Knowledge that Transforms

This paper investigates the spending and current-account effects of terms-of-trade shifts in a model where households maximize utility over an infinite planning period. In the framework developed here, an economy specialized in production must experience a fall in aggregate spending and a current surplus as a result of an unanticipated, permanent worsening in its terms of trade. The paper's model thus provides a setting in which the current-account deficit predicted by Laursen and Metzier, Harberger, and others fails to materialize.

The notion that the cost of increasing family size depends upon the level of expenditures or investment per child (child quality), formalized in Becker and Lewis (1973) and Willis (1973), provides a rationale for the contemporaneous inter-country negative correlation between the schooling attainment of young persons and birth rates as well as the trends in these variables over time in developed countries during their demographic transition.A sufficient condition for fertility to fall and, say, schooling to rise as development proceeds in this framework is that the shadow-price constant income effect on quality per child 1 exceed that on numbers of children.Such an explanation, however, would appear :..o be of little value for those who hold that population growth itself impedes economic development (e.g., Coale and Hoover (1958)).From this perspective, the compensated substitution.implications of the theory are of concern, whereby price interventions which impinge on family size decisions can be used to accelerate pe~-capita income.The chief focus of policies aimed at reducing fertility in the absence of income growth appears to be on altering the "own" price of children through lowering information costs associated with contraceptive methdos in order to take advantage of recent innovations in birth control technolo~y.In this paper, we examine both theoretically and empirically the natalist impact of two alternative potential policies--reductions in the price of schooling and tech~ological innovation in the agricltural context--based on a rural household model in which (school) investments per child influence the cost of children as in the Becker-Lewis framework and in which the returns to schooling rise in a dynamic environment as a consequence of the allocative effect of education (Welch, 1970;Schultz, 1975).I show that, as a consequence of the "quantity-quality" interaction, reductions in the direct costs of schooling may raise fertility levels even if child schooling and the quantity of children are substitutes as conventionally defined and even if (observed) income effects are not positive.2,:. w

This paper analyzes the effect of commodity price stabilization on producers and consumers, both in the short run, and in the long run, when producers have adjusted their production decisions to take account of the change in the price distribution. We derive conditions under which (a) both producers and consumers may be better off; and (b) both producers and consumers may be worse off. Moreover, we show that the long-run effects may differ not only quantitatively but also qualitatively from the short-run effects. The anomalous results may occur even with reasonable assumptions concerning production functions and utility functions of producers and consumers.

Two essentially opposite accounting policy decisions were the FASB proposal to eliminate full cost (FC) accounting and the SEC proposal 13 months later to allow FC accounting while reserve recognition accounting was developed. The SEC's reversal of the FASB decision provides an opportunity to develop additional evidence concerning the market consequences of accounting policy decisions. The authors test whether the SEC proposal had a significant effect on the valuation of FC firms and whether its pricing effect was opposite to that observed at the time of the FASB proposal. A generalized least-squares procedure that takes account of contemporaneous correlation in abnormal return data is employed. The procedure and tests are completely general and appropriate for investigating the market effects of a variety of accounting policy decisions in which cross-sectional correlation of the data is a problem. Evidence is presented that the FC firms had significantly higher returns in the SEC period than the successful efforts firms. Furthermore, within the FC sample, a negative relationship is found between the abnormal returns of individual firms at the times of the FASB and SEC proposals.

This paper evaluates whether the primary and secondary dissemination of earnings forecast revisions by security analysts is reflected in security prices. Security prices were used to determine the profitability (before the cost of search) of trading strategies based on the nonpublic knowledge of forecast revisions. For a sample of 288 weekly earnings forecast revisions, the results were consistent with the hypothesis that early knowledge of forecast revisions could be used to form profitable trading strategies. Furthermore, the secondary dissemination of forecasts continued to have information content at the point of disclosure. These results are inconsistent with the strong form, but consistent with the semi-strong form, of market efficiency. Furthermore, the information contemporaneously available from public sources did not generate equivalently profitable trading rules, indicating that forecast revisions were not deducible from other publicly available information. Finally, some general public policy implications concerning mandatory disclosure of forecasts were drawn.

The results of this field study are generally consistent with those from a previous laboratory experiment which showed that the relationship between budgetary participation and performance is moderated by the personality variable internal-external locus of control. Internals (individuals who feel that they are in control of their own destinies) appear more job-satisfied and perform better under conditions of high participation. By contrast, externals (individuals who attribute the results of their actions to chance, luck, or fate) are more job-satisfied and perform better under conditions of low participation. The complementary findings of the two studies are considered and the implications of the results in the areas of personnel management and control system design are discussed.

Individuals in the United States consistently do most of their saving through financial intermediaries, but over time there have been and continue to be major shifts in people's reliance on specific kinds of intermediary institutions. In recent years, for example, individual savers have relied progressively more on pensions and thrift institutions and progressively less on life insurance companies. Moreover, legislative and regulatory actions currently under discussion would further alter the pattern of individuals' saving flows. This paper assesses the potential effects on interest rates, and via interest rates (and asset prices and yields more generally) on nonfinancial economic activity, of four specific shifts in saving behavior: additional pension contributions financed by individuals, additional pension contributions financed by businesses, additional purchases of life insurance by individuals, and additional deposits in thrift institutions by individuals. The paper's results indicate that such shifts, in plausible magnitudes, would have significant effects not only on interest rates and asset-liability flows but also on both the level and the composition of nonfinancial economic activity. In particular, although the specific effects differ from one shift to another, each would disproportionately stimulate capital formation in comparison to other forms of spending.

This paper is an application of efficient markets‐rationael xpectations theory to analyze empirically the relationship of money supply growth and short‐term interest rates, a hotly debated issue in the literature. This approach has the advantage over earlier research on this subject in that it imposes a theoretical structure that allows easier interpretation of the empirical results as well as more powerful statistical tests. The empirical results uniformly do not support the proposition that increases in money growth are correlated with declines in short rates.