Knowledge that Transforms

Unequal access to financing for education may be an important source of educational differences. We develop a model relating sib schooling and earnings similarities to sibship size with and without equal access and estimate it for the education of veterans, for whom the GI Bill assured equal access, and for their children, who had no such government assistance. We find an inverse relationship between sibship size and sib schooling and earnings similarities for the children, but not for the veterans; we conclude that, in the absence of equal access policies, unequal access is an important source of educational differences.

An agent of unknown expertise is requested to forecast the mean of an uncertain outcome. The agent can refine forecasts at a constant marginal cost per unit precision, but neither cost nor precision can be verified by the planner. The problem is to induce both truthful revelation and an appropriate degree of learning so as to minimize the expected sum of direct planning losses and agent payments. Optimal contracts are derived with and without self-screening of expertise and with and without competition between agents. Self-screening tends to be much less valuable than competition.

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaults or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interest of different lenders and of banks and creditor country taxpayers.

In economic analyses of asymmetric information, better-informed agents are assumed capable of reproducing the judgments of less-informed agents. We discuss a systematic violation of this assumption that we call the "curse of knowledge." Better-informed agents are unable to ignore private information even when it is in their interest to do so; more information is not always better. Comparing judgments made in individual-level and market experiments, we find that market forces reduce the curse by approximately 50 percent but do not eliminate it. Implications for bargaining, strategic behavior by firms, principal-agent problems, and choice under uncertainty are discussed.

This paper presents an analytical model of labor specialization. Workers make human capital investment decisions on the depth and the breadth of their skill. Given that firms have diverse job requirements and increasing returns to scale, workers invest more for the depth of their human capital and less for the breadth as the size of the labor market increases. Also, the larger the size of the market, the more varieties of job requirements are used so that the average match between a worker and a firm improves.

This paper presents a method for assessing the relative importance of price increases and strengthened individual incentives due to the introduction of the responsibility system for the post-1978 increase in China's agricultural productivity. Data on post-1978 Chinese agricultural performance suggest that a little over three-quarters of the measured productivity increase is due to payment system changes and the remainder to price increases. We also use our method to calculate incentive indices, giving an estimate of the fraction of their marginal product that peasants received under the pre-1978 regime.

A recent study by Bils found real wages to be procyclical, contradicting previous findings by Geary and Kennan, who found no consistent relationship, and Neftci, who found countercyclical movements in real wages. These studies differed in both methodology and sample period. In this study, we found that real wages were either procyclical or countercyclical depending on the sample period chosen. Employment changes generated by aggregate supply shocks were associated with procyclical real wage movements, while during years dominated by shifts in aggregate demand, real wages were highly countercyclical.