Interactions between Unmarried Fathers and Their Children: The Role of Paternity Establishment and Child-Support Policies by Laura M. Argys and H. Elizabeth Peters. Published in volume 91, issue 2, pages 125-129 of American Economic Review, May 2001
Theoretical work on the principal-agent problem in financial contracting focuses on the conflicts of interest between an agent / entrepreneur with a venture that needs financing, and a principal / investor providing funds for the venture. Theory has identified three primary ways that the investor / principal can mitigate these conflicts - structuring financial contracts, pre-investment screening, and post-investment monitoring and advising. In this paper, we describe recent empirical work and its relation to theory for one prominent class of principals venture capitalists (VCs). The empirical studies indicate that VCs attempt to mitigate principal-agent conflicts in the three ways suggested by theory. The evidence also shows that contracting, screening, and monitoring are closely interrelated. In screening, the VCs identify areas where they can add value through monitoring and support. In contracting, the VCs allocate rights in order to facilitate monitoring and minimize the impact of identified risks. Also, the equity allocated to VCs provides incentives to engage in costly support activities that increase upside values, rather than just minimizing potential losses. There is room for future empirical research to study these activities in greater detail for VCs, for other intermediaries such as banks, and within firms.
a country that chooses not to "perma-nently " fix its exchange rate through a currency board, or a common currency, or some kind of dollarization, the only alternative monetary pol-icy that can work well in the long run is one based on the trinity of (i) a flexible exchange rate, (ii) an inflation target, and (iii) a monetary policy rule. ' While not often put into this three-part format, the desirability of such a monetary policy in an open economy is, in my view, the clear implication of three corresponding strands of recent monetary research: (i) research on fixed-exchange-rates regimes, including the in-
With fixed costs of participating in the stock market, consumers with high income will participate in the stock market, but consumers with lower income will not participate. If a fully funded defined-contribution Social Security system tries to exploit the equity premium by selling a dollar of bonds per capita and buying a dollar of equity per capita, consumers who save but do not participate in the stock market will increase their consumption, thereby reducing saving and capital accumulation. Calibration of a general-equilibrium model indicates that this policy could reduce the aggregate capital stock substantially, by about 50 cents per capita. (JEL H55)
Intertemporal Depletion of Resource Sites by Spatially Distributed Users by Gerard Gaudet, Michel Moreaux and Stephen W. Salant. Published in volume 91, issue 4, pages 1149-1159 of American Economic Review, September 2001
The choice of the exchange-rate regime has always been an area of great controversy and debate. The discussion has once again taken center stage in the developing world. The sequence of currency crises in the 1990's, the success of culTency-board arrangements, the dollarization plan of Ecuador, and the apparent swing toward flexible regimes of many emerging economies has revived interest in this debate. Milton Friedman (1953) argued that one of the most important advantages of flexible regimes over fixed regimes is that they can smooth adjustment to real shocks even in the presence of nominal rigidities. Ever since, this has been one of the least disputed benefits attributed to fully flexible exchange-rate regimes. Subsequent to Friedman, many theories of the international transmission of real shocks have confirmed the original intuition that the shortrun responses to terms-of-trade shocks should be different across exchange-rate regimes. Here I look at a post-Bretton Woods sample of 74 developing countries to test whether flexible regimes can buffer terms-of-trade shocks better than fixed regimes.
Between 1965 and 1975 the enrollment rate of college-age men in the United States rose and then fell abruptly. Many contemporary observers (e.g., James Davis and Kenneth Dolbeare, 1968) attributed the surge in college attendance to draft-avoidance behavior. Under a policy first introduced in the Korean War, the Selective Service issued college deferments to enrolled men that delayed their eligibility for conscription. These deferments provided a strong incentive to remain in school for men who wanted to avoid the draft. For example, the college entry rate of young men rose from 54 percent in 1963 to 62 percent in 1968 (the peak year of the draft). Moreover, both the college entry rate and the number of inductions dropped sharply between 1968 and 1973 as the draft was being phased out. Although these parallel trends are suggestive, they do not necessarily prove that draft avoidance raised the education of men who were at risk of service during the Vietnam War. Such an inference requires an explicit specification of the “counterfactual”: What would have happened to schooling outcomes in the absence of the draft? In this paper we use trends in enrollment and completed schooling of men relative to those of women to measure the effects of draftavoidance behavior during the Vietnam War. Our maintained hypothesis is that, in the absence of gender-specific factors such as the draft, the relative schooling outcomes of men and women from the same cohort would follow a smooth trend. In light of the sharp discontinuity in military induction rates between 1965 and 1970, we look for similar patterns in the relative enrollment rate of men, and in the relative college graduation rate of men from cohorts that were at risk of induction during this period.
There is a worldwide trend toward defined contribution saving plans and growing interest in privatized Social Security plans. In both environments, individuals are given some responsibility to make their own asset-allocation decisions, raising concerns about how well they do at this task. This paper investigates one aspect of the task, namely diversification. We show that some investors follow the “1/n strategy”: they divide their contributions evenly across the funds offered in the plan. Consistent with this naive notion of diversification, we find that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan. (JEL G11, G23, H55)
Stanley Engerman has been a presence in the Department of Economics at the University of Rochester for over 37 years. He was an early and eminent participant in the Cliometric Revolution that swept throughout the economichistory profession in the 1960’s and 1970’s. We doubt that anyone could have anticipated the “gathering storm” that greeted the publication of Time on the Cross, co-authored with Robert Fogel in 1974. Since that time Stan has become the world’s leading authority on slavery in the Americas and the Caribbean, as well as an important contributor to a set of issues ranging from the 19th century American iron industry to the economics of British imperialism. His own human capital, as extensive as we know it to be, is complemented by capital of the physical variety: an enormous library of research material spilling over into bookshelves and floors in several offices in Rochester and attracting a yearly stream of itinerant scholars anxious to pick his books as well as his brains. In this short note, we intend to honor Stan by applying the tools of international trade theory to illustrate several episodes in the development of industries, both in the United States and in world markets. A colleague of Stan’s at Rochester, Lionel McKenzie, once commented that, in 19th century Britain, Lancashire would have been unlikely to produce cotton cloth if the cotton had to be grown in England (McKenzie, 1954). This remark expresses in utter brevity the importance to production and trading patterns of the domain of tradability of raw materials or intermediate products. For example, it is difficult to envisage the patterns of production (and trade) in modern-day Japan should it be denied access to world supplies of oil, coal, and iron ore, local production of each of these items being negligible. Transport costs as well as man-made impediments to trade are mainly responsible for variations in the degree of access countries possess to the inputs available in the markets of other countries. Simple competitive generalequilibrium models of production, of the type intensively utilized in the theory of international trade, can usefully be harnessed to shed light on several episodes in 19th century American economic history in which the nature of trading possibilities for raw materials heavily influenced the extent to which local American production of final commodities could withstand the pressures in world markets without the aid of protective devices. The simplest model setting in which to investigate the importance of trade in raw materials is a Ricardian model, augmented by the necessity of using a produced input in addition to labor in at least one commodity. Denote the pair of final commodities by X and Y, where in order to produce Y a certain quantity of intermediate good, Z, is required. The competitive profit conditions for the two final commodities are shown in equation (1):