Knowledge that Transforms

We use data from a sample of child care centers to estimate the relationships between cost and child care quality, and between revenue and quality. We use a measure of child care quality, designed by developmental psychologists, that is positively associated with child development. Taking the estimated cost-quality and revenue-quality relationships as given, we estimate the objective functions of firms and compute the quality supply function. The results indicate that the supply of quality is moderately elastic with respect to price and the wages of child care center workers. Implications of the results for child care policy are discussed.

This paper examines the effects of work experience acquired while youth were in high school (and college) on young men's wage rates. Previous studies have found sizeable and persistent rates of return to working while enrolled in school, especially high school, on subsequent wage growth. We evaluate the extent to which these estimates represent causal effects by assessing the robustness of prior findings to controls for unobserved heterogeneity and sample selectivity. We explore more-general econometric methods for dealing with the dynamic of selection and apply them to data on young men from the 1979 National Longitudinal Survey of Youth (NLSY79). We find that the estimated returns to working while in high school or college are dramatically diminished in magnitude and are not statistically significant when one applies dynamic selection methods.

Proxies that measure the effect of World War II on a country's capital stock are used as instruments for estimating standard cross-country growth regressions. The war's destruction should offer a natural experiment that allows us to consistently estimate the speed at which productivity growth converges to its long-run path. This paper presents evidence that convergence rates are approximately 4% to 6% per annum, substantially larger than conventional wisdom.

We find that ethnic Chinese networks, proxied by the product of ethnic Chinese population shares, increased bilateral trade more for differentiated than for homogeneous products. This suggests that business and social networks have a considerable quantitative impact on international trade by helping to match buyers and sellers in characteristics space, in addition to their effect through enforcement of community sanctions that deter opportunistic behavior. For trade between countries with ethnic Chinese population shares at the levels prevailing in Southeast Asia, the smallest estimated average increase in bilateral trade in differentiated products attributable to ethnic Chinese networks is nearly 60%.

This paper uses an updated and revised panel data set on ambient air pollution in cities worldwide to examine the robustness of the evidence for the existence of an inverted U-shaped relationship between national income and pollution. We test the sensitivity of the pollution-income relationship to functional forms, to additional covariates, and to changes in the nations, cities, and years sampled. We find that the results are highly sensitive to these changes, and conclude that there is little empirical support for an inverted U-shaped relationship between several important air pollutants and national income in these data.

Many researchers have dealt with potential selectivity bias in developing country wage equations by employing Heckman's (1979) two-step method or related techniques, despite the potential for such methods to produce misleading results if the assumptions on which they are based are incorrect. This paper argues that the results produced even by parametric, easy-to-implement selectivity bias-correction methods can inspire more confidence than the typical applications to date when model selection testing is used to select (from a specified, diverse set) assumptions for which there is support in the data, and when sensitivity analysis is used to identify parameters whose estimates are robust across a wide range of assumptions. In particular, it highlights the importance of allowing for (the nonlinearities implied by) selection rule heteroskedasticity. There is economic reason to suspect heteroskedasticity and econometric reason to believe that the nonlinearities it introduces into the first stage will improve the performance of two-stage estimators. In an application to urban Peru, homoskedasticity is strongly rejected, and, in models allowing for heteroskedasticity, selection rule normality is no longer rejected, and estimates of key parameters become more robust to changes in other statistical assumptions. Because the nonlinearities appear to be captured well by the inclusion of quadratic terms in the first stage, the results suggest that researchers may have much to gain by including quadratic terms in standard probit selection rule estimation.

Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-1998, we find that foreign-owned companies invest the most and cooperatives the least, that private firms do not invest more than state-owned ones, and that cooperatives and small firms are credit rationed. Given the large volume of nonperforming bank loans to firms and the high rate of investment of large state-owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit maximization.

May 01 2002 Idiosyncratic Risk and Volatility Bounds, or Can Models with Idiosyncratic Risk Solve the Equity Premium Puzzle? Martin Lettau Martin Lettau Federal Reserve Bank of New York and Centre for Economic Policy Research Search for other works by this author on: This Site Google Scholar Author and Article Information Martin Lettau Federal Reserve Bank of New York and Centre for Economic Policy Research Received: April 20 1999 Accepted: May 10 2001 Online Issn: 1530-9142 Print Issn: 0034-6535 © 2002 President and Fellows of Harvard College and the Massachusetts Institute of Technology2002 The Review of Economics and Statistics (2002) 84 (2): 376–380. https://doi.org/10.1162/rest.2002.84.2.376 Article history Received: April 20 1999 Accepted: May 10 2001 Cite Icon Cite Permissions Share Icon Share Facebook Twitter LinkedIn MailTo Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Peer Review Search Site Citation Martin Lettau; Idiosyncratic Risk and Volatility Bounds, or Can Models with Idiosyncratic Risk Solve the Equity Premium Puzzle?. The Review of Economics and Statistics 2002; 84 (2): 376–380. doi: https://doi.org/10.1162/rest.2002.84.2.376 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search Dropdown Menu toolbar search search input Search input auto suggest filter your search All ContentAll JournalsThe Review of Economics and Statistics Search Advanced Search This content is only available as a PDF. © 2002 President and Fellows of Harvard College and the Massachusetts Institute of Technology2002 Article PDF first page preview Close Modal You do not currently have access to this content.

Efficiency wage considerations should be less important for piece-rate pay than for time wages. Therefore, if industry wage differentials reflect efficiency wage factors, then these pay differences should be less sizable and have less explanatory power for piecework than for timework. We test this proposition using wage data for male production workers employed in the Swedish metalworking industries in 1985. The data are partitioned into two groups of workers. In our preferred sub-sample of workers who received pay under both piece rates and time wages, our results are uniformly consistent with efficiency wage implications for industry wage differentials. For the subsample of workers who received pay under either piece rates or time wages, industry wage differentials are of equal importance under either pay scheme. These latter results, however, may also be influenced by unaccounted for sorting of workers and employers across methods of pay. Overall, our examination of industry wage differentials across methods of pay provides mixed support for efficiency wage theory.

Studies attempting to link locational attributes and individual outcomes often focus on children or young adults, under the presumption that their location was exogenously determined by their parents. This strategy is more difficult to justify if parents migrate selectively and tend to transmit their own characteristics to their children. This paper uses Census microdata to document a strong link between selective migration in one generation and economic outcomes in the next. I show that selective migration is a possible explanation for a puzzle in the existing literature: the changing relationship between segregation levels and individual outcomes within the black population.