This paper analyzes optimal formation of rational expectations where information is costly to obtain to utilize. Under these conditions, expectations normally formed by an estimator will be intermediate between those based on all available information and those which are optimal extrapolative predictors.1 Since the costs of information are likely to vary less than the value of information, this model can explain systematic differences in expectations in markets, such as, labor, for which the value of accuracy of expectations differs between or among buyers and sellers. Similarly, expectations about the same variable may differ between markets where arbitrage is also costly. Section I extends a model due to Theil toanalyzetheeffectsofcostlyinformation. Illustrative applications are discussed in Section II.

A major conceptual error in the standard BLS and Lebergott unemployment estimates for 1930-43 is reported. Emergency workers (employees of government contracyclical programs such as WPA) were counted as unemployed on a normal-jobs-to-be-created instead of job-seekers unemployment definition. For 1933-41, the corrected unemployment levels are reduced by 2-3.5 million people and the rates by 4-7 percentage points. The corrected data show strong movement toward the natural unemployment rate after 1933 and are very well explained by an anticipations-search model using annual full-time earnings.

Breakthroughs with natural excludability are transferred to industry by top academic scientists (stars) working in or with firms. Movement to firms depends on scientists' quality, moving costs, and reservation wage. Scientists' quality, moving costs, trial frequency, interfering academic offers, and productivity of stars already in firms determine reservation wage. In group‐duration analysis for biotechnology, stars move to firms faster as their quality, human focus, and outside coauthorships increase; local firms and productivity of local stars in firms increase; and top local universities decrease. Stars move to firms full or part time similarly, but significance drops for rarer full‐time moves.

This paper develops a model of unemployment rate dynamics that provides an explanation of persistent cyclical unemployment that does not involve persistent expectational errors or other nonoptimizing behavior. Our results are based on the interaction of search dynamics and inventory adjustments. An important element in these dynamics appears to be heterogeneity in the labor force which can be characterized as consisting of a relatively small group of high turnover individuals who comprise the bulk of normal unemployment and a larger group of low turnover individuals who dominate movements in cyclical unemployment. Our empirical results provide support for this theory as we demonstrate that the appropriately measured probability of becoming employed during a recovery falls relative to normal because of the unusually high proportion of low turnover individuals who have lost permanent jobs. As aresult, recovery is much slower than is indicated by normal relationships although each individual is searching optimally.