Knowledge that Transforms

The effect of Social Security and private pensions on individual retirement decisions is modeled, relaxing in turn three commonly maintained assumptions—perfect capital markets, actuarial fairness, and certain lifetimes—which together imply that there is no effect. In each case, raising the contribution level can cause systematic changes (of either sign in general) in individual retirement decisions. For Social Security, the effects associated with forced saving and deviations from actuarial fairness probably tend to advance retirement. But those effects that arise solely from the insurance aspect of Social Security and private pensions are ambiguous in sign, owing to the presence of a substitution effect that tends to delay retirement because the insurance benefits can be fully realized only by working longer.

The purpose of this paper is to generalize the Farrell indexes of productive efficiency to nonhomothetic production technologies, and at the same time maintain the cost interpretation of the Farrell measures. Since the generalized indexes rely heavily on recent developments in the estimation of frontier cost and production functions, several frontier models are reviewed. In addition to generalized indexes of technical, allocative, and overall productive efficiency, a variety of single-factor efficiency measures are discussed. The applicability of the proposed efficiency measures is illustrated with a numerical example of electric power generation.

A critique of two leading articles in the productivity and city-size literature results in revised estimates of the productivity advantages of large cities. In particular, extant estimates of the elasticity of productivity with city size are revised downward by over 100 percent for the manufacturing sector and about 25 percent for the entire urban economy. After revision, productivity advantages of larger cities are found to be much larger for the nonmanufacturing sector than for the manufacturing sector. Hence, revitalization policies for large cities should be focused on nonmanufacturing sectors.

This paper investigates the resource reallocation effected by content protection and content preference schemes under alternative assumptions regarding the definition of domestic content, the number of intermediate goods, and the market structure of the domestic intermediate good industry. Content protection is shown to be equivalent to a combination of more familiar commercial policies. However, the extent of application of these policies is determined endogenously by parameters of the production functions for intermediate and final goods. A number of anomalous and undesirable outcomes that may result from content protection and content preference are discussed.

In this paper we consider a particular international economic policy regime: the laissez-faire regime, the distinguishing features of which are unrestricted portfolio choice and floating exchange rates. And as we show, this regime, although favored by many economists, is not economically feasible. It does not have a determinate equilibrium. That is an implication of an overlapping-generations model. More basically, it is an implication of the notion that money is wanted only in order to accomplish trades.

Famines often take place in situations of moderate to good food availability, without any significant decline of food supply per head. The paper presents an alternative approach to famines, which does not concentrate on availability, but on people's ability to command food through legal means available in the society (including the use of production possibilities, trade opportunities, entitlements vis-à-vis the state, etc.). The approach is explained, focusing on exchange entitlement mappings, fluctuations in which can lead to big shifts in the intergroup distribution of food command. The approach is then applied to the Bengal famine of 1943, the Ethiopian famine in Wollo in 1973, and the Bangladesh famine in 1974, and some general conclusions are drawn about the nature and classes of famines.

This paper derives a transactions theory of trade credit use from the motives of trading partners to economize on the joint costs of exchange. In the formal analysis, uncertain delivery time is used to generate a demand by firms to hold inventories of both goods and money. Trade credit is viewed as a mechanism that separates the exchange of money from the uncertainty present in the exchange of goods. By forewarning both trading partners of the timing of money flows, credit permits a reduction in precautionary money holdings and the more effective management of net money accumulations.