An unsettled issue in the literature relating to the relative wage effect of unions is the appropriate treatment of union status in a wage determination model. In the context of a three-equation model determining union membership and union- and nonunion-sector wage rates, this paper presents an instrumental variables (IV) procedure for estimating the parameters of the wage equations and a test of the exogeneity of union status using the Hausman specification test. An advantage of our IV procedure in comparison to the widely used inverse Mill's ratio procedure is that our procedure is a distribution-free estimator, whereas the inverse Mill's ratio estimator hinges in the assumption that the error term of the choice equation is normally distributed. Using data for a sample of middle-aged white workers, we estimate the parameters of the union and nonunion wage equations with both procedures. On the key question of the endogeneity of union status, the Hausman test decisively rejects the null hypothesis of exogeneity. The inverse Mill's ratio procedure, in contrast, provides coefficient estimates on the selectivity terms that fail to indicate evidence of sample selectivity in either sector.

We investigate stock market rationality by examining the timeliness and unbiasedness of the market's response to dividend announcements. Our initial findings for market timeliness show a sluggish market reaction to dividend announcements; however, when the ex-dividend effect is controlled for, we find no evidence of a sluggish market reaction. We examine the unbiasedness of the market's response by testing whether the net announcement effect across a sample that is devoid of ex-post selection bias sums to zero. We observe a significant positive net announcement effect and examine several plausible conjectures for this puzzling phenomenon, but none provides a satisfactory explanation.

An overlapping generations model incorporating returns to specific experience is used to demonstrate how three salient phenomena in land-scarce developing countries—the predominance of intergenerational family extension, cost advantages of family relative to hired labor, and the scarcity of land sales—may be manifestations of an optimal implicit contract between generations that maximizes the gains from farm-specific, experientially obtained knowledge. A method for estimating the contribution to agricultural profits of the farm experience embodies in elderly kin based on a three-year panel of household data from India is proposed and implemented. Implications of the theory for market transactions in land and for family extension are also tested using individual farm data and time-series information on rainfall. Why is the aged husbandman more skillful in his calling than the younger beginner, but because there is a certain uniformity in the operation of the sun, rain, and earth, towards the production of vegetables; and experience teaches the old practitioner the rules, by which this operation is governed and directed? David Hume [1758, p. 106]

Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to “overreact” to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Substantial weak form market inefficiencies are discovered. The results also shed new light on the January returns earned by prior “winners” and “losers.” Portfolios of losers experience exceptionally large January returns as late as five years after portfolio formation.