Knowledge that Transforms

Firms' organizational choices are influenced by external conditions such as the instability of the product market. In order to address this issue in a macroeconomic perspective, we embed the firm's choice of organizational structure in a model of growth through creative destruction, which induces endogenous market volatility. We find that an increasing supply of skill or globalization may increase the rate of creative destruction, the skill premium, and the skilled wages, and it may depress the unskilled wages. We use an original data set to test the empirical relevance of our theory.

We exhibit an efficient auction (an auction that maximizes surplus conditional on all available information). For private values, the Vickrey auction (for one good) or its Groves-Clarke extension (for multiple goods) is efficient. We show that the Vickrey and Groves-Clarke auctions can be generalized to attain efficiency when there are common values, if each buyer's information can be represented as a one-dimensional signal. When a buyer's information is multidimensional, no auction is generally efficient. Nevertheless, in a broad class of cases, our auction is constrained-efficient in the sense of being efficient subject to incentive constraints.

Street gangs have a long history in American cities (Thrasher 1927). Until recently, gangs were organized primarily as social peer groups. Any economic activities were of secondary importance (Suttles 1968, Klein 1995). The last two decades, however, have given rise to a dramatic transformation in street gangs, or what Taylor (1990) terms their "corporatization."

This paper tests the labor market signaling hypothesis for the General Educational Development (GED) equivalency credential. Using a unique data set containing GED test scores and Social Security Administration (SSA) earnings data, we exploit variation in GED status generated by differential state GED passing standards to identify the signaling value of the GED, net of human capital effects. Our results indicate that the GED signal increases the earnings of young white dropouts by 10 to 19 percent. We find no statistically significant effects for minority dropouts.

The prevalence of shirking within a large Italian bank appears to be characterized by significant regional differentials. In particular, absenteeism and misconduct episodes are substantially more prevalent in the south. We consider a number of potential explanations for this fact: different individual backgrounds; group-interaction effects; sorting of workers across regions; differences in local attributes; different hiring policies; and discrimination against southern workers. Our analysis suggests that individual backgrounds, group-interaction effects, and sorting effects contribute to explaining the north-south shirking differential. None of the other explanations appears to be of first-order importance.

This paper examines the demand for on-board computers in trucking, distinguishing between their incentive- and resource-allocation-improving capabilities. I find that monitoring's incentive benefits are high when perquisitetaking is attractive to drivers, driver effort is important, and verifying drivers' actions to insurers is valuable. These results are consistent with agency theory and suggest that networking applications will raise the productivity and pay of difficult-toevaluate workers. I also find that monitoring's benefits are disproportionately resource-allocation-related when managerial decisions are least constrained. This suggests that networking applications' monitoring capabilities raise the returns to delegation when resource allocation decisions are routine and lower them when they are not

College educated couples are increasingly located in large metropolitan areas. These areas were home to 32 percent of all college educated couples in 1940, 39 percent in 1970, and 50 percent in 1990. We investigate whether this trend can be explained by increasing urbanization of the college educated or the growth of dual career households and the resulting severity of the colocation problem. We argue that the latter explanation is the primary one. Smaller cities may therefore experience reduced inflows of human capital relative to the past and thus become poorer.

A recent paper in this Journal by Kaplan and Zingales reexamines a subset of firms from work of Fazzari, Hubbard, and Petersen and criticizes the usefulness of investment-cash flow sensitivities for detecting financing constraints. We show that the Kaplan and Zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique. Moreover, we describe why their empirical classification system is flawed in identifYing both whether firms are constrained and the relative degree of constraints across firm groups. We conclude that their results do not support their conclusions about the usefulness of investment-cash flow sensitivities.

This study investigates the relationship between economic conditions and health. Total mortality and eight of the ten sources of fatalities examined are shown to exhibit a procyclical fluctuation, with suicides representing an important exception. The variations are largest for those causes and age groups where behavioral responses are most plausible, and there is some evidence that the unfavorable health effects of temporary upturns are partially or fully offset if the economic growth is long-lasting. An accompanying analysis of micro data indicates that smoking and obesity increase when the economy strengthens, whereas physical activity is reduced and diet becomes less healthy.

We create an environment in which congestion forces agents to match inefficiently early. We then introduce one of two centralized clearinghouse mechanisms. One of these has been successfully used to halt this kind of unraveling in a number of labor markets, while the other has failed. When it is costly for firms and workers to be mismatched compared with the costs of matching early, the experimental observations reproduce the field observations. Furthermore, the experiment permits us to observe the transition between a decentralized and a centralized market, both when the centralized market fails to control unraveling and when it succeeds, at a level of detail unavailable in field data.