Knowledge that Transforms

We examine the principal journals of economics, with particular attention to the communication between journals, as reflected by the network of interjournal citations during 1987-90, and the changes over the past century in the characteristics of the authors and the techniques they have used. The numerical results, and those of the statistical modeling of these results, reinforce the importance of economic theory as an exporter of intellectual influence to applied economics. The study includes an examination of the degree of specialization among different subfields of economics. A statistical model is presented for measuring the flow of intellectual influence (as measured by citations) in terms of simple univariate scores.

Borrowing on credit cards at high interest rates might appear irrational. However, even low transactions costs can make credit cards attractive relative to bank loans. Credit cards also provide liquidity services by allowing consumers to avoid some of the opportunity costs of holding money. The effect of alternative interest rates on the demand for card debits can explain why credit card interest rates only partially reflect changes in the cost of funds. Credit card interest rates that are inflexible relative to the cost of funds are not inconsistent with a competitive equilibrium that yields zero profits for the marginal entrant.

This paper presents a model in which agents choose an action and a time at which to take the action. We show that when agents choose when to act, their decisions become clustered together, giving the appearance of an information cascade, even though information is actually being used efficiently. This occurs because the passage of time allows the first acting agent to anticipate something about the second agent's information, and for a large class of delay cost functions, the equilibrium orders agents in such a way that the most extreme information is revealed first.

Sellers sometimes practice a form of false advertising known as bait and switch. A low-priced good is advertised but replaced by a different good at the showroom. the practice is surprising since advertising the wrong good discourages the appropriate buyers from shopping, attracting customers who will be disappointed when they see the good. Firms bait and switch to draw a greater number of shoppers. The cost is that some who would have bought the good that is for sale may not bother to look. Under a variety of conditions, bait and switch is a profitable strategy resulting in a fully rational equilibrium with false advertising.

This paper uses a Treasury Department panel of more than 4,000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates based on a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform. The analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply. The evidence shows an elasticity of taxable income with respect to the marginal net-of-tax rate that is at least one and that could be substantially higher. The implications for recent tax rate changes are discussed.

Polygyny is still practiced throughout much of sub-Saharan Africa, with important social consequences. This paper makes the first attempt to link African polygyny directly to the productivity of women in agriculture using micro data. I develop a structural model of the demand for wives that disentangles wealth and substitution effects. Using a large household survey from Côte d'Ivoire, I find that marked geographic diversity in cropping patterns leads to regional variation in female labor productivity. I also find that, conditional on wealth, men do have more wives when women are more productive, that is, cheaper. This substitution effect may explain why polygyny declined in rural areas of Côte d'Ivoire during agricultural development

This paper discusses a general equilibrium model of the assignment of heterogeneous workers to heterogeneous jobs. Both jobs and workers are measured along a continuous one-dimensional scale. The composition of labor supply is represented by a distribution function. Highly skilled workers have an absolute advantage in all jobs and a comparative advantage in complex jobs. Equilibrium is characterized by a mapping of skills on complexities. The model is able simultaneously to explain the remuneration of skill, the allocation of skills to jobs, and variations in labor demand per job type. Estimation results for the Netherlands offer support for its relevance.

Currently available health insurance contracts often fail to insure long-term illnesses: sick people can suffer large increases in premiums or denial of coverage. I describe insurance contracts that solve this problem. Their key feature is a severance payment. A person who is diagnosed with a long-term illness and whose premiums are increased receives a lump sum equal to the increased present value of premiums. This lump sum allows him or her to pay the higher premiums required by any insurer. People are not tied to a particular insurer or a group, and the improvement is free: insurance companies can operate at zero economic profits, and consumers can pay exactly the same premium they do with standard contracts.

This paper examines the argument presented in The Bell Curve. A central argument is that one factor--g--accounts for correlation across test scores and performance in society. Another central argument is that g cannot be manipulated. These arguments are combined to claim that social policies designed to improve social performance cannot be effective. A reanalysis of the evidence contradicts this story. The factors that explain wages receive different weights than the factors that explain test scores. More than g is required to explain either. Other factors besides g contribute to social performance, and they can be manipulated.

A fundamental equilibrium condition underlying most utility-based asset pricing models is the equilibration of intertemporal marginal rates of substitution (IMRS). Previous empirical research, however, has found that the comovements of consumption and asset return data fail to satisfy the restrictions imposed by this equilibrium condition. In this paper, we examine whether market frictions can explain previous findings. Our results suggest that a combination of short-sale, borrowing, solvency, and trading cost frictions can drive a large enough wedge between IMRS so that the apparent violations may not be inconsistent with market equilibrium.