Knowledge that Transforms

Managers appear to manipulate firm earnings through their characterizations of pension assets to capital markets and alter investment decisions to justify, and capitalize on, these manipulations. Managers are more aggressive with assumed long-term rates of return when their assumptions have a greater impact on reported earnings. Firms use higher assumed rates of return when they prepare to acquire other firms, when they are near critical earnings thresholds, and when their managers exercise stock options. Changes in assumed returns, in turn, influence pension plan asset allocations. Instrumental variables analysis indicates that 25 basis point increases in assumed rates are associated with 5 percent increases in equity allocations.

The release of Enovid in 1960, the first birth control pill, afforded U. S. women unprecedented freedom to plan childbearing and their careers. This paper uses plausibly exogenous variation in state consent laws to evaluate the causal impact of the pill on the timing of first births and extent and intensity of women's labor-force participation. The results suggest that legal access to the pill before age 21 significantly reduced the likelihood of a first birth before age 22, increased the number of women in the paid labor force, and raised the number of annual hours worked.

There is widespread evidence supporting the conjecture that borrowing constraints have important implications for firm growth and survival.In this paper we model a multi-period borrowing/lending relationship with asymmetric information.We show that borrowing constraints emerge as a feature of the optimal long-term lending contract, and that such constraints relax as the value of the borrower's claim to future cash-flows increases.We also show that the optimal contract has interesting implications for firm dynamics.In agreement with the empirical evidence, as age and size increase, mean and variance of growth decrease, firm survival increases, and the sensitivity of investment to cash-flows declines.

This paper explores to what extent secondary policy issues are influenced by electoral incentives.We develop a two dimensional political agency model in which a politician decides on both a frontline policy issue and a secondary policy issue.The model predicts when the incumbent should manipulate the secondary policy to attract voters.We test our model by using panel data on environmental policy choices in the U.S. states.In contrast to the popular view that secondary policies are largely determined by lobbying, we find strong effects of electoral incentives.

One of the alleged benefits of the recent global movement to strengthen intellectual property rights (IPRs) is that such reforms accelerate transfers of technology between countries. The paper examines how technology transfer among U.S. multinational firms changes in response to a series of IPR reforms undertaken by 12 countries over the 1982-99 period. The analysis of detailed firm-level data reveal that royalty payments for intangibles transferred to affiliates increase at the time of reforms, as do affiliate research and development (R&D) expenditures and total levels of foreign patent applications. Increases in royalty payments and R&D expenditures are more than 20 percent larger among affiliates of parent companies that use U.S. patents more extensively prior to reform and therefore are expected to value IPR reform most.

We present an equilibrium theory of the organization of work in an economy where knowledge is an essential input in production and agents are heterogeneous in skill. Agents organize production by matching with others in knowledge hierarchies designed to use and communicate their knowledge efficiently. Relative to autarky, organization leads to larger cross-sectional differences in knowledge and wages: low skill workers learn and earn relatively less. We show that improvements in the technology to acquire knowledge lead to opposite implications on wage inequality and organization than reductions in communication costs.