The generally accepted goal of minimum wage laws is to alter the distribution of income in favor of low-income households. However, since a minimum wage will also disrupt low-wage labor markets, causing inefficiencies and imposing costs on some of the same workers the law is intended to help, an evaluation of the policy requires a weighing of the distributional benefits against the efficiency costs. Quantification of these benefits and costs is clearly important to this evaluation. While much effort has been devoted to estimating the employment effects of minimum wage laws, relatively little work has been done to estimate the distributional benefits. Our simulations focus on this efficiency-equity tradeoff by developing estimates of the impact of an increase in the minimum wage on the level and distribution of real income across households. Previous work has concluded that minimum wages are not as beneficial in their distributional impact as generally supposed.'

Beginning in the late 1950's, the federal government has supported several programs to develop commercial uses of space. Early on, the National Aeronautics and Space Administration (NASA) supported the development of several generations of communications satellites. In the 1970's, NASA developed the Space Shuttle which, although officially declared operational, still consumed much of NASA's budget in the 1980's. These projects exemplify a class of programs in which the government seeks to advance technology to serve specific commercial objectives. NASA may regard exploring and using space as a valid national goal, but both of these projects were justified externally on economic grounds-both would reduce costs of existing activities, and make possible new commercial activities. The two programs met different fates. The communications satellite program, after producing several important commercial advances, was killed in 1973. The Space Shuttle, despite cost overruns and performance underruns, survived political challenges and appears to be permanent. The purpose of this paper is to apply recent developments in the theory of policy decisions by elected officials to illuminate the adoption, implementation, performance, and ultimate fate of these programs.

We analyze securities trading by banks during the crisis and the associated spillovers to the supply of credit. We use a proprietary data set that has the investments of banks at the security level for 2005–2012 in conjunction with the credit register from Germany. We find that—during the crisis—banks with higher trading expertise (trading banks) increase their investments in securities, especially in those that had a larger price drop, with the strongest impact in low-rated and long-term securities. Moreover, trading banks reduce their credit supply, and the credit crunch is binding at the firm level. All of the effects are more pronounced for trading banks with higher capital levels. Finally, banks use central bank liquidity and government subsidies like public recapitalization and implicit guarantees mainly to support trading of securities. Overall, our results suggest an externality arising from fire sales in securities markets on credit supply via the trading behavior of banks.

We develop a new index of economic policy uncertainty (EPU) based on newspaper coverage frequency. Several types of evidence—including human readings of 12,000 newspaper articles—indicate that our index proxies for movements in policy-related economic uncertainty. Our U.S. index spikes near tight presidential elections, Gulf Wars I and II, the 9/11 attacks, the failure of Lehman Brothers, the 2011 debt ceiling dispute, and other major battles over fiscal policy. Using firm-level data, we find that policy uncertainty is associated with greater stock price volatility and reduced investment and employment in policy-sensitive sectors like defense, health care, finance, and infrastructure construction. At the macro level, innovations in policy uncertainty foreshadow declines in investment, output, and employment in the United States and, in a panel vector autoregressive setting, for 12 major economies. Extending our U.S. index back to 1900, EPU rose dramatically in the 1930s (from late 1931) and has drifted upward since the 1960s.

There are three important dimensions of liquidity: trading costs, depth, and resiliency. We investigate the relevance of each of these three dimensions of liquidity – separately and in conjunction – for the pricing of corporate bonds. Unlike previous studies, our sample allows us to cleanly separate the default and non-default components of yield spreads. We find that each of the above three dimensions of liquidity are priced factors. Overall, in our sample, a one standard deviation change in trading costs, resiliency, and depth measures lead to a change in non-default spreads of 5.00 basis points, 2.27 basis points, and 1.27 basis points, respectively. We also find that both bond-specific and market-wide dimensions of liquidity are priced in non-default spreads. Finally, we find that there does exist in some periods a small residual non-default yield spread that is consistent with an additional “flight-to-extreme-liquidity” premium reflecting investor preference for assets that enable quickest possible disengagement from the market when necessary.

In a recent issue of this Review (1983), Roger Kormendi relied upon the work of Martin Bailey (1962, 1971) and Robert Barro (1974) develop an alternative to modeling private sector consumptionsaving behavior based on rational evaluation of the consequences of government fiscal policy (p. 995). Briefly, this involves determining to what extent government spending substitutes for private consumption, and to what extent government debt is net wealth and thereby also affects private consumption. This consolidated approach to examining private sector consumption is not only novel, but appears at a time when there is widespread interest as well as controversy over the effects of government fiscal policy. It therefore seems only appropriate to examine further the results obtained by Kormendi-not to criticize them but rather to explore their robustness. This comment specifically explores the sensitivity of Kormendi's results to alternative time periods of estimation, to the differentiation between federal debt and state and local government debt, and to the measurement of government debt-particularly par vs. market value.

We investigate the effects of automobile congestion on ambient air pollution and local infant mortality rates using data from California spanning 2002 to 2007. Constructing instrumental variables (IV) using the relationship of traffic, weather conditions, and pollutants, we show that particulate matter, even at modern levels, has large marginal effects on weekly infant mortality rates, especially for premature or low birthweight infants. We also find suggestive evidence of large effects for carbon monoxide, though results are imprecise. Finally, we check estimate sensitivity to nonclassical measurement error in local pollution and show that our IV results are robust to such concerns.

We investigate in a sample of 53 emerging markets over 1980-2014 whether countries with open capital accounts are necessarily at the mercy of global events, or are able to take policy actions when receiving inflows to mitigate the impact of a subsequent reversal. Our analysis suggests that, while changes in global conditions have an important bearing on crisis susceptibility, countries that allow the buildup of macroeconomic and financial vulnerabilities during boom times, and which receive mostly debt flows, are significantly more likely to see capital inflow surge episodes end in a financial crisis.

We study the optimal incentive scheme for a multistage project in which the agent privately observes intermediate progress. The optimal contract involves a soft deadline wherein the principal guarantees funding up to a certain date—if the agent reports progress at that date, then the principal gives him a relatively short hard deadline to complete the project—if progress is not reported at that date, then a probationary phase begins in which the project is randomly terminated at a constant rate until progress is reported. We explore several variants of the model with implications for optimal project design. In particular, we show that the principal benefits by imposing a small cost on the agent for submitting a progress report or by making the first stage of the project somewhat “harder” than the second.