time out of work and skill depreciation this paper investigates the role of skill depreciation in the relationship between work interruptions and subsequent wages using swedish data from two waves 1994 and 1998 of the international adult literacy survey which included results of tests gauging respondents ability to read and make practical use of printed information the authors are able to analyze changes in individuals skills as a function of time out of work they find statistically strong evidence of a negative relationship between work interruptions and skills the analysis suggests that depreciation of general skills was economically important a full year of non employment for example was associated with a 5 percentile move down the skill distribution

private v public antitrust enforcement a strategic analysis we compare private and public enforcement of the antitrust laws in a simple strategic model of antitrust violation and lawsuit the model highlights the tradeoff that private firms are initially more likely than the government to be informed about antitrust violations but are also more likely to use the antitrust laws strategically to the disadvantage of consumers assuming coupled private damages if the court is sufficiently accurate adding private enforcement to public enforcement always increases social welfare while if the court is less accurate it increases welfare only if the government is sufficiently inefficient in litigation pure private enforcement is never strictly optimal public enforcement can achieve the social optimum with a fee for public lawsuit that induces efficient information revelation private enforcement can also achieve the social optimum with private damages that are efficiently multiplied and decoupled

combining cartel penalties and private damage actions the impact on cartel prices abstract in many countries antitrust enforcement by competition authorities through prosecution and the imposition of penalties is complemented in price fixing cases by private damage actions which should affect both cartel deterrence and the prices set by those cartels that do form we show that the impact of combining penalties and damages on cartel prices is not clearcut and depends on both the nature of the penalty regime and the way that damages are calculated we demonstrate this by focusing on two ways of calculating damages that have been advocated in practice and two different forms of the widely used revenue based penalty regime when the simple form of revenue based penalties is in force the standard method of calculating damages worsens its harmful pricing effects whereas the proposed alternative method of calculating damages can overturn them when a more sophisticated form of revenue based penalties is in operation imposing damages will improve its beneficial pricing effects under both methods of damage calculation but the alternative method is more effective in all cases combining penalties and damages improves deterrence

are preferences monotonic testing some predictions of regret theory in this paper the authors demonstrate that the assumption of regret aversion which has been invoked in regret theory to explain several well documented violations of expected utility theory also implies the existence of strict preferences between some stochastically equivalent actions and implies certain systematic violations of monotonicity the authors report an experimental test of these predictions they find that while choices between stochastically equivalent actions are entirely consistent with expected utility theory there is clear evidence of the monotonicity violations predicted by regret theory copyright 1992 by the london school of economics and political science

treble damage awards in private lawsuits for price fixing the traditional model for assessing the effects of treble damage pena lties on price fixing is reexamined and shown to yield surprising res ults unless the probability of detection is extremely sensitive to the price charged increasing the damage multiple will affect neither market efficiency nor expected distribution and will raise the mark et price copyright 1987 by university of chicago press

the determinants of earnings a behavioral approach we survey the determinants of earnings and propose a framework for understanding labor market success we suggest that the advantages of the children of successful parents go considerably beyond the benefits of superior education the inheritance of wealth or the genetic inheritance of cognitive ability we suggest that noncognitive personality variables such as attitudes towards risk ability to adapt to new economic conditions hard work and the rate of time preference affect both earning and the transmission of economic status across generations

real wages and unemployment in the big squeeze uk real wage growth has slowed down stagnated and recently turned sharply negative we document the nature of real wage changes across the wage distribution over the last three decades showing that recent patterns represent a distinct break of trend that pre dates the onset of recession we explore whether unemployment has become a stronger moderating influence on real wage growth and report using aggregate economy wide and regional panel data that real wage unemployment sensitivities have become stronger in the period from 2003 onwards finally we offer some assessment of possible drivers of this increased sensitivity of real wages to unemployment

the effect of education on adult mortality and health evidence from britain there is a strong positive and well documented correlation between education and health outcomes in this paper we attempt to understand to what extent this relationship is causal our approach exploits two changes to british compulsory schooling laws that generated sharp across cohort differences in educational attainment using regression discontinuity methods we find the reforms did not affect health although the reforms impacted educational attainment and wages our results suggest caution as to the likely health returns to educational interventions focused on increasing educational attainment among those at risk of dropping out of high school a target of recent health policy efforts jel h52 i12 i21 i28

returns to skills around the world evidence from piaac abstract existing estimates of the labor market returns to human capital give a distorted picture of the role of skills across different economies international comparisons of earnings analyses rely almost exclusively on school attainment measures of human capital and evidence incorporating direct measures of cognitive skills is mostly restricted to early career workers in the united states analysis of the new piaac survey of adult skills over the full lifecycle in 23 countries shows that the focus on early career earnings leads to underestimating the lifetime returns to skills by about one quarter on average a one standard deviation increase in numeracy skills is associated with an 18 percent wage increase among prime age workers but this masks considerable heterogeneity across countries eight countries including all nordic countries have returns between 12 and 15 percent while six are above 21 percent with the largest return being 28 percent in the united states estimates are remarkably robust to different earnings and skill measures additional controls and various subgroups instrumental variable models that use skill variation stemming from school attainment parental education or compulsory schooling laws provide even higher estimates intriguingly returns to skills are systematically lower in countries with higher union density stricter employment protection and larger public sector shares

optimal cartel pricing in the presence of an antitrust authority the dynamic behavior of a price fixing cartel is explored when it is concerned about creating suspicions that a cartel has formed consistent with preceding static theories the cartel s steady state price is decreasing in the damage multiple and the probability of detection however contrary to those theories it is independent of the level of fixed fines it is also shown that the cartel prices higher when a more competitive benchmark price is used in calculating damages

third degree price discrimination in the presence of congestion externality this paper analyzes third degree price discrimination of a monopoly airline in the presence of congestion externality when all markets are served the model features the business passenger and leisure passenger markets where business passengers exhibit a higher time valuation and a less price elastic demand than leisure passengers our main result is the identification of the time valuation effect of price discrimination which can work in the opposite direction as the well known output effect on welfare this time valuation effect clearly explains why discriminating prices can improve welfare even when this is associated with a reduction in aggregate output

incentive compatibility in signaling games with a continuum of types on donne deux resultats utiles pour demontrer l existence et pour caracteriser des equilibres de separation dans des jeux de signalement

who is more rational we report on the results of a large scale field experiment that enables us to test for consistency with utility maximizing behavior and to investigate the correlation between individual behavior and demographic and economic characteristics we conducted the experiment with the centerpanel a representative sample of over 2 000 dutch households using procedures similar to those used by choi et al 2007b in a setting with risk we find a high level of consistency in the individual level decisions there is also considerable heterogeneity in subjects consistency scores high income and high education subjects display greater levels of consistency men are more consistent than women and young subjects are more consistent than those who

compulsory education and the benefits of schooling causal estimates of the benefits of increased schooling using u s state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts differential changes across states during this period such as relative school quality improvements suggest that this assumption may fail to hold across a number of outcomes including wages unemployment and divorce we find that statistically significant causal estimates become insignificant and in many instances wrong signed when allowing year of birth effects to vary across regions

optimal antitrust enforcement competitor suits entry and post entry competition abstract we consider the effect of competitor suits in a model in which an incumbent can take an action that deters the entry of a rival the option to sue the incumbent can provide a subsidy for entry which can maintain competition even when the incumbent takes this action liability for the entrant s lost profits however can soften post entry competition if the incumbent s action is potentially efficient taking market structure as given e g it reduces her costs then competitor suits can generate some post entry competition without deterring this efficient cost reduction if the incumbent s action is inefficient e g it increases the rival s costs but does not reduce the incumbent s costs then competitor suits even with maximal antitrust liability cannot deter the incumbent from increasing the rival s costs by at least a small amount thus the paper suggests that while competitor suits have advantages for efficient actions that deter efficient entry they do not work well for inefficient actions that deter entry

a single stage approach to anscombe and aumann s expected utility anscombe and aumann showed that if one accepts the existence of a physical randomizing device such as a roulette wheel then savage s derivation of subjective expected utility can be considerably simplified they however invoked compound gambles to define their axioms we demonstrate that the subjective expected utility derivation can be further simplified and need not invoke compound gambles our simplification is obtained by closely following the steps by which probabilities and utilities are elicited

disappointment and dynamic consistency in choice under uncertainty the central proposition of disappointment theory is that an individual forms expectations about uncertain prospects and that if the actual consequence turns out to be worse than or better than that expectation the individual experiences a sensation of disappointment or elation generating a decrement or increment of utility which modifies the basic utility derived from the consequence by incorporating a simple disappointment elation function into a model of individual choice many observed violations of conventional expected utility axioms including violations of savage s sure thing principle and the isolation effect can be predicted and defended as rational and dynamically consistent behaviour

is the test score decline responsible for the productivity growth decline the test score decline between 1967 and 1980 was large about 1 25 grade level equivalents and historically unprecedented new estimates of the trends in academic achievement of the effect of academic achievement on productivity and of trends in the quality of the work force are developed the test score decline did not cause the post 1965 productivity growth slowdown but it did contribute to its perpetuation if test scores had continued to grow after 1967 at the rate prevailing in the previous quarter century labor force quality would have been 2 9 percent 86 billion greater in 1987 5 5 percent greater in 2000 and 6 7 percent greater in 2010 copyright 1989 by american economic association

lower and upper bounds of returns to schooling an exercise in iv estimation with different instruments abstract several recent studies based on exogenous sources of variation in educational outcomes show iv estimates of returns to schooling that are substantially higher than the corresponding ols estimates card 1995a earnings schooling and ability revisited research in labor economics 14 23 48 suggests that these results are explained by the existence of heterogenity in individual returns and by the fact that these studies are based on instruments that influence only the educational decision of individuals with high marginal returns due to either liquidity constraints or to high ability this conclusion is consistent with the local average treatment effect late interpretation of iv imbens and angrist 1994 identification and estimation of local average treatment effects econometrica 62 467 475 according to which iv identifies only the average returns of those who comply with the assignment to treatment mechanism implied by the instrument we show evidence for germany suggesting that returns to schooling are heterogeneous instruments matter and the late interpretation of iv makes sense with an appropriate choice of instruments we also show how iv can be used to approximate the range of variations of returns to schooling in germany

stochastic dominance in regret theory the regret theory of choice under uncertainty is known to admit intransitivities in preference relations in this paper the stochastic dominance properties of the theory are examined it is shown that the usual definition of first stochastic dominance is not satisfied by regret theoretic preferences and that in general violations of first stochastic dominance are not merely permitted but required an exact characterization of the stochastic dominance rule corresponding to regret theoretic preferences is presented this concept is weaker than the usual definition but stronger than the notion of statewise dominance in which one prospect yields a preferred outcome with probability 1 theories of choice under uncertainty have proliferated in recent years after a long period in which the expected utility eu approach of von neumann and morgenstern 1944 was pre eminent the breakdown of the dominance in eu theory reflects the increasing body of evidence that the choices made by many people systematically violate the predictions of the theory the axiomatic foundations of the theory and in particular the independence axiom have also received severe questioning ever since the famous critique of allais 1953

galton versus the human capital approach to inheritance a century ago francis galton proposed a simple yet powerful model of inheritance gary backer s human capital model is often used to analyze important empirical and policy questions but does it dominate galton s from a positive point of view i derive nine implicatiions of the human capital approach that are distinct from galton s evidence from the pis scf and nlsy micro data sets as well as results reported in previous literatures suggest that four of the unique implications are refuted two implications are verified and mixed results are obtained for three others some extensions of economics recently developed by becker and others when applied to inheritance may improve economics predictions

optimal disclosure decisions when there are penalties for nondisclosure we study a seller of an asset who is liable for damages if the seller fails to disclose to buyers an estimate of the asset s value he knew prior to the sale our results include as either the damages multiplier that determines the size of the damages the seller must pay buyers increases or as the probability the seller is caught withholding his estimate from buyers increases the seller discloses his estimate less often and as the precision of the seller s estimate increases he sells a larger fraction of the asset

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

are treble damages neutral sequential equilibrium and private antitrust enforcement a sequential equilibrium model of private antitrust enforcement is presented consumers have incomplete information about cartel costs and cannot accurately estimate a priori the damage recovery from an antitrust action consumers are able to infer cartel costs from the equilibrium pricing strategy of firms the universal divinity criterion is used to characterize the sequential equilibrium it is shown that for a sufficiently large damage multiple antitrust enforcement effectively increases social welfare copyright 1990 by american economic association

when does privatization work the impact of private ownership on corporate performance in the transition economies this paper compares the performance of privatized and state firms in the transition economies of central europe while controlling for various forms of selection bias it argues that privatization has different effects depending on the types of owners to whom it gives control in particular privatization to outsider but not insider owners has significant performance effects where privatization is effective the effect on revenue performance is very pronounced but there is no comparable effect on cost reduction overlooking the strong revenue effect of privatization to outsider owners leads to a substantial overstatement of potential employment losses from postprivatization restructuring

how does your kindergarten classroom affect your earnings evidence from project star in project star 11 571 students in tennessee and their teachers were randomly assigned to classrooms within their schools from kindergarten to third grade this article evaluates the long term impacts of star by linking the experimental data to administrative records we first demonstrate that kindergarten test scores are highly correlated with outcomes such as earnings at age 27 college attendance home ownership and retirement savings we then document four sets of experimental impacts first students in small classes are significantly more likely to attend college and exhibit improvements on other outcomes class size does not have a significant effect on earnings at age 27 but this effect is imprecisely estimated second students who had a more experienced teacher in kindergarten have higher earnings third an analysis of variance reveals significant classroom effects on earnings students who were randomly assigned to higher quality classrooms in grades k 3 as measured by classmates end of class test scores have higher earnings college attendance rates and other outcomes finally the effects of class quality fade out on test scores in later grades but gains in noncognitive measures persist

risk aversion in the theory of expected utility with rank dependent probabilities expected utility with rank dependent probability theory is a model of decision making under risk where the preference relations on the set of probability distributions is represented by the mathematical expectation of a utility function with respect to a transformation of the probability distributions on the set of outcomes this paper defines based on g teaux differentiability measures of risk aversion for such preferences which characterize the relation more risk averse and applies these measures to the analysis of unconditional and conditional portfolio choice problems

cartel pricing dynamics with cost variability and endogenous buyer detection this paper characterizes collusive pricing patterns when buyers may detect the presence of a cartel buyers are assumed to become suspicious when observed prices are anomalous we find that the cartel price path is comprised of two phases during the transitional phase price is generally rising and relatively unresponsive to cost shocks during the stationary phase price responds to cost but is much less sensitive than under non collusion or simple monopoly the length of the transition phase is decreasing in the variance of cost shocks it is also shown that the cartel price path may overshoot its long run level so that price converges from above

life cycle variations in the association between current and lifetime income replication and extension for sweden we apply haider and solon s generalized errors in variables model to swedish income tax data to produce estimates of the association between current and lifetime income our estimates demonstrate strong life cycle patterns this implies that the widespread use of current income as a proxy for lifetime income leads to inconsistent parameter estimates i e life cycle bias even when the proxy is used as the dependent variable estimates for comparable cohorts of swedish and american men demonstrate surprising similarities there are however significant gender and cohort differences in this association that lead to statistically significant and quantitatively meaningful differences in life cycle biases

the returns to education microeconomics in this paper we focus on education as a private decision to invest in human capital and the estimation of the rate of return to that private investment while the literature is replete with studies that estimate the rate of return using regression methods where the estimated return is obtained as the coefficient on a years of education variable in a log wage equation that contains controls for work experience and other individual characteristics the issue is surrounded with difficulties we outline the theoretical arguments underpinning the empirical developments and show that the evidence on private returns to the individual is compelling despite some of these issues surrounding the estimation of the return to schooling our evidence based on estimates from a variety of datasets and specifications is that there is an unambiguously positive effect on the earnings of an individual from participation in education moreover the size of the effect seems large relative to the returns on other investments

assessing risky social situations this paper reexamines the welfare economics of risk it singles out a class of criteria the expected equally distributed equivalent as the unique class that avoids serious drawbacks of existing approaches such criteria behave like ex post criteria when the final statistical distribution of well being is known ex ante and like ex ante criteria when risk generates no inequality the paper also provides a new result on the tension between inequality aversion and respect of individual ex ante preferences in the vein of harsanyi s aggregation theorem

estimating average and local average treatment effects of education when compulsory schooling laws really matter the change to the minimum school leaving age in the united kingdom from 14 to 15 had a powerful and immediate effect that redirected almost half the population of 14 year olds in the mid twentieth century to stay in school for one more year the magnitude of this impact provides a rare opportunity to a estimate local average treatment effects late of high school that come close to population average treatment effects ate and b estimate returns to education using a regression discontinuity design instead of previous estimates that rely on difference in differences methodology or relatively weak instruments comparing late estimates for the united states and canada where very few students were affected by compulsory school laws to the united kingdom estimates provides a test as to whether instrumental variables iv returns to schooling often exceed ordinary least squares ols because gains are high only for small and peculiar groups among the more general population i find instead that the benefits from compulsory schooling are very large whether these laws have an impact on a majority or minority of those exposed

explaining international differences in male skill wage differentials by differences in demand and supply of skill this paper explores the hypothesis that wage differentials between skill groups across countries are consistent with a demand and supply framework using micro data from 15 countries we find that about one third of the variation in relative wages between skill groups across countries is explained by differences in net supply of skill groups the demand and supply framework does an even better job at explaining relative wages of low skilled workers