Knowledge that Transforms

The purpose of this paper is to provide empirical evidence helpful for distinguishing different types of externalities. We pursue this by extending the productionfunction framework of Robert E. Hall (1990) and Caballero and Lyons (1990, 1992) to exploit two key dimensions of the data: disaggregate input-output relationships and differences estimates emphasizing time-series versus cross-sectional aspects of the data. We obtain three main results. First, from the within estimates (using annual data), which emphasize the time-series properties common across sectors, we find a strong reduced-form relationship industry productivity and the activity level (input growth) of customers. In sharp contrast, supplier activity levels are insignificant. The second result derives from between estimates, which emphasize the cross-sectional dimension of the data. Here, we find the opposite is true: there is a strong reduced-form relationship industry productivity and the activity level of suppliers, but no relationship with customer activity levels. We interpret the first two results as suggesting that over shorter horizons the linkage an industry and its customers is pivotal in the transmission of external effects, while in the long run external effects are mostly related to intermediate goods linkages. The third result concerns the transition from short to long run. We find that as the number of periods over which the variables are averaged is incrementally increased from one year toward the full sample period (27 years), the significance of customers versus suppliers smoothly reverses itself. The remainder of the paper is organized in four sections. Section I presents the core model and the econometric methods for disentangling the external effects; Section II describes the data and estimation; Section III presents the main results; and our conclusions are presented in Section IV.

One of the most distinctive features of China's transition to a market economy has been the role played by rural township and village enterprises (TVE's). In the face of sustained rapid growth of TVE's, the share of total industrial output produced by state-owned enterprises (SOE's) has fallen below half, despite steady state-sector growth and the absence of significant privatization. Yet most TVE's are collectives, a form of publicly owned enterprise. This feature seems to make them unique: in no other transitional economy has public ownership played such a dynamic role. China presents the unusual picture of an economy that has made a transition to a primarily market economy, but in which publicly owned enterprises still produce the bulk of manufacturing output. Surprisingly also, the collective ownership form does not have a precise legal definition in China, leading to some uncertainty about ultimate property rights. Martin Weitzman and Chenggang Xu (1993) point out that public ownership with vaguely defined ownership ought to represent a recipe for economic disaster. To them, TVE success suggests instead advantages to the internal institutional form of TVE's, which are seen to facilitate cooperation through implicit contracts among community members locked into an ongoing relationship. Victor Nee (1992) advances a similar interpretation, arguing that long-time community residents create forms of income-sharing that may be optimal in the absence of an independent legal system. An alternative, perhaps complementary, view is presented here. The success of TVE's, I argue, is due largely to a set of external conditions to which TVE's are an effective adaptation. TVE's are responses to one of the most distinctive characteristics of the Chinese transition as a whole: the early creation of product markets, which exist for a prolonged period without well-developed markets for factors of production or assets. TVE's are a flexible and effective but basically ordinary adaptation to this environment.

Recent work in the sociology of economic development has emphasized the establishment of a professional bureaucracy in place of political appointees as an important component of the institutional environment in which private enterprise can flourish. I hypothesize that establishment of such a bureaucracy will lengthen the period that public decision makers are willing to wait to realize the benefits of expenditures, leading to allocation of a greater proportion of government resources to long-gestation period projects such as infrastructure. This hypothesis can be tested using data generated by a `natural experiment' in the early part of this century, when a wave of municipal reform transformed the governments of many U.S. cities. Controlling for city and time effects, adoption of Civil Service is found to increase the share of total municipal expenditure allocated to road and sewer investment. Other estimates imply that this increased share raises the growth rate of city manufacturing employment by one-half percent per year.

Sudhir Anand, Christopher J. Harris, Choosing a Welfare Indicator, The American Economic Review, Vol. 84, No. 2, Papers and Proceedings of the Hundred and Sixth Annual Meeting of the American Economic Association (May, 1994), pp. 226-231

This paper derives two main results. First, in a world where inheritance is sexual as opposed to asexual, second-best adaptations can be evolutionarily stable. That is, the adaptation selected need not be the optimal solution to the evolutionary problem at hand. Second, the author applies this result to show that natural selection provides a potential explanation for why, in many settings, humans commit errors that are systematic in nature.

From page 417-- "Economists have long been interested in explaining the observed instability of economic aggregates. Though several reasons for variation in the pace of production are easily given, such as exogenous variation in tastes or in production possibilities, it it hard to see why there should be large variations in those factors that are synchronized across the entire economy. Instead , it seems more likely to suppose that variations in demand or in production costs in different parts of the economy should be largely independent and hence that a law of large numbers would imply that significant variations in aggregate activity (relative to the typical size of aggregate activity) are not likely to occur. ... Here we explore another type of explanation, which relies on an entirely different mechanism. Our proposal is that the effects of many small independent shocks to different sectors of the economy need not cancel out in the aggregate, due to the presence of significantly nonlinear, strongly localized interactions between different parts of the economy. The type of macroscopic instability that can result has been studied by condensed-matter physicists, under the name of 'self-organized criticality' (Per Bak and Kan Chen, 1991)."

The author models standards for educational credentials, such as high-school diplomas. Standard-setters maximize their conception of social welfare, knowing that utility-maximizing students choose whether to meet the standard. The author shows that more egalitarian policymakers set lower standards, the median voter would prefer higher standards (under symmetric distributions), and decentralization lowers standards (among identical communities). Optimal standards do not necessarily fall with increased student preference for leisure, deterioration of nonstudent inputs to education, or increased student heterogeneity. Superseding binary credentials by perfect information increases average achievement and social welfare for plausible degrees of heterogeneity, egalitarianism, and pooling under decentralization.

While the popular press may have declared housework passe with the advent of the two-income household (see Housework is Obsolescent by Barbara Ehrenreich [1993] for one such example), the facts indicate that housework continues to consume a substantial amount of time, particularly for women. While estimates vary widely depending on the sample examined and the methods used to generate the information, representative values of housework time range around 6-14 hours per week for men and 20-30 hours for women. Since wages are likely to be influenced both directly and indirectly by the time and effort devoted to other activities, and since gender differences in household responsibilities are significant and often assumed to be a driving force behind gender earnings differentials, decisions regarding the overall amount of time spent on housework and the division of that time within the household are important ones. The goal of this paper is to shed some light on these allocation decisions. We begin by discussing the various methods by which time and effort spent on housework may affect wages and summarize the available empirical evidence. Overall, the empirical evidence indicates that time spent on housework has a negative effect on wages, an effect which is most pronounced for women. We next examine the amount of time spent on housework and the division of that time between working spouses. To do so, we draw upon the human-capital literature and the bargaining literature to construct simple regression equations for time spent on housework by each spouse as well as the share of housework time contributed by the husband. The results indicate that husbands do less housework than their wives as their relative earnings and hours spent in the labor market increase.

This paper uses micro data from a randomized survey carried out in the metropolitan area of Quebec City, Canada, to analyze the decision to evade taxes and work in the 'underground' economy. The results indicate that taxes distort labor-market activities away from the regular sector to the underground sector but the distortion is small for the average worker. The distortion is large, however, for particular groups of the population such as welfare claimants.