Knowledge that Transforms

We present models in which price discrimination in the context of a two-part price can occur in some competitive markets. Purchases take place in groups, which choose which firms to patronize. While firms are perfectly competitive with respect to groups, they have some market power over individual consumers, who are constrained by their groups' choices. We find that firms will charge an entry fee that is below marginal cost, and the second part of the price is marked up above marginal cost. The markup not only is positive but increases with the quality of the product.

The potential welfare benefits of unemployment insurance, along with the optimal replacement ratio, are studied using a quantitative dynamic general equilibrium model. To provide a role for unemployment insurance, agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets. In the absence of moral hazard, replacement ratios as high as .65 are optimal and the welfare benefits of unemployment insurance are quite large. However, if there is moral hazard and the replacement ratio is not set optimally, but is instead set to an empirically plausible value, the economy can be much worse off than it would be without unemployment insurance.

In this paper, we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth. We use simple functional forms for preferences, technologies, and income distribution to highlight the distinction between economies with public education and those with private education. We find that income inequality declines more quickly under public education. On the other hand, private education yields greater per capita incomes unless the initial income inequality is sufficiently high. We also find that societies will choose public education if a majority of agents have incomes below average.

Costs must be incurred if an owner is to enforce private property rights effectively. We show that, in a perfectly competitive economy, private decisions to enforce rights may result in either more or less enforcement than is socially efficient. Cases of multiple stable equilibria occur, and an equilibrium may be locally, but not globally, efficient. Resources may not be employed in their socially most valuable uses, and enforcement may be accompanied by inefficient investment in resource productivity.

This paper examines the credit rationing debate using detailed contract information on over one million commercial bank loans from 1977 to 1988. While commercial loan rates are "sticky," consistent with rationing, this stickiness varies with loan contract terms in ways that are not predicted by equilibrium credit rationing theory. In addition, the proportion of new loans issued under commitment does not increase significantly when credit markets are tight, despite the fact that borrowers without commitments can be rationed whereas commitment borrowers are contractually insulated from rationing. Overall, the data suggest that equilibrium rationing is not a significant macroeconomic phenomenon.

This paper explores the implications for the pattern of international trade of differences among regions within countries--what we call "lumpiness." If factors of production are sufficiently unevenly distributed across regions, then the pattern of trade of the country as a whole may depart from what it would have been had factors been evenly distributed. Thus lumpiness in the geographical distribution of factors can be a determinant of trade. We show in particular that if other determinants of trade are absent, then a country will tend to export the good that intensively uses its lumpier (i.e., more unevenly distributed) factor.

This paper studies the transition from school to full-time employment and subsequent labor mobility during the first five postschooling years for several recent cohorts of black and white male "terminal" high school graduates using unique data from the 1979 youth cohort of the National Longitudinal Surveys of Labor Market Experience. A constrained optimization model of labor force dynamics is implemented empirically integrating features of models previously described in the literature. The estimates of the model provide quantitative evidence on underlying structural differences in labor market constraints faced by blacks and whites. For example, while blacks have overall a substantially smaller wage return to work experience and face a less disperse wage offer distribution, blacks face a higher probability of receiving job offers.

This paper examines why we have marketmakers (specialists in stock markets, used-car dealers) in some markets and matchmakers (real-estate brokers, employment agencies) in others. Using a bilateral search model, it is shown that when the valuations of the agents are private information, marketmaking might yield higher or lower profits and welfare effects than matchmaking, depending on the efficiency and the cost of search and on the distribution of valuations of the agents. This is in contrast to an earlier result that when the agents' valuations are common knowledge marketmaking yields higher profits and greater welfare effects than matchmaking.