Knowledge that Transforms

If workers self-select into industries based upon their relative productivity in different tasks, and comparative advantage is aligned with absolute advantage, then the average efficacy of a sector's workforce will be negatively correlated with its employment share. This might explain the difference in the reported productivity growth of contracting goods and expanding services. Instrumenting with defense expenditures, I find the elasticity of worker efficacy with respect to employment shares is substantially negative, albeit estimated imprecisely. The estimates suggest that the view that goods and services have similar productivity growth rates is a plausible alternative characterization of growth in developed economies. (JEL E23, E24, H56, J24, O41, O47)

This paper shows that the body of appointed officials that a new democracy inherits from the previous regime is a key determinant of the extent of electoral fraud and clientelistic spending in new democracies. I develop a model that predicts that appointed officials have stronger incentives to influence voters during national level elections because of their career concerns. I test the implications of the model using data from Indonesia's transition to democracy. Both the pattern of alignment of electoral results between village and district levels and the pattern of subsequent turnover of appointed village heads corroborate the predictions of the model. ( JEL D72, H77, H83, O17, O18)

The US population will age rapidly for several decades and then more slowly, with less aging than most rich nations. Health of the elderly has greatly improved, but disability stagnated after 2000. Retirement age reversed its decline in the mid-1990s and health status leaves ample room for increased elder labor supply. Many older people have inadequate retirement savings and face additional risks including uncertainty about both public and private pensions and health insurance. Population aging may cause a small decline in rates of return. The main problem is the impact of population aging on public programs for the elderly.

This paper experimentally investigates whether money illusion generates substantial nominal inertia. Building on the design of Fehr and Tyran (2001), we find no evidence that agents choose high nominal payoffs over high real payoffs. However, participants do select prices associated with high nominal payoffs within a set of maximum real payoffs as a heuristic to simplify their decision task. The cognitive challenge of this task explains the majority of the magnitude of nominal inertia; money illusion exerts only a second-order effect. The duration of nominal inertia depends primarily on participants' best response functions, not the prevalence of money illusion. (JEL C91, D21, D83, E31, E41, E52, L11)

Adaptive Coding is the property of the brain to adjust its response to statistical properties of the environment. Its effect is an improved discrimination among signals under the constraints on the dynamic range of its response. It can thus be considered the neural correspondent of Rational Attention, which models how a rational decisionmaker allocates attention among different informative signals. There is strong evidence of existence of widespread adaptive coding. Adaptive coding introduces a dependence of choice from the environment which is not observed in behavior. We discuss potential solutions and propose Hebbian learning as a potentially satisfactory answer.

We develop and estimate an equilibrium job search model of worker careers, allowing for human capital accumulation, employer heterogeneity, and individual-level shocks. Wage growth is decomposed into contributions of human capital and job search, within and between jobs. Human capital accumulation is largest for highly educated workers. The contribution from job search to wage growth, both within and between jobs, declines over the first ten years of a career—the “job-shopping” phase of a working life—after which workers settle into high-quality jobs using outside offers to generate gradual wage increases, thus reaping the benefits from competition between employers. (JEL J24, J31, J63, J64)

Implementation theory assumes that participants' choices are rational, in the sense of being consistent with the maximization of a context-independent preference. The paper investigates implementation under complete information when individuals' choices need not be rational. (JEL D11, D60, D83, R31)

We use broad-based yet detailed data from the economy's goods-producing sectors to investigate firms' ownership of production chains. It does not appear that vertical ownership is primarily used to facilitate transfers of goods along the production chain, as is often presumed: roughly one-half of upstream establishments report no shipments to downstream establishments within the same firm. We propose an alternative explanation for vertical ownership, namely that it promotes efficient intrafirm transfers of intangible inputs. We show evidence consistent with this hypothesis, including the fact that, after a change of ownership, an acquired establishment begins to resemble the acquiring firm along multiple dimensions. (JEL G32, G34, L14, L22, L60, M11)

India's coal-fired generating capacity doubled between 1990 and 2010 and currently accounts for 70 percent of electricity produced. Despite this, thermal efficiency at state-owned coal-fired power plants in India is significantly lower than at plants in the United States. When matched on age and capacity, heat input per kWh was 8 percent higher at Indian plants between 1997 and 2009. This can only partly be explained by the lower heat content of Indian coal. Electricity sector restructuring in the United States improved thermal efficiency at investor-owned plants; however, electricity sector restructuring in India has yet to improve thermal efficiency at state-owned coal-fired power plants.

We show that isolated capital cities are robustly associated with greater levels of corruption across US states, in line with the view that this isolation reduces accountability. We then provide direct evidence that the spatial distribution of population relative to the capital affects different accountability mechanisms: newspapers cover state politics more when readers are closer to the capital, voters who live far from the capital are less knowledgeable and interested in state politics, and they turn out less in state elections. We also find that isolated capitals are associated with more money in state-level campaigns, and worse public good provision. (JEL D72, D73, H41, H83, K42, R23)