium predictions, despite being very similar games. This paper examines whether this difference could be due to the fact that with public goods there is a positive externality, while with the others the externality is negative. The result of the experiments is that subjects are more willing to cooperate when the externality is positive, even though the potential outcomes are the same. This suggests a behavioral asymmetry between the warm-glow of doing something good and cold-prickle of doing something bad.

This paper examines the appropriate treatment in the cost-of-living index of the appearance of new varieties of old goods. Existing theory here applies to individual households. Thus, we first show in what sense Laspeyres and Paasche indices for groups of households can be considered approximations to theoretically desirable group indices and then go on to the case of new goods. We apply our results to the case of the introduction of generics in pharmaceuticals and show that proper treatment can make a considerable difference.

This paper studies the way that word-of-mouth communication aggregates the information of individual agents. We find that the structure of the communication process determines whether all agents end up making identical choices, with less communication making this conformity more likely. Despite the players' naive decision rules and the stochastic decision environment, word-of-mouth communication may lead all players to adopt the action that is on average superior. These socially efficient outcomes tend to occur when each agent samples only a few others.