Suppose that the government were to announce the economy will be booming in six months, and this announcement is based on false data. What effect would such an announcement have on future aggregate activity? This paper employs revisions of the series of leading economic indicators to test the hypothesis that such an announcement would have a positive effect on future activity. We find that the evidence is generally consistent with the hypothesis and that for the time period 1976–1988 the expectational shocks measured by these revisions explain over 20 percent of the fluctuation in the quarterly growth rate of industrial production.

A familiar result in the economic theory of the family is Becker's rotten-kid theorem. This theorem states that altruism by a family member will lead other selfish members to act efficiently from the family viewpoint. We extend Becker's one-period model to two periods and show that parental altruism can result in an inefficiency known in other contexts as the Samaritan's dilemma. Implications of this for transfer arrangements within the family and for the Ricardian equivalence theorem are drawn.

In previous work, we showed that a model that integrates job assignment, human capital acquisition, and learning can explain several empirical findings concerning wage and promotion dynamics inside firms. In this article, we extend that model in two ways. First, we incorporate schooling and derive further testable implications that we then compare with the available empirical evidence. Second, and more important, we show that introducing “task‐specific” human capital allows us to produce cohort effects. We further argue that task‐specific human capital is a realistic concept and may have many important implications. We also discuss limitations of our (extended) approach.

In recent years a large literature has developed that investigates the role of insurance in labor market contracting. Papers in this literature typically assume that workers are completely restricted from borrowing. We argue, and to some extent demonstrate, that in many environments capital market imperfections do not lead to a noborrowing result but rather to a capital market assumption that is intermediate between the no-borrowing assumption and the perfect capital market assumption. We then consider some of the ramifications that this intermediate capital market assumption has on the type of insurance the firms provide through the labor market contract.

Previous authors who have considered partially nonexcludable goods have claimed that an increase in copyright protection will have the following two effects on social welfare. First, it will decrease the social welfare loss due to underproduction. Second, it will increase the social welfare loss due to underutilization. In this paper we investigate these claims in a formal setting by analyzing a model in which consumers vary only in terms of their costs of obtaining a reproduction. Our analysis provides partial support to the first claim of these previous authors while giving little or no support to the second claim.

This paper considers the implications of heterogeneity in information-processing abilities for macroeconomic models that exhibit “strategic complements.” The latter is the same concept that has received much attention in the recent macro literature under the headings Keynesian coordination problems and positive trading externalities. We consider environments in which agents vary in terms of their ability to form expectations, and ask whether it is the “sophisticated” agents or the “naive” agents who have a disproportionately large effect on macroeconomic equilibrium. We find that if macroeconomic interaction exhibits strategic complementarity, then it is the naive agents who have a disproportionate impact.

Since Gary Becker’s (1964) seminal work, the theoretical and empirical literature on human capital has focused almost exclusively on general-purpose and firm-specific human capital. In this paper we discuss the implications of a third type of human capital, which we call task-specific, and which we believe is potentially as commonplace and as important as the two classic types. By task-specific human capital we mean that some of the human capital an individual acquires on the job is specific to the tasks being performed, as opposed to being specific to the firm. In other words, task-specific human capital is the simple but plausible idea that much of the human capital accumulated on the job is due to task-specific learning by doing. The idea of task-specific human capital is closely related to occupationand industryspecific human capital. In each case, human capital is specific to the nature of the work, not specific to the firm. Hence, when capital is accumulated, multiple firms value the capital, so most (or even all) of the value of the capital will be reflected in the worker’s wage. The main difference between the idea of task-specific human capital and occupationand industryspecific human capital is in how the idea is applied. We argue that task-specific human capital has much wider applicability than suggested (so far) by the occupationand industry-specific human-capital literatures; the specific issues we address are cohort effects, job design, and promotions. Another argument in the literature closely related to ours is the classic argument of Adam Smith (1776) in the Wealth of Nations concerning returns to specialization. Smith’s argument was that, due to learning-by-doing at the level of the task, productivity can be enhanced by having each job entail fewer tasks. We believe that Smith was correct in focusing on learningby-doing at the level of the task as an important idea for thinking about organizations. The goal of our paper is to describe some of the other implications of this idea for the design and operation of organizations.

In this paper we focus on a classic idea concerning span of control, which is that a prime driver is the scale of operations effect. We extend the theory concerning the scale of operations effect by allowing firms’ beliefs concerning a manager’s ability to evolve over the manager’s career. We empirically investigate the resulting testable predictions using a unique single-firm data set that contains detailed information concerning the reporting relationships at the firm. Our empirical analysis supports the notion that the scale of operations effect and learning are both important determinants of a firm’s span of control.