We compare the performance of markets and tournaments as allocative mechanisms in an economy with borrowing constraints. The economy consists of a continuum of individuals who differ in their initial wealth and ability level. These must be assigned to a continuum of investment opportunities or inputs of different productivity. With perfect capital markets matching is efficient under both mechanisms. Markets, however, generate higher aggregate consumption because of the waste associated with the production of signals under tournaments. When borrowing constraints are present, tournaments dominate markets in terms of matching efficiency and, for sufficiently powerful signalling technologies, also in terms of aggregate consumption.

Many states are implementing school-finance reforms which will have complex effects on income distribution, intergenerational income mobility, and welfare. This paper analyzes the static and dynamic effects of such reforms by constructing a dynamic general equilibrium model of public-education provision and calibrating it using U.S. data. We examine the consequences of a reform of a locally financed system to a state-financed system which equalizes expenditures per student across districts. We find that this policy increases both average income and the share of income spent on education. Steady-state welfare increases by 3.2 percent of steady-state income.

This paper models the wage-contract negotiation procedure between a union and a firm as a sequential bargaining process in which the union must decide, in each period, whether or not to strike for the duration of that period. We show that there exist subgame-perfect equilibria in which the union engages in several periods of strikes prior to reaching a final agreement, although both parties are completely rational and fully informed. This has implications for other inefficient phenomena, such as tariff wars, debt negotiations, and wars in general. We characterize the set of equilibria, show that strikes can occur in real time, and discuss extensions of the model, such as lockouts and the possibility of multiple recontracting opportunities.

Why do governments so often fail to adopt policies which economists consider to be efficiency-enhancing? Our answer to this question relies on uncertainty regarding the distribution of gains and losses from reform. We show that there is a bias towards the status quo (and hence against efficiency-enhancing reforms) whenever some of the individual gainers and losers from reform cannot be identified beforehand. There are reforms which, once adopted, will receive adequate political support but would have failed to carry the day ex ante. The argument does not rely on risk aversion, irrationality, or hysteresis due to sunk costs.

The sovereign-debt literature has often implicitly assumed that all the power in the bargaining game between debtor and creditor lies with the latter. This paper explores that assumption by analyzing three game-theoretic models of debt renegotiations. In two of the models, both of which are built on the traditional one-sector growth model, all the subgame-perfect equilibria have an extreme form in which the game's surplus is captured by the creditor. The third game has many subgame-perfect equilibria that do not have this feature, however. The roles of various assumptions in all three games are examined.

This paper develops a learning model of cultural change to investigate why women's labor force participation (LFP) and attitudes toward women's work both changed dramatically. In the model, women's beliefs about the long-run payoff from working evolve endogenously via an intergenerational learning process. This process generically generates the data's S-shaped LFP curve and introduces a novel role for wage changes via their effect on the speed of intergenerational learning. The calibrated model does a good job of replicating the evolution of female LFP in the United States over the last 120 years and finds that the new role for wages was quantitatively significant.

Married women's labor force participation (LFP) increased dramatically in the United States between the 1940 and 1960 cohort. The two cohorts lived under different divorce regimes (unilateral divorce rather than mutual consent). The 1960 cohort also had a lower gender wage gap. We use a quantitative dynamic life-cycle model of endogenous marital status, calibrated to key statistics for the 1940 cohort, to study the effects of these two changes. We find that both drivers combined are able to account for over 50 percent of the increase in married women's LFP and also generate large movements in marriage and divorce rates.

Many states are implementing school-finance reforms which will have complex effects on income distribution, intergenerational income mobility, and welfare. This paper analyzes the static and dynamic effects of such reforms by constructing a dynamic general equilibrium model of public-education provision and calibrating it using U.S. data. The authors examine the consequences of a reform of a locally financed system to a state-financed system which equalizes expenditures per student across districts. They find that this policy increases both average income and the share of income spent on education. Steady-state welfare increases by 3.2 percent of steady-state income.

We analyze five education finance systems: local, state, foundation, power equalizing with recapture (PER), and power equalizing without recapture (PEN). In a calibrated model, we find that finance systems have large effects on educational resources and equity. The trade‐off between equity and resources, however, is not monotone. Ranking systems by expected utility, we find that PER consistently ranks highest, though it provides fewer resources to education than the foundation and PEN systems and is less equitable than a state system. We prove that for an important subset of preferences, PER will win in majority voting comparisons with the other systems.

Universal basic income (UBI) is an increasingly popular policy proposal, but there is no evidence regarding its longer-term consequences. We find that UBI generates large welfare losses in a general equilibrium model with imperfect capital markets, labor market shocks, and intergenerational linkages via skill formation and transfers. This conclusion is robust to various alternative ways of financing UBI. By using observationally equivalent models that eliminate different sources of endogenous dynamic linkages (equilibrium capital market and parental investment in child skills), we show that the latter are largely responsible for the negative welfare consequences.