This paper reviews the economic literature on welfare reform over the 1990s. A brief summary of the policy changes is followed by a discussion of the methodological techniques that analyze the effects of these changes on outcomes. The paper then critically reviews the econometric and experimental literature on caseload changes, labor force changes, poverty and income changes, and family formation changes. A growing body of evidence suggests that recent policy changes have influenced economic behavior and well-being. One particular set of "new-style" welfare programs seems to show especially promising results, with significantly increased work and earnings and reduced poverty.

Firms that go public produce information that influences the production decisions of their rivals as well as their own production decisions. If information-production costs are borne primarily by pioneering firms, market failures can occur in which both pioneers and followers remain private and make ill-informed investment decisions. Solving this coordination problem requires a transfer between pioneers and followers that leads to a more equitable distribution of information-production costs. We contend that investment banks can enforce such a transfer by effectively bundling IPOs within an industry. This suggests an explanation for clustering of IPOs through time and within industries. Journal of Economic Literature Classification Numbers: G24, G28, K32.

Public opinion surveys uniformly show low support for medical-care systems in developed countries. The longstanding conflict between equal access to care and efficient service provision partly explains this dissatisfaction. But the trade-off is particularly acute in medical care, as new technologies developed over time have increased the cost of care and made the equity commitment even more expensive. Countries first dealt with rising costs by maintaining equal access and restricting total spending. Efficiency suffered, however. As a result, many countries are considering a move away from spending controls and toward incentive-based medical-care reform.

How should the tax rate and the level of public debt adjust to an adverse fiscal shock? What is the optimal maturity structure of public debt? If the maturity structure is carefully chosen, the ex post variation in the market value of public debt can cover the government against the need to raise taxes or debt if fiscal conditions should turn bad. In general, almost every Arrow-Debreu allocation can be implemented with noncontingent debt of different maturities. In a stylized example, the optimal policy is implemented by selling a perpetuity and investing in a short-term asset.

We examine how the intrinsic differences between U.S. and non-U.S. stocks affect market participants and the market quality of non-U.S. stocks relative to U.S. stocks. Using proprietary data on NYSE specialist trading, we find that, all else equal, specialist closing inventory positions for non-U.S. stocks are closer to zero than U.S. stocks. The evidence on specialist participation and stabilization rates is mixed. Non-U.S. stocks from developed markets have higher specialist participation and stabilization rates than U.S. stocks, while emerging market stocks have lower participation and stabilization rates than U.S. stocks. With respect to market quality, we find that, all else equal, non-U.S. stocks have wider spreads, less depth, and greater transitory volatility than U.S. stocks. We investigate the reasons behind the difference in liquidity and find that the larger non-U.S. spreads are primarily due to higher information asymmetry and increased adverse selection risk. We conclude that liquidity providers demand greater compensation for trading non-U.S. stocks, but this additional compensation is necessary to offset the higher adverse selection risk.

Important estimation problems in econometrics like estimating the value of a spectral density at frequency zero, which appears in the econometrics literature in the guises of heteroskedasticity and autocorrelation consistent variance estimation and long run variance estimation, are shown to be “ill-posed” estimation problems. A prototypical result obtained in the paper is that the minimax risk for estimating the value of the spectral density at frequency zero is infinite regardless of sample size, and that confidence sets are close to being uninformative. In this result the maximum risk is over commonly used specifications for the set of feasible data generating processes. The consequences for inference on unit roots and cointegration are discussed. Similar results for persistence estimation and estimation of the long memory parameter are given. All these results are obtained as special cases of a more general theory developed for abstract estimation problems, which readily also allows for the treatment of other ill-posed estimation problems such as, e.g., nonparametric regression or density estimation.

The present paper demonstrates the ambiguous impact of subordinated debt on the risk-taking incentives of banks. It is shown that in comparison with full deposit insurance, subordinated debt reduces risk only if banks can credibly commit to a given level of risk. If, however, banks are not able to commit, subordinated debt leads to an increase in risk. This is because due to limited liability banks always have an incentive to increase their risk after the interest rate is contracted in order to reduce the expected costs of debt. Rational debt holders anticipate this behavior and accordingly require a higher risk premium ex ante. The higher interest rates in turn further aggravate the excessive risk-taking incentives of banks.