Knowledge that Transforms

Managed Care, Information, and Diffusion: The Case of Treatment for Heart-Attack Patients by Laurence C. Baker, Christopher C. Afendulis and Paul A. Heidenreich. Published in volume 94, issue 2, pages 347-351 of American Economic Review, May 2004

Are All the Good Men Married? Uncovering the Sources of the Marital Wage Premium by Kate Antonovics and Robert Town. Published in volume 94, issue 2, pages 317-321 of American Economic Review, May 2004

We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine investment levels and prices may make it impossible for buyers and sellers to predict the prices at which they will trade, leading to inefficient levels of investment and trade.

Institutions and Democratic Invention in 19th-Century America: Evidence from "Great Inventors," 1790-1930 by Zorina Khan and Kenneth L. Sokoloff. Published in volume 94, issue 2, pages 395-401 of American Economic Review, May 2004

We build a simple model to capture the major virtues and drawbacks of making public officials accountable (i.e., subjecting them to reelection): On the one hand, accountability allows the public to screen and discipline their officials; on the other, it may induce those officials to pander to public opinion and put too little weight on minority welfare. We study when decision-making powers should be allocated to the public directly (direct democracy), to accountable officials (called “politicians”), or to nonaccountable officials (called “judges”).

This paper examines how factor proportions determine the structure of commodity trade. It integrates a many-country version of a Heckscher-Ohlin model with a continuum of goods with Paul R. Krugman's (1980) model of monopolistic competition and transport costs. The commodity structure of production and bilateral trade is fully determined. Two main predictions emerge. Countries capture larger shares of world production and trade of commodities that more intensively use their abundant factors. Countries that rapidly accumulate a factor see their production and export structures systematically shift towards industries that intensively use that factor. Both predictions receive support from detailed trade data.

Two empirical regularities concerning the size distribution of cities have repeatedly been established: Zipf's law holds (the upper tail is Pareto), and city growth is proportionate. Census 2000 data are used covering the entire size distribution, not just the upper tail. The nontruncated distribution is shown to be lognormal, rather than Pareto. This provides a simple justification for the coexistence of proportionate growth and the resulting lognormal distribution. An equilibrium theory of local externalities that can explain the empirical size distribution of cities is proposed. The driving force is a random productivity process of local economies and the perfect mobility of workers.

Recent empirical evidence from the United States indicates a high degree of persistence in earnings across generations. Designing effective public policies to increase social mobility requires identifying and measuring the major sources of persistence and inequality in earnings. We provide a quantitative model of intergenerational human capital transmission that focuses on three sources: innate ability, early education, and college education. We find that approximately one-half of the intergenerational correlation in earnings is accounted for by parental investment in education, in particular early education. We show that these results have important implications for education policy.

We study race in the labor market by sending fictitious resumes to help-wanted ads in Boston and Chicago newspapers. To manipulate perceived race, resumes are randomly assigned African-American- or White-sounding names. White names receive 50 percent more callbacks for interviews. Callbacks are also more responsive to resume quality for White names than for African-American ones. The racial gap is uniform across occupation, industry, and employer size. We also find little evidence that employers are inferring social class from the names. Differential treatment by race still appears to still be prominent in the U.S. labor market.

On news of a takeover, the sum of the stock market values of the firms involved often falls, and the value of the acquirer almost always does. Does this mean that takeovers do not raise the values of the firms involved? Not necessarily. We set up a model in which the equilibrium number of takeovers is constrained efficient. Yet upon news of a takeover, a target's price rises, the bidder's price falls, and most of the time the joint value of the target and acquirer also falls.