Knowledge that Transforms

We analyze two unemployment insurance systems. In one, unemployed workers receive benefits while those on reduced hours do not, as in North America (at least until recently). In the other, short-time compensation is paid to workers on reduced hours, as in Europe. The first system causes inefficient temporary layoffs for some parameters; the latter does not, but implies inefficient hours per worker. Some evidence is presented regarding these effects. Despite policymakers' recent enthusiasm for short-time compensation, the clear implication of this project is that changes should come on the tax, not benefit, side of the system.

Trade in services has become topical, but little theory has been developed. This paper assumes that one commodity and the services of capital are tradable and examines the traditional trade results. Service trade can produce the same equilibrium as commodity trade, but substantial differences exist depending on whether the tradable commodity is capital or labor intensive. Tariffs on either commodity have the same commodity price effects and will always increase the welfare of the immobile factor labor. Factor income taxes can also affect trade patterns. When both goods and capital services are tradable, there is an indeterminacy in trade patterns, and tariffs, while reducing commodity trade, may not reduce welfare.

The main goal of this paper is to put forward a methodology for the measurement of product innovations using a value metric, that is, equating the "magnitude" of innovations with the welfare gains they generate. This research design is applied to the case of computed tomography scanners, a revolutionary innovation in medical technology. The econometric procedure centers on the estimation of a discrete choice model (the nested multinominal logit), which yields the parameters of a utility function defined over the changing quality dimensions of the innovative product. The estimated flow of social gains from innovation is used to compute a social rate of return to R & D, to explore the interrelation between innovation and diffusion, and to trace the time profile of benefits and costs, the latter suggesting the possible occurrence of "technological cycles."

This paper examines the impact of changes in social security benefits on aggregate consumption expenditure. Under the null hypothesis, there should be no contemporaneous effect at the monthly frequency because increases in benefits have always been announced at least 6 weeks prior to payment. The paper develops overwhelming evidence--contrary to the null--that benefits have affected aggregate spending. The results have strong implications for several important issues, including Ricardian equivalence, government policy irrelevance, and the excess sensitivity of consumption to changes in income.

The problems of estimation and interpretation of union wage differentials are examined. The properties of cross-section and longitudinal estimators are compared. Estimates are presented and those in the literature summarized. Conflicting results are obtained. Longitudinal estimators typically produce results smaller than those of OLS, while cross-section methods (instrumental variables or inverse Mills ratio) raise the estimate. The paper offers a reconciliation of these results. It supports a more optimistic conclusion than that reached in reviews by Freeman and Lewis, who argued that little has been learned from attempts to deal with the endogeneity issue. Comparisons between estimators are used to throw light on the process governing union status and to suggest interpretations of "union differentials" consistent with the current evidence.

In markets with avoidable fixed costs, the core may be empty. I argue that a reason for collusion is to impose an equilibrium where none exists. I set up a framework for deriving testable implications from the model and compare those implications with those of a cartel model. I compare the two models empirically with data from liner shipping conferences, legal collusive agreements that have been in force for over a century, and I conclude that the evidence supports the theory of the core.

We show that the seller's problem in devising an optimal auction is virtually identical to the monopolist's problem in third-degree price discrimination. More generally, many of the important results and elegant techniques developed in the field of mechanism design can be reinterpreted in the language of standard micro theory. We illustrate this by considering the problem of bilateral exchange with privately known values.

In an environment with private information, spatial separation, and limited communication, a currency-like object and more standard named credits can be distinguished. The credit objects can be used among agents in an enduring relationship, that is, among agents with known trading histories, whereas the currency-like object must be used among relative strangers. In this environment, collectively determined Pareto-optimal rules make the level of the currency-like object and the mix of currency to named credits responsive to individual needs and to economywide states. Total indebtedness is determined by the number of lenders, that is, by preference or demand shock, and the mix of currency to credits is determined by transaction patterns among the agents.

In the mid-1970s the International Whaling Commission concluded that the increased harvest by Alaskan Eskimos threatened the existence of the bowhead whale, which was slowly recovering from a period of open-access exploitation (1848-1914). This paper briefly discusses the economic history of the bowhead whale fishery in the western Arctic, simulates the population from 1848-1988, and presents a bioeconomic model that may be used to determine optimal Eskimo harvest for alternative rates of discount and weights on the bowhead population.