Knowledge that Transforms

The high level of protection that exists in many countries is a source of irritation to the normative biases that most economists hold in favor of liberal trade policies. Public-choice explanations of protection, however, suggest that groups vie in the political system for self-serving policies, including tariffs and other forms of protection. Such an approach explains the existence of policies that do not seem to be in the national interest of aggregate economic efficiency. This paper examines aggregate time-series data for the United States from 1890 to 1970 in order to test some of the hypotheses that arise from this public-choice approach. Specifically, Granger-causality tests are carried out over a set of international and macroeconomic variables for the 1890-1970 period. A vector autoregressive (VAR) methodology is employed to examine the data for several reasons. First, theories of tariff endogeneity suggest that tariffs are created and changed in the political system in response to certain economic factors. However, the standard theory of tariffs suggests that feedback effects exist from tariffs to many of the same economic factors: for instance, the price level, income, unemployment, and the trade balance. Therefore, a structural regression model with causality preestablished may be misspecified. Furthermore, the political process is slow to respond to pressure in some cases. This implies that an uncertain lag structure lies behind the relationship among time-series variables. Using a VAR model allows flexibility in selecting a lag structure. A VAR model is also useful for eliminating secular changes in variables.' Consequently, we expect to establish a set of causal relationships through the VAR methodology.

The authors study two-player, pie-splitting games in which one player knows the pie and the other knows only its probability distribution. The authors compare treatments in which incentive-efficient strikes (disagreements) are possible with alternatives in which efficiency forbids strikes. They find that incentive-efficiency is very helpful in explaining when strikes occur. There is also evidence of substantial heterogeneity in the subjects' altruism and in their risk preferences. This means that the common-knowledge assumptions of game theory cannot be controlled in experiments; but in the authors' experiments the main theoretical conclusions seem robust to violations of these assumptions.

Little is known about the role of specific health problems in affecting labor market productivity. Even less is known about gender differences in the labor market effects of such health problems. Current knowledge of health effects is based largely on samples composed exclusively of men, a common practice in both economics and health research. In the latter case, even a congressional mandate to incorporate females in study samples is reputed to have had little effect (Patricia Schroeder, 1990). In this study, we attempt to determine the structure of gender differences in labor market responses to alcoholism. We use a relatively new data source that allows such comparisons by gender in a large community-based sample. Previous studies have established that there are significant gender differences in labor market behavior. Differences in prevalence rates of alcoholism by gender are also well established. It is estimated that 3 percent of females are currently suffering from alcoholism and twice that many have exhibited symptoms at some time; for males the numbers are 10 and 20 percent, respectively. There is some medical evidence to indicate that physiologically, women and men respond differently to alcohol. For example, a recent study suggests that women have greater vulnerability to the acute and chronic health conditions associated with alcoholism (Mario Frezza et al., 1990).

Proponents claim that a statutory overtime premium, by raising the relative cost of overtime, may encourage firms to substitute employment for overtime hours. The author argues that there will be no real effects if firms reduce straight-time wages so as to offer the same package of weekly compensation and hours of work that was acceptable initially. Empirical analysis suggests that wage differentials do arise to mitigate the purely demand-driven effects predicted by previous models, but these differentials are not large enough to neutralize overtime pay regulation completely.

This paper provides experimental evidence on forward induction as a refinement criterion. In the basic extensive form, one of the two players chooses to play a battle-of-the-sexes game or to receive a certain payoff. According to forward induction, choosing to play the game is a signal about intended action. Though the presence of the outside option changes play, the authors find only limited support for the forward-induction hypothesis. The effects of the outside option also reflect the creation of a focal point through the asymmetry created by offering the outside option to one of the two players.

In this paper, small firms sell a homogeneous good to small consumers under conditions of free entry, but consumers receive price information only through firms' advertising. In equilibrium, every firm on the continuous price distribution buys less advertising than is socially optimal. The result is robust if firms advertise in just one medium. If readers of different advertising media are positively correlated, excess advertising can occur in media used exclusively to advertise discount prices.

The history and organization of the membership recruitment process of American sororities is studied. Like entry-level labor markets studied previously, this process experienced failures that led to the adaptation of a centralized matching procedure in which a matching is determined on the basis of preference lists submitted by the agents. Analysis of the rules of the match and of preference lists from twenty-one matches reveals an unstable matching procedure that gives agents incentives to behave strategically. The analysis also shows how the agents act on these incentives and how the resulting strategic behavior has contributed to the longevity of the matching system and to the stability of the resulting matches.

Manufacturers can stimulate sales by a temporary wholesale price reduction for the retailer, a rebate directed toward consumers, or a combination of both. The trade-offs between these price promotions are analyzed, providing insights about their roles, profitability, and welfare properties. Retailers' rebates are also studied. While price discrimination is a common explanation for rebates to consumers, when a product is sold through a distribution channel, the manufacturer may also use rebates to motivate retail participation in the promotion. This explains why rebates may be offered even when all consumers use them and price discrimination does not occur.

This paper is an attempt to contribute to the integration of business-cycle analysis with long-term growth. A real-business-cycle model with endogenous growth is developed and estimated with U.S. data. In the present framework, wage movements do not have to be transitory to generate fluctuations in labor effort. The reduced form is a constrained bivariate output/hours (or real-wage/hours) vector autoregressive process. The bivariate setup provides a useful framework for analyzing the persistence of output fluctuations, given that the theory implies that hours of work contain information about future output movement.