Knowledge that Transforms

In this paper we follow previous research by using experimental data to assess the two nonexperimental evaluation approaches. Our data are from a series of social experiments conducted in several states during the 1980s to evaluate programs aimed at helping welfare recipients find jobs. We simulate the two nonexperimental approaches by creating comparison groups from the true control groups and by comparing the resultant nonexperimental estimates of program effects with experimentally derived estimates of program effects. Although experimental data are required to provide an assessment of the nonexperimental approaches they are not required to create the comparison groups in practice. Thus our results have direct implications for choosing a nonexperimental evaluation strategy when an experiment is not feasible. The remainder of this paper is organized as follows. Section I describes the social experiments and the various comparison groups created for the analysis. Section II discusses the methods used to generate and assess the nonexperimental estimates. Section III presents the empirical results and Section IV offers some conclusions. (excerpt)

A widely held view suggests that politically independent central banks bring about relatively low and stable inflation rates.' A more debated question is whether one has to pay for this good outcome with more real instability. In his seminal contribution, Kenneth Rogoff (1985) suggests that an independent and inflation-averse central bank reduces average inflation but, as a result, increases output variability; the conservative central banker reduces the inflation bias, due to the time-inconsistency problem, but stabilizes less. However, Alesina and Summers (1993) do not find that, at least within the OECD countries, more independent central banks are associated with more variability of growth or unemployment. Thus, they conclude that independent central banks bring about low inflation at no apparent real costs. The point of this paper is to provide theoretical underpinnings to this finding, which is in contrast to Rogoff (1985).2 The basic idea is that one can isolate two sources of output variability. One is the economic variability induced by standard exogenous shocks that monetary policy is supposed to stabilize, for instance, money demand shocks or supply shocks. The second source of variability is or, more generally, policy-induced. This is the variability introduced in the system by the uncertainty about the future course of policy. For instance, Alesina (1987) studies the effect of uncertain electoral outcomes in a model where the two contending parties have different preferences over inflation and unemployment. An inflation-averse, independent central banker does not stabilize as much the economic variability, in order to keep inflation low and stable. This is Rogoff's point. However, by insulating monetary policy from political pressures, an independent central bank can reduce the variability. The overall effect of independence on output variability is, thus, ambiguous. This result is consistent, at least prima facie, with the evidence in Alesina and Summers (1993) on the lack of correlation between centralbank independence and output variability. In fact, it is possible that when the politically induced output variability is predominant, a more independent central bank reduces average inflation and the variance of output.

The 0. J. Simpson affair is only the latest in a series of events that have focused attention on domestic violence. Using data collected by Murray Strauss and his colleagues, Lawrence Sherman (1992) estimates that each year there are 18 million incidents of domestic violence fitting the criminal-justice classification of an assault and that police officers handle at least two million cases of violence involving a spouse or lover. Domestic-violence assault is more common than all other forms of violence combined. Recognizing that domestic violence is a social as well as a private issue, a number of police departments have participated in experiments designed to learn how they can best handle domestic-violence calls. In this paper, we use data from the experiment in Minneapolis to determine how police treatments in cases of domestic violence affect the couple's subsequent violence. We also examine how socioeconomic factors such as age and employment are related to domestic violence. These factors are considered in part because they may affect the police actions. Our model is a stochastic dynamic model that allows the effects of the police actions to vary over time. In brief, we find that arrest is more effective than advising or short-term separation but that the differential effect is transitory.

In recent years, public attitudes toward single mothers have changed dramatically, and policymakers are being pressed to devise reforms that will reduce their welfare dependency. In the summer of 1994, at least 11 separate welfare reform proposals were being debated by Congressional committees. Because child care is relatively expensive compared to potential earnings for single mothers, extensions to current child-care assistance programs will be an integral component of any welfare reform package. Very little evidence exists regarding child-care utilization patterns and links to employment for low-income mothers. Exceptions include Mark Berger and Dan Black (1992) and the recent Congressional testimony given by Jane Ross (1994) of the GAO. Contributing to the changing attitudes toward welfare recipients is the change in the demographic makeup of the labor force. Overall female labor-force participation rates have grown dramatically in the past 30 years, from 45 percent in the mid-1960's to 75 percent in the early 1990's. As a result, subsidizing poor single mothers so that they can stay at home with their children while more and more married mothers are working for pay has become less popular. This has led to the encouragement of work, particularly full-time work, as a means of poverty reduction for single mothers.! Unfortunately, child care costs represent a significant employment barrier. On average, child care costs $63 per week overall, and $44 per week for care by a relative. For the typical single mother, child-care costs range between 15 percent and 30 percent of earned income, depending on the mode of care and hourly wage.2

During business-cycle expansions, wages appear to rise relative to output prices.1 This fact is easy to square with real-business-cycle models which are based on the assumption that labor is more productive during expansions. But it is inconsistent with standard business-cycle theories based on aggregate demand fluctuations. In these models, fixed technology and diminishing returns imply that labor becomes less productive as output rises. Thus, in an expansion, wages should fall relative to output prices. Julio Rotemberg and Michael Woodford (1991, 1992) argue that imperfect competition can help to reconcile aggregatedemand theories of business cycles with observed procyclical real wages. If firms compete more aggressively during expansions, reducing the markup of price over marginal cost, the real wage can be driven up even if labor's marginal product falls. Countercyclical markups can therefore induce procyclical real wages. The difficult issue is understanding why markups would be countercyclical. Rotemberg and Garth Saloner (1986) and Rotemberg and Woodford (1991, 1992)hereafter referred to as RSW-claim that markups are countercyclical because it is harder for oligopolistic firms to sustain collusive prices during booms. When current demand is high relative to future demand, the incentive for any firm to cut its price rises because it becomes more valuable to capture current sales than to maintain collusion in the future. RSW present evidence that markups are indeed more countercyclical in more concentrated industries (where collusion can be more easily sustained). While this finding is consistent with countercyclical collusion, it is also consistent with any other theory in which imperfect competition induces firms to compete more aggressively during booms. In this paper, we analyze an alternative theory of countercyclical markups based on imperfect competition and capital-market imperfections. This theory has been suggested by Bruce Greenwald et al. (1984), Nils Gottfries (1991), and Paul Klemperer (1993). We present some preliminary evidence in an effort to distinguish this explanation from countercyclical collusion.