teacher quality in educational production tracking decay and student achievement growing concerns over the inadequate achievement of u s students have led to proposals to reward good teachers and penalize or fire bad ones the leading method for assessing teacher quality is value added modeling vam which decomposes students test scores into components attributed to student heterogeneity and to teacher quality implicit in the vam approach are strong assumptions about the nature of the educational production function and the assignment of students to classrooms in this paper i develop falsification tests for three widely used vam specifications based on the idea that future teachers cannot influence students past achievement in da ta from north carolina each of the vams exclusion restrictions are dramatically viola ted in particular these models indicate large effects of 5th grade teachers on 4th grade t est score gains i also find that conventional measures of individual teachers value added fade out very quickly and are at best weakly related to long run effects i discuss implic ations for the use of vams as personnel tools

on the aggregation of euler equations for consumption in simple overlapping generations models if consumers have finite lives the aggregate consumption growth equation is affected by entries and exits births and deaths we use two and three period overlapping generations olg models to show that entries and exits produce a relationship between aggregate con sumption growth and the interest rate that is fundamentally different from the individual euler equation for consumption if aggregate data are used to estimate an aggregate euler equation under plausible assumptions we show that the estimate of the elasticity of intertem poral substitution is downward biased and that consumption growth exhibits excess sensitivity to labour income since hall s 1978 paper the life cycle model of consumption has been exten sively tested using aggregated consumption data the assumption of an infin itely lived representative agent has been exploited to justify using national accounts data to estimate the structural parameters of the model the moment restrictions implied by the first order conditions of the representative agent intertemporal optimization problem have been used to such a purpose when the over identifying restrictions implied by the model are tested they are typ ically rejected furthermore expected consumption changes are often found to be correlated with expected income changes campbell and mankiw 1989 this indicates either a violation of the hypothesis of rational behaviour or more likely a violation of one of the many other assumptions used to make the model empirically operative surprisingly enough aggregation issues have not received much attention as an explanation of the empirical failure of the model elsewhere attanasio and weber 1993 we have shown how various aspects of aggregation ranging from the issue of nonlinearities to the impossibility of controlling for individual variables that are likely to affect marginal utility can explain the rejection of the model estimated on aggregate time series data in this paper we focus on another source of aggregation bias finite lives and the lack of complete markets if consumers are identical and infinitely lived the euler equation for con sumption aggregates trivially however in the presence of finite lives and heterogeneous consumers even though the euler equation relating periods t and t 1 holds for each set of similar consumers alive in those periods when we consider aggregate consumption we do not necessarily have an aggregate euler equation

strikes scabs and tread separations labor strife and the production of defective bridgestone firestone tires this paper provides a case study of the effect of labor relations on product quality we consider whether a long contentious strike and the hiring of permanent replacement workers by bridgestone firestone in the mid 1990s contributed to the production of an excess number of defective tires using several independent data sources we find that labor strife in the decatur plant closely coincided with lower product quality count data regression models based on two data sets of tire failures by plant year and age show significantly higher failure rates for tires produced in decatur during the labor dispute than before or after the dispute or than at other plants also an analysis of internal firestone engineering tests indicates that p235 tires from decatur performed less well if they were manufactured during the labor dispute compared with those produced after the dispute or compared with those from other non striking plants monthly data suggest that the production of defective tires was particularly high around the time wage concessions were demanded by firestone in early 1994 and when large numbers of replacement workers and permanent workers worked side by side in late 1995 and early 1996

measurement matters perspectives on education policy from an economist and school board member one of the potential strengths of the no child left behind nclb act enacted in 2002 is that the law requires the production of an enormous amount of data particularly from tests which if used properly might help us improve education as an economist and as someone who served 13 years on the school committee in brookline massachusetts until may 2009 i have been appalled by the limited ability of districts to analyze these data i have been equally appalled by the cavalier manner in which economists use test scores and related measures in their analyses the summary data currently provided are very hard to interpret and policymakers who typically lack statistical sophistication cannot easily use them to assess progress in some domains most notably the use of average test scores to evaluate teachers or schools the education community is aware of the biases and has sought better measures the economics and statistics communities have both responded to and created this demand by developing value added measures that carry a scientific aura however economists have largely failed to recognize many of the problems with such measures these problems are sufficiently important that they should preclude any automatic link between these measures and rewards or sanctions they do however contain information and can be used as a catalyst for more careful evaluation of teachers and schools and as a lever to induce principals and other administrators to act on their knowledge

habit formation in consumer preferences evidence from panel data this paper tests for the presence of habit formation using household data a simple model of habit formation implies a condition relating the strength of habits to the evolution of consumption over time when the condition is estimated with food consumption data from the panel study on income dynamics the results yield no evidence of habit formation at the annual frequency this finding is robust to a number of changes in the specification it also holds for several proxies for nondurables and services consumption created by combining psid variables with weights estimated from consumer expenditure survey data

longer term effects of head start specially collected data on adults in the panel study of income dynamics are used to provide evidence on the longer term effects of head start an early intervention program for poor preschool age children whites who attended head start are relative to their siblings who did not significantly more likely to complete high school attend college and possibly have higher earnings in their early twenties african americans who participated in head start are less likely to have been booked or charged with a crime there is some evidence of positive spillovers from older head start children to their younger siblings language en

the entrepreneur s reward for self policing the collaboration among people is often subject to shirking the net gain from the collaboration depends on the contract governing it i argue that the entrepreneur assumes the role of the residual claimant because his actions are more costly to monitor than those of the factors with which he collaborates by offering fixed pay contracts to others and himself becoming residual claimant the entrepreneur curtails his incentive to gain at the expense of his partners and the net gain from the collaboration is then maximized costly monitoring applies to both labor and capital and thus the entrepreneur may supply both labor services and capital the entrepreneur s capital serves to guarantee the pay of the other factors

labour unrest and the quality of production evidence from the construction equipment resale market this paper examines the construction equipment resale market to assess whether equipment produced by the world s largest manufacturer of construction machinery caterpillar experienced lower product quality in facilities that underwent contract disputes during the 1990 s analysis of auction data reveals that resale market participants significantly discounted machines produced in these dispute affected facilities additionally pieces of equipment produced in facilities undergoing unrest were resold more often received worse appraisal reports and had lower list prices taken together the evidence supports the hypothesis that workmanship at dispute affected facilities declined and that the resulting impact on the economic quality of the equipment produced was significant the dispute was associated with at least 400 million in lost service flows due to inferior quality equipment alone

aggregate stochastic implications of the life cycle hypothesis this paper sets forth some key aggregate stochastic implications of the modigliani brumberg 1980 life cycle hypothesis and explores the extent to which a properly aggregated life cycle model can help to explain the first and second moment properties of changes in per capita consumption the principal finding of the paper which to my knowledge is new is that smooth per capita consumption in the presence of permanent shocks to per capital labor income is exactly the outcome one should expect from a properly aggregated life cycle model in which saving for retirement as well as for consumption smoothing is a motive for asset accumulation

life cycle consumption under social interactions abstract in this paper we examine how social interactions affect consumption decisions at various levels of aggregation in a life cycle economy made up of peer groups for this purpose we consider two analytically solvable life cycle models one under certainty equivalent behavior and one under prudence and explicitly allow for three different forms of social interactions in peer groups namely conformism altruism and jealousy we show that whether social interactions have any effects on individuals optimal consumption decisions critically depends on intertemporal rather than static considerations this is true regardless of whether individuals preferences are time separable or exhibit habit formation and whether information within peer groups is homogeneous or disparate it implies that analyzing the effects of social interactions in static rather than intertemporal settings is likely to be misleading we also show that social interactions when coupled with either habit formation or prudence can significantly strengthen the effects of habit formation or prudence in the direction of resolving two well known puzzles in the literature on the permanent income hypothesis namely excess smoothness and excess sensitivity

peers at work we study peer effects in the workplace specifically we investigate whether how and why the productivity of a worker depends on the productivity of coworkers in the same team using high frequency data on worker productivity from a large supermarket chain we find strong evidence of positive productiv ity spillovers from the introduction of highly productive personnel into a shift worker effort is positively related to the productivity of workers who see him but not workers who do not see him additionally workers respond more to the presence of coworkers with whom they frequently interact we conclude that social pressure can partially internalize free riding externalities that are built into many workplaces jel j24 l81 m54

recover overnight work interruption and worker productivity this paper investigates the effect of work interruption on workers subsequent productivity we employ a data set of individual productivity and machine conditions in which each worker faces the chance on a daily basis that her machine will break down randomly our analysis finds that compared to a workday with smooth production experiencing a machine breakdown is associated with a 3 3 percentage point decline in the worker s productivity the following day we discuss possible explanations for the observed effect including negative emotions increased cautiousness in operating the machine and proficiency loss our findings shed light on the importance of understanding and managing interruptions in the workplace and contribute to a growing literature on the determinants of productivity at the micro level data and the online appendix are available at https doi org 10 1287 mnsc 2017 2792 this paper was accepted by john list behavioral economics

consumption adjustment under time varying income uncertainty we study the effect of income uncertainty on consumption in a model that includes precautionary saving in contrast to previous studies we focus on time series variation in income uncertainty our time series measure of income uncertainty is constructed from a panel of forecasts we find evidence of precautionary saving in that increases in income uncertainty are related to increases in aggregate rates of saving we also find evidence that anticipated income growth rates have less explanatory power for consumption growth rates after conditioning on income uncertainty the evidence indicates the presence of forward looking consumers who gradually adjust precautionary savings in response to changing income uncertainty

worker absence and productivity evidence from teaching a significant amount of work time is lost each year due to worker absence but evidence on the productivity losses from absenteeism remains scant due to difficulties with identification we use uniquely detailed data on the timing duration and cause of absences among teachers to address many of the potential biases from the endogeneity of worker absence our analysis indicates that worker absences have large negative impacts the expected loss in daily productivity from employing a temporary substitute is on par with replacing a regular worker of average productivity with one at the 10th 20th percentile of productivity

trends random walks and tests of the permanent income hypothesis abstract recent studies find that consumption is excessively sensitive to income these studies assume that income is stationary around a deterministic trend the data however do not reject the hypothesis that disposable personal income is a random walk with drift if income is indeed a random walk then the standard testing procedure is greatly biased toward finding excess sensitivity moreover if income follows either a more general non stationary process or a borderline stationary process this procedure is also seriously biased

implications of intertemporal optimization for house and land prices the euler equation is used for the intertemporal allocation of durable goods in conjunction with a simple model of housing flow supply to derive implications for the relation between house and land prices data from england and wales fails a key time series test in this respect the rejection of the theory is shown to be mainly due to the specification of the housebuilding industry perfect competition makes house prices cointegrated with land prices and housebuilding costs there is also evidence that borrowing constraints impair the validity of the representative agent framework for the housing sector

health nutrition and economic development the relationship between health and economic development is explored focusing on nutrition based health indicators the spotlight is placed on the inter related feedbacks between the influence of health on productivity on one hand and the influence of income on health status on the other disentangling causality in these relationships has preoccupied much of the literature we evaluate different empirical strategies that have been adopted and assess the results there is now a body of evidence based on careful empirical studies that demonstrates a causal relationship between health and labor productivity there is also evidence that at least among the very poor additional income is spent on improved nutrition there are two issues that have received little attention although we argue they are likely to be very important first measurement of health is discussed in detail evidence is presented on how taking into account differences in the extent of measurement error is critical for interpreting the impact of health on wages the same theme emerges in studies of the effect of income on health specifically calorie intake the key role of non linearities in these relationships is highlighted and we demonstrate that a good deal of the variation in estimates of income elasticities of demand for calories can be ascribed to the role of measurement and functional form authors

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

precautionary savings under liquidity constraints a decomposition this paper investigates the effects of liquidity constraints on consumption saving by separating precautionary saving caused by liquidity constraints ps2 from the conventional precautionary saving made against income uncertainty ps1 it is proved that there exists a unique level of wealth below which ps2 is strictly positive and above which liquidity constraints have no effects at all the numerical simulations show that ps2 is quantitatively important depending on age and the level of wealth some empirical findings in the literature cannot be explained by ps1 alone but are consistent with the model in which ps2 is present copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

healthy bodies and thick wallets the dual relation between health and economic status there is abundant evidence of a quantitatively large association between many measures of economic status including income and wealth and a variety of health outcomes such as mortality or morbidity however considerable and often heated debate remains especially across disciplines about the direction of causation and about why the association arises although medical scientists are often convinced that the dominant if not exclusive pathway is that variation in socioeconomic status produces health disparities they are increasingly debating among themselves about why low economic status might lead to poor health at least for modern industrial countries 1 the old standby arguments the less well to do have access to less or lower quality medical care or a stronger pattern of deleterious personal behaviors have been rejected as insufficient instead a series of intriguing competing theories have arisen that emphasize long term impacts of early childhood or even inter uterine environmental factors the cumulative effects of prolonged exposures to individual stressful events or reactions to macro societal factors such as rising levels of income inequality a common link is that each theory attempts to document the physiological processes through which low economic status leads to poorer health while these scientific questions are extremely important this research has taken place with little input from economists economists are now making contributions about the alternative pathway the impact poor health may have on economic resources poor health may restrict a family s capacity to earn income or to accumulate assets by limiting work or by raising medical expenses at a minimum this work should provide a caution against exaggerating the magnitude of causation from economic status to health outcomes but the potential contribution runs deeper as people age the evolving variation in individual health outcomes may offer additional statistical information to estimate parameters of household savings and consumption behavior that so far have proven to be somewhat elusive thus incorporating health uncertainty and risk into economic models should eventually enrich our understanding of basic tenets of household behavior the first section of this paper documents the size of the association between health and one prominent economic status measure household wealth section two deals with how health influences economic status by sketching out reasons why health may alter household savings and eventually wealth and then providing estimates of the empirical magnitude of these effects section three shifts attention to the alternative pathway the links between economic status and health and summarizes 2major controversies and evidence surrounding these issues

precautionary saving an explanation for excess sensitivity of consumption the permanent income hypothesis under certainty equivalence yields a martingale consumption process empirically this hypothesis is rejected because consumption is excessively sensitive to anticipated income one approach to account for excess sensitivity is to relax certainty equivalence by using utility functions that induce precautionary saving this article analyzes a hyperbolic absolute risk aversion utility function empirically some reasonable parameterizations of this specification allow one to match the excess sensitivity associated with the data these parameterizations also permit one to account for the excess smoothness problem excess sensitivity and excess smoothness however do not reflect the same phenomenon

knight s moral hazard theory of organization in this paper i suggest that besides knight s well recognized uncertainty explanation of the firm he had another one moral hazard is the central feature in the second largely overlooked theory i argue and attempt to document that this theory is not a chance excursion but is rather quite well developed by knight

generalizations about using value added measures of teacher quality the extensive investigation of the contribution of teachers to student achievement produces two generally accepted results first there is sub stantial variation in teacher quality as measured by the value added to achievement or future aca demic attainment or earnings second variables often used to determine entry into the profession and salaries including post graduate schooling experience and licensing examination scores appear to explain little of the variation in teacher quality so measured with the exception of early experience together these findings underscore explicitly that observed teacher characteristics do not represent teacher quality

the contractual nature of the firm for their helpful comments i am grateful to armen a alchian yoram barzel keith leffler john s mcgee and dean worcester 1 ronald h coase the nature of the firm 4 economica 386 1937 the paper however was written several years earlier see note 3 infra 2 the social sciences citation index provides the following information breaking down the period of 1966 80 into three five year periods the total citations of coase s firm paper for each subperiod are 1966 70 17 citations 1971 75 47 citations and 1976 80 105 citations

testing for excess sensitivity in consumption a state space unobserved components approach this paper tests the joint rational expectations permanent income hypothesis using a state space unobserved components model to specify anticipated and unanticipated elements of permanent transitory and seasonal components of the income path and measure their relationships with consumption the results do not find significant excess sensitivity however a similar test that accounts for seasonality using x 11 adjusted data does thus indicating that seasonal filtering may be responsible for previous empirical rejections of the theory since the model includes consumption information in estimating the different components of income it also improves upon univariate investigations of the relative magnitudes of permanent and transitory disturbances to the income path

sickness absence an international comparison this paper shows how internationally and intertemporally consistent information on sickness absence can be constructed from labour force surveys and describes some important features of data that we have generated using the luxembourg employment study we also analyse sickness absence rates by age gender and other socio economic characteristics of workers these relationships prove to be similar across countries with widely differing mean rates of absence in this dataset workers with longer tenure tend to have higher absence rates even when age is controlled for absence is also positively correlated with higher usual hours of work we show how internationally and intertemporally consistent information on sickness absence can be constructed from labour force surveys lfs and describe some important features of data that we have generated using the luxembourg employment study les such data fill an important gap in available information about absence since they have the potential to provide answers to a number of issues that remain unresolved in its study there is now substantial evidence going back to the work of the industrial fatigue research board in the 1920s and 1930s i that sickness absence is not purely a response to a medical condition workers who have access to compensation payments are more likely to be absent than those without buzzard and shaw 1952 the higher the rate of compensation the more absences workers are likely to take buzzard and shaw 1952 furthermore the higher the rate of compensation the longer absences are likely to be barmby et al 1991 the analysis of sickness absence is placed firmly in the agenda of economics by the idea that sickness absence rates are the consequence of choices that can be mediated by financial and other incentives the provision and level of sickpay is typically determined at two levels by negotiation between firms and their workforces and by government regulation interfirm variations in absence and their correlates are not well understood coles and treble 1996 have argued that the marginal cost of an absence is partially in the control of firms and can be usefully seen as driven by the nature of the technology adopted these theoretical arguments remain largely unexplored empirically but the ability to compare similar industries across different countries is likely to be revealing this paper was drafted during a visit to ceps instead in the summer of 1999 the research was funded by a grant of the european commission under the tmr programme access to large scale facilities hosted by iriss c i at ceps instead in differdange luxembourg we are also grateful for support from the leverhulme foundation through a grant to the institute for labour research at the university of essex and to colleagues at the ilr for their constructive comments acknowledgements to les data providers are given at the end of the paper we would also like to thank paul alkemade elena bardasi and pascal garin for their help any remaining errors are our own and the views expressed herein are not necessarily those of ceps instead 1 see for example vernon and bedford 1928

heterogeneous firms and the organization of production firms in the same industry exhibit systematic differences in the organization of production and the structure of employment entrepreneurial ability is the specific scarce input that limits the size of a firm this input must be allocated to two activities coordinating production and monitoring workers able entrepreneurs can convert calendar time into larger supplies of coordinating effort that enable them to assemble large firms greater ability implies a higher shadow price of time which increases the implicit costs of monitoring a dispersion of entrepreneurial abilities generates an equilibrium size distribution of firms differences in monitoring costs affect the choice of worker productivities the design of products and the organization of production the monitoring cost hypothesis advanced in this paper goes a long way in explaining the equilibrium of an industry containing heterogeneous firms that differ in size and behavior

is consumption insufficiently sensitive to innovations in income deaton 1986 has noted that if income is a first order autoregressive process in first differences then a simple version of friedman s permanent income hypothesis spih implies that measured u s consumption is insufficiently sensitive to innovations in income this paper argues that this implication of the spih is a consequence of the fact that it ignores the role of the substitution effect in the consumption decision using a parametric version of the standard model of economic growth the paper shows that very small movements in interest rates are sufficient to induce an empirically plausible amount of consumption smoothing since an overall evaluation of the model s explanation for the observed smoothness of consumption requires examining its implications for other aspects of the data the paper also explores some of these