can falling supply explain the rising return to college for younger men a cohort based analysis although the college high school wage gap for younger u s men has doubled over the past 30 years the gap for older men has remained nearly constant in the united kingdom and canada the college high school wage gap also increased for younger relative to older men using a model with imperfect substitution between similarly educated workers in different age groups we argue that these shifts reflect changes in the relative supply of highly educated workers across age groups the driving force behind these changes is the slowdown in the rate of growth of educational attainment that began with cohorts born in the early 1950s in all three countries

do better schools matter parental valuation of elementary education the evaluation of numerous school reforms requires an understanding of the value of better schools given the difficulty of calculating the relationship between school quality and student outcomes i turn to another method and use house prices to infer the value parents place on school quality i look within school districts at houses located on attendance district boundaries houses then differ only by the elementary school the child attends i thereby effectively remove the variation in neighborhoods taxes and school spending i find that parents are willing to pay 2 5 percent more for a 5 percent increase in test scores this finding is robust to a number of sensitivity checks

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

symposium on the budget deficit when ronald reagan assumed the presidency in 1981 the federal government s outstanding gross debt amounted to 909 billion or 33 3 percent of gnp by the end of 1987 as a consequence of federal budget deficits averaging 4 5 percent of gnp between 1981 and 1987 the ratio of debt to gnp had risen to 51 8 percent in contrast during the period between 1947 and 1981 the federal deficit only once exceeded 4 percent of gnp the net international investment position of the united states also deteriorated dramatically during the reagan years in 1981 the u s was a net international lender however a succession of increasingly large deficits in the current account of the u s balance of payments between 1982 and 1988 caused the united states to switch from creditor to debtor status u s net international indebtedness at the end of 1987 is estimated at 368 billion in the view of most of the nation s economists these developments are profoundly disturbing harvard economist benjamin friedman 1988 summarizes the majority opinion when he writes we are living well by running up our debt and selling off our assets america has thrown itself a party and billed the tab to the future the costs which are only beginning to come due will include a lower standard of living for individual americans and reduced american influence and importance in world affairs is the ballooning federal budget deficit a serious economic problem the papers in this symposium provide four perspectives on this issue robert barro and robert eisner disagree sharply with the majority opinion concerning deficits in contrast edward gramlich and douglas bernheim are more sympathetic to the view that budget deficits lower national saving and thus contribute to a reduction in future living standards

what are cities worth land rents local productivity and the total value of amenities abstract this paper models how to use widely available data on wages and housing costs to infer land rents local productivity and the total value of local amenities in the presence of federal taxes and locally produced nontraded goods i apply the model to u s metropolitan areas with the aid of visually intuitive graphs the results improve measures of productivity and feature large differences in land rents wage and housing cost differences across metropolitan areas are accounted for more by productivity than quality of life differences regressions using individual amenities reveal that the most productive and valuable cities are typically coastal sunny mild educated and large

the value of air quality in chinese cities evidence from labor and property market outcomes using a dual market sorting model of workers location decisions this paper studies the capitalization of air pollution in wages and property prices across chinese cities to account for endogeneity of air pollution in the determination of wages and property prices we exploit quasi experimental variation in air quality induced by a policy subsidizing coal based winter heating in northern china and document a discontinuity in average air quality for cities located north and south of the policy boundary using data for all 288 chinese cities in 2011 we estimate an equilibrium relationship between wages and house prices for the entire system of chinese cities and specify a regression discontinuity design to quantify how variation in air quality induced by the policy affects this relationship locally our preferred estimates of the elasticity of wages and house prices with respect to text pm 10 concentration are 0 53 and 0 71 respectively at the average of our sample the willingness to pay for a unit reduction in text pm 10 concentration is cny 261 28 simeq usd 40 50 with a significant share reflected in labor market outcomes

housing choice hindrances and urban spatial structure evidence from matched location and location preference data in chinese cities abstract in a monocentric city with a well functioning residential market pareto efficient spatial equilibrium entails the sorting of residents according to their bid rent gradient in descending order away from city center violation of this sorting condition creates opportunities for pareto improving trading of locations and can be sustained only if the market is hindered we propose a simple ordered location choice model using matched location and location preference data of individual households to examine violations of the pareto efficient spatial sorting condition in so doing we are able to identify population groups facing housing choice hindrances we find in a sample of chinese cities undergoing housing market liberalization that poor marketability of the previously state provided homes inadequate provision of housing finance and spatial mismatch between job market and housing market opportunities contribute to a pareto inefficient spatial structure

the multiple unit double auction the note outlines institutional features of an open outcry market that permit multiple unit or block trades the purpose of the note is to introduce the process as a tool to be used in economics experiments the detailed rules governing the multiple unit double auction muda are stated for the case where offers are tendered by voice as opposed to through a computer the results of markets that use the rules are reported as a demonstration that convergence to equilibrium price traditionally observed in experimental markets remains with the use of the muda process

the ricardian approach to budget deficits persistent budget deficits have increased economists interest in theories and evidence about fiscal policy this paper develops the ricardian approach and contrasts it with standard models the discussion considers from major theoretical objections to ricardian equivalence finite lifetimes imperfect capital markets uncertainty about future taxes and incomes and the distorting effects of taxation the paper then considers empirical evidence on interest rates consumption and saving and current account deficits the conclusion is that the ricardian approach is a useful first order approximation and that this approach will probably become the benchmark model for assessing fiscal policy this abstract was borrowed from another version of this item

on the choice of funtional form for hedonic price functions this study examines how errors in measuring marginal attribute pric es vary with the form of the hedonic price function in simulations consumers with known utility functions bid for houses with given attributes various forms of the hedonic function are estimated using equilibrium housing prices errors in estimating marginal attribute prices are calculated by comparing each consumer s equilibrium marginal bid vector with the gradient of the hedonic function when all attributes are observed linear and quadratic box cox forms produce lowest mean percentage errors however when some attributes are unobserved or are replaced by proxies linear and linear box cox functions perform best copyright 1988 by mit press

which hedonic models can we trust to recover the marginal willingness to pay for environmental amenities abstract the hedonic property value model is among our foremost tools for evaluating the economic consequences of policies that target the supply of local public goods environmental services and urban amenities we design a theoretically consistent and empirically realistic monte carlo study of whether omitted variables seriously undermine the method s ability to accurately identify economic values our results suggest that large gains in accuracy can be realized by moving from the standard linear specifications for the price function to a more flexible framework that uses a combination of spatial fixed effects quasi experimental identification and temporal controls for housing market adjustment

understanding china s urban pollution dynamics china s ongoing urban economic growth has sharply increased the population s per capita income lowered the count of people living below the poverty line and caused major environmental problems we survey the growing literature investigating the causes and consequences of china s urban pollution challenges we begin by studying how urban population and industrial growth impacts local pollution levels and greenhouse gas production as the urban population grows richer its demand for private transportation and electricity sharply increases such privately beneficial activity exacerbates urban pollution externalities facing these severe environmental challenges china s urbanites increasingly demand quality of life progress we survey the emerging literature investigating the demand for environmental progress in china progress in mitigating externalities hinges on whether the powerful central and local governments choose to address these issues we analyze the political economy of whether government officials have strong incentives to tackle lingering urban externalities we conclude by discussing future research opportunities at the intersection of environmental and urban economics jel o18 p25 p28 q53 r23 r41 r58

institutions and moral hazard in open economies i investigate the interaction between international trade and national institutional development in an environment characterized by heterogeneous individuals choosing their education levels to maximize their utilities and institutions alleviating moral hazard by allowing managers to better observe and verify the productive efforts of workers liberalized trade allows institutions to serve as independent sources of comparative advantage in this setting i examine the effect of trade liberalization on the distribution of income in institutionally developed and underdeveloped nations trade affects income via a direct effect on prices and an indirect effect on the incentives to invest in education

wages rents and the quality of life this study focuses on the role of wages and rents in allocating workers to locations with various quantities of amenities the theory demonstrates that if the amenity is also productive then the sign of the wage gradient is unclear while the rent gradient is positive the theory is extended to include the housing market and nontraded goods these extensions require little modification of the conclusion the empirical work on wages shows that the regional wage differences can be explained largely by these local attributes with the use of site price data implicit prices are estimated and quality of life rankings for the cities are computed

new estimates of quality of life in urban areas implicit markets capture compensation for intraurban and interregional differe nces in amenities and yield differences in housing prices and wages these pecuniary differences become preference based weights in a qual ity of life index hedonic equations are estimated using microdata fr om the 1980 census and assembled county based amenity data on climati c environmental and urban conditions ranking of 253 urban counties reveals substantial variation within as well as among the 185 urba n areas the quality of life differences across counties within one s msa is almost one half of the difference between the top and bottom ranked counties in the nation copyright 1988 by american economic association

the role of unemployment insurance in an economy with liquidity constraints and moral hazard the potential welfare benefits of unemployment insurance along with the optimal replacement ratio are studied using a quantitative dynamic general equilibrium model to provide a role for unemployment insurance agents in our economy face exogenous idiosyncratic employment shocks and are unable to borrow or insure themselves through private markets in the absence of moral hazard replacement ratios as high as 65 are optimal and the welfare benefits of unemployment insurance are quite large however if there is moral hazard and the replacement ratio is not set optimally but is instead set to an empirically plausible value the economy can be much worse off than it would be without unemployment insurance

multimarket amenity compensation and the behavior of the elderly recent studies have argued that compensation for amenities occurs in general in both labor and land markets see glenn c blomquist mark c berger and john p hoehn 1988 hereafter bbh as well as sherwin rosen 1979 donald r haurin 1980 and jennifer roback 1982 1988 if this is true desirable locations would be characterized ceteris paribus by some mix of higher rents and lower wages due to the influx of people demanding the consumption amenities this seemingly obvious point has important implications household valuations of location fixed amenities are systematically understated by studies that consider only the wage or rent compensation separately for example access to the central business district is valued in urban economics through the rent gradient yet highaccess cities will have lower overall wages than low access cities similarly wage studies valuing such amenities across labor markets understate the value of amenities by ignoring any rent compensation those authoring such single market studies have at least implicitly justified the approach with the notion that one first selects a labor market area finds a job then at a second stage chooses a location in that labor market finds a house such behavior is only rational under quite restrictive assumptions since one would not generally select a labor market independently of residence traits and housing costs and vice versa the multimarket amenity compensation hypothesis that amenities are priced in both land and labor markets has been assumed on theoretical grounds by various researchers interested in constructing quality of life indexes notably bbh and roback 1982 here we offer a test of the hypothesis relying on much of bbh s county data and results the test is of considerable interest in its own right as it yields several implications about the behavior and wellbeing of the retired these implications stem directly from the exit of the retired from the labor force the data employed and the nature of an appropriate test are discussed in section i which also presents the empirical results these results strongly support the contention that amenities are capitalized in both land and labor markets section ii concludes the note and presents some policy implications

input choices and uncertain demand the theory of the firm under demand uncertainty has to date assumed that the firm s input decisions are unaffected by the stochastic nature of demand this assumption is not usually made explicitly but it is implied by the assumption that the firm s cost function presumably derived by finding the minimum cost combination of inputs for any given level of output is unaffected by the uncertainty however if firms must choose some of their inputs before the uncertainty regarding demand is resolved then different input decisions may involve different levels of risk since firms decisions regarding price and output are affected by demand uncertainty and non linear risk preferences as previous authors have shown it seems reasonable to suspect that their input decisions will also be affected but if input decisions are affected then firms cost functions are not invariant to uncertainty and the results of previous studies must be reexamined three different types of firms are considered in this paper the competitive firm the quantity setting imperfect competitor and the price setting imperfect competitor input decisions of the competitive firm and the quantity setting imperfect competitor are shown to be unaffected by demand uncertainty and hence the assumption of an unchanging cost function is appropriate in these cases for the price setting imperfect competitor however input decisions are influenced by demand uncertainty and an unchanging cost function is therefore not appropriate this case is considered in some detail and conditions under which results can differ from those previously reported in the literature are examined

wage declines among older men we examine the evidence on whether real wages decline with age among older men while the general human capital model of wage growth over the life cycle predicts that wages will fall as workers approach the end of their career alternative models of wage growth do not predict these wage declines we find that in longitudinal estimates of age wage profiles wage declines only set in for workers in their 60s furthermore these longitudinal declines are at least partly due to interactions with the social security system the earnings cap or other effects of social security appear to lead some workers to choose jobs and job characteristics associated with lower wages copyright 1996 by mit press

education moral hazard and endogenous growth abstract we build an overlapping generations model of endogenous growth driven by human capital formation young people differ in their innate abilities but these differences are not known even by the individuals themselves when they are going through the process of education so there are no adverse selection problems the probability of successful completion of schooling depends on both innate abilities and effort level moral hazard arises because effort is not observable successful students become skilled workers while unsuccessful ones become unskilled workers a utilitarian government that cares about income distribution within each generation transfers income from the rich skilled workers to the poor unskilled ones this is anticipated by the young pupils and reduces incentive for hard work this results in a lower rate of graduation and has an adverse effect on the growth rate of human capital and output comparative statics results across balanced growth paths are derived the parameters of interest are the students rate of time preference their degree of effort aversion and the relative price of the skill intensive consumption good

does the wage tax system cause budget deficits a macro economic experiment in this paper we investigate experimentally the economic functioning of a wage tax system for financing unemployment benefits in an international economy in particular in reaction to budget deficits and tax adjustment our results support the hypothesis that due to out of equilibrium price uncertainty producers are reluctant to employ inputs we also observe a downward pressure on wages exacerbated by an over supply of labor by consumers these observations can explain the budget deficits found furthermore we find that tax adjustments in order to facilitate a balancing of the budget has strong adverse effects on unemployment and real gdp

estimates of the impact of crime risk on property values from megan s laws abstract we estimate the willingness to pay for reductions in crime risk using the location and move in dates of sex offenders we find significant effects of sex offenders locations that are geographically localized house prices within 0 1 miles of a sex offender fall by 4 percent on average we then use this finding to estimate the costs to victims of sexual offenses and find costs of over 1 million per victim far greater than previous estimates however we cannot reject the alternative hypotheses that individuals overestimate risks posed by offenders or that living near an offender poses significant costs exclusive of crime risk jel k42 r23 r31

the rise of the sunbelt in the last 50 years population and incomes have increased steadily throughout much of the sunbelt this paper assesses the relative contributions of rising productivity rising demand for southern amenities and increases in housing supply to the growth of warm areas using data on income housing price and population growth before 1980 economic productivity increased significantly in warmer areas and drove the population growth in those places since 1980 productivity growth has been more modest but housing supply growth has been enormous we infer that new construction in warm regions represents a growth in supply rather than demand from the fact that prices are generally falling relative to the rest of the country the relatively slow pace of housing price growth in the sunbelt relative to the rest of the country and relative to income growth also implies that there has been no increase in the willingness to pay for sun related amenities as such it seems that the growth of the sunbelt has little to do with the sun

public finance solutions to the european unemployment problem public finance solutions a tax shift away from low paid labour may fight unemployment unemployment in europe is heavily concentrated among low skilled workers it has therefore been suggested that structural unemployment could be reduced by shifting the tax burden away from low skilled labour and away from the production of consumer services which are intensive in the use of such labour this paper finds that a tax shift away from low paid labour may raise aggregate employment and welfare but only if wage formation is sufficiently responsive to changing tax incentives the analysis also suggests that non negligible employment and welfare gains could be reaped by offering tax concessions or subsidies to those parts of the consumer service sector which compete most directly with low productivity home production and with underground economic activity peter birch sorensen

why do wage profiles slope upwards tests of the general human capital model this article tests the implications of the general human capital that i at the individual level there is a negative relationship between the initial wage level and wage growth of inexperienced workers and ii at the market level the ratio of the present values of wage profiles of investors and otherwise identical noninvestors equals one we find a negative relationship between initial wage levels and wage growth even after correcting for negative biases in existing estimates of this relationship we also find that the ratio of the present values of rising wage profiles to flat wage profiles is generally close to one

experimental labor markets and policy considerations incomplete contracts and macroeconomic aspects this survey focuses on experimental labor markets investigating two aspects that are important for a better understanding of labor market relations and their consequences for labor market policies the first part of the survey is dedicated to papers that assess the prevalence of reciprocal considerations in incomplete labor contracts the second part summarizes the relatively small but growing experimental literature exploring labor market issues in macroeconomics and public finance studying the interaction between taxation and labor market outcomes

easy come easy go moral hazard in the context of return to education this empirical study advances the understanding of the theory of investment in human capital by outlining limitations to its applicability in the context of return to education the study uses the concept of moral hazard to examine circumstances when financial support for education purpose generates less desirable post graduation incomes this study explores the relationship between financial support and post graduation incomes using data from the survey of income and program participation that is designed to measure the economic situation of individuals results suggest that students are less likely to engage in moral hazardous behavior to the degree to which they are older and to the degree to which they receive costlier financial assistance

a neoclassical perspective on budget deficits i n the 1988 presidential campaign virtually every serious candidate spoke of the urgent need to trim government budget deficits public opinion polls have identified federal deficits as a key economic issue second only to unemployment while many economists are relieved by what they perceive to be a long overdue political response to a critical economic problem others regard the fuss as much ado about nothing it is indeed remarkable that economists can disagree so severely over an issue which commands such a uniform reaction from laymen of widely different ideologies and political affiliations generally speaking there are three schools of thought concerning the economic effects of budget deficits neoclassical keynesian and ricardian before proceeding further it is useful to review the basic structure and implications of each paradigm the neoclassical paradigm envisions farsighted individuals planning consumption over their own life cycles budget deficits raise total lifetime consumption by shifting taxes to subsequent generations if economic resources are fully employed increased consumption necessarily implies decreased saving interest rates must then rise to bring capital markets into balance thus persistent deficits crowd out private capital accumulation in the current economic environment most economists would agree that these consequences would be highly detrimental