Knowledge that Transforms

In their paper in this Review, Jeffrey A. Frankel and Katherine E. Rockett (1988) show that when international macroeconomic policymakers do not agree on the correct macroeconomic model, they will still be able to agree on a cooperative policy package that each believes will improve his welfare. Yet the package may turn out to move target variables in the wrong direction. From extensive simulation experiments with ten empirical models, Frankel and Rockett conclude: ...the bargaining solution is as likely to reduce welfare as to improve it. But more definitions of cooperation should be investigated... (p. 338). In this paper we propose an alternative definition of a policy bargain to that investigated by Frankel and Rockett and show that results in a higher success rate and higher expected utility in cooperation exper-iments. It follows from our finding that, given uncertainty or ignorance about the true model, a measure of disagreement is beneficial because facilitates a simple robustness check for proposed policy bargains. As Frankel and Rockett (1988 p. 328) acknowledge: it is the countries' failure to perceive the true model, not their failure to agree with each other per se, that alters the standard conclusion regarding coordination (i.e., is uncertainty, not disagreement, that leads to failure). We go further: given the inevitable failure to perceive the true model, some disagreement is better than unanimity in error. Extreme disagreement about the nature of reality, however, makes robust bargains impossible.

Is a comprehensive income tax like the one envisioned by the Shoup Commission still the goal of the Japanese tax system? Or, have economic conditions changed so much that a different goal should be adopted? The gravest problem of the tax reforms of the 1980's was the absence of a judgment on this point. In fact, there was a contradiction with respect to choice of tax base. On the one hand, reform aimed at the comprehensive income tax goal by including in the tax base interest income and capital gains from sales of securities. On the other hand, there was a deviation from the principle in attempts to introduce a broadly based consumption tax. This is justified only if one admits the expenditure tax principle.

The Federal Trade Commission's action to eliminate basing-point pricing in the soft plywood industry during the mid 1970s created a natural experiment: the author finds that the FTC's action had no effect on the delivered price of the base-site product (Douglas fir plywood) but decreased the delivered price of the non-base-site product (pine plywood) for many consumers. The evidence suggests that the detrimental effects of basing-point pricing for economic welfare were reflected entirely in the behavior of non-base-site firms. Copyright 1992 by American Economic Association.

The 1992 program for completing the European single market, represents a massive experiment in economic liberalization. To the extent that the 1992 objectives are attained, the European market of over 350 million consumers will constitute the world's largest, with a per capita GNP comparable to that of the United States. Associated effects include larger potential sales for winning firms, as well as much more rigorous import and foreign subsidiary competition within the markets of the member states of the European Community (EC). Such developments could generate substantial distributive effects. In this laissez-faire perspective, and in view of significant industrial restructuring involving firms from both inside and outside the EC, the question can be raised whether there is a role for an industrial policy to promote European high-tech firms, or should we simply accept the general conclusion of Damien Neven and John Vickers (1990 p. 33), who found little to disturb the tentative conclusion, that in the area of industrial adjustment, competitive market forces do an imperfect job, but one that the instruments of industrial policy are unlikely to improve upon. This paper focuses on, the crucial link between the relative technological competitiveness of European industries and the consequences of post-1992 industrial restructuring. More precisely, we will contend that: 1) firms of European origin are handicapped by their present competitive position, which is inherited from an era of highly segmented markets and national champions; 2) this disadvantage may have farreaching consequences for the economic welfare of the EC; 3) a technology policy at the EC level could potentially alleviate this handicap; 4) the European Commission's existing RD and therefore, 5) the role of the Commission in promoting an optimal European technological policy should not be limited by the subsidiarity principle, which suggests that responsibility for decision-making should be delegated to lower government levels whenever feasible.

The prevalence of labor contracts with fixed duration seems surprising. Why is a fixed duration preferred to a stochastic duration that depends on the consumer price index? In this paper, the specification of the contract duration is determined endogenously. The wage rate can be indexed to the consumer price index, but there is a loss since the indexation must be the same for different types of shocks. This loss increases with the variability of the contract duration. Since the loss due to the contracting cost depends on the expected discounted duration only, a fixed duration is chosen. Copyright 1992 by American Economic Association.

This paper critically evaluates the scope and content of undergraduate courses on the economic status of women. It responds critics who question whether these courses are too interdisciplinary, too laden with ideology, and too soft qualify as economics courses. It details the content of existing courses and investigates how well they meet the following objectives: (1) familiarize students with the economists' toolbox (supply and demand curves, the concept of constrained optimization, etc.); (2) expose students topics of empirical importance in understanding the status of women and topics that pose particular challenges economic orthodoxy; (3) investigate how considerations of gender may lead a restructuring of research questions and economic models; and (4) stimulate and nurture constructive debate on the determinants of the economic status of women by demanding that assertions be backed by analysis and facts. The first objective is a goal of any undergraduate course in economics: teach students to think like economists (John J. Siegfried et al. 1991 p. 199). The second and third objectives serve differentiate this course from other undergraduate courses in economics and acknowledge its feminist perspective. A standard undergraduate course in labor economics has as its organizing theme the study of decisions and constraints faced by individuals engaged in market work. Gender is one of many factors studied. The organizing theme of a course on gender and the sexual division of labor is the study of decisions and constraints faced by women, in some cases as compared with men. With gender as its primary focus, a course on women in the economy devotes more time nonmarket production than does a standard course in labor economics. The fourth objective is protect against the excesses of political correctness from the right or from the left. Every participant in a course on the sexual division of labor has a financial and emotional stake in the issues covered. This has advantages (it is not difficult generate discussion) and disadvantages (biases, prejudices and self interest can easily permeate the discussion). Demanding that students provide facts and analysis support their assertions minimizes this disadvantage, both in classroom discussions and in term papers. To back up assertions with facts, students must learn how access, read, and interpret data on the economic status of women. Information is drawn from two sources: syllabi collected by the author in the fall of 1990 and syllabi compiled by Barbara Bergmann (1991). Twelve undergraduate courses are represented in the sample.' All but one focus on the economic status of women in the United States, and only two are explicitly interdisciplinary. The typical prerequisite is one introductory course in economics.