Knowledge that Transforms

Individual versus Parental Consent in Marriage: Implications for Intra-Household Resource Allocation and Growth by Lena Edlund and Nils-Petter Lagerlöf. Published in volume 96, issue 2, pages 304-307 of American Economic Review, May 2006

This paper reports results for a class of dynamic, stochastic general equilibrium models with credit constraints that can account for some of the empirical regularities of the Sudden Stop phenomenon of recent emerging markets crises. In these models, credit constraints set in motion Irving Fisher's debt-deflation mechanism and they bind as an endogenous equilibrium outcome when agents are highly indebted. The quantitative predictions of these models yield three key lessons: (1) Sudden Stops can occur as an endogenous response to typical realizations of adverse shocks to fundamentals, in environments in which agents plan their actions taking credit constraints and expectations of Sudden Stops into account. (2) Credit constraints cause output declines during Sudden Stops when collateral constraints limit debt to a fraction of the market value of capital, when there are limits on access to working capital, or when debt-deflation lowers the value of the marginal product of factors of production. (3) The debt-deflation mechanism has significant quantitative effects in terms of the amplification, asymmetry and persistence of the responses of macroeconomic aggregates to standard shocks, and in the occurrence of Sudden Stops as infrequent events nested within regular business cycles. Precautionary saving rules out the largest Sudden Stops from the stochastic stationary state, but Sudden Stops remain a positive-probability event in the long run.

This paper shows that a large fraction of the 1973–2003 growth in residual wage inequality is due to composition effects linked to the secular increase in experience and education, two factors associated with higher within-group wage dispersion. The level and growth in residual wage inequality are also overstated in the March Current Population Survey (CPS) because, unlike the May or Outgoing Rotation Group (ORG) CPS, it does not measure directly the hourly wages of workers paid by the hour. The magnitude and timing of the growth in residual wage inequality provide little evidence of a pervasive increase in the demand for skill due to skill-biased technological change.

Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments: Reply by Dirk Engelmann and Martin Strobel. Published in volume 96, issue 5, pages 1918-1923 of American Economic Review, December 2006

Social Value of Public Information: Comment: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con by Lars E. O. Svensson. Published in volume 96, issue 1, pages 448-452 of American Economic Review, March 2006

Research spanning three decades supports what many experienced instructors of economics have long concluded – math matters. Students with greater mathematics preparation attain higher test scores in introductory economics (Cox, 1974; Reid,1983; Lumsden and Scott, 1987; Anderson, Benjamin and Fuss, 1994; Ballard and Johnson, 2004). While all levels of competency seem to explain performance, Charles Ballard and Marianne Johnson (2004) find “mastery of extremely basic quantitative skills is among the most important factors for success in introductory microeconomics. ” Furthermore, research shows that mathematical competency reduces anxiety in economics classes (Benedict and Hoag, 2002). To the extent that anxiety may interfere with the cognitive process, an effective mechanism to correct for these deficiencies is desirable. The research supports that there may be simple methods economics instructors can use to improve students ’ learning. Common techniques include assigning a math chapter in the text, completing a math unit at the university skills center, or completing a computer unit that reviews and tests basic math skills. These alternatives, however, require effort from all students, including those possessing good math skills. Consequently, many instructors make these math assignments optional, while particularly encouraging those with weaker math skills to complete them. But this procedure is also problematic, as students most in need of the math review are often least likely to put forth effort when there is no tangible reward. An alternative strategy is to give students a grade incentive to complete a math skills program. In this paper we report on the results of a controlled experiment with random assignment which tests whether giving a grade incentive to complete a math 1 skills unit results in higher overall achievement in introductory economics. We find that students provided with the incentive get higher exam scores. The achievement gain is most noticeable for students lower in the grade distribution. Students with the weakest backgrounds and therefore with the greater marginal gains from completing the math unit are more likely to derive the benefits from that effort. I. Experimental Design

Social Value of Public Information: Morris and Shin (2002) Is Actually Pro-Transparency, Not Con: Reply by Stephen Morris, Hyun Song Shin and Hui Tong. Published in volume 96, issue 1, pages 453-455 of American Economic Review, March 2006