Trade sanctions are often criticized as ineffective because they create incentives for evasion or as harmful to the target country's population. Loan sanctions, in contrast, could be self-enforcing and could protect the population from being saddled with “odious debt” run up by looting or repressive dictators. Governments could impose loan sanctions by instituting legal changes that prevent seizure of countries' assets for nonrepayment of debt incurred after sanctions were imposed. This would reduce creditors' incentives to lend to sanctioned regimes. Restricting sanctions to cover only loans made after the sanction was imposed would help avoid time-consistency problems.
hourly wage, and employment status using the NSBA and the MCSUI. Lighter skin tone is clearly associated with higher employment rates for women and higher educational attainment for both women and men. The employment rate for women with very dark skin tone in the NSBA is strikingly lower than for women with lighter skin tone. In contrast, evidence that skin tone affects wages is limited. For both sexes, in both datasets, those in the light category have the highest average hourly wage, but this value is significantly different from those with darker skin only for men in the NSBA. Furthermore, the pattern for women based on the MCSUI does not show an increasing wage from darker to lighter skin tone, but instead shows that women in the medium-skin-tone category have the lowest average wage.
In February 2005, the Kyoto Protocol to the United Nations Framework Convention on Climate Change came into force, but without participation by the United States. Its impacts on emissions of greenhouse gases—including carbon dioxide (CO2), the primary anthropogenic driver of climate change—will be trivial; but scientific (Robert T. Watson, 2001) and economic (Charles D. Kolstad and Michael A. Toman, 2001) analyses point to the need for a credible international approach. Because the Kyoto Protocol’s ambitious targets apply only to the short term (2008–2012) and only to industrialized nations, the agreement will impose relatively high costs and generate only modest short-term benefits, while failing to provide a real solution (Joseph E. Aldy et al., 2003). For these reasons, most economists see the agreement as deeply flawed (Richard N. Cooper, 1998; David G. Victor, 2001; Warwick J. McKibbin and Peter J. Wilcoxen, 2002), although some see it as an acceptable first step (Axel Michaelowa, 2003). Virtually all agree, however, that the Protocol is not sufficient to the overall challenge. We describe the basic features of a postKyoto international global climate agreement, which addresses three crucial questions: who, when, and how. The respective elements are: first, a means to ensure that key nations—industrialized and developing—are involved; second, an emphasis on an extended time path of action (employing a cost-effective pattern over time); and third, inclusion of market-based policy instruments. I. Who—Expand Participation to Include All Key Countries
siders the importance of the family as an institution. Little attention, however, has been given to the impact of the family structure and its dynamics on institutions. This limits our ability to understand distinct institutional developments-and hence growth-in the past and present. This paper supports this argument by highlighting the importance of the European family structure in one of the most fundamental institutional changes in history and reflects on its growth-related implications. What constituted this change was the emergence of the economic and political corporations in late medieval Europe. Corporations are defined as consistent with their historical meaning: intentionally created, voluntary, interest-based, and self-governed permanent associations. Guilds, fraternities, universities, communes, and city-states are some of the corporations that have historically dominated Europe; businesses and professional associations, business corporations, universities, consumer groups, counties, republics, and democracies are examples of corporations in modern societies. The provision of corporation-based institutions to mitigate problems of cooperation and conflict constituted a break from the ways in which institutions had been provided in the past. Historically, large kinship groups-such as clans, lineages, and tribes-often secured the
This paper estimates effects of increases in incarceration length on employment and earnings prospects of individuals after their release from prison. I utilize a variety of research designs including controlling for observable factors and using instrumental variables for incarceration length based on randomly assigned judges with different sentencing propensities. The results show no consistent evidence of adverse labor market consequences of longer incarceration length using any of the analytical methods in either the state system in Florida or the federal system in California.
We find that technology's effect on employment varies greatly across manufacturing industries. Some industries exhibit a temporary reduction in employment in response to a permanent increase in TFP, whereas many more industries exhibit an employment increase in response to a permanent TFP shock. This raises serious questions about existing work that finds a labor productivity shock has a strong negative effect on employment. There are tantalizing and interesting differences between TFP and labor productivity. We argue that TFP is a more natural measure of technology because labor productivity reflects shifts in the input mix as well as in technology.
We use a Bayesian Markov Chain Monte Carlo algorithm to estimate the parameters of a “true” data-generating mechanism and those of a sequence of approximating models that a monetary authority uses to guide its decisions. Gaps between a true expectational Phillips curve and the monetary authority's approximating nonexpectational Phillips curve models unleash inflation that a monetary authority that knows the true model would avoid. A sequence of dynamic programming problems implies that the monetary authority's inflation target evolves as its estimated Phillips curve moves. Our estimates attribute the rise and fall of post-WWII inflation in the United States to an intricate interaction between the monetary authority's beliefs and economic shocks. Shocks in the 1970s made the monetary authority perceive a tradeoff between inflation and unemployment which ignited big inflation. The monetary authority's beliefs about the Phillips curve changed in ways that account for former Federal Reserve Chairman Paul Volcker's conquest of U.S. inflation.
In a multicommunity model, high-income families cluster together in any equilibrium, and cluster near effective schools if effectiveness is an important component of community desirability. Governmental fragmentation facilitates this residential sorting. Thus, if parents prefer effective schools, income correlates with effectiveness in high-choice-market equilibrium. I examine the distribution of student background and test scores across schools within metropolitan areas that differ in the structure of educational governance. I find little indication of the “effectiveness sorting” that is predicted if parents choose neighborhoods for the efficacy of the local schools. This suggests caution about the productivity implications of school choice policies.
Macroeconomic variables exhibit inertia. On the face of it, such inertia sits uncomfortably with the behavior of rational, forward-looking agents who form expectations on the basis of the best information available at the time. Christopher Sims (2003, sect. 8) offers a three-fold taxonomy of attempts to rationalize inertia. The first is the idea of Robert Lucas (1973) and Edmund Phelps (1970) that agents face a signal extraction problem, so that their actions react only partially to shifts in fundamentals due to the residual uncertainty. The second is the sticky expectations approach of N. Gregory Mankiw and Ricardo Reis (2002), where otherwise rational and forward-looking agents receive information with some delay. The third is the rational inattention approach favored by Sims himself, where agents with informationprocessing constraints choose the optimal coarsening of their information (Sims, 2003). Our approach is a variation on the signalextraction theme but has implications for the sticky-expectations and rational-inattention approaches. As explained recently by Michael Woodford (2003), the original contribution of Lucas (1973) had limited success in explaining the persistence of macroeconomic aggregates due to the feature that the underlying fundamentals are fully revealed after a delay of one period. Without this simplifying feature, however, the complexity of the problem increases rapidly as expectations of others’ expectations become relevant in one’s calculations (Robert Townsend, 1983; Phelps, 1983). Tractability aside, the approach holds much promise. When agents are differentially informed, events in the distant past are “more common knowledge” than events in the recent past. Not only has enough time elapsed for the agents to ascertain the facts in the distant past, but more importantly, enough time has elapsed for each agent to be more confident that other agents have ascertained the facts. When common knowledge is important (as in coordination problems, for example) events in the distant past take on significance. Paradoxically, the farther the agents peer into the future, the farther they must look into the past to establish the informational platform for their actions. To an outside observer, the aggregate action betrays all the outward signs of adaptive expectations. In order to demonstrate this principle in a transparent way, we employ other drastic simplifications but do not assume that realizations are revealed after a delay of one period. We thereby preserve the nontrivial nature of dynamic, higher-order beliefs and show how persistence arises as a natural consequence of the original Lucas and Phelps insight.
Since World War II, integration with the world economy has arguably been the chief route from poverty to wealth. Japan initially exported cheap goods and later moved on to more technologically sophisticated products. When Japan became rich, Korea, Taiwan Province of China, Hong Kong SAR, and Singapore replaced Japan as low-wage exporters, and when these countries moved on to more sophisticated products, Thailand and Malaysia filled their niche. More recently, China has become an important exporter of manufactured goods and India is increasingly moving into services exports. No mainland sub-Saharan African country has experienced this type of transformation. Even countries that have undergone major economic reforms seem far from takeoff. Forecasts for Africa, based on extrapolation of its historical experience, tend to be bleak. We consider whether it is possible to construct a model, consistent with the data, which supports a more optimistic view. Motivated by the Asian experience, the model assumes countries can potentially undergo rapid economic transformation only if they integrate into the world economy by producing nontraditional exports. For the purposes of constructing a long-run model of the world economy, we are agnostic on whether exports matter due to technological learning by doing spillovers, political economy considerations, or other factors. As each developing country transforms and becomes advanced, it further improves trade opportunities for the remaining developing countries. For example, if China becomes rich, a billion more people will live in countries that import toys and a billion fewer will live in countries that export them. Our approach is similar to that of Robert E. Lucas (2000) in that we assume growth prospects improve with the state of the world economy, potentially generating accelerating world growth. Unlike Lucas (2000), however, we allow for differential population growth between rich and poor countries. The steady-state proportion of the world population living in advanced countries depends on the rate at which developing countries transform into advanced ones, and on the magnitude of population growth differentials between these two groups of countries. The economic transformation process will overcome the demographic trend, leading to a prosperous steady state, only if the initial share of world population in advanced countries is above a threshold. A simple calibration using historical data suggests that the longrun prospects for lagging developing regions may hinge on a race between economic growth in China and India and population growth in the lagging regions, particularly Africa. If the former “wins,” we may eventually observe accelerating global growth. This suggests some caution should be used when interpreting empirical studies on growth determinants, as these results may not be stable over time. Country characteristics that lead to poor performances today may well allow for rapid growth in the future if, and when, the world economy reaches a sufficiently advanced stage. Our model also suggests a queuing effect, where the order in which countries are absorbed into the world economy is determined by the quality of their policies. Economic reforms in one country may potentially have a large impact on growth if they move the country to the front of the queue. But similar reforms in all countries may have a much smaller impact on world growth.