Knowledge that Transforms

The American Economic Association's (AEA) Committee on Economic Education and the Joint Council on Economic Education (JCEE) have sponsored a comprehensive study of the economics major in the United States.' This article reports results of an April 1981 survey of 1,080 senior majors in economics at 48 colleges and universities who graduated in spring 1981. An earlier report presented the results from a survey of 546 departments that offered a bachelor's degree with a major in economics.2 Information in this article may help departments to identify strengths and weaknesses in their students and programs, and may be useful to the economics profession generally by revealing the educational goals and career plans of our students. The data collected in our survey are available for further research on economics education.3 The student questionnaire required approximately 15 minutes to complete. Respondents were invited to report their names and permanent addresses to facilitate a follow-up study, but they were also urged to complete the questionnaire even if they preferred to remain anonymous. Seventy-one percent of the respondents provided name and address. These students were contacted again in May 1983 and asked to verify their educational and career experience; 398 responded. The questionnaire was administered by a faculty member at each of 50 colleges and universities. The sample institutions were chosen to provide a representative distribution of respondents on six criteria: region of the country, total institution enrollment, exclusive gender of students, predominant race of students, private or public control, and degree level in economics (whether they offer graduate degrees). The percentage of respondents in each category is reported in column (3) of Table 1. Table 1 also reports the distribution of economics degrees conferred across these categories based on National Center for Education Statistics (NCES) data for 1978 (the most recent year for which data were then available). Sample schools were selected so that their enrollments generated approximately the same distribution of students across the criteria as did 1978 degrees conferred. Variation in response rates at individual schools caused deviations between the actual sample distribution and the goal. Our sample includes too many students from the Southeast, the smaller schools, and private institutions. These are the only statistically significant (Chi-square test) deviations between the distributions in column (1) and column (3) of Table 1. Because the survey is not based on a random sample, we generally avoid formal statistical testing. The sample appears to be substantially above average academically, with an estimated average combined SAT score of 1,216 compared with the nationwide average for graduating seniors (in all disciplines) in 1981 *Professor of Economics and Graduate Student in Economics, respectively, Vanderbilt University, Nashville, TN 37235. This project received enormous encouragement and aid from Allen Kelley, W. Lee Hansen, Arthur Welsh, Rendigs Fels, John Soper, James Wilkinson, Kaye D. Evans and Katherine M. McElroy. Phillip Saunders, Michael Salemi, Marianne Ferber, Jum Nunnally, Robert Highsmith, John Sumansky, Stephen Buckles, J. S. Butler advised us on the design of the study. We are most grateful to the 48 professors who distributed and collected the survey and the 1,080 students who completed it. 'The Sloan Foundation provided primary financial support for this project. Supplementary support was received from the JCEE, AEA, and the University Research Council of Vanderbilt University. 2See Siegfried and James Wilkinson. That study reports on the number of economics major programs in the United States, the characteristics of their students and faculty, requirements for the major, availability of special educational opportunities, course enrollments, and the effect of curriculum design on the choice of majors by students. 3For information on the public use data tapes produced by this project, contact the Joint Council on Economic Education, 1212 Avenue of the Americas, New York, NY 10036.

Recent papers on the of involve preferences of the sort introduced by Milton Friedman and Leonard Savage (1948).1 Given the choice between undergoing a particular gamble in wealth and possessing the mathematical expectation of the payoffs of the gamble, the consumers in these studies may prefer the gamble. The presence of such risk-loving preferences is inferred from two well-established facts: life is an indivisible commodity in the models, and indivisibility leads to preference for gambles. The former fact is made clear by Philip Cook and Daniel Graham. The latter was first noted by Yew-Kwang Ng (1965) and is widely known. In spite of the obvious connection, the implications of risk-loving tastes in this area have not been explored. This paper examines some implications of such risk loving. The idea that indivisibility produces Friedman-Savage preferences and that such preferences create a demand for gambles is extended in Section I to a theory of demand for indivisible goods and derived demand for associated optimum gambles. This theory suggests that the price of an indivisible good will not compensate for possessing or not possessing the good. Section II applies the demand theory to an equilibrium model of labor supply that is relevant to the determination of the value of life. In this model, the wage diflerential is useful in guiding policy toward public risks, in spite of the fact that the differential is not compensating. I. Demand for Gambles and Demand for Goods

The theme of this paper is due to Alfred Marshall who states that nearly the whole income of a business may be regarded as a ... composite quasi-rent divisible among different persons in the business by bargaining supplemented by custom and by notion of fairness... [And] the division of quasi-rents entails de facto some sort of profit-loss sharing between almost every business and its employees (Principles of Economics, 8th ed., Book VI, ch. VIII, Sec. 10, pp. 520-21). Marshall emphasizes that a significant portion of composite quasi rent is derived from the organization of business and would be lost if employer-employee connections were dissolved. In this view, bargaining can even be tacit insofar as there is an organizational basis which ensures agreement among the concerned parties. Consequently, internal bargaining models of the firm may be applicable to the analysis of European-style codetermination and Japanese-style labor management. Also, as the relative bargaining strength between labor and management changes, such a view of the firm admits as its extrema, the organization of a labor-managed firm (LMF), and the textbook case of a profit-maximizing firm (PMF). Masahiko Aoki (1980, 1982) and Jan Svejnar (1982) have recently explored models of an internal bargaining firm. Their analyses, however, consider the firm's long-run behavior only under restricted circumstances without market uncertainty. The relevance of the internal bargaining approach to profit sharing and labor management would be enhanced if we integrated the firm's short-run wage-employment policies with its long-run plans for the rate of growth and capital-labor substitutions. This I do by underscoring the firm's organizational basis, which is essentially a long-term contractual association between workers and management. I combine Costas Azariadis' (1975) and Martin Baily's (1974) apparatus of labor contracting with efficient bargaining to investigate the effect of varying degrees of labor's bargaining power upon the firm's shortand long-run policies under uncertainty. These results are then contrasted with the empirical findings of collective bargaining (for example, Richard Freeman and James Medoff, 1981), conventional results of LMF models (Jaroslav Vanek (1970); Benjamin Ward, 1958), and the recent macroeconomic approaches to wage-employment adjustments (Ian McDonald and Robert Solow, 1981).

In Currency Substitution and Instability in the Dollar Standard (1982), Ronald McKinnon hypothesized that shifts in international portfolio preferences for dollar assets -including bonds -destabilized the effective demand for money in the United States. From the dollar depreciation of 1971-73 to the great dollar appreciation of 1981-83, these demand shifts were telegraphed by large changes in the dollar exchange rate against other hard currencies. They signaled sudden inflation in the United States when the dollar was unexpectedly weak, and deflation when the dollar became strong. In addition, McKinnon argued this ebb and flow in the demand for dollar assets provoked foreign central banks, but not the U.S. Federal Reserve System, to adjust their money growth rates to mitigate these exchange fluctuations. Consequently, since 1970, annual percentage growth in World MI-the sum of percentage growths in dollars, marks, yen, sterling and so on fluctuated more than annual money growth in the United States. The resulting international business cycle had a first-order impact on American income and prices. Other than discussing some suggestive money and price data for ten industrial countries, McKinnon provided no formal econometric testing of his theory. This note summarizes an exchange between McKinnon and Tan (M-T) and Radcliffe, Warga, and Willett (R-W-W) prompted by the latter's 1984 econometric test of McKinnon's hypothesis. Copies of the full exchange, including new econometric work, are available from the authors.' Consider the single-equation econometric technique of explaining U.S. prices or incomes by current or lagged changes in U.S. Ml. All authors agree that there was a significant deterioration in the fit of this basic monetary equation from the fixed exchange rate period of 1958-69 to the era of floating rates from 1972 to 1982. By itself, American money growth now gives a less satisfactory explanation of cyclical fluctuations in nominal income or prices. But how can changing international asset preferences be represented statistically in a mixed exchange rate regime of dirty floating? One proxy variable is money growth in the rest of the industrial world: MlROw. McKinnon (1982) originally hypothesized that world money inclusive of MlROW has a stronger impact on American prices than U.S. money by itself. But this conjecture turns out to be true only for American (and world) tradable goods prices-as approximated by the wholesale price index (WPI). (See McKinnon-Tan, 1983). Radcliffe, Warga, and Willett correctly pointed out that the influence of MlROw is not helpful in predicting changes in U.S. nominal GNP. Myles Wallace (1983) showed that domestic price indices, such as the American CPI or GNP deflator, which have large nontradable components are not well explained by world money. R-W-W's objection is important because monetary variables

There is an interesting unexplored sideline to the empirical literature on compensating wage differentials (CDs) for hazardous work. Every study of differences between union and nonunion compensation for exposure to deadly hazards has found that union members receive much larger CDs than nonunion workers.' Further, in many of these studies negative CDs are found and some are statistically significantly negative. Some have interpreted these results as indicating the possible existence of substantial market failure. Despite this, there has been almost no discussion of the implications of such a conclusion for occupational safety and health policy. In contrast, several authors, ignoring the union-nonunion differences, have suggested that the empirical evidence on risk premiums supports the argument that markets efficiently allocate occupational risk without government intervention. (See, for example, Robert Smith, 1982, pp. 327, 336.) The analysis presented below shows that a market failure argument is not needed to explain the finding that union workers receive larger CDs than nonunion workers. Efficient contracts may provide workers with either larger or smaller CDs than a competitive market would. But, negative CDs cannot be reconciled with efficient markets given any reasonable assumptions about workers' preferences. The analysis also considers several potential statistical explanations for these findings. Results are mixed and the conclusion considers the policy implications.