Knowledge that Transforms

Human capital theorists have traditionally argued that individuals invest in education until the marginal gain in productivity is equal to the marginal opportunity cost. However, the observed correlations among income, education, and ability measures are also consistent with education being used to screen for exogenous ability differences. This paper tests for such an informational role, arguing that screening will be much more important in some occupations than in others. Subsamples of "screened" and "unscreened" occupations are isolated and compared. It is concluded that observed differences, not readily explained by the traditional model, are consistent with the educational screening hypothesis.

This paper investigates the economics of the transition of land from rural to urban use. A simple model is employed to examine the developer's problem: When and at what destiny should vacant land be developed to maximize the present value of the Land? A series of rules emerges from the analysis to the timing and density of new development. In the latter half of the paper, the rules are tested against recent Canadian experience and peform well.

This paper investigates the conjecture that oligopolistic pricing behavior will invalidate the Lucas-Sargent policy-ineffectiveness proposition even if expectations are formed rationally. The procedure is to examine the properties of an analytical macroeconomic model that incorporates a simplified version of the MPS wage-price sector. It is shown that the validity of the conjecture depends upon the precise manner in which lags are built into the price adjustment equation. A crucial condition is isolated and used to motivate an empirical test. The results, based on quarterly U.S. data, are predominantly consistent with the ineffectiveness proposition.

This paper reexamines traditional macrotheoretical questions in models that fully integrate conditions of production into the structure. The relative price of capital and consumer goods and the real rate of interest are required to equal the technical rates of transformation. Capital stocks are immobile between sectors, and increasing marginal costs of introducing new capital goods into the production process are assumed. Given plausible values of the parameters, standard fiscal policies may not change aggregate demand in the directions predicted by the IS-LM approach. And to judge what outcome is most likely requires considerable information about an economy's structure of production.

Since individual welfare depends on family income, we ask two main questions: (1) Is family income more explicable than individual earnings? Due to assortative mating, schooling explains 20 percent of the experience-constant annual income of families, compared with under 15 percent of the experience-constant earnings of men. We explain this outcome using the model of family labor supply. We also experiment with other measures of family welfare. (2) How can policies affecting family income be evaluated? We argue that a lifetime income framework is needed here and show how different policies can be evaluated using explicit equity-efficiency tradeoffs.

Quantitative restrictions imposed on product categories have been observed to shift the composition of imports with these categories in favor of relatively more expensive items. This paper applies Alchian and Allen's proposition concerning the effects of transportation costs on the composition of demand to explain this phenomenon. It is also shown that the same effects occur under specific tariffs but do not pertain to ad valorem tariffs or value restrictions.

This paper examines the implications of an error or oversight in the statement and proof of Arrow's celebrated General Possibility Theorem. Besides showing that, strictly speaking, the theorem is false, we show that the force of the correctly stated theorem and of most of its descendants applies only to a class of election procedures and not to social choice in an economy. A Bergson welfare function can be constructed that satisfies all the stated Arrow axioms and conditions, although the construction is unnecessary for consistent, effective social choice.

This paper examines the responses of the capital stock, output, and the price level to changes in the money stock in a neoclassical growth model in which money may not be neutral. The nonneutrality of money stems from the Tobin effect--the effect of anticipated inflation on capital accumulation. The adjustment of prices and output to monetary changes is shown not only to depend on whether the change is anticipated or not but also on the date at which the change first is anticipated. Adjustment patterns to anticipated changes show first Koyck leads and then Koyck lags. The model is extended to include labor supply effects of unanticipated inflation in Section XI. The paper concludes with discussions of the nature of the rational expectations solution chosen and of the mechanism producing the nonneutrality of money.

The primary purpose of unemployment insurance (U.I.) is no doubt to insure individuals against loss of wage income. However, U.I. is commonly believed to adversely affect job search behavior and to lengthen the duration of unemployment. With these issues in mind, this paper asks how U.I. benefits ought to be paid out over time. Specifically, the paper uses a theoretical model to determine characteristics of the time sequence of benefits that maximizes the expected utility of the unemployed, given that they act in a self-interested way and given the total size of the U.I. budget.