Knowledge that Transforms

Previous evaluations of Job Corps document disparate effects on the earnings of adolescents (aged 16-19) and young adults (aged 20-24). These are conjectured to be due to differential human capital accumulation within the program between these groups. If correct, the effect of the program on wages should be larger than that on earnings, since wages more accurately reflect human capital. We estimate bounds on average and quantile treatment effects of Job Corps on wages and find that the relative effects on both outcomes are similar, casting some doubt on the conjecture that human capital is driving the disparate effects.

Economies at early stages of development are frequently shaken by large changes in growth rates, whereas advanced economies tend to experience relatively stable growth rates. To explain this pattern, we propose a model of technological diversification. Production makes use of input-varieties that are subject to imperfectly correlated shocks. Endogenous variety adoption by firms raises average productivity and provides diversification benefits against variety-specific shocks. Firm-level and aggregate volatility thus decline as a by-product of the development process. We quantitatively assess the model's predictions and find that it can generate patterns of volatility and development consistent with the data.

Choices involving risk significantly affect the distribution of income and wealth in society. This paper reports the results of the first experiment, to our knowledge, to study fairness views about risk-taking, specifically whether such views are based chiefly on ex ante opportunities or on ex post outcomes. We find that, even though many participants focus exclusively on ex ante opportunities, most favor some redistribution ex post. Many participants also make a distinction between ex post inequalities that reflect differences in luck and ex post inequalities that reflect differences in choices. These findings apply to both stakeholders and impartial spectators.

This article proposes an approach to improving the psychological realism of economics while maintaining its conventional techniques and goals--formal theoretical and empirical analysis using tractable models, with a focus on prediction and estimation. Besides tolerating the imperfections that come with precision, models should aim for two crucial criteria: power and scope. The approach advocated is to develop portable extensions of existing models that embed preexisting theories as parameter values, while introducing the new psychological assumptions as alternative parameter values, and make the model portable by defining it in all cases where existing models make predictions.

This essay assesses whether network linkages within the banking system amplified the real effects of bank failures during the Great Contraction. In 1929, nearly all interbank deposits held by Federal Reserve member banks belonged to “shadowy” nonmember banks which were outside the regulatory reach of federal regulators. Regional banking panics in the early 1930s drained these interbank deposits from central reserve city banks. Money-center banks in Chicago and New York responded to volatile and declining interbank deposits by changing their asset composition. They reduced their lending to businesses and individuals, and increased their holdings of cash and government bonds.

This paper asks whether the slow recovery of the US economy from the trough of the Great Recession was anticipated, and identifies some of the factors that contributed to surprises in the course of the recovery. We construct a narrative using news reports and government announcements to identify policy and financial shocks. We then compare forecasts and forecast revisions of GDP to the narrative. Successive financial and fiscal shocks emanating from Europe, together with self-inflicted wounds from the political stalemate over the US fiscal situation, help explain the slowing of the pace of an already slow recovery.

Many scholars have argued that once “basic needs” have been met, further rises in income are not associated with further increases in subjective well-being. We assess the validity of this claim in comparisons of both rich and poor countries, and also of rich and poor people within a country. Analyzing multiple datasets, multiple definitions of “basic needs” and multiple questions about well-being, we find no support for this claim. The relationship between well-being and income is roughly log-linear and does not diminish as incomes rise. If there is a satiation point, we are yet to reach it.

We conducted an experiment providing fertilizer grants to female rice farmers in Mali. We found that women who received fertilizer used both more fertilizer and more complementary inputs such as herbicides and hired labor. This shows that farmers respond to an increase in one input by re-optimizing other inputs. Second, while the increase in inputs led to a considerable increase in output, we found no evidence that profits increased. Our results suggest that fertilizer's impact on profits is small compared to other sources of variation. This may make it difficult for farmers to learn about the returns to fertilizer.

We conducted a field experiment in Southern Ghana to test the effect of asymmetric information on intrahousehold allocation. A lottery was conducted, where prizes were distributed in public and in private. The results indicate that asymmetric information over windfalls has a differential effect on observable and concealable expenses, consistent with hiding. Husbands' public windfalls increase investment in assets and social capital, while there is no such effect when wives win. Private windfalls of both spouses are committed to cash (wives) or in-kind gifts (husband) which are either difficult to monitor or to reverse if discovered by the other spouse.

Recent theories of firm heterogeneity emphasize between-firm wage differences as a new mechanism through which trade can affect wage inequality. Using linked employer-employee data for Sweden, we show that many of the stylized facts about wage inequality found in Helpman et al. (2012) for Brazil also hold for Sweden. Much of overall wage inequality arises within sector-occupations and for workers with similar observable characteristics. One notable difference is a smaller contribution from between-firm differences in wages in Sweden, which could reflect the influence of Swedish labor market institutions in dampening the scope for variation in wages between firms through collective wage agreements.