Selective versus Universal Vouchers: Modelling Median Voter Preferences in Education by Zhiqi Chen and Edwin G. West. Published in volume 90, issue 5, pages 1520-1534 of American Economic Review, December 2000
The discussion about new international financial architecture in the last several years is the most extensive debate about international monetary reform since the 1960's. The motivation for the current debate has been the sharp declines in GDP that resulted from the recent financial crises in Mexico, Thailand, Indonesia, and South Korea. The 1990's debate about international monetary reform differs from the earlier debate in two important ways-one is certainly important and the other may be important. In the 1960's there was a clear identification of the problem that had to be resolved; a mechanism was needed that would enable Germany, Japan, and numerous other countries to satisfy their demand for international reserve assets without inducing a persistent U.S. payments deficit. The problem involved the consistency between the demand and supply of reserves at a global level. In contrast, currently there is no agreement on the problem that must be resolved, as is strikingly evident from the diversity of proposals to reform the architecture. One view is that capital flows are too volatile, another is that bank regulation in many countries is inadequate (transparency and accountability are the buzzwords), and a third is that exchange rates have been pegged when they should have been allowed to float. A fourth is that there is need for an international lender of last resort. The debate in the 1960's originated with individuals in the universities; for several years those in the financial establishment were reluctant to accept the definition of the problem. They slighted the connection between the increase in demand for international reserve assets in Germany, Italy, Japan, and a number of other countries and the U.S. payments balance. In contrast, in the 1990's the discussion of reform initially involved individuals in official institutions. The uniqueness of the recent events was the combination of the sharp sudden depreciation of national currencies and the large loan losses incurred by the domestic banks that appear to have been in the range of 15-20 percent of GDP in the affected countries. The extent of currency overshooting was more extensive than in any previous episode. The debate about whether the Asian Financial Crisis is primarily a domestic banking and real-estate crisis or instead primarily a foreignexchange crisis partly stimulated by the rapid move to financial liberalization still has not been resolved. At the onset of the crisis in each of the several countries, there was a severe liquidity squeeze; asset prices declined sharply. Asset prices increased as this squeeze abated, but these prices have renmained much below their levels prior to the crisis; the implication is that these assets were substantially overvalued prior to the crisis. Much of the discussion has involved the fit or consistency among unrest-rained cross-border capital movements, the exchange-rate arrangement (and particularly whether currencies are pegged or free to float), and the central-bank monetary policies. One theme is that currencies cannot be pegged if capital flows are not constrained; the interpretation is that floating exchange rates would be preferable to pegged rates. The dominant view is that the severity of the Asian crisis reflects the fact that the central banks were reluctant to permit their currencies to depreciate when the capital inflow declined. The three papers in this session represent a tripartite approach toward restructuring institutional arrangements: one part is the role of the exchange rates, a second part is the role of international financial institutions, and the third is the role of central banks. These three institutional components can be arranged in a hierarchy, and the key is the role of central banks and their choice of monetary policies, which in turn has implications for the preferred choice of the exchange-rate regime. The central question is * Graduate School of Business, University of Chicago, 1101 E. 58th Street, Chicago, IL 60637.
A half-century ago, Joseph Schumpeter (1950 Chapters 5–8) presented a vision of modern capitalism in which monopolies are common but frequently swept aside by a “perennial gale of creative destruction” (p. 84). This gale is driven not by price competition, but by “competition from the new commodity, the new technology ... competition which strikes not at the margins of the profits of the existing firms but at their foundations and their very lives” (p. 84). I focus here on the personal-computer (PC) software (hereafter simply “software”) industry, which resembles this vision. I discuss some important issues this industry poses for antitrust policy and, in the final section, illustrate with examples from the Microsoft case.
Eight Reasons Why Real versus Nominal Interest Rates Is the Most Important Concept in Macroeconomics Principles Courses by Peter E. Kennedy. Published in volume 90, issue 2, pages 81-84 of American Economic Review, May 2000
According to the IMF, in the mid-1970’s approximately 85 percent of developing countries had pegged exchange-rate arrangements. Since then, the situation has changed drastically; today most developing countries have either managed floats or flexible exchange rates. Argentina, Hong-Kong, and a few others may persevere with their currency boards; additional nations may well imitate them. And movements toward common currencies, a la the European Union, may gain strength here and there. Nonetheless, it seems clear that the political and financial prerequisites to adopt such hard pegs are extremely stringent. New attempts are the exception, not the rule. The question for most emerging market economies is no longer “To float or not to float?” but “How to float?” In this note we review some key issues in defining the right answer to this question.
The ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature. The courts ’ concern with such exclusionary contracts has been challenged by those who argue that an incumbent, faced with buyers whose interest is to promote entry and competition, would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion. In a provocative article, Eric B. Rasmusen et al. (1991) (henceforth, RRW) have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions
Productivity Levels and International Competitiveness between Canadian and U.S. Industries by Frank C. Lee and Jianmin Tang. Published in volume 90, issue 2, pages 176-179 of American Economic Review, May 2000
The large literature that analyzes the impact of immigration on the United States typically focuses on measuring the labor market and fiscal consequences. This literature, however, has ignored the impact of immigration on other sectors of society. One sector that is of great interest is the American university, where the share of nonresident aliens in the graduate student population rose from 5.5 percent in 1976 to 10.5 percent in 1996. Despite the rapid growth in the number of foreign students, little is known about their impact on the educational process. Nevertheless, undergraduates frequently complain that the lack of English language proficiency among many foreign-born Teaching Assistants affects adversely their understanding of the material. This paper addresses the question that is at the heart of these complaints: Do foreign-born teaching assistants have an adverse impact on the scholastic achievement of American undergraduates? To provide empirical evidence on this issue, I use data drawn from a survey of undergraduates enrolled in economics principles classes at a large public university. The data suggest that foreign-born Teaching Assistants have an adverse impact on the class performance of undergraduate students.
This paper investigates the Bayesian decision-theoretic foundations of the Wall Street adage that `timing is everything'. One might think that a `small' risk-neutral trader wishes to act immediately upon any private information he possesses. I begin with a counterintuitive nding that trade timing doesn't matter for an Arrow security, as one's expected return per dollar invested is a martingale. This timing irrelevance discovery motivates an analysis of general compound securities. While timing there is ambiguous, I nd that natural monotone likelihood ratio assumptions on both private and public information restore the intuition that one should trade with all due dispatch.(This abstract was borrowed from another version of this item.)