Knowledge that Transforms

The efficiency effects of redistributive policies are analyzed using a computational general equilibrium model, based on U.S. data for 1979. For parameter values considered most reasonable, a tax-financed universal cash grant generates losses for the higher-income groups that exceed the gains of the lower-income groups by 50 to 130 percent. These efficiency costs are substantially below those calculated by other authors. The marginal efficiency cost of redistribution through wage subsidies is near zero and can be negative. Social preferences regarding inequality need not be anywhere near Rawlsian in order for society to prefer further redistribution.

The present body of product liability rules has been fashioned by common law judges, with an occasional assist from legislatures. The key premise of the present system is that freedom of contact, even subject to the usual caveats of force and misrepresentation, has no place to play within the product liability system. That assumption makes good sense in the few cases in which defective products are responsible for injuries to bystanders. But it is far more dubious when suits are brought by injured product purchasers or users. To be sure, there is typically no direct contract link between the manufacturer and ultimate purchaser. The absence of explicit contracts, however, is itself a reflection of the present body of legal rules that regulate product use. These rules refuse to enforce a limitation on liability or damages created by contract, and occasionally impose punitive damages on firms bold enough to seek contractual protection. If the law were otherwise, then a manufacturer could-and would-designate a retailer as his agent so as to secure a direct contract with a purchaser and, where possible, a product user. Contractual quiescence today is not a sign of satisfaction with the legal rules as ideal default provisions. Nor is it evidence that transactions costs are so high that voluntary agreements cannot be formed. It is only proof that any effort to contract out of the present tort system has been effectively blocked by the judges and legislatures who have created the modern law. The present regime of legal rules has powerful social consequences. The conventional economic assumption is that rational, self-interested parties only enter into contracts that ex ante assure them of some joint gain. By that standard, the present system of public regulation of contract terms, whether by common law decisions or statute, imposes significant losses on both sides. Legislation to remore these barriers to private contract could generate some substantial overall gains. Whenever legislation could generate some allocative improvement, it should be possible to divide the gains thereby generated to leave all interested parties better off than before. If the costs of passing legislation and dividing the gains were zero, then inefficient substantive rules would never remain on the public books. Today's product liability rules do not fade, but grow stronger with each passing year. The remainder of this paper helps to explain why this trend is likely to continue. The barriers to needed legislative reforms are simply too great.

While foreign investment augments the capital stock, it also affects land prices. If it causes land values to rise, then the resulting capital gain benefits current landowners, but the perma nent effect can be to reduce welfare. Other things equal, more-crowde d countries have higher land prices and lower steady-state welfare, b ut their net foreign indebtedness depends on technology, savings beha vior, and the interest rate. Even when it does not affect the domesti c capital stock, a land tax raises steady-state welfare.

An unemployment rate for the urban population living in the European U.S.S.R. for the late 1970s is calculated from a survey of 2, 793 former Sovi et citizens residing in the United States. Patterns of unemployment i ncidence, frequency of multiple spells, and unemployment duration by demographic characteristics are compared with U.S. patterns. In contr ast, similar unemployment rates for Soviet men and women, and a posit ive relation between education and unemployment, are found. The Sovie t unemployment rate is low compared to Western rates for the 1970s, b ut has been matched by West Germany and Japan in high-employment year s.

Optimal trade and industrial policies are derived for a home market that is supplied by a domestic firm and a foreign firm. The optimal policy combination can be quite sensitive to the nature of the duopoly's competition. For example, for some cost and demand s tructures, the optimal policy under Cournot competition consists of a domestic production tax and a tariff, but that under Bertrand compet ition consists of a production subsidy and free trade.

Single-parent female-headed families are a large and growing proportion of all families and comprise a disproportionately large share of the poverty population. However, among these father-absent families, those who receive child support payments have higher incomes and lower poverty rates. Unfortunately, many eligible women have no child support awards and many with awards do not receive full payment. With low earnings in the labor market and difficulty finding inexpensive quality child care, many mothers have no choice but to rely on the welfare system. The incidence of poverty is far greater among single-parent families headed by women than among other types of families. Of the 8.8 million women with children present and father absent in 1985, 2.8 million had incomes below the poverty level.' The absence of child support is a significant contributory factor. The poverty rate in 1985 for women not having child support awards was 49 percent; for those who did, it was 21 percent. Among those women awarded child support, the poverty rate was 18 percent if they received payments and 27 percent if no payments were received. As these figures suggest, securing more child support from absent fathers should help to alleviate poverty among single-parent families and may help to reduce the welfare rolls. Recent interest in improving the nation's child support enforcement system was sparked by the 1980 Census Bureau's release of alarming statistics on nonpayment rates. These statistics showed that, in 1979, only 59 percent of mothers with children from absent fathers had child support awards. Among those with an award and due payment in 1978, only about half received full paymentapproximately one-quarter received partial payment, while one-quarter received no payment at all. Moreover, payments that were made were often irregular. The average amount of child support (conditional upon receiving support) was only $1800 for an average of nearly two children. The situation was considerably worse than average for black mothers and never-married mothers. Only about one-third of black mothers had child support awards and among those that did, the award amount was about 18 percent lower than for nonblacks (see our 1986 article). Only 11 percent of never-married mothers had awards. Award amounts were less than half as much as for divorced mothers.