The supply and price of skilled labor relative to unskilled labor have changed dramatically over the postwar period. The relative quantity of skilled labor has increased substantially, and the skill premium, which is the wage of skilled labor relative to that of unskilled labor, has grown significantly since 1980. Many studies have found that accounting for the increase in the skill premium on the basis of observable variables is difficult and have concluded implicitly that latent skill-biased technological change must be the main factor responsible. This paper examines that view systematically. We develop a framework that provides a simple, explicit economic mechanism for understanding skill-biased technological change in terms of observable variables, and we use the framework to evaluate the fraction of variation in the skill premium that can be accounted for by changes in observed factor quantities. We find that with capital-skill complementarity, changes in observed inputs alone can account for most of the variations in the skill premium over the last 30 years.

This study examines the relation between the composition of financially distressed firms' audit committees and the likelihood of receiving going-concern reports. For firms experiencing financial distress during 1994, we find that the greater the percentage of affiliated directors on the audit committee, the lower the probability the auditor will issue a going-concern report. These results support regulators' concern about financial-reporting quality and the recent calls for more independent audit committees.

This paper examines the relation between the premium on closed‐end funds and organizational features of the funds and advisors, including the compensation scheme of the investment advisor. We find that the fund premium is larger when: (a) the advisor's compensation is more sensitive to fund performance; (b) the assets managed by the advisor are concentrated in the fund in question; (c) the advisor manages other funds with low compensation sensitivity to performance and with low concentration of assets managed by the advisor; and (d) the advisor's compensation contract evaluates performance relative to a benchmark.

The value premium in U.S. stock returns is robust. The positive relation between average return and book‐to‐market equity is as strong for 1929 to 1963 as for the subsequent period studied in previous papers. A three‐factor risk model explains the value premium better than the hypothesis that the book‐to‐market characteristic is compensated irrespective of risk loadings.

Money, Sticky Wages, and the Great Depression by Michael D. Bordo, Christopher J. Erceg and Charles L. Evans. Published in volume 90, issue 5, pages 1447-1463 of American Economic Review, December 2000

We introduce home production into the neoclassical growth model and examine its consequences for development economics. In particular, we study the extent to which one can account for international income differences with differences in policies that distort capital accumulation. In models with home production, such policies not only reduce capital accumulation but also change the mix of market and nonmarket activity. Hence these models can generate larger differences in output than standard models for a given policy differential. We also show how the welfare implications change when we incorporate home production.

Title IV of the 1990 Clean Air Act Amendments (CAAA) established a market for transferable sulfur dioxide (SO2) emission allowances among electric utilities. This market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit SO2 from firms with lower costs, and is expected to yield cost savings compared to a command and control approach to environmental regulation. This paper uses econometrically estimated marginal abatement cost functions for power plants affected by Title IV of the CAAA to evaluate the performance of the SO2 allowance market. Specifically, we investigate whether the much-heralded fall in the cost of abating SO2, compared to original estimates, can be attributed to allowance trading. We demonstrate that, for plants using low-sulfur coal to reduce SO2 emissions, technical changes and the fall in low-sulfur coal prices have lowered marginal abatement cost curves by over 50% since 1985. The flexibility to take advantage of these changes is the main source of cost reductions, rather than trading per se. In the long run, allowance trading may achieve cost savings of 700-800 million per year compared to an "enlightened" command and control program characterized by a uniform emission rate standard. The cost savings would be twice as great if the alternative to trading were forced scrubbing. However, a comparison of potential cost savings in 1995 and 1996 with actual emissions costs suggests that most trading gains were unrealized in the first two years of the program.

We examine the contracts used to compensate the managers of the seven dual‐purpose investment companies that existed between 1967 and 1985 to determine whether financial incentives in fluence real behavior in the predicted way. The compensation contracts for these funds provided explicit incentives for the production of both capital gains and current income. We model the behavior that an expected compensation‐maximizing agent would exhibit when faced with such contracts and derive several testable implications. Our empirical results are consistent with the theoretical predictions, and so we are able to use this relatively clean setting to contribute to the growing literature concerned with determining the impact of incentive contracts on behavior. A unique and interesting aspect of this study is that the nature of these organizations allows us to provide evidence that the market understood and priced the behavior induced by these contracts.