Knowledge that Transforms

This paper presents a general-equilibrium model where human capital investment increases specialization and exposes skilled workers to region-specific earnings risk. Interjurisdictional mobility of skilled labor mitigates these risks; state-contingent migration of skilled labor also improves efficiency. With perfect capital markets, labor-market integration raises welfare and reduces ex post earnings inequality. If instead human capital investment can only be financed through local taxes, labor-market integration leads to interjurisdictional fiscal competition, shifting the burden of taxation to low-skilled immobile workers. Decentralized public provision of human capital investment creates earnings inequalities and is inefficient.

What is the body of knowledge that we call macroeconomics at which the Principles course is a first look? Does today's Principles course provide the student with an introductory glimpse at macroeconomics, as it exists today? These are the questions that this paper addresses. To provide focus, I restrict my attention to a narrow part of the literature: the textbooks. Although textbooks reflect the views of their authors, they also represent an attempt on the part of authors and publishers to distill the views of the profession. Users, potential users, and hoped-for users review textbooks, and they are revised extensively to match perceptions of the delicate mix of market demand and author judgment. Therefore, I claim that the textbook database provides a valid source for addressing my questions. I begin by looking at the content of today's advanced macro course.

Since Gary S. Becker's (1968) groundbreaking work on the economics of crime, economists have expanded upon both the theory and the empirical analysis of crime (e.g., Isaac Ehrlich, 1973; M. K. Block and J. M. Heineke, 1975; Ehrlich, 1975; Ann Dryden Witte, 1980). According to the standard theoretical framework, optimizing individuals engage in criminal activities depending upon the expected payoffs of the criminal activity, the return to legal labormarket activity, tastes, and the costs of criminal activity, such as those associated with apprehension, conviction, and punishment. Excellent reviews of the literature appear in Daniel Nagin (1978), Sharon Long and Witte (1981), Richard Freeman (1983), and Theodore G. Chiricos (1987). While some studies reported evidence that increases in criminal-justice sanctions reduce criminal activity (Ehrlich, 1975; Witte, 1980; Stephen K. Layson, 1985; Jeffrey Grogger, 1991; Steven D. Levitt, 1997), others found either a weak relationship, or none at all between the two (Samuel L. Myers, Jr., 1983; James Peery Cover and Paul D. Thistle, 1988; Christopher Cornwell and William N. Trumbull, 1994). Contradictory results can be explained, at least in part, by the empirical problems inherent in crime research, the most significant being the simultaneity between crime and criminal-justice sanctions.' Thus, after 30 years of empirical research there is no consensus on the impact of police and arrests on criminal activity. The purpose of this study is to provide new, and potentially more refined, evidence on the crime-deterrence relationship using a unique data set, which consists of monthly observations in New York City for nearly 30 years. This is the only data set of its kind, based on highfrequency observations of five different crimes, the corresponding arrests, the size of the police force, and a poverty indicator, spanning decades of experience in one city.2 Consequently, this is the first paper that employs high-frequency time series of individual crime categories to circumvent many problems found in studies that employ cross-sectional or low-frequency (e.g., annual) time-series data sets. We also use recent advances in time-series econometrics to test and correct for problems that may have contaminated the results of previous time-series analyses of crime. We find robust evidence for the deterrent effects of arrests and police on most categories of serious felony offenses. Another unique feature of the study is the addition of drug-use proxies. In the 1980's and into 1990 the media focused much attention on drug abuse, crime control, and the criminaljustice system. It had been claimed that in* Corman: Department of Economics, Rider University 2083 Lawrenceville Road, Lawrenceville, NJ 08648, and National Bureau of Economic Research; Mocan: Department of Economics, University of Colorado-Denver, Campus Box 181, P.O. Box 173364, Denver, CO 80217, and National Bureau of Economic Research. This research is supported by a grant from the National Institute of Drug Abuse to the National Bureau of Economic Research (Grant No. 1-R03-DA06764). An earlier version of this paper was presented at the 1996 American Economic Association Meetings in San Francisco, CA. Ofira Schwartz, Keith Amadio, Joseph Bucs, and Ronald Teodoro helped in data collection. Timothy Potter, Jennifer Giellis, Erdal Tekin, Melissa Anderson, Paul Niemann, and Danny Rees provided assistance in data analysis. John Lott, Jody Overland, and especially Michael Grossman provided very valuable suggestions. We thank two anonymous referees for helpful comments. Any opinions expressed here are those of the authors, and should not be assumed to be those of the granting agency, Rider University, University of ColoradoDenver, or NBER. ' Franklin Fisher and Daniel Nagin's (1978) article describing the problem is a classic in the field. Recent literature suggests several new approaches to the simultaneity problem: using careful empirical analyses of individual rather than aggregate data (Grogger, 1991; Helen Tauchen et al., 1994), and finding better exogenous instruments for identification (Levitt, 1996, 1997). 2 Among the advantages of using just one city is the fact that there is one unit defining and collecting crime and deterrence data, which prevents inconsistencies across observations.

During the past few years, many countries have suffered severe currency and banking crises, producing a staggering toll on their economies, particularly in emerging-market countries. In many cases, the cost of restructuring the banking sector has been in excess of 20 per cent of GDP, and output declines in the wake of crisis have been as large as 14 per cent. An increasingly popular view blames fixed exchange rates, specifically “soft pegs, ” for these financial meltdowns. Not surprisingly, adherents to that view advise emerging markets to join the ranks of the United States and other industrial countries that have chosen to allow their currency to float freely. (See, for example, Goldstein 1999.) At first glance, the world—with the notable exception of Europe—does seem to be marching steadily towards floating exchange rate arrangements. According to the International Monetary Fund (IMF), 97 per cent of its member countries in 1970 were classified as having a pegged exchange rate; by 1980, that share had declined to 39 per cent, and in 1999, it was down to only 11 per cent. 1 Yet, this much-used IMF classification takes at face value that countries actually do what they say they do. Even a cursory perusal of the Asian crisis countries ’ exchange rates prior to the 1997 crisis would suggest that their exchange rates looked very much like pegs to the U.S. dollar for extended periods of time. Only Thailand, however, was explicitly classified as a peg; the Philippines was listed as having a freely floating

This paper suggests two generalizations of the deposit-refund idea. In the first, we apply the idea not just to solid waste materials, but to any waste from production or consumption including wastes that may be solid, gaseous, or liquid. Using a simple general equilibrium model, we derive the optimal combination of a tax on a purchased commodity and subsidy to a clean' activity (such as emission abatement, recycling, or disposal in a sanitary landfill). This two-part instrument' is equivalent to a Pigovian tax on the dirty' activity (such as emissions, dumping, or litter). In the second generalization, we consider the case where government must use distorting taxes on labor and capital incomes. To help meet the revenue requirement, would the optimal deposit be raised and the refund reduced? We derive the second-best revenue-raising DRS or two-part instrument to answer that question.

The factors that led to the collapse of the ruble are analyzed. It is argued that it resulted from exogenous factors (closely related to the unanticipated Asian financial crisis) interacting with inherited weaknesses in fundamentals (of fiscal policy) that made the Russian economy, while progressively being brought to macroeconomic stability, nonetheless vulnerable to a large external shock. It is contended that, instead of the policy mistake of August 1998 requiring a default of domestic debt and moratorium on payment of foreign commercial debt, a decision by Russian authorities to offer temporary exchange controls, sanctioned by the IMF and the U.S. Treasury as an emergency measure, would have been a better alternative, obviating the de facto partial and unilateral resort to controls that the moratorium and default implied.

One of the most pressing challenges facing the South African government is how to expand the overall opportunity set for nonwhites who have been historically disadvantaged by apartheid. This is perhaps best accomplished by expanding employment opportunities within the economy. General employment expansion mnust be accomplished keeping in mind the urgent need to radically expand nonwhite employment. Employment and unemployment statistics are difficult to interpret. But there is a general sense that the unemployment situation, especially for nonwhites is, extremely bad. In dealing with employment issues, two concerns must be faced. Both are legacies of the apartheid era. The first is related to differences in educational attainment across racial groups. During apartheid, the Bantu Education policy was designed to suppress the educational attainment of Africans (blacks) relative to whites. However, educational opportunities for coloureds (mixed race) and Asians (primarily Indian) were also depressed relative to whites. The second concern is that labor-market discrimination could be used either to exclude nonwhites for employment consideration or to limit their wages and opportunities once they are employed. For policy reasons it is imperative to understand the extent to which premarket or market factors operate to limit opportunities for nonwhites. Given the institutionalized nature of apartheid segregation, one can imagine three scenarios. Earnings differences could be the result entirely of premarket factors such as education differences. Alternatively, earnings differences could be the result of labor-market practices that limit one group' s eamings relative to another's. A third scenario, a synthesis of the former two, would find earnings differences to be the result of a combination of premarket differentials and in-market discrimination. To address premarket discrimination, policy would focus entirely on leveling funding and increasing access to educational opportunities for historically disadvantaged groups. However, legislative forms such as affirmative action would be required to remedy exclusively labormarket discrimination. A combination of these policies would be required to deal with the third scenario. Understanding the relative importance of these factors is important when resource allocation is considered. This paper concerns itself with measuring income losses to nonwhites from labor-market discrimination. To evaluate the extent of labor-market discrimination, ordinary least-squares (OLS) estimates of earnings equations are evaluated for males in each population group. Observed wage differentials are decomposed into a component attributable to human-capital differences while a residual is attributed to labor-markelt discrimination. These findings are then contrasted to those of others to give a sense of the trend in market discrimination in South Africa.

If price discrimination is realized, the economy shifts from one equilibrium to another. It clearly involves welfare effects: The price-discriminator clearly gains, some consumers may also gain from the price cut, but others may lose faced with higher prices, etc. Traditionally the change in social welfare is known to be closely related to the change in total output. In the case of third-degree price discrimination, it is well known that an increase in total output is a necessary condition for welfare improvement. Richard Schmalensee (1981) proves this fact in a model in which the monopolist with constant marginal cost can perfectly separate markets. Further, Hal R. Varian (1985) extends this result to the case of interdependent markets, permnitting increasing marginal cost of the monopolist. And finally, the assumption of nondecreasing marginal cost is eliminated by Marius Schwartz (1990). Roughly speaking, this proposition says that if there is a welfare gain from price discrimination, there has to be some gain to offset the distortion involved. On the other hand, the vast majority of legal and other policy disputes over the price discrimination concern input markets, not final good markets. Thus, it seems important to investigate the situation in which a discriminating monopolist is not a final good supplier but an input supplier, and the buyers of the input are downstream producers of a final good, as is assumed in this paper. If the downstream firms have different technologies, their input demand functions will be different, and thus the monopolist has an incentive to price-discriminate. In this scenario, Michael L. Katz (1987) and Patrick DeGraba (1990) study the effect of inputmarket price discrimination, and show that price discrimination always lowers welfare because it involves the distortion that a lower-cost downstream firm is assigned a higher price. Unfortunately, in their simple settings on the technology of downstream industry, price discrimination can never change total output (of the input or of the final good).1 Thus we must say that welfare effect of input-market price discrimination remains open to question if it has some effect on total output. In particular, we are curious as to whether we can obtain some close relationship between the changes in welfare and total output as we have obtained in the final good market settings. With this motivation, we will construct a model which involves change in total output (of the final good). In the next section, the model and assumptions are provided. In Section II, after we extend the result of Katz (1987) and DeGraba (1990), we find a relationship between the changes in welfare and total output. Strikingly, it states that an increase in the total output of the final good is a sufficient condition for welfare deterioration. This result contrasts with that obtained by Schmalensee (1981), Varian (1985), and Schwartz (1990) from usual models of price discrimination in a final good market. Section III concludes the analysis.