Knowledge that Transforms

Antidumping (AD) trade protection policies allow government agencies to recalculate AD duties based on foreign firms' most recent pricing behavior. We examine the resulting dynamic pricing problem of a foreign firm facing such policy. We show that the expected pattern of AD duty recalculations over time crucially depends on the foreign firm's ex ante expectations of possible outcomes of AD policy enforcement. Our empirical analysis then confirms the role of ex ante expectations in explaining observed patterns of AD recalculations. Many of our model's results are applicable to other situations where enforcement of policy is tied to the subject's behavior.

Scale economy in the construction and operation of public facilities, such as landfills, calls for cooperation among communities to build a common facility (Arthur O’Sullivan, 1993). Such a facility is a mixture of a public good and a private bad and, hence, leads to strong opposition by communities to locate it in their vicinity (Bruno S. Frey et al., 1996). This is one of the most serious environmental concerns of recent years, and is known as NIMBY: “not in my backyard.” In this paper we study the hypothesis that a democratic political process creates an adequate mechanism for the resolution of the NIMBY conflict. The intuitive explanation is simple. A NIMBY conflict is likely to induce lobbying and symmetric pressures by all threatened communities in the relevant region. As is well known (Gene M. Grossman and Elhanan Helpman, 1994), when subject to symmetric pressures, politicians stick firmly to principles and function most efficiently. The existing literature on the siting of noxious facilities focuses mainly on normative issues, such as welfare-maximizing siting via decentralized community-based mechanisms (e.g., Howard Kunreuther and Paul R. Kleindorfer, 1986; Robert C. Mitchell and Richard T. Carson, 1986; and Deborah Minehart and Zvika Neeman, 2002). Evidently, however, such mechanisms have seldom been practiced (e.g., Stephen K. Swallow et al., 1992). The current study adopts a positive approach, integrating a political-economic framework with a model of a competitive real estate market. In the theoretical section, a government of a linear two-city economy determines the location of a noxious facility, which affects the equilibrium in the real estate market and induces the spatial distributions of price and population. The government is subject to political pressures by city-level lobbies of landowners (both landlords and home owners). In general, the political equilibrium and the socially optimal siting differ. However, the more equitable the distribution of landownership in the region, the smaller the difference. At the limit, when property distribution is perfectly equitable and all cities participate in the political arena, the government locates the facility at the socially optimal site. The analysis proceeds by identifying additional conditions under which the political equilibrium siting coincides with the socially optimal location and, with an empirical analysis. In the empirical section, the theoretical framework is extended to account for a multiple-city region, and is calibrated to assess the prospects of the political system for resolving the NIMBY conflict in the context of landfill-siting in Israel. It is shown that if all cities in the region form political lobbies and the politicians are not extremely corrupt, the political siting is close geographically to the socially optimal location, and the difference entails a less than 0.1 percent reduction in social welfare. Moreover, even if the formation of lobbying in the region is incomplete, as long as the weight the politicians assign to social welfare is larger than 0.7, the proximity of the politically and socially optimal locations is preserved. We interpret the above results as supportive of the hypothesis of an effective political solution to the NIMBY conflict.

In this paper, we study the effectiveness of monetary policy in a severe recession and de?ation when nominal interest rates are bounded at zero. We compare two alternative proposals for ameliorating the effect of the zero bound: an exchange-rate peg and price-level targeting. We conduct this quantitative comparison in an empirical macroeconometric model of Japan, the United States and the euro area. Furthermore, we use a stylized micro-founded two-country model to check our qualitative ?ndings. We ?nd that both proposals succeed in generating in?ationary expectations and work almost equally well under full credibility of monetary policy. However, price-level targeting may be less effective under imperfect credibility, because the announced price-level target path is not directly observable. JEL Classification: E31, E52, E58, E61

Entrepreneurs are generalists who put together teams of people and assemble resources and capital. To do this effectively, they must have a general set of skills. Individuals may be endowed with a general set of skills, but endowments can be augmented by investment in human capital. It is shown that formal schooling is used to supplement the skill set of those who choose to become entrepreneurs.

This paper examines the impact of parental schooling on the child¿s schooling and uses adoptees to get rid of persistency effects caused by the parents¿ genes. The results indicate that, especially for mothers, inherited abilities and assortative mating play an important role in the intergenerational transmission of schooling. In fact, for adoptees I found no treatment effect for the mother¿s schooling, conditional on her husband¿s schooling. It should be noted, however, that the WLS data on adoptees and their parents do not possess the properties of a clean and well-de¿ ned experiment, and that obtained results require a careful interpretation. There are two potential dangers to an adoption experiment. First, adoptees and adoptive parents are different from other children and their parents. This argument suggests that my maternal schooling estimates may be biased and suffer from omitted variables, but I have little indication of what these might be. The sensitivity analysis ruled out a number of plausible candidates. Second, adoptees are not always randomly assigned to their adoptive parents. This argument suggests that a portion of what is interpreted as the impact of the parent¿s schooling may in fact be genetic. With respect to paternal schooling estimates there is some merit to this view. However, with respect to the estimated maternal effect it is not. Nonrandom assignment and corresponding upward bias form no danger when interpreting the absence of maternal schooling effects. In all, these results, in combination with the parallel finndings of Behrman and Rosenzweig (2002) using twins, support the idea that the positive influence of mother¿s schooling on that of her child disappears when heritable abilities and assortative mating are taken into account.

We empirically decompose the S&P 500's dividend yield into (1) a rational forecast of long-run real dividend growth, (2) the subjectively expected risk premium, and (3) residual mispricing attributed to the market's forecast of dividend growth deviating from the rational forecast. Consistent with the Modigliani-Cohn hypothesis, we find that the level of inflation explains almost 80% of the time-series variation in stock-market mispricing.

Very few business topics attract as much public attention as the paychecks of top executive officers in the largest U.S. companies. Undoubtedly, part of this interest has been fueled by the large and continuous increases in chief executive officers ’ (CEOs) compensation over the past three decades. Even ignoring the more recent escalation in the use of executive stock options (Brian Hall and Kevin J. Murphy, 2000, 2003), the base salaries and bonuses of Forbes 800 CEOs increased from an average of $700,000 in 1970 (in 2002-constant dollars) to over $2.2 million in 2000. 1 During the same period, the ratio of CEO cash compensation to average pay for production workers increased from about 25 in 1970 to nearly 90 in 2000. 2 The most prevalent explanation in popular press for this trend is the “fat cat ” theory, a variant of which has been espoused among academics by Lucian Bebchuk, Jesse Fried, and

US antitrust policy takes as its objective consumer welfare, not total economic welfare. With that objective, Joe Bain's definition of entry barriers is more useful than George Stigler's or definitions based on economic welfare. It follows that economies of scale that involve sunk costs may create antitrust barriers to entry. A simple model shows that sunk costs without scale economies may discourage entry without creating an antitrust entry barrier.(This abstract was borrowed from another version of this item.)

Explanations of unethical behavior often neglect the role of competition, as opposed to greed, in assuring its spread. Using the examples of child labor, corruption, "excessive" executive pay, corporate earnings manipulation, and commercial activities by universities, this paper clarifies the role of competition in promoting censured conduct. When unethical behavior cuts costs, competition drives down prices and entrepreneurs' incomes, and thereby reduces their willingness to pay for ethical conduct. Nonetheless, I suggest that competition might be good for ethical behavior in the long run, because it promotes growth and raises incomes. Higher incomes raise the willingness to pay for ethical behavior, but may also change what people believe to be ethical for the better.

What Students Remember and Say about College Economics Years Later by Sam Allgood, William Bosshardt, Wilbert van der Klaauw and Michael Watts. Published in volume 94, issue 2, pages 259-265 of American Economic Review, May 2004