Knowledge that Transforms

Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts: Comment by Roel M. W. J. Beetsma and Henrik Jensen. Published in volume 89, issue 1, pages 342-347 of American Economic Review, March 1999

I estimate a decomposition of productivity and hours into technology and non-technology components. Two results stand out: (a) the estimated conditional correlations of hours and productivity are negative for technology shocks, positive for nontechnology shocks; (b) hours show a persistent decline in response to a positive technology shock. Most of the results hold for a variety of model specifications, and for the majority of G7 countries. The picture that emerges is hard to reconcile with a conventional real-business-cycle interpretation of business cycles, but is shown to be consistent with a simple model with monopolistic competition and sticky prices.

A child's welfare is affected not only by the wealth of her parents, but also by the quality of care her parents provide. Physical abuse, neglect, and other forms of child maltreatment impose severe hardships on children and may adversely affect them as adults (Cathy Widom, 1989). We examine whether child maltreatment is affected by the socioeconomic circumstances of parents. Our hypothesis is that children are more likely to be maltreated if their parents have fewer resources. We use a broad conception of "resources." It encompasses not only income, but also parental time and the quality of parental time. For example, a low-income working single mother may be short on resources needed to parent not only because she earns a low income, but also because she may not have the physical or emotional reserves to care for her children properly at the end of the day. Likewise, an unemployed father may provide less than adequate parenting not only because his income has been reduced, but also because of the depression and loss of self-esteem that may accompany unemployment (Arthur Goldsniith et al., 1996). We use state-level panel data to analyze the impact that socioeconomic circumstances (in particular, parental work status and single parenthood) have on the incidence of child maltreatment. We find that socioeconomic circumstances do matter. States with higher fractions of children with absent fathers, and especially absent fathers and working mothers, have higher rates of child maltreatment. Nonworking fathers are also associated with higher rates of maltreatment.

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Recent developments in computer networks have driven the cost of distributing information virtually to zero, creating extraordinary opportunities for sharing product evaluations. We present pricing and subsidy mechanisms that operate through a computerized market and induce the efficient provision of evaluations. The mechanisms overcome three major challenges: first, evaluations, which are public goods, are likely to be underprovided; second, an inefficient ordering of evaluators may arise; third, the optimal quantity of evaluations depends on what is learned from the initial evaluations.

This paper considers conceptual and practical issues that arise in measuring labor's share of national income. Most importantly: How are workers defined? How is compensation defined? The current definition of labor compensation used the Bureau of Economic Analysis (BEA) includes the salary of business owners and payments to retired workers in labor compensation. An alternative series to the BEA's standard series is presented. In addition, a simple method for decomposing labor compensation into a component due to raw labor' and a component due to human capital is presented. Raw labor's share of national income is estimated using Census and CPS data. The share of national income attributable to raw labor increased from 9.6 percent to 13 percent between 1939 and 1959, remained at 12-13 percent between 1959 and 1979, and fell to 5 percent by 1996.

We propose a unified theoretical framework within which to interpret and evaluate the foundational principles of GATT. Working within a general equilibrium trade model, we represent government preferences in a way that is consistent with national income maximization but also allows for the possibility of distributional concerns as emphasized in leading political-economy models. Using this general framework, we establish that GATT's principles of reciprocity and non-discrimination can be viewed as simple rules that assist governments in their effort to implement efficient trade agreements. From this perspective, we argue that preferential agreements undermine GATT's ability to deliver efficient multilateral outcomes.

This paper documents a strong and prevalent momentum effect in industry components of stock returns which accounts for much of the individual stock momentum anomaly. Specifically, momentum investment strategies, which buy past winning stocks and sell past losing stocks, are significantly less profitable once we control for industry momentum. By contrast, industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, appear highly profitable, even after controlling for size, book‐to‐market equity, individual stock momentum, the cross‐sectional dispersion in mean returns, and potential microstructure influences.

Cash‐rich firms are more likely than other firms to attempt acquisitions. Stock return evidence shows that acquisitions by cash‐rich firms are value decreasing. Cash‐rich bidders destroy seven cents in value for every excess dollar of cash reserves held. Cash‐rich firms are more likely to make diversifying acquisitions and their targets are less likely to attract other bidders. Consistent with the stock return evidence, mergers in which the bidder is cash‐rich are followed by abnormal declines in operating performance. Overall, the evidence supports the agency costs of free cash flow explanation for acquisitions by cash‐rich firms.

We use data on ownership structures of large corporations in 27 wealthy economies to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to Berle and Means's image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management.