Knowledge that Transforms

This paper identifies a new factor, the age of the housing stock, that affects where high- and low-income neighborhoods are located in U.S. cities. High-income households, driven by a high demand for housing services, tend to locate in areas of the city where the housing stock is relatively young. Because cities develop and redevelop from the center outward over time, the location of these neighborhoods varies over the city's history. The model predicts a suburban location for the rich in an initial period, when young dwellings are found only in the suburbs, while predicting eventual gentrification once central redevelopment creates a young downtown housing stock. Controlling for other determinants of where the poor live (e.g., proximity to amenities and public transit), empirical work indicates that if the influence of spatial variation in dwelling ages were eliminated, central-city/suburban disparities in neighborhood economic status would be reduced by up to 10 percentage points. Model estimates further predict that between 2000 and 2020, central-city/suburban differences in economic status will narrow in cities of all sizes, and especially in the larger metropolitan areas as American cities become more gentrified.

This paper examines the mechanisms through which output volatility is related to trade openness using an industry-level panel data set of manufacturing production and trade. The main results are threefold. First, sectors more open to international trade are more volatile. Second, trade is accompanied by increased specialization. These two forces imply increased aggregate volatility. Third, sectors that are more open to trade are less correlated with the rest of the economy, an effect that acts to reduce overall volatility. The point estimates indicate that each of the three effects has an appreciable impact on aggregate volatility. Added together they imply that the relationship between trade openness and overall volatility is positive and economically significant.

Previous studies of recent U.S. trends in intergenerational income mobility have produced widely varying results, partly because of large sampling errors. By making more efficient use of the available information in the Panel Study of Income Dynamics, we generate more reliable estimates of the recent time series variation in intergenerational mobility. Our results, which pertain to the cohorts born between 1952 and 1975, do not reveal major changes in intergenerational mobility.

We estimate the effect of extreme weather on life expectancy in the United States. Using high-frequency data, we find that both extreme heat and cold result in immediate increases in mortality. The increase in mortality following extreme heat appears mostly driven by near-term displacement, while the increase in mortality following extreme cold is long lasting. We estimate that the number of annual deaths attributable to cold temperature is 0.8% of average annual deaths in our sample. The longevity gains associated with mobility from the Northeast to the Southwest account for 4% to 7% of the total gains in life expectancy experienced by the U.S. population over the past thirty years.

This paper examines the effect of attending the flagship state university on the earnings of 28 to 33 year olds by combining confidential admissions records from a large state university with earnings data collected through the state's unemployment insurance program. To distinguish the effect of attending the flagship state university from the effects of confounding factors correlated with the university's admission decision or the applicant's enrollment decision, I exploit a large discontinuity in the probability of enrollment at the admission cutoff. The results indicate that attending the most selective state university causes earnings to be approximately 20% higher for white men.

Our goal is to show that contrary to the claims made in several recent papers, the effect of a large endowment of oil and other mineral resources on long-term economic growth of countries has been on balance positive. Moreover, the claims of a negative effect of oil and mineral wealth on the countries' institutions are called into question.

We estimate international technology spillovers to U.S. manufacturing firms via imports and foreign direct investment (FDI) between 1987 and 1996. In contrast to earlier work, our results suggest that FDI leads to substantial productivity gains for domestic firms. The size of FDI spillovers is economically important, accounting for about 14% of productivity growth in U.S. firms between 1987 and 1996. FDI spillovers are particularly strong in high-tech sectors, whereas they are largely absent in low-tech sectors. Small firms with low productivity benefit more from FDI spillovers than larger productivity firms with more productivity do. The evidence for import spillovers is much weaker.

Do corporate tax avoidance activities advance shareholder interests? This paper tests alternative theories of corporate tax avoidance using unexplained differences between income reported to capital markets and to tax authorities. OLS estimates indicate that the effect of tax avoidance on firm value is a function of firm governance, as predicted by an agency perspective on corporate tax avoidance. Instrumental variables estimates based on exogenous changes in tax regulations yield larger overall effects and reinforce the basic result, as do several robustness checks. The results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder-manager relations.

We are very sorry to report that Jane Martin, the Review's administrator for many years, passed away on 26 September 2009. As a tribute to her, we reproduce here a short extract from a reading at her funeral service: Since 1997, Jane was the administrator and production editor for the The Review of Economic Studies. In that post she blossomed, and with her literary and technical skills, her goodwill, quick wit, helpfulness and sense of humour became the hub for the ever-changing cast of editors, referees and authors. I knew Jane more or less from when she joined the journal, first as one of her editors and more recently as Chairman of the journal. Although physically frail, Jane had a strong and unflappable personality. She must have corresponded with an astonishing number of people over the years, many of whom had large egos and—if they had received a rejection letter from the editors, say—were not necessarily on their best behaviour. Jane invariably calmed the stormy waters. The fact that the journal has such a loyal community of board members, authors and referees is due in very large part to her sure touch at the helm. I never did hear a critical word about Jane from anyone.

We examine competitive nonlinear pricing in a model in which consumers have heterogeneous and elastic demands and can buy from more than one supplier.It is an equilibrium for firms to offer a menu of efficient two-part tariffs.Compared with linear pricing, nonlinear pricing tends to raise profit but harm consumers when: (i) demand is elastic, (ii) there is substantial heterogeneity in consumer demand, (iii) consumers face substantial shopping costs when buying from more than one firm, and (iv) a consumer's brand preference for one product is correlated with her brand preference for another product.Nonlinear pricing is more likely to lead to welfare gains when (iii) and (iv) hold, but (ii) does not.