The authors analyze the problem faced by a financially weak independent inventor when selling a valuable, but easily imitated, invention for which no property rights exist. The inventor can protect his or her intellectual property by negotiating a contingent contract (with a buyer) prior to revealing the invention or, alternatively, the inventor can reveal the invention and then negotiate with the newly informed buyer. Despite the risk of expropriation, the authors find that, in equilibrium, an inventor with little wealth can expect to appropriate a sizable share of the market value of the invention by adopting the latter approach. Copyright 1994 by American Economic Association.
It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories. I want to argue today that a close examination of even the most standard economic analysis shows that social categories are in fact used in economic analysis all the time and that they appear to be absolute necessities of the analysis, not just figures of speech that can be eliminated if need be. I further argue that the importance of technical information in the economy is an especially
The authors model entry incentives in auctions with risk-neutral bidders and characterize a symmetric equilibrium in which the number of entrants is stochastic. The presence of too many potential bidders raises coordination costs that detract from welfare. The authors show that the seller and society can benefit from policies that reduce market thickness (i.e., the relative abundance of buyers). Their analysis extends well-known revenue-equivalence and ranking theorems but also demonstrates that variations in the auction environment affect optimal policies (e.g., reservation prices) in ways not anticipated by models that ignore entry. Copyright 1994 by American Economic Association.
In the three months following the Iraqi invasion of Kuwait, the University of Michigan's Index of Consumer Sentiment (ICS) fell an unprecedented 24.3 index points, to its lowest level since the 1981-1982 recession.' This collapse in household confidence became the focus of a great deal of economic commentary and, indeed, frequently was cited as an important-if not the leading-cause of the economic slowdown that ensued. Concern was fueled by the well-known contemporaneous correlation between the ICS and the growth of household spending. Figure 1 shows quarterly averages of the index, 1978-1993, together with the quarterly growth in real personal consumption expenditures as measured in the national income accounts (Bureau of Economic Analysis). The correlation is impressive. Of course, it is not surprising that sentiment and the growth of spending are positively correlated. This correlation may simply reflect that, when economic prospects are poor, households curtail their spending and also give gloomy responses to interviewers. Thus, the contemporaneous correlation between sentiment and spending does not refute traditional life-cycle or permanentincome models of consumption. Nor does it necessarily make the job of forecasting changes in consumption any easier. From the point of view of an economic forecaster, the questions of interest are first, whether an index of consumer sentiment has any predictive power on its own for future changes in consumption spending, and second, whether it contains information about future changes in consumer spending aside from the information contained in other available indicators. In Section I, we present evidence that the answer to the first question is a clear yes: we find that lagged values of the ICS, taken on their own, explain about 14 percent of the variation in the growth of total real personal consumption expenditures over the post1954 period. Further investigation shows that the answer to the second question is probably yes as well, though here the margin is narrower and the evidence more murky. The ICS contributes about 3 percent to the R2 of a simple reduced-form equation for total personal consumption expenditures in the longer of the two sample periods we examine, but nothing in the shorter sample period (though the latter result is heavily influenced by the observation for 1980:2). For the major subcategories of spending, the contribution generally ranges between 1 percent and 8 percent. Overall, we read the evidence as pointing toward at least some significant incremental explanatory power. Therefore, we take as given for the remainder of the paper that sentiment forecasts spending, and we turn to the issue of how that statistical relationship should be interpreted. One possible interpretation is that sentiment is an independent driving factor in the economy, and that changes in * Carroll: Division of Research and Statistics, Stop 80, Federal Reserve Board, Washington, DC 20551: Fuhrer: Research Department, Federal Reserve Bank of Boston, Boston, MA 02106: Wilcox: Division of Monetary Affairs, Stop 71, Federal Reserve Board, Washington, DC 20551. We have benefited from the research assistance of Stephen Helwig and Christopher Geczy and the comments of an anonymous referee. The views expressed in this paper are those of the authors and not of the Federal Reserve Board, the Federal Reserve Bank of Boston, or the other members of the staff of either institution. IThe Conference Board's Consumer Confidence Index also plunged at the same time.
An important question for policy is whether holding constant per capita income and other relevant factors population pressures have a significant effect upon environmental degradation. The authors examine the effect of population pressures upon deforestation in 64 developing countries in an attempt to provide relevant empirical findings. Data on deforestation were drawn from the Food and Agriculture Organizations Production Yearbook. Results suggest that a relationship exists between per capita income and deforestation and that for Africa rural population density shifts the relationship upward. The increase in the rate of deforestation levels off as income increases. The rate of growth in per capita income also has a significant negative impact upon deforestation although the magnitude of the effect is small. The authors close in stressing that reducing the rate of population growth is not necessarily the best way to reduce the rate of deforestation. Deforestation in developing countries is really a problem of market failure. Since property rights are often neither defined nor enforced there is essentially no private cost of deforestation. With no long-term stake in the land people have no incentive to use land efficiently. This situation must be addressed in conjunction with the problems of poverty and population growth.
This paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels. Multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling. The data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward. Adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent, a higher estimate of the economic returns to schooling than has been previously found. Copyright 1994 by American Economic Association.