Knowledge that Transforms

This article presents an empirical study of market power in the British electricity industry. Estimates of price-cost markups are derived using direct measures of marginal cost and several approaches that do not rely on cost data. Since two suppliers facing inelastic demand dominate the industry, most oligopoly models predict prices substantially above marginal costs. All estimates indicate that prices, while higher than marginal costs, are not nearly as high as most theoretical models predict. Regulatory constraints, the threat of entry, and financial contracts between the suppliers and their customers are considered as possible explanations for the observed price levels. (JEL L13, L94)

The following question is approached theoretically and empirically: Why do immigrants invest more in human capital than the native-born, and how do investment patterns vary by type of immigrant? It is found that greater immigrant human capital investment is due to the lower opportunity costs of investment by immigrants lacking US-specific skills and the role of untransferred human capital as a factor of production for destination-country skills, as well as the higher return to investment spending from the complementarity of foreign and US human capital. This theoretical insight is supported by direct evidence of human capital investment and by empirical analyses.

We are in the midst of a structural boom the force of which has not been seen in this country since the 1920’s. After the U.S. unemployment rate hit 6 percent in late 1994, following its two-year recovery, many experts assumed that unemployment had regained its naturalrate path. The natural unemployment rate in the second half of the 1980’s had been put at around 6.5 percent in several estimates, and if the trend reduction in the natural rate brought about by the continuing relative decline of high-school dropouts in the labor force and those whose education stopped at the diploma is placed at 0.07 per annum, it would have declined on that account to around 6 percent by 1995 (Phelps and Gylfi Zoega, 1997). Furthermore, we saw in 1995 the end of

Productivity Differences across Employers: The Roles of Employer Size, Age, and Human Capital by John C. Haltiwanger, Julia I. Lane and James Spletzer. Published in volume 89, issue 2, pages 94-98 of American Economic Review, May 1999

I estimate a decomposition of productivity and hours into technology and non-technology components. Two results stand out: (a) the estimated conditional correlations of hours and productivity are negative for technology shocks, positive for nontechnology shocks; (b) hours show a persistent decline in response to a positive technology shock. Most of the results hold for a variety of model specifications, and for the majority of G7 countries. The picture that emerges is hard to reconcile with a conventional real-business-cycle interpretation of business cycles, but is shown to be consistent with a simple model with monopolistic competition and sticky prices. (JEL E32, E24)

This paper examines the relationship between population and economic growth. It analyzes the implications of the effects of higher population density on per capita incomes and other variables in different countries and other geographic regions. Several statistical models that interpolate population to cities investment in human capital and economic growth were utilized to help analyze population growth. Generally economists along with others have believed that higher population lowers per capita incomes by diminishing returns. On the contrary there are few proofs demonstrating that higher population in more developed economies reduce per capita incomes. Population may reduce productivity secondary to traditional diminishing returns from more intensive use of land and other natural resources. However large populations encourage greater specialization and increased investments in knowledge. Therefore the net relation between greater population and per capita incomes relies on whether the inducements to human capital and expansion of knowledge are stronger than diminishing returns to natural resources.

Developing countries with highly unequal income distributions, such as Brazil or South Africa, face an uphill battle in reducing inequality. Educated workers in these countries have a much lower birth rate than uneducated workers. Assuming children of educated workers are more likely to become educated, this fertility differential increaases the proportion of unskilled workers, reducing their wages, and thus their opportunity cost of having children, creating a vicious cycle. A model incorporating this effect generates multiple stedy-state levels of inequality, suggesting that in some circumstances, temporarily increasing access to educational opportunities could permanently reduce inequality. Empirical evidence suggests that the fertility differential between the educated and uneducated is greater in less equal countries, consistent with the model. An earlier version of this paper was published in the AEA Papers and Proceedings, May 1999 and is also available here.

In the pre-reform period, agriculture was heavily subsidized in most Central and Eastern European countries (CEEC's). Around 1989, most CEEC's began to open up their markets, liberalize prices, and reduce subsidies, and the level of support provided to agriculture declined drastically. While not questioning the direction of economic reforms, there was concern that the decline in profitability in farning would slow down the impetus for farm restructuring, in particular, the drive for privatization of land as demanded by potential new farmers. However, after pursuing rather liberal agricultural policies at the beginning of the transition period, some CEEC's in recent years have reintroduced higher levels of support (Stefan Tangerman, 1996). In this paper, based on estimates of various support indicators for the period beginning roughly in 1994, I will address some of the more important questions regarding agricultural support: What has been the impact of trade and price policy interventions on the net income of farmers and government budgets? How level has the playing field been since the reintroduction of support? Does the current economic environment provide an appropriate and sound basis for adjustment toward a more competitive agricultural sector? This analysis is part of a comparative study by the World Bank, which covers Bulgaria, Poland, Romania, Ukraine, and Russia (in progress), plus Germany and Turkey, two reference cases geographically located at the border of the CEEC' s. For each country, employing the same methodology, the study considers approximately eight commodities which are representative of the country's major import-competing and export products.