A recent paper in this Journal by Kaplan and Zingales reexamines a subset of firms from work of Fazzari, Hubbard, and Petersen and criticizes the usefulness of investment-cash flow sensitivities for detecting financing constraints. We show that the Kaplan and Zingales theoretical model fails to capture the approach employed in the literature and thus does not provide an effective critique. Moreover, we describe why their empirical classification system is flawed in identifYing both whether firms are constrained and the relative degree of constraints across firm groups. We conclude that their results do not support their conclusions about the usefulness of investment-cash flow sensitivities.

This paper reexamines the benefits of pooling and, in addition, contrasts the performance of newly proposed heterogeneous estimators. The analysis utilizes a panel data set from 46 American states over the period 1963 to 1992 and a dynamic demand specification for cigarettes. Also, the forecast performance of the various estimators is compared.

* Department of Economics, University of British Columbia, Vancouver BC, V6T 1Z1, and Department of Economics, CRDE, CIRANO, Universite de Montreal, Montreal, PQ H3C 3J7; Lemieux is also affiliated with the NBER. We thank Paul Beaudry, Richard Blundell, Richard Freeman, and Robert Haveman for helpful comments and discussions. We gratefully acknowledge financial support from the Social Sciences and Humanities Council of Canada and from FCAR, Quebec. 1 The gender wage ratio and the 90/50 wage ratio for men are calculated from the Current Population Survey (CPS) data provided by EPI ^http://www.epinet.org/&. The 1980’s trends in the gender gap emerged from average real increases of 0.5 percent per year in women’s median wages and average real declines of 1 percent per year in men’s median wages.

The tension between allocative efficiency and information aggregation is explored in the context of an auction: k identical objects of unknown quality are auctioned off to n bidders whose tastes affect their valuation of an object of given quality. Bidders receive a signal about the quality of the objects. The k highest bidders get an object and pay a price equal to the k + 1st highest bid. We find conditions under which, in the limit, objects are allocated efficiently to those with the highest tastes, and price converges in probability to the value of an object to the marginal taste type.

Contributions to 401(k) plans are now the most important form of retirement saving. Since 401(k) plans were introduced in the early 1980’s, they have expanded rapidly and continuously. By 1998, roughly half of all households were eligible to participate in 401(k) plans, and more than 36 million workers made contributions to these employer-provided saving plans. In 1995, the last year for which the U.S. Department of Labor has released definitive data, 401(k) contributions amounted to $87.4 billion, or 55 percent of all contributions to employer-sponsored pension plans. The level of contributions, and their share of all pension contributions, is probably significantly higher today. The spread of 401(k) plans is the most important indicator of the move to personal retirement saving. In 1980, almost 92 percent of pension-plan contributions were to traditional employer-provided plans, and about 64 percent of these contributions were to conventional defined-benefit plans. Today, almost 60 percent of contributions are to personal retirement accounts, including 401(k), IRA, and Keogh plans. Including employerprovided, non-401(k) defined-contribution plans, over 76 percent of contributions are to plans that are controlled in large measure by individuals. These individuals make participation, contribution, asset-allocation, and withdrawal decisions. In this paper, we describe the likely importance of 401(k) assets for future older Americans and the effect of investment decisions on asset accumulation. We also examine the extent to which retirement assets may be affected by several decisions: preretirement withdrawals, management fees and expenses, contribution rates, and early retirement. Our analysis focuses on 401(k) saving, but applies more broadly to other forms of individual retirement saving.

This paper examines the generational aspect of the current Medicare system and some stylized reforms. We find that the rates of return on Medicare for today's workers are higher than those for Social Security and that the Medicare system is shifting a greater share of the burden on future workers than is Social Security. Nonetheless, the rates of return on Medicare, using the Medicare Trustees assumptions, are still not that high--roughly 2 percent for today's youngest workers. But forecasting future Medicare expenditures is quite difficult. Under an alternative higher-cost baseline, which we consider plausible, rates of return for today's youngest workers will exceed 3 percent. Putting Medicare on a sustainable basis by raising the payroll tax or reducing benefits would greatly reduce the rate of return for today's workers. Under the Trustees assumptions, for example, the payroll tax would have to be increased by 2.0 percent of payroll to put the Medicare system in balance in perpetuity. This policy would reduce the rate of return on today's youngest workers to about 1.3 percent.

This paper considers the interpretation of evidence from social experiments when persons randomized out of a program being evaluated have good substitutes for it, and when persons randomized into a program drop out to pursue better alternatives. Using data from an experimental evaluation of a classroom training program, we document the empirical importance of control group substitution and treatment group dropping out. Evidence that one program is ineffective relative to close substitutes is not evidence that the type of service provided by all of the programs is ineffective, although that is the way experimental evidence is often interpreted.

Author(s): Kletzer, Kenneth M.; Wright, Brian D. | Abstract: Borrowing and lending between sovereign parties is modeled as intertemporal barter that smoothes the consumption of a risk-averse party subject to endowment shocks. The surplus anticipated in the relationship offers sufficient incentive for cooperation by all parties, including any other competitive agents who are potential lenders to the sovereign. The sole punishments consist of renegotiation-proof changes in the path of future payments. We show that intertemporal trade can be sustained in the absence of any exogenous enforcement of lending relationships whatsoever. That is, borrowing and lending are possible under anarchy, and are supported by punishments that consist of cheating any cheater. Long-term implicit relationships may be fulfilled as the continual renegotiation of simple incomplete short-term loans. The analysis suggests that the crucial role of the explicit loan contract is the identification of the relationship and the parties involved.

Individual investors who hold common stocks directly pay a tremendous performance penalty for active trading. Of 66,465 households with accounts at a large discount broker during 1991 to 1996, those that trade most earn an annual return of 11.4 percent, while the market returns 17.9 percent. The average household earns an annual return of 16.4 percent, tilts its common stock investment toward high‐beta, small, value stocks, and turns over 75 percent of its portfolio annually. Overconfidence can explain high trading levels and the resulting poor performance of individual investors. Our central message is that trading is hazardous to your wealth.