Knowledge that Transforms

This paper investigates interstate variation in income inequality. By avoiding inequality indices and focusing directly on the Lorenz curve, the authors provide a more general explanation of the differences in inequality. They find that mean family income, the standard deviation of years of schooling, per capita educational expenditure, and property income are robust predictors of inequality. Of particular interest is their finding that, ceteris paribus, higher per capita education expenditures tend to be associated with states that have income inequality which is greater than the U.S. average.

In the absence of futures markets, cobweb cycles and other behavior inconsistent with Muth rational expectations persist for long periods of time. When futures markets are introduced in commodities, these markets behave in a manner much more consistent with Muth rational expectations. By contrast, despite the existence of active forward and futures markets, the Muth rational expectations hypothesis is rejected in the financial and foreign exchange markets. The aim of this paper is to suggest an explanation of how futures markets change the structure of the supply response.

Sharon G. Levin, Stanford L. Levin, John B. Meisel, Market Structure, Uncertainty, and Intrafirm Diffusion: The Case of Optical Scanners in Grocery Stores, The Review of Economics and Statistics, Vol. 74, No. 2 (May, 1992), pp. 345-350

If labor supply curves are not perfectly inelastic, wage discrimination induces some minority workers to leave the labor force. Studies of discrimination that focus only on wage differentials overlook these disincentive effects on minority employment. This article introduces a method of estimating the employment effects of wage discrimination and applies it to data on men and women from the 1984 Survey of Income and Program Participation. The authors find that wage discrimination against women caused a net loss of over four million jobs, supporting Gary Becker's contention that discriminatory employers use labor inefficiently.

The opportunity cost of holding international reserves plays a central role in all models of optimal demand for foreign exchange. This cost is conventionally defined as the difference between the yield on reserves and the marginal productivity forgone from an alternative investment in fixed capital. Most empirical studies have failed to find a significant opportunity-cost effect, since none of them measure it in accordance with its theoretical definition. The results for Israel show that, when this cost is measured properly, it turns out to be a crucial determinant of reserve demand.

This paper presents an alternative approach to measuring the impact of affirmative action on firms. Affirmative action is modeled as a series of hiring quotas. If the quotas are binding, then a firm subject to affirmative action will operate with greater costs of production, have less elastic demand for inputs, and be less able to substitute between most inputs. The results are consistent with the hypothesis that affirmative-action regulations significantly constrain firms' behavior. Own-wage elasticities are less elastic and most inputs are less substitutable for constrained firms. Further, affirmative action raises costs by 6.5 percent for firms subject to the program.

This paper investigates the relation between substitution possibilities in manufacturing production between capital and two labor inputs, blue collar and white collar workers. Griliches found in 1969 that unskilled.labor was more easily substituted for by capital than skilled labor. Griliches called this capital-skill complementarity. The capital-skill complementarity hypothesis has implications for the aggregation of labor inputs as well as for employment of labor categories and income distribution between factors. This paper investigates the robustness of the capital-skill complementarity hypothesis on Swedish data by varying model assumptions concerning economies of scale and technological growth.

Elasticities for beer, wine and spirits are estimated for each of the provinces of Canada over the period 1956-83, using unrestricted dynamic regressions modeled after the error-correction mechanism. Alternative long-run estimates are also obtained from cointegrating regressions. Estimates vary markedly across provinces and suggest that increases in price will reduce consumption of all beverages in the short run, but in the long run no evidence is found that spirits use is price-sensitive. Increases in the legal drinking age reduce consumption in the short run but there is little indication of a long-run effect. The estimated income elasticity of beer is small while the estimated income elasticities for spirits and wine are substantially larger, especially in the long run. Coauthors are Ernest H. Oksanen, Michael R. Veall, and Deborah Fretz.

The authors estimate the effects of market structure on hospital costs using a translog multiproduct cost function. Recognizing the multiplicity of services provided by hospitals, the results show that costs are substantially determined by service configuration, and that there are distinct economies of size and sco pe. The model also distinguishes market concentration measures by servic e type, including obstetrics, radiation therapy, diagnostic imaging, a nd surgery. Estimates show that, after controlling for the other determinants of cost, the degree of competition has only modest cost-increasing effects.

This paper examines whether experienced players in Major League Baseball are paid more than their contribution to team revenue. The author shows that wages increase with experience independently of productivity gains. The results, therefore, contradict the human capital model of investment. The evidence is in fact consistent with implicit contract models because most older players are relatively overpaid.