Knowledge that Transforms

A central issue in school choice is the design of a student assignment mechanism. Education literature provides guidance for the design of such mechanisms but does not offer specific mechanisms. The flaws in the existing school choice plans result in appeals by unsatisfied parents. We formulate the school choice problem as a mechanism design problem and analyze some of the existing school choice plans including those in Boston, Columbus, Minneapolis, and Seattle. We show that these existing plans have serious shortcomings, and offer two alternative mechanisms each of which may provide a practical solution to some critical school choice issues.

We consider monetary-fiscal interactions when the monetary authority is more conservative than the fiscal. With both policies discretionary, (1) Nash equilibrium yields lower output and higher price than the ideal points of both authorities, (2) of the two leadership possibilities, fiscal leadership is generally better. With fiscal discretion, monetary commitment yields the same outcome as discretionary monetary leadership for all realizations of shocks. But fiscal commitment is not similarly negated by monetary discretion. Second-best outcomes require either joint commitment, or identical targets for the two authorities—output socially optimal and price level appropriately conservative—or complete separation of tasks.

Monetary and Nonmonetary Punishment in the Voluntary Contributions Mechanism by David Masclet, Charles Noussair, Steven Tucker and Marie-Claire Villeval. Published in volume 93, issue 1, pages 366-380 of American Economic Review, March 2003

Economic theory and evidence from a variety of debt markets shed light on current reform proposals concerning emerging market debt. Debt markets, including the U.S. municipal bond market, generally function best when the rights of creditors are protected most effectively.

Because of the Depression’s place in both the popular and academic imagination, and the repeated and justifiable emphasis on output that was not produced, income that was not earned, and expenditure that did not take place, it will seem startling to propose the following hypothesis: the years 1929–1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history.1 The hypothesis entails two primary claims: that during this period businesses and government contractors implemented or adopted on a more widespread basis a wide range of new technologies and practices, resulting in the highest rate of measured peacetime peak-to-peak multifactor productivity growth in the century, and secondly, that the Depression years produced advances that replenished and expanded the larder of unexploited or only partially exploited techniques, thus providing the basis for much of the labor and multifactor productivity improvement of the 1950’s and 1960’s.

This paper explores the effect of discretion in estate valuation techniques on the effective estate tax burden on different asset classes. For some assets, such as liquid securities, there is relatively little discretion in valuation. For other assets, such as partial interests in closely-held businesses, family limited partnerships, and real assets or collectibles that are traded in thin markets, estate valuations may be more difficult to establish. Estate tax filers may therefore be able to select valuations that reduce the reported value of the estate assets, and therefore the effective estate tax burden. In 1998, estates that invoked the doctrine of "minority discounts" in valuing non-controlling interests in limited partnerships claimed an average discount of 36 percent for these assets, relative to their estimated market value. More than half of all limited partnership assets reported on estate tax returns were valued using this doctrine. This suggests that for a given statutory estate tax rate, the effective estate tax burden may be greater on assets that are easily valued than on difficult-tovalue assets. A comparison of the mix of assets reported on estate tax returns, and the mix the estate tax returns would be predicted to hold, given data from the Survey of Consumer Finances, is consistent with lower relative valuations for difficult-to-value assets.

Mortgage overage pricing is little understood by consumers and has received little academic scrutiny. We consider the impact of the market power of individual loan officers on overages paid by borrowers, particularly minorities. We include numerous borrower and lender characteristics unavailable previously. We find that minorities who purchase homes pay larger overages than whites, but our evidence suggests that this traces to differences in the pools of borrowers rather than to racial discrimination. We conclude that a more effective way to eliminate racial differences in overages is to increase minorities’ ability to bargain rather than to enact additional anti-discrimination laws.

Reform of the mechanisms and procedures through which problems of sovereign debt sustainability are resolved is at the center of the effort to make the international financial system more resilient and less crisis prone. Governments that default on their debts must embark on lengthy and difficult negotiations. Lenders and borrowers, uncertain of one anothers willingness to compromise, may engage in costly wars of attrition, delaying agreement on restructuring terms. Even if disagreements about the debtors willingness and ability to pay are put to rest, dissenting creditors may continue to block agreement until they are bought out on favorable terms. In the interim, the creditors receive no interest, and the borrowing country loses access to international capital markets. The exchange rate may collapse, and banks with foreign-currency-denominated liabilities may suffer runs. To avert or delay this costly and disruptive crisis, the International Monetary Fund will come under intense pressure to intervene, provoking all the controversy that IMF intervention typically entails. Officials of the borrowing country, for their part, will go to great lengths to avoid seeing the country placed in this difficult situation. They may raise interest rates, run down their reserves, and put their economy through a deflationary wringer, all at considerable cost to society. These costs could be reduced, the implication follows, if countries with unsustainable

This paper studies kinship band networks as capital market institutions. Membership in a community where individuals are dynastically linked has two effects on informal credit. First, the nonanonymity of the dynastic link allows to sanction the defaulters’ offspring and induce compliance even in short-term interactions (social enforcement). Second, preferential agreements can arise in which kin members condition their behavior on the characteristics of a player’s predecessor, expecting others to do the same with their offspring (reciprocity). These effects are incorporated in an OLG game with endogenous matching between lenders and borrowers and tested using household-level data from Ghana.

This paper develops an extremely simple formulation of the Laffont-Tirole principal agent model of cost-based procurement and regulation which is suitable for applied uses by restricting the principal to using a two item menu where one item is a cost-reimbursement contract and the other item is a fixed price contract.Menus of this form are called fixed-price-cost-reimbursement (FPCR) menus.In the case where the agent's utility is quadratic and the agent's type is distributed uniformly, it is shown that the optimal FPCR menu always captures at least three quarters of the gain that the optimal complex menu achieves.Therefore, at least for the uniform quadratic case, extremely simple menus with low informational requirements perform nearly as well as the fully optimal complex menu.