Knowledge that Transforms

This paper analyzes airport congestion when carriers are nonatomistic, showing how the results of the road-pricing literature are modified when the economic agents causing congestion have market power. The analysis shows that when an airport is dominated by a monopolist, congestion is fully internalized, yielding no role for congestion pricing under monopoly conditions. Under a Cournot oligopoly, however, carriers are shown to internalize only the congestion they impose on themselves. A toll that captures the uninternalized portion of congestion may then improve the allocation of traffic. The analysis is supported by some rudimentary empirical evidence.

Our analysis of the contribution of education to growth recognizes its dual role of building human capital and promoting a common culture. It indicates that when different cultural groups separately determine the cultural orientation of their school curricula this may result in excessive polarization and sub-optimal growth. The optimal trajectory involves a gradual, reciprocal convergence of school curricula towards the middle, but may be difficult to implement in a political context in which curricula are determined by legislative bargaining. Coercive centralization then results in overly rapid homogenization and may not be superior to a decentralized school system.

This paper uses data on adopted children to examine the relative importance of biology and environment in determining educational and labor market outcomes. I employ three long-term panel data sets which contain information on adopted children, their adoptive parents, and their biological parents. In at least two of the three data sets, the mechanism for assigning children to adoptive parents is fairly random and does not match children to adoptive parents based on health, race, or ability. I find that adoptive parents' education and income have a modest impact on child test scores but a large impact on college attendance, marital status, and earnings. In contrast with existing work on IQ scores, I do not find that the influence of adoptive parents declines with child age.

Use It or Lose It: Teaching Literacy in the Economics Principles Course by W. Lee Hansen, Michael K. Salemi and John J. Siegfried. Published in volume 92, issue 2, pages 463-472 of American Economic Review, May 2002

This paper investigates the effect of limited enforcement of contracts on asset returns in a three-period pure- exchange overlapping generations economy. We consider a life-cycle setting with a safe and a risky asset and find that lack of commitment can significantly affect the rate of returns of these assets and possibly generate large equity premia.

In the main, empirical research is regarded as subordinate to theory. Theorists perform the difficult and innovative work of conceiving new and sometimes ingenious explanations for the world around us, leaving empiricists the relatively mundane task of gathering data and applying tools (supplied by theoretical econometricians) to support or reject hypotheses that emanate from the theory. To be sure, facts by themselves are worthless, “a mass of descriptive material waiting for a theory, or a fire,” as Ronald H. Coase (1984 p. 230), in characteristic form, dismissed the contribution of the oldschool institutionalists. But without diminishing in any way the creativity inherent in good theoretical work, it is worth remembering that theory without evidence is, in the end, just speculation. Two questions that theory alone can never answer are: First, which of the logically possible explanations for observed phenomena is the most probable? And second, are the phenomena that constitute the object of our speculations important? Modern empirical research on the firm, which dates to Kirk Monteverde and David J. Teece’s articles examining automotive procurement (1982a, b), is now substantial. Rather than try to summarize or discuss particular results of that literature, for which there are already several excellent surveys (the most recent of which is that of Christopher Boerner and Jeffrey Macher [2001]), my aim in the following is to comment more generally on the overall state of knowledge, particularly, the lessons that can be gleaned from the empirical literature about the relative usefulness of transaction-cost and agency theories of the firm and about the value of continued research on economic organization.

Bank of Minneapolis and University of Minnesota. We thank the NSF for financial support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. The Great Depression is not yet well understood. Economists have offered many theories for both the massive decline and the slow recovery of output during 1929—39, but no consensus has formed on the main forces behind this major economic event. Here we describe and demonstrate a simple methodology for determining which types of theories are the most promising. Several prominent theories blame the Great Depression on frictions in labor and capital markets. The sticky wage theory is that wage stickiness together with a monetary contraction produces a downturn in output. (See Michael Bordo, Christopher Erceg, and Charles Evans 2001.) The cartelization theory is that an increase in cartelization and unionization leads to a slow recovery. (See Harold Cole and Lee Ohanian 2001.) The investment friction theory is that monetary contractions increase frictions in capital markets that produce investment-driven downturns in output.

Effects of Environmental and Land Use Regulation in the Oil and Gas Industry Using the Wyoming Checkerboard as an Experimental Design by Mitch Kunce, Shelby Gerking and William Morgan. Published in volume 92, issue 5, pages 1588-1593 of American Economic Review, December 2002