Knowledge that Transforms

This paper develops a two-country model to study two questions. How do the degrees of centralization of redistribution and of factor mobility affect the productive efficiency of the economies? What degrees of centralization of redistribution and of factor mobility are likely to be chosen by majority rule? The model shows that a system of centralized redistribution can lead to less efficient outcomes if labor or capital are not mobile; and an inefficient outcome, with incomplete or no factor mobility, receives a majority of votes in both countries, whenever the structure of labor markets is very different in the two countries. (JEL D72, E62, H50, H77)

Recent research on child support issues has been concerned with normative problems involvingthe distribution of welfare between divorced parents and their children as well as with the assess-ment of the behavioral responses of parents to child support orders and custody arrangements( see, e.g., Del Boca and Flinn (1995), GarÞnkel and Klawitter (1990), Bartfeldt and GarÞnkel(1996), Del Boca (1996), Del Boca and Ribero (1998), and Flinn (2000)). While there is bynow an extensive literature analyzing the effects of child support policies on monetary transfersof noncustodial parents and the extent of compliance with child support orders, little researchhas been done on the relationship between monetary transfers between parents and the divisionof the child™s time. While income transfers to the custodial parent are no doubt importantfor the child™s consumption and general well-being, there exists considerable empirical evidencesuggesting that the division of the child™s time between the parents has important e ffects on thechild™s welfare ( Beller and Graham (1993)).There have been few analyses of this relationship.Weiss and Willis (1985) provide one theoretical motivation for the positive relationship betweenthe noncustodial parent™s contact time with the child and their level of transfers. They claimthat increased contact time allows better monitoring of the custodial parent™s expenditures onthe child, which induces higher levels of transfers to the custodial parent.We have developed a model (Del Boca and Ribero ( 1999)) in which visitations and childsupport are the outcomes of a negotiation process whereby the father exchanges income forvisitation time. Institutional agents, such as judges, state legislatures, etc, can impact thewelfareofthemembersofthenonintactfamilybyalteringtheendowmentsofeachofthe1

Iceland's Natural Experiment in Supply-Side Economics by Marco Bianchi, Bjorn R. Gudmundsson and Gylfi Zoega. Published in volume 91, issue 5, pages 1564-1579 of American Economic Review, December 2001

We use data on imports of computer equipment for a large sample of countries between 1970-90 to investigate the determinants of computer-technology adoption. We find strong evidence that computer adoption is associated with higher levels of human capital and with manufacturing trade openness vis-à-vis the OECD. We also find evidence that computer adoption is enhanced by high investment rates, good property rights protection, and a small share of agriculture in GDP. Finally, there is some evidence that adoption is reduced by a large share of government in GDP, and increased by a large share of manufacturing. After controlling for the above-mentioned variables, we do not find an independent role for the English- (or European-) language skills of the population.

The military drawdown program of the early 1990's provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums. The program offered over 65,000 separatees the choice between an annuity and a lump-sum payment. Despite break-even discount rates exceeding 17 percent, most of the separatees selected the lump sum—saving taxpayers $1.7 billion in separation costs. Estimates of discount rates range from 0 to over 30 percent and vary with education, age, race, sex, number of dependents, ability test score, and the size of payment. (JEL D91)

Until the middle of the 1970's, regulations constrained banks' ability to enter new markets. Over the subsequent 25 years, states gradually lifted these restrictions. This paper tests whether rents fostered by regulation were shared with labor, and whether firms were discriminating by sharing these rents disproportionately with male workers. We find that average compensation and average wages for banking employees fell after states deregulated. Male wages fell by about 12 percent after deregulation, whereas women's wages fell by only 3 percent, suggesting that rents were shared mainly with men. Women's share of employment in managerial positions also increased following deregulation. (JEL G2, J3, J7, L5)

I examine the effects of vertical integration between programming and distribution in the cable television industry. I assess the effects of ownership structure on program offerings, prices, and subscriptions, and I compare consumer welfare across integrated and unintegrated markets. The results of this analysis suggest two general conclusions. First, integrated operators tend to exclude rival program services, suggesting that certain program services cannot gain access to the distribution networks of vertically integrated cable system operators. Second, vertical integration does not harm, and may actually benefit, consumers because of the associated efficiency gains. (JEL L10, L22, L40)

Where should decision rights be lodged in organizations? Michael C. Jensen and William H. Meckling (1992) argue that moving a decision away from the inherently best-informed party involves costs in communication and garbling but may lodge it with someone who has better incentives to make good decisions. Generally, however, we expect that incentives are part of the organizational design. Why not just provide incentives to those with the best information so that they make the right decisions? One reason is that the available incentive instruments must serve multiple purposes, and designing them to induce better decisions worsens performance against other organizational objectives. Our experience suggests that this is a common situation in actual organizations: the means available to affect one sort of behavior or decision inevitably affect the incentives governing other choices. Then, the design of incentive schemes and the allocation of decision rights become interlinked. This paper looks at this idea in the specific context of a principal’s problem of inducing agents to provide unobservable effort while also motivating the efficient selection of investments. Each of these problems has been extensively studied in isolation (on inducing effort, see e.g., Bengt Holmstrom [1979] and Holmstrom and Paul Milgrom [1991]; on decisions, see e.g., Eugene F. Fama and Jensen [1983], Milgrom and Roberts [1990a, b], Philippe Aghion and Jean Tirole [1997], Matthias Dewatripont and Tirole [1999]). We thus know that motivating effort is done best by rewarding agents on precise measures of their effort, not necessarily on the total value created in the firm. At the same time, it is clear that getting the right investment choices may require that the decision-makers’ rewards be tied to total value created. The difficulty is that the available measures do not allow doing both. The only available performance measures are aggregates whose component pieces cannot be disentangled, while contracts must be written in advance of learning about investment possibilities. Including many contingencies in the contracts ex ante is impossible, and ongoing renegotiation in every ex post eventuality is prohibitively costly. More formally, we assume that it is not possible to contract on investment projects, nor can the principal bargain with the agents over the adoption of these projects once they are identified. Instead, returns to projects are reflected in the performance measures available for use in the effort-incentive contracting. Then the incentives for effort and for decisions are inextricably tied together. In this framework, we explore the interactions among the design of jobs and assignment of individuals to tasks, the shape and intensity of effort incentives, and the allocation of authority over project selection. We argue that it may indeed be optimal to assign decisions rights to someone other than the best-informed party. An authority-based hierarchy then emerges endogenously, with some agents being given the right to make organizational decisions over projects that others discovered. Moreover, as in Herbert Simon (1951), those in authority will make the decisions in a self-interested way. Simon emphasized that this † Discussants: Michael Riordan, Columbia University; Bengt Holmstrom, Massachusetts Institute of Technology; W. Bentley MacLeod, University of Southern California.

State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity by Kathryn L. DeWenter and Paul H. Malatesta. Published in volume 91, issue 1, pages 320-334 of American Economic Review, March 2001