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

theories of the price and quantity of physician services a synthesis and critique abstract in the traditional neoclassical model of supply and demand prices determine the allocation of economic resources the difficulty in applying this model to physician services is the rationing of resources directly by physicians themselves eliminating the allocative function of prices welfare consequences are appropriately judged in terms of efficiency and equity not departures from the structural relationships implied by supply and demand as interpreted here both competitive theories and target income theories of this market imply that physicians consider both their own welfare and the welfare of their patients in their decision making all consumer benefits and all producer costs are internalized by physicians they consequently have an incentive to obtain the maximum possible social benefit from the resources at their disposal to the extent that they are implicitly allowed to share in the resulting social gains the distributions of gains between patients and physicians is determined by professional ethics within bounds imposed by competitive forces

project evaluation by potential tax reform abstract shadow prices are derived for small open economies with several production sectors experiencing constant returns to scale small projects affect the balance of trade domestic prices of non traded goods and factors and sector scales only domestic prices affect welfare and only if there is not domestic price equalization generally a project s net benefits depend upon the potential tax and tariff reform made possible or necessary through the balance of trade effect border prices are right for traded goods but domestic good shadow pricing requires knowing the direction of at least one reversible available tax reform and presuming optimality with respect to available reforms

shadow prices for non traded goods in a tax distorted economy formulae and values abstract two different approaches to the shadow pricing of non traded goods in tax distorted economies have led to differing shadow price formulae these include measures of marginal foreign exchange cost expressions incorporating producer prices and tax revenues and the harberger weighted average formula this paper uses a general equilibrium model with fixed taxes to demonstrate the equivalence of these formulae it is argued that distinguishing between the formulae and their values answers many of the criticisms that have been advanced as to the usefulness of shadow prices

quantile selection models with an application to understanding changes in wage inequality we propose a method to correct for sample selection in quantile regression models selection is modeled via the cumulative distribution function or copula of the percentile error in the outcome equation and the error in the participation decision copula parameters are estimated by minimizing a method of moments criterion given these parameter estimates the percentile levels of the outcome are readjusted to correct for selection and quantile parameters are estimated by minimizing a rotated check function we apply the method to correct wage percentiles for selection into employment using data for the uk for the period 1978 2000 we also extend the method to account for the presence of equilibrium effects when performing counterfactual exercises

behavioral economics for environmental policy abstract the predictions of widely prescribed global and country level environmental policies at present are based mainly on mainstream economic models which treat individual actors to be unboundedly rational in their decision making in recent years however behavioral and experimental economists have found that the individual actors in many circumstances act within a bounded rationality framework suggesting that predictions based on the unbounded rationality models would be less valid while some of mainstream economists have already started adopting the bounded rationality based models in their academic discourse many environmental economists seem to be reluctant to use these alternative models of rationality in their research and policy prescriptions this paper highlights the implications of using bounded rationality models in environmental research in general and policymaking in particular

cost benefit criteria and the compensation principle in evaluating small projects the use of the compensation principle in cost benefit analysis as a means of separating the efficiency and distributional effects of a project is theoretically suspect for a number of reasons one difficulty is the lack of a necessary and sufficient criterion for determining that a compensation test is passed in an economy where consumers and producers prices are not the same for this paper we establish such a criterion for projects that are small in the differential sense the criterion requires the calculation of a set of shadow prices which is a weighted average of the consumers and producers price vectors

real wages over the business cycle evidence from panel data one topic on which keynes did not disagree with classical economists was the cyclical behavior of real wages keynes 1936 as well as various classical writers predicted that real wages should move countercyclically quoting the general theory p 17 in general an increase in employment can only occur through the accompaniment of a decline in real wages thus i am not disputing this vital fact which the classical economists have rightly asserted as indefeasible this prediction is based on the premise of competition and a given short run capital stock increases in employment then correspond to more intensive use of capital and through diminishing product lower real wages for this reason evidence by dunlop 1938 and tarshis 1939 that real wages move procyclically was viewed as paradoxical both dunlop and tarshis based their findings on an observed positive correlation between real and money wages which given the procyclical movement of money wages implies a positive correlation between

semiparametric estimation of selection models some empirical results among the central theoretical developments in the econometric analysis of nonexperimental microeconomic data has been the analysis of selectivity bias following the work of james heckman 1974 statistical techniques were developed in the 1970s to consistently estimate the parameters of these models one potential drawback to the application of these techniques is their sensitivity to the assumed parametric distribution of the unobservable error terms in the model in recent years a number of estimation methods for selection models have been developed which do not impose parametric forms on error distributions these methods are termed semiparametric since only part of the model of interest the regression function is parametrically specified while the statistical theory of these semiparametric estimators has received much attention practical applications of the methods are lacking an exception being the paper by joel horowitz and george neumann 1987 in this paper we use semiparametric methods to reanalyze data on the labor supply of married women first studied by thomas mroz 1987 using parametric methods the object of this reanalysis is to determine whether mroz s results are sensitive to his parametric assumptions

interpreting aggregate wage growth the role of labor market participation a new and easily implementable framework for the empirical analysis of the relationship between aggregate and individual wages is developed aggregate real wages are shown to contain three important bias terms one associated with the dispersion of individual wages a second deriving from compositional changes in the selected sample of workers and a third reflecting the distribution of working hours their importance for interpreting the path of aggregate wages and of the returns to education for recent experience in britain is highlighted a close correspondence between the estimated biases and the patterns of differences shown by aggregate wages is established

the measurement of the benefits of public inputs with distortionary taxation this paper derives formulae that show the marginal benefits of public inputs in second best economies with tax distortions the values of the change in the aggregate net output vector and in some cases the change of profit income evaluated at appropriate shadow prices show their marginal benefits these shadow prices depend on which taxation scheme you can perturb when the amount of a public input is increased the author considers the three cases where he can change 1 all indirect tax rates and all corporate income tax rates 2 all lump sum transfers and 3 some part of indirect tax rates

a clarification of theories and evidence on supplier induced demand for physicians services this article both simplifies and extends the literature on physician induced demand it shows that inducement should be expected in all imperfectly competitive markets that are also characterized by incomplete agency relationships more important it argues that confusion over the extent of the inducement phenomenon has been created by several contributions that fail to distinguish between the effects of changes in physician population ratios on changes in the individual physician s output and the effects on per capita utilization in particular it demonstrates that by confounding units of analysis the major empirical results found in recent articles by rossiter and wilensky are contradicted by their model their evidence however together with findings from other studies are reinterpreted to suggest that physicians are even more constrained than is generally believed in being able to induce increases in demand

honesty in a model of strategic information transmission we consider the following simple model of consumer fraud consumers need one of two possible repairs an expensive repair denoted e or an inexpensive repair denoted i the exogenous probability that a consumer needs the more costly remedy is r each consumer is assumed to know r an expert can observe with certainty which of the two repairs is needed and can offer to sell either to the consumer in a simple extension we allow for uncertainty with respect to the expert s observation we assume that selling the expensive remedy to a consumer who needs only the inexpensive one is more profitable than selling the inexpensive one thus h eii h1 iji where h denotes profit and i denotes conditional on needing the profit functions are increasing in the price of the respective repairs for convenience we suppress the dependence of h on prices in our notation we also assume that a consumer prefers to obtain the appropriate repair to the inappropriate one thus u eie u ije and u iii u eii where u is the consumer s payoff lastly we assume that the functions u eje and u e i are decreasing in the price of the expensive repair and that u iie and u iii are decreasing in the price of the inexpensive repair we also assume that u iie is decreasing in the price of the expensive repair since the consumer ultimately buys the expensive repair in this case see below for further assumptions regarding the repairs we are interested in the equilibrium levels of honesty in this model how honest is the expert at the equilibrium do consumers always follow the expert s advice does the level of honesty increase as the interests of the agents become more similar in a sense to be defined below our assumptions are similar to those in the abstract strategic information transmission models of vincent crawford and joel sobel 1982 and jerry green and nancy stokey 1980 we follow the former paper which asks whether the signals sent become less noisy as the agents preferences become more similar despite the similarity of our model to crawford sobel s we arrive at some different conclusions with respect to the expert s honesty vis a vis the agents closeness of interests we explain this in detail in section iii in addition we allow that the expert may be uncertain about the true state of the world we also explicitly model the level of expert honesty which extends crawford sobel the outline of the paper is as follows in section i we provide the details of the model and show that a unique equilibrium exists comparative static results and a simple extension incorporating the assumption of the incompetent expert are given in section ii we draw comparisons with crawfordsobel in section iii in section iv we conclude with a brief summary

tariff reform in a small open multi household economy with domestic distortions and nontraded goods we examine tariff reforms in the context of a small open economy and simultaneously deal with three extensions of the current literature nonremovable domestic tax distortions nontraded goods and many households using the new concepts of a constant utility tax adjusted balance of trade function and a constant utility productivity improvement in tariffs necessary and sufficient conditions for the existence of strict pareto improving tariff and transfer reforms are established we also consider directional tariff reforms such as movements towards the world price vector proportional reductions and reductions of extreme tariffs also discussed is the role of normality of household preferences most of the literature on piecemeal tariff reform in small open economies has been concerned with models in which there is a single household and in which domestic commodity taxes are absent an exception to this is lloyd 1974 who allows the existence of domestic commodity taxes but maintains the assumption of a single household nor does he consider nontraded commodities other than nontaxed fixed factors others such as foster and sonnenschein 1970 bertrand and vanek 1964 bruno 1972 hatta 1977b and fukushima 1979 deal with single household economies with no domestic distortions the purpose of this paper is to consider the question of tariff reform in a very general model of a small open economy the generality of the model allows us to simultaneously deal with three extensions of the current literature the first extension is to allow for nonremovable domestic tax distortions the second is to incorporate nontraded commodities into the model and the third is to explicitly consider a multi household economy by dealing simultaneously with these extensions to the model we are able to provide a general treatment of tariff reform in small open economies and to obtain new and more general results since domestic tax distortions are prevalent in the real world it is important that they be taken into account in any analysis of tariff reform specifically it is of considerable theoretical and policy interest to determine whether the piecemeal tariff policy prescriptions that have been derived in the literature for models

a model of physician behaviour with demand inducement we present a model of the physician patient relationship extending on the model by farley farley p j 1986 theories of the price and quantity of physician services journal of health economics 5 315 333 of supplier induced demand sid first we make a case for the way this model specifies professional ethics physician competition and sid itself second we derive predictions from this model and confront them with the neoclassical model finally we stress the importance of considering how sid affects patient welfare in providing an example where physicians ability to induce makes patients better off to evaluate patient welfare we derive approximations of the patients welfare loss due to physician market power in both the neoclassical model and the inducement model

trends in quality adjusted skill premia in the united states 1960 2000 this paper presents new evidence that increases in college enrollment lead to a decline in the average quality of college graduates between 1960 and 2000 resulting in a decrease of 8 percentage points in the college premium the standard demand and supply framework katz and murphy 1992 card and lemieux 2001 can qualitatively account for the trend in the college and age premia over this period but the quantitative adjustments that need to be made to account for changes in quality are substantial furthermore the standard interpretation of the supply effect can be misleading if the quality of college workers is not controlled for to illustrate the importance of these adjustments we reanalyze the problem studied in card and lemieux 2001 who observe that the rise in the college premium in the 1980s occurred mainly for young workers and attribute this to the differential behavior of the supply of skill between the young and the old our results show that changes in quality are as important as changes in prices to explain the phenomenon they document

changes in the distribution of male and female wages accounting for employment composition using bounds this paper examines changes in the distribution of wages using bounds to allow for the impact of nonrandom selection into work we show that worst case bounds can be informative however because employment rates in the united kingdom are often low they are not informative about changes in educational or gender wage differentials thus we explore ways to tighten these bounds using restrictions motivated from economic theory with these assumptions we find convincing evidence of an increase in inequality within education groups changes in educational differentials and increases in the relative wages of women

the effects of health wealth and wages on labour supply and retirement behaviour this paper estimates a life cycle model of labour supply retirement and savings behaviour in which future health status and wages are uncertain individuals face a fixed cost of work and cannot borrow against future labour pension or social security income the method of simulated moments is used to match the life cycle profiles of labour force participation hours worked and assets that are estimated from the data to those that are generated by the model the model establishes that the tax structure of the social security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65 removing the tax wedge embedded in the social security earnings test for individuals aged 65 and older would delay job exit by almost one year by contrast social security benefit levels health and borrowing constraints are less important determinants of job exit at older ages for example reducing social security benefits by 20 would cause workers to delay exit from the labour force by only three months

self selection and the distribution of hourly wages this article formulates and estimates alternative equilibrium models of industrial wage determination and self selection in explaining industrial wage differentials we find that it is important to account for heterogeneous sector specific skills and self selection decisions by agents concerning their sector of employment the classical roy model is rejected so is an efficiency units model of the labor market a revised roy model that accounts for comparative advantage in the choice of industrial sectors and choice between market and nonmarket work is much more successful in explaining cross section wage distributions and their evolution over time

endogeneity in semiparametric binary response models this paper develops and implements semiparametric methods for estimating binary response binary choice models with continuous endogenous regressors it extends existing results on semiparametric estimation in single index binary response models to the case of endogenous regressors it develops a control function approach to account for endogeneity in triangular and fully simulataneous binary response models the proposed estimation method is applied to estimate the income effect in a labor market participation problem using a large micro data set from the british fes the semiparametric estimator is found to perform well detecting a significant attenuation bias the proposed estimator is contrasted to the corresponding probit and linear probability specifications jel c14 c25 c35 j22

the changing distribution of male wages in the uk this paper uses microeconomic data from the u k family expenditure surveys fes and the general household surveys ghs to describe and explain changes in the distribution of male wages since the late 1970s wage inequality has risen very fast in the u k and this rise is characterized both by increasing education and age differentials we show that a large part of the changes in the u k can be summarized quite simply as increases in eduction differentials and a decline of growth of entry level wages which persist subsequently this fact we interpret as cohort effects we also show that like in the u s an important aspect of rising wage inequality is increased within group wage dispersion finally we use the ghs to evaluate the role of alternative education measures

on the economics of philanthropy friedman says that he accepts this argument as justifying governmental action to alleviate poverty economists will be familiar with this kind of argument someone takes as a premise that a particular activity is the subject of altruistic concern by individuals he shows that if matters are left to unco ordinated private philanthropy a free rider problem will arise and then he claims that this problem can be solved by some kind of intervention by government this strategy has been used to justify many kinds of intervention including compulsory transfers of income through the tax system hochman and rodgers i969 public policy to stimulate saving and investment marglin i963 sen i967 and the subsidisation or public provision of health care arrow i963 lindsay i969 culyer i976 this whole line of argument rests on a particular theory of private philanthropy which in turn relies on three principal assumptions first there is the publicness assumption the charitable activity in question say the relief of poverty or the provision of health care is a common argument in many individuals utility functions and so is a public good in the theoretical sense samuelson i954 in some cases of private philanthropy it is indisputable that the charitable activity is a public good from which donors derive utility consider for example the case of yachtsmen contributing to the royal national lifeboat institution or potential cancer victims contributing to the cancer research campaign in other cases the assumption takes on a rather different character rich britons contribute towards famine relief in cambodia childless old age pensioners contribute towards the care of handicapped children in such cases one would have to be extremely cynical to believe that the charitable activity furthers the self interest of the donor in any significant way but one might suggest that for purely altruistic reasons the donor derives utility from knowing that less fortunate people are being made better off such an effect will be called an altruistic externality friedman along with all of the other writers quoted in the first paragraph of this paper relies on altruistic externalities to justify the publicness assumption the second assumption is that of utility maximisation each individual s decisions concerning his philanthropic

a review article the case against the use of the sum of compensating variations in cost benefit analysis this paper presents a case against the use of the sum of compensating varia tions as a cost benefit test we argue that 1 the ethical judginents implied by the test are not defensible 2 positive sums of compensating variations occur without potential pareto improvements resulting in social preference reversals without simultaneous scitovsky re versals 3 when lump sum transfers are feasible a positive sum of compensating variations is necessary but not sufficient for a potential pareto improvement 4 in order to eliminate preference reversals and intransitivities all households must have almost identical quasi homothetic preferences a condition that is not satisfied in real economies