Knowledge that Transforms

There are two possible outcomes of transport regulation: (1) maintaining a carrier cartel and (2) imposing equalizing discrimination against advantaged and in favor of disadvantaged shippers. Both functions have required a complex rate structure to enforce the respective forms of price discrimination. Using a sample of freight bills from motor carriers and railroads, this paper demonstrates that the principal result of motor carrier regulation has been to maintain a cartel of truckers, while railroad regulation has thwarted the wishes of the railroad cartel by imposing equalizing discrimination on weak and strong shippers. Motor carrier rates respond in an economically rational manner to costs and shipper bargaining power; rail rates are either unresponsive or perversely responsive to the same factors. Deregulation should have divergent effects in the two industries.

This paper uses a formal model of search over multiattribute alternatives, analyzed in a product market setting, to investigate the theoretical foundations of the empirical literature on duration of search and turnover in product markets, labor markets, and marriage markets. A number of specific emirical predictions are also derived. In particular, whether "quality" is a "search" attribute or an "experience" attribute is related to the cost of search, the cost of inspection, the price of the good, and certain properties of the market distribution of price and quality.

We explore the conditions under which the welfare benefits of local public goods projects will be capitalized into land values. We find two types of sufficient conditions, one involving similar communities and the other involving differentiated communities. The form of capitalization differs between these cases, and we explore the nature of these differences. We also examine intermediate cases and identify models in which there will be no capitalization.

The conditions under which transactors can use the market (repeat-purchase) mechanism of contract enforcement are examined. Increased price is shown to be a means of assuring contractual performance. A necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance. This will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm-specific assets. Advertising investments thereby become a positive indicator of likely performance.

This paper formulates and estimates a structural intertemporal model of labor supply. Using theoretical characterizations derived from an economic model of lifetime behavior, a two-step empirical analysis yields estimates of intertemporal and uncompensated substitution effects which provide the information needed to predict the response of hours of work to life-cycle wage growth and shifts in the lifetime wage path.

[Effective marginal tax rates on labor income for the "representative" Swede have increased from roughly 50 percent in 1959 to 80 percent today. The effects of this increase in the level of taxation are examined using a two-sector model parameterized to correspond to the Swedish economy. The model contains a single household which allocates labor to either taxed (essentially market) or untaxed (largely household) uses. The estimated long-run effects are sufficient to explain up to 75 percent of the recent decline in the measured growth rate of the Swedish GNP. Calculations of total tax revenues are also derived from the model. These peak when the tax rate is approximately 70 percent, indicating that Sweden is presently on the downward-sloping portion of its "Laffer Curve."]

With imperfect job information flows, it is plausible that the distribution of job offerings becomes more attractive when there are more vacancies and more unemployed. With word-of-mouth communication, this condition is derived. Given this condition, steady-state equilibrium is not efficient, with welfare increased by the introduction of unemployment compensation even though all agents are risk neutral. In this way workers become more selective in the jobs they accept.

This paper develops and estimates a model of the joint determination of the exchange rate, international reserves, and the rate of inflation under a crawling-peg system. The framework presented, which is an extension of previous work on the monetary approach, generates short-run deviations from purchasing power parity that occur simultaneously with movements in both international reserves and the exchange rate. The model is estimated by full-information maximum likelihood on the basis of quarterly data for Brazil.