We develop a theory of political transitions inspired by the experiences of Western Europe and Latin America. Nondemocratic societies are controlled by a rich elite. The initially disenfranchised poor can contest power by threatening revolution, especially when the opportunity cost is low, for example, during recessions. The threat of revolution may force the elite to democratize. Democracy may not consolidate because it is redistributive, and so gives the elite an incentive to mount a coup. Highly unequal societies are less likely to consolidate democracy, and may end up oscillating between regimes and suffer substantial fiscal volatility. (JEL D72, D74, O15, P16)
When bidders anticipate an opportunity for resale trade, the value of winning an auction is determined in part by the option values of buying and selling in the secondary market. One implication is that a bidder's willingness to pay at an auction increases with the expected level of competition between resale buyers. Empirical evidence from auctions of timber contracts supports this prediction and rejects standard models that ignore resale. The estimated effect is smaller after policy changes expected to diminish the prevalence of resale. Additional evidence supports the predicted presence of a common value element introduced by the resale opportunity. (JEL D44, D82, C52, L73)
The inability of formal skills such as schooling and on-the-job training to account for most of the valiation in adult labor-market success has spurred investigations of other factors. Cognitive ability, as measured by IQ-type tests such as the Armed Forces Qualifying Test has received the bulk of this attention. The consensus from research by economists and sociologists is that cognitive ability plays a significant although far from overwhelming role as a determinant of adult success (e.g., Christopher Jencks, 1979; John Cawley et al., 1997). Cognitive skills do not appear to account for more than about one-fifth of the association between completed schooling and earnings (Samuel Bowles et al., 2000). Similar magnitudes emerge in studies examining the strength of parents' cognitive ability as a predictor of the intergenerational success of their children (Meredith Phillips et al., 1998). The search for key noncognitive factors important in predicting both intraand intergenerational success has been wide-ranging. Jencks (1979) demonstrates that, net of background, formal schooling, and cognitive skills, personal traits such as industriousness, perseverance, and leadership have noteworthy associations with subsequent earnings and occupational status. Measures of social-psychological constructs such as locus of control (Julian Rotter, 1966) and self-esteem (Morris Rosenberg, 1965) have been shown to be predictive of subsequent labor-market success in some cases (e.g., Rachel Dunifon and Duncan, 1998; Arthur Goldsmith et al., 2000). Our focus in this paper is on the role of a different kind of personal characteristic: organization and efficiency, as operationalized in our data set by the housework-hours-adjusted score from five annual interviewer assessments of the cleanliness of a respondent's dwelling at the time of the interview. We argue that keeping a and organized home reflects an overall ability and desire to maintain a sense of order in a wide range of life activities. People whose homes appear clean both value order and demonstrate the ability to impose a degree of order at home. It is likely that people who are able to maintain such homes carry over the ability and desire to be organized to other aspects of their lives, such as work and parenting. The ability to maintain a degree of organization may be a skill that would command a reward in the labor market. Additionally, children raised in more organized households may be more successful in school and work. The results presented here indicate that, net of socioeconomic-status background, cognitive ability, completed schooling, housework time, and a host of other factors, the cleanliness rating of one's home is predictive of: (i) one's own earnings 25 years later; (ii) children's subsequent completed schooling; and (iii) children's earnings measured 25 years later. These results suggest the utility of continuing the search for noncognitive factors in intraand intergenerational models of schooling and labor-market success.
Traffic fatalities are the leading cause of death among teens and young adults, accounting for one-third of all deaths among those 15–20 years of age. The large share of teen mortality attributed to car travel is not entirely unexpected. Driving is an inherently risky activity, and teens rarely die of other nonviolent causes. However, teens also face levels of traffic-related risk that are substantially higher than those of older, more experienced drivers. For example, the teen traffic fatality rate (defined as deaths of 16–19-year-olds per population) is nearly double the rate for adults aged 25 and older. Since teens drive less than adults, this ratio increases to nearly 2.5 when denominated by miles of travel. While these are sobering numbers, teen traffic safety has improved considerably over the past 20 years. Since 1979, the teen traffic fatality rate has fallen by 37 percent. Much of this drop occurred in the 1986–1992 period when rates fell 25 percent. These decreases in teen fatality rates are much larger than the contemporaneous changes for adults aged 25 and older, whose fatality rates fell by 22 percent in the 1979–1997 period, and by 13 percent over the 1986–1992 time frame. The relative improvements of teens are even more impressive when one considers that they have become increasingly dependent on the automobile. Between 1983 and 1995, vehicle miles traveled by teens aged 16–19 nearly doubled. When denominated by vehicle miles traveled, teen fatality rates have fallen by 50 percent since 1983. The gains in teen traffic safety are likely to reflect a number of causes. For example, over this period, there were several advances in car crash-worthiness (e.g., improved designs, increased car weight, the introduction of air bags). However, these improvements also appear to reflect a reduction in risk-taking behind the wheel, in particular, increases in seat-belt use and reductions in drunk driving. In this study, we present some evidence on the efficacy of key state policies in promoting these gains by discussing reduced-form models of traffic fatalities. We also consider whether the life-saving effects of an important policy, minimum legal drinking ages, have been attenuated by a possible shift of alcohol-related traffic risks to young adulthood.
We present a model of an unsecured loan market. Many lenders simultaneously offer loan contracts (a debt level and an interest rate) to a borrower. The borrower may accept more than one contract. Her payoff if she defaults increases in the total amount borrowed. If this payoff is high enough, deterministic zero-profit equilibria cannot be sustained. Lenders earn a positive profit, and may even charge the monopoly price. The positive-profit equilibria are robust to increases in the number of lenders. Despite the absence of asymmetric information, the competitive outcome does not obtain in the limit. (JEL D43, L13, L14)
Traditionally, general-equilibrium models have taken effective property rights to be given and have been concerned only with analyzing the allocation of resources among productive uses and the distribution of the resulting product. But, this formulation of the economic problem is incomplete because it neglects that the appropriative activities by which people create the effective property rights that inform allocation and distribution are themselves an alternative use of scare resources. This paper develops two canonical general-equilibrium models of resource allocation and income distribution that allow for the allocation of time and effort to the creation of effective property rights to valuable resources. In one model the valuable resources are initially in common pool. In the other models the analysis reveals how the amount of time and effort that agents allocate to the creation of effective property rights, on the technology of production, and on the scale of the economy. The paper also analyses the security of initial claims to valuable resources and speculates about why initial claims are perfectly secure.
A half century of empirical work attempting to predict the factor content of trade in goods has failed to bring theory and data into congruence. Our study shows how the Heckscher-Ohlin-Vanek theory, when modified to permit technical differences, a breakdown in factor price equalization, the existence of nontraded goods, and costs of trade, is consistent with data from ten OECD countries and a rest-of-world aggregate. (JEL F1, F11, D5)
Four main messages emerge from the study of subjective survey data. First, a large experimental literature by and large supports economists' skepticism of subjective questions. Second, put in an econometric framework, these findings cast serious doubts on attempts to use subjective data as dependent variables, because the measurement error appears to correlate with a large set of characteristics in behaviors. Third, these data may be useful as explanatory variables. Finally, the empirical work suggests that subjective variables are useful in practice for explaining differences in behavior across individuals. Changes in answers to these questions, however, do not appear useful in explaining changes in behavior.
An evolutionary game model shows how an equilibrium distribution of competence may evolve when members of a population prey on one another, but when predatory competence is costly to acquire. Under one interpretation, the competence distribution is an endogenously determined distribution of bounded rationality. An example shows how “tricksters” and “suckers” might coexist in the long run. The analysis leads to a curious result about a mixed equilibrium for a symmetric, zero-sum game. An increase in the costs of one or more competence levels has exactly zero effect on the fraction of the population at those levels. (JEL C79, D89)