Knowledge that Transforms

Changes in the Distribution of Children's Family Income over the 1990's by Rebecca M. Blank and Robert F. Schoeni. Published in volume 93, issue 2, pages 304-308 of American Economic Review, May 2003

The Role of the Family in Immigrants' Labor-Market Activity: An Evaluation of Alternative Explanations: Comment by Francine D. Blau, Lawrence M. Kahn, Joan Y. Moriarty and Andre Portela Souza. Published in volume 93, issue 1, pages 429-447 of American Economic Review, March 2003

The persistently large number of uninsured, roughly 40 million per year since 1993, continues to elicit bipartisan policy interest. Coverage-expansion proposals without mandates, by far the most common since the defeat of the Clinton plan, must address risk-pooling realities in private markets. Insurers have strong financial incentives to segment risks and minimize pooling of heterogeneous risks, and narrow risk-pooling will diminish the adequacy of premium subsidies based on income alone, at least for higher-risk individuals. The current debate over flat tax credits and the non-group market is a case in point (Blumberg, 2001; Center for Studying Health System Change, 2002; Jack Hadley and James D. Reschovsky, 2002). We, along with nine other teams, were asked to develop a proposal that would expand coverage in a large and creative way (see Holahan et al., 2001). The proposal we developed would subsidize low-income individuals and families but also addresses the issue of inefficient and inequitable risk-pooling.

Macroeconomists have for some time been aware that the New Keynesian Phillips curve, though highly popular in the literature, cannot explain the persistence observed in actual inflation. We argue that one of the more prominent alternative formulations, the Fuhrer and Moore (1995) relative contracting model, is highly problematic. Fuhrer and Moore's 1995 formulation generates inflation persistence, but this is a consequence of their assuming that workers care about the past real wages of other workers. Making the more reasonable assumption that workers care about the current real wages of other workers, one obtains the standard formulation with no inflation persistence.

Creating the U.S. Dollar Currency Union, 1748-1811: A Quest for Monetary Stability or a Usurpation of State Sovereignty for Personal Gain? by Farley Grubb. Published in volume 93, issue 5, pages 1778-1798 of American Economic Review, December 2003

We develop a conceptual framework for valuing biodiversity from an economic perspective. We argue for a dynamic economic welfare measure of biodiversity that complements the literature on benefit-cost approaches and genetic distance/phylogenic tree approaches. Using a unified model of optimal economic management of an ecosystem under ecological and genetic constraints, we identify gains from management policies leading to a more diverse system, using the Bellman state valuation function of the problem. We show that a more diverse system could attain a higher value although the genetic distance of the species in the more diverse system could be almost zero.

Reform of the mechanisms and procedures through which problems of sovereign debt sustainability are resolved is at the center of the effort to make the international financial system more resilient and less crisis prone. Governments that default on their debts must embark on lengthy and difficult negotiations. Lenders and borrowers, uncertain of one anothers willingness to compromise, may engage in costly wars of attrition, delaying agreement on restructuring terms. Even if disagreements about the debtors willingness and ability to pay are put to rest, dissenting creditors may continue to block agreement until they are bought out on favorable terms. In the interim, the creditors receive no interest, and the borrowing country loses access to international capital markets. The exchange rate may collapse, and banks with foreign-currency-denominated liabilities may suffer runs. To avert or delay this costly and disruptive crisis, the International Monetary Fund will come under intense pressure to intervene, provoking all the controversy that IMF intervention typically entails. Officials of the borrowing country, for their part, will go to great lengths to avoid seeing the country placed in this difficult situation. They may raise interest rates, run down their reserves, and put their economy through a deflationary wringer, all at considerable cost to society. These costs could be reduced, the implication follows, if countries with unsustainable

At least 41 million Americans are currently without health insurance in any given month (U.S. Bureau of the Census, 2002). They are uninsured for a variety of reasons, and most people who lack coverage are affected by more than one reason. Two generalizations can be made, however. First, a majority simply cannot afford to purchase health insurance unless it is heavily subsidized. Most do not have access to employer-sponsored coverage and so must purchase any insurance in the non-group (individual) health-insurance market - a market where, as I explain below, insurance is typically twice as expensive as employer-group coverage if it is not denied outright. Since about two-thirds of the uninsured have incomes below $35, 000, non-group health-insurance premiums often exceed 10 percent of their incomes. The second generalization is that, to an important extent, high premiums in the non-group market and denial of coverage reflect market failure due to asymmetric information. Insurers can never know as much as an individual does about his or her health, family history of health problems, and tendency to seek medical care. Because of this asymmetry, it is impossible for an insurer to set premiums that accurately reflect the non-random portion of health-care costs for different individuals. The non-group market is the only health-insurance option for people without employersponsored coverage. Tax-related subsidies as proposed by members of Congress and the Bush administration do not address the market-failure problems and so are unlikely to make insurance much more affordable. To increase access to health insurance, risk in the non-group market needs to be shifted to a broader population base. In what follows, I first describe the three distinct health-insurance markets in which people can obtain health insurance, and the special nature of competition among insurance companies in the non-group market. Then I make the case for government to act as reinsurer and assume the risk of extremely high-cost people. Efficiency in the non-group health-insurance market would be improved if the government reinsured the market. Equity also would be increased if the government acted as reinsurer because more uninsured people would have access to insurance. Finally, I describe precedents for this role for government in other markets, and why tax-related subsidies will not succeed in increasing health-insurance coverage unless the risks of extremely high costs are shifted to the government.

This paper studies kinship band networks as capital market institutions. Membership in a community where individuals are dynastically linked has two effects on informal credit. First, the nonanonymity of the dynastic link allows to sanction the defaulters’ offspring and induce compliance even in short-term interactions (social enforcement). Second, preferential agreements can arise in which kin members condition their behavior on the characteristics of a player’s predecessor, expecting others to do the same with their offspring (reciprocity). These effects are incorporated in an OLG game with endogenous matching between lenders and borrowers and tested using household-level data from Ghana.

In many empirical studies of the effect of social programs researchers assume that, conditional on a set of observed covariates, assignment to the treatment is exogenous or unconfounded (aka selection on observables). Often this assumption is not realistic, and researchers are concerned about the robustness of their results to departures from it. One approach (e.g., Charles Manski, 1990) is to entirely drop the exogeneity assumption and investigate what can be learned about treatment effects without it. With unbounded outcomes, and in the absence of alternative identifying assumptions, there are no restrictions on the set of possible values for average treatment effects. This does not mean, however, that all evaluations are equally sensitive to departures from the exogeneity assumption. In this paper I explore an alternative approach, developed by Paul Rosenbaum and Donald Rubin (1983), where the assumption of exogeneity is explicitly relaxed by allowing for a limited amount of correlation between treatment and unobserved components of the outcomes. The starting point of the sensitivity analysis is the assumption that the exogeneity assumption is satisfied only conditional on an additional unobserved covariate. Making assumptions about the effect of the unobserved covariate on the outcome and its correlation with the treatment, I trace out the set of possible values for the treatment effect of interest. By considering a sufficiently large set of possible correlations with outcomes and treatment, one can recover the bounds on the treatment effect derived by Manski (1990). The approach here, in the spirit of Rosenbaum and Rubin (1983) and Rosenbaum (1995), is to allow only a limited amount of correlation and to judge the sensitivity of average treatment-effect estimates to such correlations. There are two novel features of the proposed analysis. First, rather than formulate the sensitivity in terms of coefficients on the unobserved covariate, the sensitivity results are presented in terms of partial R values, which may be easier to interpret. Second, the partial R values of the unobserved covariates are compared to those for the observed covariates in order to facilitate judgments regarding the plausibility of values necessary to substantially change results obtained under exogeneity. The proposed sensitivity analysis is conceptually related to the practice of assessing sensitivity of estimates by comparisons with results obtained by discarding one or more observed covariates (James Heckman and V. Joseph Hotz, 1989; Rajeev Dehejia and Sadek Wahba, 1999; Jeffrey Smith and Petra Todd, 2001). The attraction of the sensitivity analysis is that it is more directly relevant: one is not interested in what would have happened in the absence of covariates actually observed, but in biases that are the result from not observing all relevant covariates.