Knowledge that Transforms

Can Affirmative Action Be Cost Effective? An Experimental Examination of Price-Preference Auctions by Allan Corns and Andrew Schotter. Published in volume 89, issue 1, pages 291-305 of American Economic Review, March 1999

We examine self-control problems—modeled as time-inconsistent, present-biased preferences—in a model where a person must do an activity exactly once. We emphasize two distinctions: Do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate—do too soon—immediate-reward activities. Sophistication mitigates procrastination, but exacerbates preproperation. Moreover, with immediate costs, a small present bias can severely harm only naive people, whereas with immediate rewards it can severely harm only sophisticated people. Lessons for savings, addiction, and elsewhere are discussed. (JEL A12, B49, C70, D11, D60, D74, D91, E21)

This paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world: life insurance. We report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information. We conjecture that sellers may know their costs of production better than consumers in this market, as in those for most other products. (JEL D8, G1, I1, L0)

Theories of organization of legislatures have mainly focused on the U.S. Congress, explaining why committee systems emerge there, but not explaining variance in organization across legislatures of different countries. To analyze the effects of different constitutional features on the internal organization of legislatures, we adopt a vote-buying model and consider the incentives to delegate decision rights in a game among legislative chambers. We show how presidential veto power and bicameral separation can encourage a legislative chamber to create internal veto players or supermajority rules, while a unicameral structure can encourage legislators to delegate power to a leader. (JEL D72)

Medicare is the second-largest federal entitlement program after Social Security, and the single largest health insurer in the United States. In 1999, the Medicare program will spend $230 billion, about 13 percent of the federal budget, on behalf of some 39 million elderly and disabled individuals. For the past three decades, Medicare spending has grown substantially faster than the economy and faster than private health spending. That growth has been a continuing concern to policymakers. Financial pressures on the Medicare program will grow dramatically in the next few decades due to changing demographics and to the growth of medical technology. Aging baby-boomers will place unprecedented demands on the program as they reach age 65, beginning in 2011. Enrollment is projected to be 47 million people by 2010, growing to about 75 million people by 2030. Medicare will have more beneficiaries, and more at older ages as longevity increases, than ever before. And the cost per beneficiary of providing health care, which has risen dramatically in the past, is likely to be significantly higher than it is today. Assuming no change in policy, Medicare spending will grow from 2.6 percent of GDP in 1995 to 6.3 percent of GDP in 2030, as the last of the boomers enroll in the program. Meanwhile, the ratio of active workers to retirees will fall, making the current system of financing difficult to maintain without tax increases or substantial cost reductions.

This paper considers a dynamic real exchange model of international trade in commodities and equities. Given “generalized Cobb-Douglas” intraperiod tastes that differ across countries, we find a closed-form solution with properties that are noteworthy, not because they reverse our presumptions, but because they exceed them. A consumption-based model of international equity investment might be expected to have the following properties: (i) The optimal portfolios should reflect the international pattern of commodity expenditure. (ii) A country’s portfolio should be biased toward equities in commodities that attract a large share of its expenditure. (iii) A country would short some equities, given an appropriate structure of equity returns. (iv) Short sales of equities would allow the international economy to move toward the situation that would prevail if risk markets were complete. In our model solution, these properties take strong forms:

A child's welfare is affected not only by the wealth of her parents, but also by the quality of care her parents provide. Physical abuse, neglect, and other forms of child maltreatment impose severe hardships on children and may adversely affect them as adults (Cathy Widom, 1989). We examine whether child maltreatment is affected by the socioeconomic circumstances of parents. Our hypothesis is that children are more likely to be maltreated if their parents have fewer resources. We use a broad conception of "resources." It encompasses not only income, but also parental time and the quality of parental time. For example, a low-income working single mother may be short on resources needed to parent not only because she earns a low income, but also because she may not have the physical or emotional reserves to care for her children properly at the end of the day. Likewise, an unemployed father may provide less than adequate parenting not only because his income has been reduced, but also because of the depression and loss of self-esteem that may accompany unemployment (Arthur Goldsniith et al., 1996). We use state-level panel data to analyze the impact that socioeconomic circumstances (in particular, parental work status and single parenthood) have on the incidence of child maltreatment. We find that socioeconomic circumstances do matter. States with higher fractions of children with absent fathers, and especially absent fathers and working mothers, have higher rates of child maltreatment. Nonworking fathers are also associated with higher rates of maltreatment.

One of the most glaring legacies of 20thcentury Chinese socialism is a sharp and widened divide between China's urban and rural areas. China's widened urban-rural divide arose from a socialist industrialization process, which created a hastened heavy-industrial base at the expense of its rural population. China's vast rural population not only endured a standard of living far below that in the urban sector, they were also denied access to many social welfare benefits and social-mobility opportunities (Martin King Whyte, 1996). This urban-rural gap in social and economic wellbeing, together with a massive reservoir of rural surplus labor and an acute shortage of consumer goods, formed the driving forces for China's change of migration-control policy and for the rapid increase of rural migrants in Chinese cities. Though the exact number of migrants is still hard to ascertain, due to both a lack of consensus in the definition of migrant and the absence of an authoritative national survey, migrants' prominent presence in Chinese cities is hardly disputable. In China's largest cities, for instance, it is often quoted that at least one out of every five persons is a migrant, and most likely a migrant from rural areas. In Shanghai, the number of migrants rose tenfold in one decade: from 0.26 million in 1981 to 2.81 million in 1993. The percentage of local residents who were migrants correspondingly rose from less than 5 percent in the early 1980's to 21.7 percent in 1993 (Changming Sun, 1997). In Beijing, the number of migrants was 3.29 million in 1994, compared to a locally registered population of 10.63 million for the whole municipality, and 6 million for its city districts (Dangsheng Ji et al., 1996 p. 95). In city districts, one out of every three persons in Beijing is a temporary migrant from elsewhere. Most of these recorded migrants are also genuine migrants, not short-term visitors: more than 60 percent had stayed for more than half of a year, and only 17 percent had been in Beijing for less than one month. Three-quarters of all the surveyed migrant population listed business or employment as their purpose of stay (Ji et al., 1996 pp. 96-97). Rural migrants account for over threequarters of all migrants in large Chinese cities. In Shanghai, for instance, a survey in 1995 found that 88.1 percent of all migrants had their place of household registration in the countryside (Wang and Zuo, 1997). Similarly, in Beijing, where one expects to see a higher circulation of urban to urban migrants, close to 80 percent of migrants surveyed in late 1994 were peasants before moving into Beijing (XiuhuaLiu, 1996 p. 112).