The Impact of Global Warming on Agriculture: A Ricardian Analysis: Comment by John Quiggin and John K. Horowitz. Published in volume 89, issue 4, pages 1044-1045 of American Economic Review, September 1999
We examine strategic interactions between firms and planners in China, comparing behavior between: (i) students and managers with field experience with this situation, (ii) standard versus increased monetary incentives, and (iii) sessions conducted “in context,” making explicit reference to interactions between planners and managers, and those without any such references. The dynamics of play are similar across treatments with play only gradually, and incompletely, converging on a pooling equilibrium. A fivefold increase in incentives significantly increases initial levels of strategic play. Games played in context generated greater levels of strategic play for managers, with minimal impact on students. (JEL D23, D8, C92)
In most member states of the European Union (EU), issues concerning sound and sustainable finances are high on the political agenda. This paper briefly reports the findings of 12 country studies that investigate the impact of the demographic transition on the intergenerational stance of current fiscal policy within EU, using the device of generational accounting as first developed by Alan J Auerbach et al. (1991).
Zipf's law is a very tight constraint on the class of admissible models of local growth. It says that for most countries the size distribution of cities strikingly fits a power law: the number of cities with populations greater than S is proportional to 1/ S . Suppose that, at least in the upper tail, all cities follow some proportional growth process (this appears to be verified emperically). This automatically leads their distribution to converge to Zipf's law.
In an earlier article in this Review, Christopher J. Waller and Carl E. Walsh (1996) (hereafter, WW the greater this influence, the weaker is the independence of the central bank. Institutional arrangements designed to overcome the time-inconsistency problem and political uncertainty constitute another dimension of central-bank independence, since these legal arrangements are ex ante choices which should not be dismissed ex post. W&W examine two legal arrangements, the length of the central banker’s term in office and the degree of conservativeness expressed as the weight attached to the inflation target. While partisanship and the degree of conservativeness are assumed to be exogenous, W&W only allow the length of the term in office to be optimally determined. They successfully obtain a finite optimal term length by introducing persistent shifts in long-run social preferences of inflation. Furthermore, they conclude that the appointment of a conservative central banker increases the optimal term length and results in lower average inflation, but need not necessarily increase output volatility. The obvious question is then: Why should a conservative central banker be appointed? As shown in many studies (e.g., Kenneth Rogoff, 1985), the highest degree of conservativeness is actually not optimal from the point of view of social welfare maximization. Moreover, since several types of economic distortions exist in W&W’s economy, that is heterogeneity of the preferred inflation rate, political uncertainty over the short-run median voter’s preferred inflation rate, persistent shifts in social preferences of inflation, and discretionary ways of implementing monetary policy, social welfare would further increase if more “instruments” were available to society. In this Comment, I extend W&W’s study by endogenizing the determination of the optimal degree of conservativeness. A simplified W&W model is set up in Section I, and some of the arguments in W&W are then clarified in Section II. Concluding remarks are given in Section III.
This paper reports findings from an experiment that implements a search-theoretic model of money as a medium of exchange. The question examined is whether subjects learn to adopt the same commodities as media of exchange that the model predicts will be used in equilibrium. We report that subjects have a strong tendency to play “fundamental” rather than “speculative” strategies even in environments where speculative strategies yield higher payoffs. We examine some possible motivations for subjects' behavior and conclude that subjects are mainly motivated by past payoff experience as opposed to the marketability considerations that the theory emphasizes. (JEL D83, E40)
It is now 25 years since the growth rate of labor productivity and of multi-factor productivity (MFP) decelerated sharply both in the United States and in most other industrialized nations. This ‘‘productivity slowdown’’ has eluded many attempts to provide single-cause explanations. Slow productivity growth in the past 25 years echoes slow productivity growth in the late 19th century. Perhaps both were normal, and what needs to be explained is not the post-1972 slowdown, but rather the post1913 ‘‘speedup’’ that ushered in the glorious 60 years between World War I and the early 1970’s in which U.S. productivity growth was much faster than before or after. This paper makes a sharp distinction between MFP growth calculated from inputs that combine simple measures of labor hours and the capital stock and growth based on measures that adjust for the changing composition of labor and capital. The first step toward an understanding of long-term trends is to compare like with like, splicing MFP data based on unadjusted inputs prior to 1950 with post1950 data based also on unadjusted inputs, as contrasted to the composition-adjusted inputs that are now desirably incorporated into our official MFP measures. The MFP record prior to 1929 still rests largely on the monumental work of John Kendrick (1961) which, however, is based almost entirely on input quantities that lack any adjustment for changes in composition. Edward Denison ( 1962, 1985 ) and Zvi Griliches (1960) pioneered the development of composition adjustments for labor input. Dale Jorgenson and Zvi Griliches (1967) introduced a framework that treats the problem of composition adjustment in both labor and
This is a perfect time to discuss inequality. After a period of three decades when wage inequality among men in the United States grew to approximate pre-World War II levels, measured inequality apparently has stabilized and may, in fact, be decreasing (Claudia Goldin and Robert A. Margo, 1992). It is, therefore, a time to assess the changes, to compare the gains and losses. I choose this topic, not to offend, but because I believe inequality is an economic good that has received too much bad press. I also think you will agree that it is a good, which like any other, can be scarce or overly abundant. I am neither trying to praise nor defend poverty, and I hope it is understood that the link between wages and income is not especially close, particularly at lower incomes where nonemployment dominates. Wages play many roles in our economy; along with time worked, they determine labor income, but they also signal relative scarcity and abundance, and with malleable skills, wages provide incentives to render the services that are most highly valued. Further, we all buy and sell labor either directly or indirectly as labor is embodied in products. To reverse of the themes of Milton Friedman's introductory theory class, one man's can be another's meat. Together with rising relative wages, the post-1950 increase in the job-market employment of women is of our major accomplishments, but it is an accomplishment that has been fueled in part by the low wages earned by those the Census classifies as private household workers, childcare workers, workers in laundries and cleaning establishments, food service workers, etc. As the population ages, the prospect of increasing dependence on personal assistance looms. For the most part, personal assistants and aides earn low wages, wages that extend the services we can afford. Friedman's actual observation is, however, that one man's meat is not necessarily another's poison (Friedman, 1976). The relatively high wages earned by physicians, scientists, and university professors have attracted many immigrants to the United States. Would we be better off if they had not immigrated? We could in fact reduce wage inequality by simply proscribing immigration, because the wage distribution of immigrants is U-shaped relative to that of natives (see J. P. Smith and B. Edmonston, 1997 p. 180 [table 5.4] ). My guess is that most economists, faced with such an option, would respond by directing attention to the services immigrants provide. My objective is to examine the recent period of increasing wage inequality with an eye toward the positive. I describe some of the changes that have occurred, speculate about the causes, and wrap up with illustrations of consequences. I contend that growing inequality has created opportunities that have been exploited by many and that the gains are not restricted to the traditional elite. Moreover, when we have adopted policies to mitigate the downside of increasing inequality, which is falling real wages in the lower parts of the distribution, a surprising number of individuals have also capitalized on those opportunities in ways that are not productive. Before turning to the data, I want to make a few general observations. * Department of Economics, Texas A&M University, College Station, TX 77843-4228. I am indebted to Martin Gritsch for assistance in extracting the data and to Barbara Charlton for secretarial support. I am also indebted to participants in the UCLA/RAND Labor Workshop and especially to Janet Currie and James P. Smith for comments and suggestions on an earlier draft. I have drawn heavily on my previous work, much of it in collaboration with Kevin M. Murphy.
U.S. macroeconomic evidence shows a negative relation between the rate of change of wages and unemployment. In contrast, most theories of wage determination imply a negative relation between the level of wages and unemployment. In this paper, we ask whether one can reconcile the empirical evidence with theoretical wage relations. We reach three main conclusions. First, we derive the condition under which the two can indeed be reconciled. We show the constraints that such a condition imposes on the determinants of workers' reservation wages as well as the relative importance of workers' outside options as opposed to match specific productivity in wage determination. Second, in the light of this condition, we reinterpret the presence of an error correction term in macroeconomic wage relations for most European economies but not in the United States. Third, we show that whether this condition holds or not has important implications for the effects of a number of variables -- from real interest rates to oil prices to payroll taxes -- on the natural rate of unemployment.(This abstract was borrowed from another version of this item.)
This article presents an empirical study of market power in the British electricity industry. Estimates of price-cost markups are derived using direct measures of marginal cost and several approaches that do not rely on cost data. Since two suppliers facing inelastic demand dominate the industry, most oligopoly models predict prices substantially above marginal costs. All estimates indicate that prices, while higher than marginal costs, are not nearly as high as most theoretical models predict. Regulatory constraints, the threat of entry, and financial contracts between the suppliers and their customers are considered as possible explanations for the observed price levels. (JEL L13, L94)