Knowledge that Transforms

A multicountry Schumpeterian growth model is constructed. Because of technology transfer, R&D-performing countries converge to parallel growth paths; other countries stagnate. A parameter change that would have raised a country's growth rate in standard Schumpeterian theory will permanently raise its productivity and per capita income relative to other countries and raise the world growth rate. Transitional dynamics are analyzed for each country and for the world economy. Steady-state income differences obey the same equation as in neoclassical theory, but since R&D is positively correlated with investment rates, capital accumulation accounts for less than estimated by neoclassical theory.

Losing Sleep at the Market: The Daylight Saving Anomaly by Mark J. Kamstra, Lisa A. Kramer and Maurice D. Levi. Published in volume 90, issue 4, pages 1005-1011 of American Economic Review, September 2000

Population aging and rising health costs will cause dramatic increases in federal expenditures some decades from now (Lee et al., 1999). Rising immigration to the United States may help avert this future crisis by slowing population aging and helping to pay for Social Security and public health care. But many immigrants have low education and high fertility, so their net fiscal impact may be costly rather than beneficial. This paper revisits our earlier analysis of the fiscal impact of immigration (Lee and Miller, 1997), henceforth LM97, in light of higher projected rates of productivity growth, an unexpected increase in the effective federal income tax rate in recent years, and some revisions of the demographic projections. We will emphasize implications for Social Security, and address points raised by the recent literature (Holger Bonin et al., 1998; George Borjas, 1999; Alan Auerbach and Philip Oreopolis, 2000; Kjetil Storesletten, 2000).

Child benefit systems exist in many countries. While they show a lot of differences in terms of eligibility rules, amounts involved, and implementation (tax deduction, tax credit, or direct benefit), the common motivation for their existence is to increase children's welfare. In the Dutch child benefit system-the case I focus on in this paperone of the parents, usually the mother, is entitled to an untaxed child benefit amount which only depends on the child's age and the number of children in the household. Thus, child support does not depend on household income, marital status, or labor-market status. As a result, child benefit is exogenous to the household given the presence of children. This is in contrast with the situation in many other countries, including Germany, France, the United Kingdom, and the United States, where government-provided child support is (partly) means-tested; see Jonathan Bradshaw et al. (1993). In The Netherlands, child benefit is generally a nonnegligible addition to the household income; the median share of child benefit in the total net income of households with children is 8 percent. On the national level, expenditures on child benefits amount to 1.2 percent of GNP. The use of the child benefit is completely at the discretion of the parent. There are no legal requirements that a certain amount be spent on particular goods or services, nor does the government provide any guidelines regarding expenditure on children. A policy question that arises is to what extent children benefit from child benefits. Standard microeconomic demand theory allows no role for effects of the composition of income. Given the fungibility of income sources, it is only the sum of income components that is relevant in explaining expenditure patterns. Thus, within that framework, the answer would be that the marginal propensity to consume child goods from one guilder of child benefits is no different than from one guilder of any other income source. In the more general class of gametheoretic models of household behavior, however, the composition of household income will generally affect expenditure patterns; see, e.g., Shelly J. Lundberg and Robert A. Pollak (1993) and Martin Browning et al. (1994). If fathers and mothers have different preferences, and mothers have control over child benefits, the effect of child benefits on expenditures will differ from the effect of other income sources. Lundberg et al. (1997) provide empirical evidence showing that a transfer of control over child benefits from fathers to mothers in the United Kingdom due to a change in legislation resulted in a significant increase in expenditures on child clothing. Daniela Del Boca and Christopher J. Flinn (1994) have analyzed the effect of income composition on expenditure decisions of divorced mothers. They find that the coefficients associated with child support and alimony income differ from those for other income in Engel curves for expenditures on childspecific goods. Their results can be explained in terms of a noncooperative Nash model in which the child support transfer decisions of the noncustodial father and the expenditure decisions of the mother are determined simultaneously. In contrast to Del Boca and Flinn's analysis, in which child support is a decision variable, the present paper focuses on the possible differential effect of government-provided child support which is truly exogenous. In this paper I analyze the effects of child benefits on expenditures by running regressions in which child benefit enters as a separate explanatory variable. The enipirical analysis is based on a time series of 17 cross-section consumer expenditure surveys in The Netherlands, covering the period 1978 through 1994. It is important to note that in a single cross-section it * Department of Economics, University of Groningen, P.O.B. 800, 9700 AV Groningen, The Netherlands (e-mail: [email protected]). I am indebted to two anonymous referees for constructive comments. Helpful comments were also provided by Rob Alessie, Maarten Allers, Chris Bojke, Werner de Bondt, Bert Schoonbeek, and Tom Wansbeek. I thank Vincent Linderhof for organizing the data. Financial support was provided by the Dutch Organization for Scientific Research, NWO (HOMES-project grant).

Much of the theory in personnel economics relates to effects of monetary incentives on output, but the theory was untested because appropriate data were unavailable. A new data set for the Safelite Glass Corporation tests the predictions that average productivity will rise, the firm will attract a more able workforce, and variance in output across individuals at the firm will rise when it shifts to piece rates. In Safelite, productivity effects amount to a 44-percent increase in output per worker. This firm apparently had selected a suboptimal compensation system, as profits also increased with the change.

A Simple Mechanism for the Efficient Provision of Public Goods: Experimental Evidence by Josef Falkinger, Ernst Fehr, Simon Gächter and Rudolf Winter-Ember. Published in volume 90, issue 1, pages 247-264 of American Economic Review, March 2000

Look at the dramatic change in family structure that has occurred recently, illustrated in Figure 1. In the United States, 23 percent of children lived with an unwed mother in 1998, compared with only 8 percent in 1960.1 Of this 15-percentage-point increase, about 6 percentage points are due to a rise in the rate of divorce; the remaining 9 percentage points arise from an increase in out-of-wedlock births. Why care about this change in the structure of families? The lot of children living with a single mother is bleak. About 70 percent of those children in a family with a never-married mother were living near or below the poverty level in 1995. The corresponding figure for children being raised by a divorced mother was 45 percent. Associated with the increase in number of single mothers has been a rise in the percentage of the population on welfare. In 1960 only 1.7 percent of the population was on AFDC (Aid to Families with Dependent Children), while in 1995 about 5.2 percent were. Most mothers who received AFDC were single; 71 percent were in 1993. Also, AFDC mothers tended to have more children (2.6 on average vs. 2.1 for the population as a whole in 1993). It is interesting to note that there is evidence suggesting that more entrances into and exits out of welfare are connected with a shift in family structure rather than with a change in employment status. For instance, of the first-time entrances into welfare during 1983-1991 about 21 percent were associated with an out-of-wedlock birth, 23 percent were connected with a divorce or separation and 21 percent were linked with a reduction in the mother's work hours. Last, real AFDC benefits rose by about 70 percent between 1945 and 1977. They were about 25-percent higher in 1995 than in 1945. Could this have contributed to the rise in single motherhood? The task here is to outline a general-equilibrium model in which, at any point in time, some individuals will marry, others will divorce, and yet others will choose to have out-of-wedlock births. While the model is still prototypical in nature, it will be shown how such a framework can be used to address public-policy questions, in particular, the impact of welfare on family structure and the well-being of the economy.

The national income and product accounts (NIPA) are the most important measures of overall economic activity for a nation. Much as a satellite in space can survey the weather across an entire continent, so can the GDP give an overall picture of the state of the economy. Nevertheless, since their inception, there have been concerms that the accounts are incomplete and misleading because they omit vast continents of nonmarket activity such as unpaid work, the value of leisure time, investment in human capital, and most recently, the environment. The threshold question is: why should we devote scarce intellectual resources to studying nonmarket sectors? The basic insight behind nonmarket accounts is that economic and social welfare does not stop at the market's border, but extends to many nonmarket activities. Three particular areas are worth emphasizing. One important reason why we need better measures of nonmarket activity is because we spend increasingly fewer of our lifetime hours in market activities. A second and more speculative reason concems the growing importance (or at least the great importance) of nonmarket assets or mispriced market assets such as the environment and technology. A third point is that current measures of national saving and investment are highly defective. The examples later in this paper address each of these issues. Many of these issues were reviewed in a recent report on augmented accounting

X-inefficiency is surely among the most important topics in microeconomics. Yet, economists have found it difficult to study. If a given level of X-inefficiency were inevitable and changeless, it would be of little interest (indeed, would not really deserve to be called X-inefficiency at all). So our attention should focus on actual and potential changes in X-inefficiency: that is, on causes of changes, internal to a firm, that shift the firm's cost function. We explore the use of firms ' “cost-cutting” announcements to study the causes of changes in X-inefficiency. Cost cutting announcements by large corporations are made frequently and are reported in the business press. One might be tempted to interpret these announcements as indicating efforts to reduce X-inefficiency, and indeed we