Knowledge that Transforms

Detailed notes on weekly meetings of the sugar-refining cartel show how communication helps firms collude, and so highlight the deficiencies in the current formal theory of collusion. The Sugar Institute did not fix prices or output. Prices were increased by homogenizing business practices to make price cutting more transparent. Meetings were used to interpret and adapt the agreement, coordinate on jointly profitable actions, ensure unilateral actions were not misconstrued as cheating, and determine whether cheating had occurred. In contrast to established theories, cheating did occur, but sparked only limited retaliation, partly due to the contractual relations with selling agents. (JEL L13, L41)

Over 40 years ago Gary Becker (1957) argued that competition helps mitigate the ability of firms to engage in wage and employment discrimination. Deregulated transportation industries, in particular, provide fertile ground to test the Becker hypothesis. The increase in competition from deregulation should make it increasingly costly for employers to exercise discriminatory preferences. Several studies of the deregulated trucking industry provide support for this hypothesis (Nancy L. Rose, 1987; Peoples and Lisa Saunders, 1993; John S. Heywood and Peoples, 1994). This study also utilizes information on transportation industries to test the Becker hypothesis. It differs from the literature in that one of the transportation industries examined is privatized.1 At question is whether the Becker hypothesis also holds for a publicly owned transportation industry in a privatized environment. This question is addressed by investigating privatization's effect on black-white earnings differentials of public-transit bus drivers. These results are then compared with deregulation's effect on black-white earnings differentials of private for-hire truck drivers. Such a comparison allows for analyzing differences in differential earnings for comparable occupations in privatization and deregulation regimes. I. Transportation Industries

Behind similar unemployment rates in the United States and Portugal hide two very different labor markets. Unemployment duration is three times longer in Portugal than in the United States. Symmetrically, flows of workers into unemployment are three times lower in Portugal. These lower flows come in roughly equal proportions from lower job creation and destruction, and from lower worker flows given job creation and destruction. A plausible explanation is high employment protection in Portugal. High employment protection makes economies more sclerotic; but because it affects unemployment duration and worker flows in opposite directions, the effect on unemployment is ambiguous. (JEL E2, J3, J6)

Racial Differences in Transportation Access to Employment in Chicago and Los Angeles, 1980 and 1990 by Chanjin Chung, Samuel L. Myers and Lisa Saunders. Published in volume 91, issue 2, pages 174-177 of American Economic Review, May 2001

A new data set facilitates study of learning spillovers in World War II shipbuilding. Our results contain two principal but contrasting themes. First, learning spillovers were a significant source of productivity growth, and may have contributed more than conventional learning effects. Second, the size of the learning externalities across yards, as measured by Spence's θ, were small. These findings, which are not mutually inconsistent, suggest an optimistic view of learning spillovers: they are a significant source of productivity growth, but the market failures induced by learning externalities may be modest. (JEL D24, N72, O3)

We examine investment behavior when firms face costs in the access to external funds. We find that despite the existence of liquidity constraints, standard investment regressions predict that cash flow is an important determinant of investment only if one ignores q. Conversely, we also obtain significant cash flow effects even in the absence of financial frictions. These findings provide support to the argument that the success of cash-flow-augmented investment regressions is probably due to a combination of measurement error in q and identification problems. (JEL E22, E44, G31)

We use event-time methodology to study legal insider trading associated with mergers circa 1900. For mergers with “prospective” disclosures similar to today's, we find substantial value gains at announcement, implying participation by “out-side” shareholders despite the absence of insider constraints. Furthermore, preannouncement stock-price runups, relative to total value gain, are no more than those observed for modern mergers. Insider regulation apparently has produced little benefit for outsiders, with the inside information-pricing function and related gains shifting to external “information specialists.” Other results suggest market penalties for nondisclosure; i.e., insider trading is less successful in a restricted information environment. (JEL G3, K2, L5, N2)

Inflation Is Always and Everywhere a Monetary Phenomenon: Richmond vs. Houston in 1864 by Richard C. K. Burdekin and Marc D. Weidenmier. Published in volume 91, issue 5, pages 1621-1630 of American Economic Review, December 2001

How Liable Should a Lender Be? The Case of Judgment-Proof Firms and Environmental Risk: Comment by Dieter Balkenborg. Published in volume 91, issue 3, pages 731-738 of American Economic Review, June 2001

Consider an individual making a portfolio choice at date T involving two assets. The (gross) returns at t per unit invested at t 1 are Yit and Y2t* The individual has observed these returns from t = 0 to t = T. He has also observed the values of the variables Y3t',... YKt, which are thought to be relevant in forecasting future returns. Thus, the information available to him when he makes his portfolio choice is z = {(Yt ... YKt)} t=0. He invests one unit, divided between an amount a in asset 1 and an amount 1 a in asset 2, and he then holds on to the portfolio until date T + H. Let w = {(Yit, Y2t)}T:H+ 1 and let h(w, a) denote the value of the portfolio at t T + H: