This article presents an equilibrium model of a dual labor market. Firms are assumed to be identical ex ante, and dualism arises endogenously. The dual labor market outcome is supported by efficiency wage and search considerations. Firms choose wage/effort requirement packages optimally given optimal search and effort choice by workers, and vice versa. We prove existence and investigate the occurrence and nature of dual labor market equilibria.

A testable single-beta model of asset prices is presented. If state variables have a long-run stationary joint density function, then the rate return on a very long-term default-free discount bond will be perfectly correlated with the representative investor’s marginal utility of consumption. Thus, the covariance of an asset’s return with the return on such a bond will be an appropriate measure of the asset’s riskiness. The model can be, therefore, applied or tested even though the market portfolio or aggregate consumption may not be observable. It also is shown that the expected rate of return on a very long-term bond is equal to its variance. This proposition can be tested to determine whether state variables follow stationary processes.

We examine share-price reactions of commercial bank common stock issues and find negative effects on rival commercial and investment banking firms. In comparison, we find no such intra-industry effects for equity issues by industrial firms. Our results support theoretical models in which bank loan portfolios impound asymmetric information about client firms, so that adverse individual bank announcements generate external information effects on other banks. A policy implication of these results is that regulatory pressures applied to individual banks induce spillover costs for the commercial and investment banking industries. Our evidence also indicates that the legal separation of commercial and investment banking activities is artificial.

This paper compares the industry characteristics that determine U.S. export competitiveness with those that affect the export competitiveness of U.S. multinationals. Higher R&D and human capital intensities are associated with high U.S. shares in exports and, more strongly with high U.S. multinationals' shares, and higher labor content with low shares. Within the multinationals, high R&D intensity leads to a larger share of the firms' exports being supplied from the U.S. parent. The higher the labor intensity and the level of advertising expenditures in an industry, the larger the proportion of the firms' exports supplied by the foreign affiliates. Copyright 1992 by MIT Press.

The composite cost function the authors propose combines a quadratic output structure with a log-quadratic input price structure and is well suited for examining economies of scope, subadditivity, and other important properties of multiproduct firms. To compare the composite model with an appropriate set of alternative functional forms, they develop a parsimonious--but general--specification that nests the standard translog cost function, the generalized translog cost function, a separable quadratic cost function, and the composite cost function. An application to economies of scope in banking confirms the advantages of the composite model. Copyright 1992 by MIT Press.

While the U.S. has pursued a vigorous antitrust policy towards horizontal mergers over the past four decades, mergers in Canada have until recently been permitted to take place in a virtually unrestricted antitrust environment. The absence of an antitrust overhang in Canada presents an interesting opportunity to test the conjecture that the rigid market share and concentration criteria of the U.S. policy effectively deters a significant number of potentially collusive mergers. The effective deterrence hypothesis implies that the probability of a horizontal merger being anticompetitive is higher in Canada than in the U.S. However, parameters in cross-sectional regressions reject the market power hypothesis on samples of both U.S. and Canadian mergers. Judging from the Canadian evidence, there simply isn't much to deter.

In this paper, we present an overlapping generations model with heterogeneous agents in which human capital investment through formal schooling is the engine of growth. We use simple functional forms for preferences, technologies, and income distribution to highlight the distinction between economies with public education and those with private education. We find that income inequality declines more quickly under public education. On the other hand, private education yields greater per capita incomes unless the initial income inequality is sufficiently high. We also find that societies will choose public education if a majority of agents have incomes below average.

This paper shows a widening in black-white earnings and employment gaps among young men from the mid-1970s through the 1980s. Earnings gaps increased most among college graduates and in the Midwest, while gaps in employment-population rates grew most among dropouts. We attribute the differential widening to shifts in demand for subgroups due to shifting industry and regional employment, the falling real minimum wage and deunionization, the growing supply of black to white workers that was marked among college graduates, and to increased crime among dropouts. The different factors affecting subgroups highlight the economic diversity of black Americans.

The wage differential between black and white men fell from 40 percent in 1960 to 25 percent in 1980. It has been argued that this convergence reflects improvements in the relative quality of black schools. To test this hypothesis, we assembled data on pupil-teacher ratios, annual teacher pay, and term length for black and white schools in the eighteen segregated states from 1915 to 1966. These data are linked to estimated returns to education for Southern-born men from different cohorts and states in 1960, 1970, and 1980. Improvements in the relative quality of black schools explain 20 percent of the narrowing of the black-white earnings gap between 1960 and 1980.