a model of power biased technological change new technologies have allowed firms to monitor low skill workers more closely thus reducing the power of these workers we show that this power biased change may generate rising wage inequality and increases in the work intensity and unemployment of low skill workers

how do people cope with natural disasters evidence from the great hanshin awaji kobe earthquake in 1995 this paper investigates the coping strategies employed by victims of the great hanshin awaji kobe earthquake in 1995 using a unique household data set we show that households that held a large amount of collateralizable assets before the catastrophe and were free from a binding borrowing constraint were able to maintain their consumption levels by borrowing in contrast households subject to a binding borrowing constraint before the disaster were unable to borrow to cope with the losses inflicted by the earthquake on the other hand both types of households relied on private transfers depending on the extent of the damage

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

tobacco taxes and regressivity recent literature on tobacco taxation suggests that optimal tax rates should be very high but such high taxes raise concerns over regressivity most econometric estimates of elasticities by income group use historic price data that are low and the usefulness of such estimates is therefore questionable on account of the serious out of sample prediction problem to address that problem this paper estimates price elasticities for different socioeconomic groups using recent canadian survey data for a period during which prices rose to a level of about 7 per pack the results provide little reason to overturn the traditional concerns about regressivity

from physical to human capital accumulation inequality and the process of development this paper develops a growth theory that captures the replacement of physical capital accumulation by human capital accumulation as a prime engine of growth along the process of development it argues that the positive impact of inequality on the growth process was reversed in this process in early stages of the industrial revolution when physical capital accumulation was the prime source of growth inequality stimulated development by channelling resources towards individuals with a higher propensity to save as human capital emerged as a growth engine equality alleviated adverse effects of credit constraints on human capital accumulation stimulating the growth process this research develops a growth theory that captures the endogenous replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth in the transition from the industrial revolution to modern growth the proposed theory offers a unified account for the effect of income inequality on the growth process during this transition it argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth changed the qualitative impact of inequality on the process of development in the early stages of the industrial revolution when physical capital accumulation was the prime source of economic growth inequality enhanced the process of development by channelling resources towards individuals whose marginal propensity to save is higher in the later stages of the transition to modern growth as human capital emerged as a prime engine of economic growth equality alleviated the adverse effect of credit constraints on human capital accumulation and stimulated the growth process the proposed theory unifies two fundamental approaches regarding the effect of income distribution on the process of development the classical approach and the credit market imperfection approach 1 the classical approach was originated by smith 1776 and was further interpreted and developed by keynes 1920 lewis 1954 kaldor 1957 and bourguignon 1981 according to this approach saving rates are an increasing function of wealth and inequality therefore channels resources towards individuals whose marginal propensity to save 1 the socio political economy approach provides an alternative mechanism equality diminishes the tendency for socio political instability or distortionary redistribution and hence it stimulates investment and economic growth see the comprehensive survey of benabou 1996b

from malthusian stagnation to modern growth this paper investigates the historical evolution of the relationship among population growth technological change and standard of living the analysis focuses on two most important differences among the malthusian regime post malthusian regime and modern growth regime these were the behavior of income per capita and the relationship between the level of income per capita and the population growth rate the modern growth regime is characterized by steady growth in both income per capita and the level of technology in the malthusian regime technological progress and population growth was glacial by modern standards and income per capita was fairly constant in contrast to the modern growth regime the relationship between per capita income and population growth in the malthusian regime was positive post malthusian regime shared one characteristic with each of the two regimes in addition this paper developed and described an endogenous growth model consistent with the above mentioned transition process

vector autoregression cointegration and causality testing for causes of the british industrial revolution the existence timing and possible causes of the british industrial revolution are considered by investigating the time series properties of industrial production and various explanatory variables utilising two types of robust cointegration based causality tests we argue that domestic forces notably technological progress shaped the industrial revolution whereas overseas trade expansion was mainly a consequence of industrial growth results from granger type var tests are contrasted with those of toda and phillips working paper 91 07 university of western australia 1991b where the latter manifest some of the potential problems raised by the authors when applied to a data set of this type an understanding of the possible causes of the first industrial revolution may shed more general light on the forces promoting industrialization and growth to the extent that the first industrial revolution offers a template exports appear not to provide a simple pathway to industrialization

the wage effects of high performance work organization in manufacturing an unresolved question about now widespread innovative work systems such as teams and quality programs is whether they influence wage determination this study examines that possible association in manufacturing the author uses data from the 1997 national establishment survey that allow examination of how new work systems affected not only employees who were directly involved in them but other workers as well the key finding is that for core blue collar manufacturing employees higher wages were associated with high performance work organization hpwo systems while higher skill levels and computer based technologies were associated with higher wages the key mechanism appears to have been productivity gains independent of skill and technology that were shared via various across the board wage payment systems hpwo systems appear to have increased managers wages as well although through different channels the author finds no evidence that hpwo related wage gains led to greater wage inequality amon

seven centuries of european economic growth and decline this paper investigates very long run pre industrial economic development new annual gdp per capita data for six european countries over the last seven hundred years paint a clearer picture of the history of european economic development first the paper confirms that sustained growth has been a recent phenomenon but rejects the argument that there was no long run growth in living standards before the industrial revolution instead the evidence demonstrates the existence of numerous periods of economic growth before the nineteenth century unsustained but raising gdp per capita it also shows that many of these economies experienced substantial economic decline thus rather than being stagnant pre nineteenth century european economies experienced a great deal of change finally it offers some evidence that from the nineteenth century these economies increased the likelihood of being in a phase of economic growth and reduced the risk of being in a phase of economic decline

two who called the great depression an initial formulation of the monetary origins view the consensus view in the economics profession today is that the genesis of the great depression was the tightening of policy by the fed in 1928 and 1929 mainly to stem the stock market boom nevertheless monetary historians have not provided evidence that any economist writing prior to the stock market crash of october 1929 foresaw that the fed s actions would lead to a major depression this paper shows that two economists william foster and waddill catchings co authored a paper in july 1929 containing arguments strikingly similar to the present consensus view their critique of fed policy supports the view that the genesis of the great depression had monetary origins and was preventable

what or who started the great depression abstract herbert hoover i develop a theory of labor market failure for the depression based on hoover s industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed i find that the theory accounts for much of the depth of the depression and for the asymmetry of the depression across sectors the theory also can reconcile why deflation low nominal spending apparently had such large real effects during the 1930s but not during other periods of significant deflation

preference belief and welfare policy choices depend on general values such as equality freedom justice and welfare when economists evaluate policies they focus on their welfare consequences and they take welfare to be the satisfaction of preferences yet most would allow exceptions when preferences are based on obviously false beliefs few for example would claim that drinking a fatal poison in the mistaken belief that it was water improves a person s welfare to deny that drinking poison is welfare enhancing is only good sense but it creates serious philosophical tensions for the preference satisfaction view for one cannot define welfare as the satisfaction of preferences and then admit that satisfying preferences sometimes makes people worse off such clear cases are artificial but the dependence of preferences on unreliable beliefs is a pervasive feature of social life which makes a preference based standard of welfare generally problematic although many kinds of beliefs influence preferences we shall focus on judgments concerning the probabilities of risky and uncertain outcomes 1

avoiding default the role of credit in the consumption collapse of 1930 high consumer indebtedness threatens future consumption spending if default is expensive consumer spending collapsed in 1930 turning a minor recession into the great depression households were shouldering an unprecedented burden of installment debt down payments were large contracts were short equity in durable goods was therefore acquired quickly missed installment payments triggered repossession reducing consumer wealth in 1930 because households lost all acquired equity cutting consumption was the only viable strategy in 1930 for avoiding default institutional changes lowered the cost of default by 1938 when recession began again indebted households chose to default rather than reduce consumption

health risky behaviour and the value of medical innovation for infectious disease we propose a dynamic framework to study the value of medical innovation in the context of infectious disease we apply our framework to evaluate an hiv treatment breakthrough known as haart the model captures how in lowering both the expected cost and likelihood of hiv infection haart reduced the implicit price of risky sex forward looking agents responded by optimally shifting their behaviour the model also imposes equilibrium constraints explicitly capturing how optimal shifts in behaviour affect equilibrium choices by changing both infection probabilities and the ease of finding partners willing to engage in risky sex using the estimated model we conduct counterfactual simulations to compute the value of haart from the perspective of uninfected agents this includes the option value of the innovation along with value accruing from changes in sex behaviour in response to haart introduction we also calculate the added value of a fully functional vaccine from the perspective of both infected and uninfected agents where infected agents benefit from a vaccine due to resulting shifts in market equilibrium

drugs policy what should we do about cannabis public policy has failed to prevent large scale consumption of cannabis in most developed countries so what if anything should we do to change the policy environment cannabis consumption is unambiguously harmful in several ways but this does not automatically justify the prohibitionist policy dictated by the international drugs conventions this paper sets out the arguments for policy intervention in the cannabis market and reviews the directions of policy change that have been called for we argue that existing theoretical insights and empirical evidence give little compelling reason to prefer prohibition to the alternative of legalization of cannabis with harms controlled by regulation and taxation given this conclusion and the much wider prevalence of cannabis than of harder drugs a reasonable way forward is to remove cannabis production and consumption but not trade from the current prohibitionist un drug control treaties to allow countries to adopt their own policies thus generating new evidence on the potential impacts of a wider range of policy stephen pudney

is addiction rational theory and evidence this paper makes two contributions to the modeling of addiction first we provide new and convincing evidence that smokers are forward looking in their smoking decisions using state excise tax increases that have been legislatively enacted but are not yet effective and monthly data on consumption second we recognize the strong evidence that preferences with respect to smoking are time inconsistent with individuals both not recognizing the true dife culty of quitting and searching for self control devices to help them quit we develop a new model of addictive behavior that takes as its starting point the standard rational addiction model but incorporates time inconsistent preferences this model also exhibits forward looking behavior but it has strikingly different normative implications in this case optimal government policy should depend not only on the externalities that smokers impose on others but also on the internalities imposed by smokers on themselves we estimate that the optimal tax per pack of cigarettes should be at least one dollar higher under our formulation than in the rational addiction case

lumpy consumer durables market power and endogenous business cycles in this paper we show that lumpy consumer durables and market power can generate endogenous cycles consistent with the facts past sales determine the current market size of durable goods larger past sales ceteris paribus thus naturally result in a smaller current market size and income in this manner the seeds of a downturn are sown in an upturn jel classification e32 e13 biens de consommation durables en gros morceaux pouvoir de marche et cycles d affaires endogenes ce memoire montre que des biens de consommation durables en gros morceaux et du pouvoir de marche peuvent engendrer des cycles endogenes qui se calquent sur les chroniques observees les ventes passees determinent la taille du marche present pour les biens durables de plus grandes ventes dans le passe toutes choses etant egales par ailleurs resultent naturellement en un marche present plus petit et des revenus moindres de cette maniere le germe du declin est deja contenu dans l expansion

technology skill and the wage structure insights from the past recent technological advances and a widening of the wage structure have led many to conclude that technology and human capital are relative complements the possibility that such a relationship exists today has prompted a widely held conjecture that technology and skill have always been relative complements according to this view technological advance always serves to widen the wage structure and only large injections of education slow its relentless course a related literature demonstrates that capital and skill are relative complements today and in the recent past zvi griliches 1969 thus capital deepening appears also to have increased the relative demand for the educated serving further to stretch the wage structure physical capital and technology are now regarded as the relative complements of human capital but have they been so for the past two centuries some answers have already been provided a literature has emerged on the bias to technological change across history that challenges the view that physical capital and human capital have always been relative complements many of the major technological advances of the 19th century substituted physical capital raw materials and unskilled labor for highly skilled artisans john a james and jonathan s skinner 1985 but if physical capital and human skill were not always relative complements when did they become so and when did new technology become skilled labor s complement we argue that capital skill complementarity was manifested in the aggregate economy as particular technologies spread specifically batch and continuous process methods of production across the past two centuries manufacturing shifted first from artisanal to mechanized and nonmechanized factory production then from simple factories to assembly lines and finally from assembly lines to continuous and batch processes although few products were manufactured by more than two of the technologies mentioned manufacturing as a whole progressed in the fashion described in considering our argument it is useful to envision manufacturing as having two distinct stages i a machine installation and machine maintenance segment and ii a production or assembly portion capital and educated skilled labor we will argue are always complements in the machine maintenance segment of manufacturing regardless of the technology machinists for example are needed to install machinery and make it run the workable capital created by skilled labor plus raw capital is then used by unskilled labor to create the final product in the production or assembly segment of manufacturing how the adoption of a technology alters the relative demand for skilled workers will depend on whether the machinemaintenance demand for skilled labor is offset by the production process demand for unskilled labor

inequality in landownership the emergence of human capital promoting institutions and the great divergence this paper suggests that inequality in the distribution of landownership adversely affected the emergence of human capital promoting institutions e g public schooling and thus the pace and the nature of the transition from an agricultural to an industrial economy contributing to the emergence of the great divergence in income per capita across countries the prediction of the theory regarding the adverse effect of the concentration of landownership on education expenditure is established empirically based on evidence from the beginning of the 20th century in the u s

quality over quantity reexamining the link between entrepreneurship and job creation although much has been written about the quantity of jobs created by entrepreneurs scholars have yet to examine the quality of these jobs in this article the authors begin to address this important issue by examining nearly 5 000 businesses that began operations in 2004 they investigate the extent to which nascent employers provide what many think of as quality jobs those offering health care coverage and a retirement plan the authors find that because of small scale constrained resources and protection from institutional pressures start up companies do not provide their employees with either of these proxies for job quality and their likelihood of offering health or retirement benefits increases only marginally over their first six years of operation the finding that entrepreneurs impressive record of job creation is not matched by a similarly impressive outcome with respect to job quality challenges policymakers to ensure that entrepreneurs are encouraged to create quality employment opportunities in the course of creating new businesses abstract from author

anonymity efficiency wages and technological progress although the industrial revolution is often characterized as the culmination of a process of commercialisation the precise nature of such a link remains unclear this paper provides an analysis of one such link the role of commercialisation in raising wages as impersonal labour market transactions replace personalized customary relations in the presence of an aggregate capital externality we show that the resulting shift in relative factor prices will under certain conditions lead to higher capital intensity in the production technology and hence a faster rate of technological progress we provide historical evidence using european data to show that england was among the most urbanized and the highest wage countries at the onset of the industrial revolution the model highlights the effects of changes in the availability of information typical of a modernising country on efficiency wages and technological progress

how important are dual economy effects for aggregate productivity this paper brings together development accounting techniques and the dual economy model to address the role that factor markets have in creating variation in aggregate total factor productivity tfp development accounting research has shown that much of the variation in income across countries can be attributed to differences in tfp the dual economy model suggests that aggregate productivity is depressed by having too many factors allocated to low productivity work in agriculture data show large differences in marginal products of similar factors within many developing countries offering prima facie evidence of this misallocation using a simple two sector decomposition of the economy this article estimates the role of these misallocations in accounting for the cross country income distribution a key contribution is the ability to bring sector specific data on human and physical capital stocks to the analysis variation across countries in the degree of misallocation is shown to account for 30 40 of the variation in income per capita and up to 80 of the variation in aggregate tfp

the rise of europe atlantic trade institutional change and economic growth the rise of western europe after 1500 is due largely to growth in countries with access to the atlantic ocean and with substantial trade with the new world africa and asia via the atlantic this trade and the associatedcolonialism affected europe not only directly but also indirectly by inducing institutional change where initial political institutions those established before 1500 placed significant checks on the monarchy the growth of atlantic trade strengthened merchant groups by constraining the power of the monarchy and helped merchants obtain changes in institutions to protect property rights these changes were central to subsequent economic growth

income uncertainty and the onset of the great depression income uncertainty and the onset of the great depression income uncertainty contributes substantially to explaining the fall in consumption that marks the onset of the great depression consistent estimates of the variance of income measure income uncertainty from 1921 30 and are produced using a linear moment model this series provides a statistical link between the large erratic swings in income uncertainty after september 1929 and the great crash in the stock market comparison of the behavior of income uncertainty in the 1920s to the pre world war i and post world war ii eras suggests that the experience after the great crash was historically unique i introduction the great depression of 1929 41 can be broken down into several phases i the initial recessionary phase from october 1929 to october 1930 ii the first two waves of bank failures between november 1930 and december 1931 iii the incipient recovery of late 1932 and the impending collapse in march 1933 iv the recovery of the financial system and the economy from the cyclical trough and v the recession of 1937 38 among others many researchers have presented well articulated theories and extensive empirical analyses for each phase of the depression friedman and schwartz 1963 hamilton 1987 gordon and wilcox 1981 and burbidge and harrison 1985 have examined the role of money and monetary policy during the depression brown 1956 examined the stance of fiscal policy during this period bernanke 1983b provided an explanation of the role of the financial crisis in the propagation of the great depression most of this research has focused on the events that turned a recession in 1929 30 that was not historically unprecedented that is it is comparable to the recession of 1920 22 into the deepest slide in the history of the american business cycle explanations of the depression s initial phase from late 1929 to october 1930 however are much less satisfactory meltzer 1976 and mishkin 1978 examined this period and concluded that the fall in output can be attributed largely to the stance of monetary policy and the stock market s impact on the household balance sheet respectively the remainder of the existing literature centers around a debate between temin 1976 1981 and schwartz 1981 that has produced no consensus about the role of monetary and nonmonetary factors in providing the impetus for the great depression hence the period sometimes called the mysterious first year 1 is the least understood of all the phases of the depression we think that recent advances in our understanding of the influence of income uncertainty on consumption expenditures may help explain the onset of the great depression the theoretical work of leland 1968 sandmo 1970 dreze and modigliani 1972 and others has shown that an increase in uncertainty about future income measured as the variance of income results in a reduction in current consumption expenditures under standard assumptions regarding risk preferences recently flacco and parker 1990 included an estimate of the standard deviation of income in a conventional specification of the consumption function from blinder and deaton 1985 and found that this measure of income uncertainty is indeed negatively related to consumption this result estimated using post world war ii data holds up to a number of statistical significance and specification tests romer 1990 examined the relationship between consumer expenditure proxied by various disaggregate spending series and stock market volatility during the first year and a half of the great depression expanding on bernanke s 1983a analysis of investment under uncertainty romer estimates a model of consumer spending on durable goods in the face of temporary uncertainty empirical evidence reveals that inclusion of the volatility of the stock market as a proxy for income uncertainty dramatically reduces forecast errors for consumption of durable goods in 1929 and 1930

inequality leverage and crises theory and evidence revisited rajan points to rising income inequality as a root cause of the recent financial crisis through high household leverage the rajan hypothesis has ignited debate over the relationship between inequality leverage and crises kumhof ranciere and winant prove the validity of this hypothesis with a theoretical formulation but empirical studies provide mixed evidence using different samples and estimators to clarify this controversy we re examine the issue by using the same data as in the literature and provide additional evidence after taking into account the role of asset bubbles and policy interventions our regression is based on a new tractable theoretical model that is supported by key stylised facts and all our analyses confirm the existence of the inequality leverage crisis nexus

did the financial crisis in japan affect household welfare seriously we investigate whether and how the credit crunch during the financial crisis in japan affected household welfare we estimate the consumption euler equation with endogenous credit constraints using household panel data for 1993i 1999 generating several findings first a small but non negligible portion of the households faced credit constraints during the crisis rejecting the standard consumption euler equation second the credit crunch affected household welfare negatively albeit not seriously the estimated welfare loss ranges between two to ten percent increases in marginal utility depending on income level finally our results corroborate that the credit crunch in japan was supply driven

inequality leverage and crises the paper studies how high leverage and crises can arise as a result of changes in the income distribution empirically the periods 1920 1929 and 1983 2007 both exhibited a large increase in the income share of the rich a large increase in leverage for the remainder and an eventual financial and real crisis the paper presents a theoretical model where these features arise endogenously as a result of a shift in bargaining powers over incomes a financial crisis can reduce leverage if it is very large and not accompanied by a real contraction but restoration of the lower income group s bargaining power is more effective

taxes cigarette consumption and smoking intensity comment previous studies have consistently found that increases in cigarette prices and taxes lead to lower consumption of cigarettes as measured by both i the per centage of smokers and ii the number of cigarettes per day consumed by smok ers 1 from a public health perspective the effectiveness of higher excise taxes on cigarettes also depends upon the extent to which smokers exhibit compensatory behavior that may partially or fully offset the lower quantity of cigarettes being smoked for instance evans and farrelly 1998 and farrelly et al 2004 find that cigarette tax increases cause individuals to purchase cigarettes that contain more tar and nicotine in a recent contribution to this journal adda and cornaglia 2006 ac hereafter find that tax increases are associated with lower cigarette consump tion but consistent with the notion of compensatory behavior find no such associa tion with nicotine intake a novel aspect of the ac study is the use of data on salivary cotinine a biomarker for nicotine which is commonly used in medical studies but had not previously been considered in the economics literature based upon data from the third wave of the national health and nutrition examination survey nhanes iii 1988 1994 ac find that cotinine level seems to be unaffected by higher cigarette taxes despite a negative elasticity of smoking with respect to cigarette taxes 2 with this empirical evidence ac question the usefulness of excise taxes as a tool to regulate smoking intake adda and cornaglia 2006 p 1025 this comment examines the robustness of the empirical findings in ac we rep licate the original ac tax elasticity regressions but we provide statistical inference that uses appropriate clustered standard errors at the state level and accounts for the small number of states just 13 in the ac data in addition we repeat the analy sis using a larger sample from nhanes iii that covers the same years as the ac data but includes more states 26 in total use of appropriate inference causes most of the original ac point estimates to become less precise for the expanded sample we find no statistically significant elasticities of cigarette consumption cotinine

workers machines and economic growth this paper models technology adoption as replacing workers by machines which perform the same job in the production process the paper shows that such modelling of technology adoption affects significantly the analysis of economic growth this model can explain large and persistent international differences in output levels and growth rates caused by small differences in underlying parameters

did inequality cause the u s financial crisis in his widely discussed book fault lines 2010 raghuram rajan argues that many low and middle income consumers have reduced their saving and increased debt since income inequality started to soar in the united states in the early 1980s this has temporarily kept private consumption and employment high but it also contributed to the creation of a credit bubble this surge in household indebtedness turned out to be unsustainable in the financial crisis starting in 2007 although rajan and others emphasize the role of government in promoting credit to those households with declining relative permanent incomes other strands of the literature have focused more explicitly on the implications of rising inequality for aggregate demand and households demand for credit these differences in emphasis may explain why the literature on the inequality crisis nexus appears somewhat disparate even though the various strands are far from mutually exclusive but rather complement each other we therefore place the rajan hypothesis in the context of competing theories of consumption and survey the empirical literature on the effects of inequality on household behaviour we conclude that the empirical evidence calls for a renaissance of the relative income hypothesis of consumption

land and the transition from a dual to a modern economy tenurial contracts in agriculture can be an initial source of wealth accumulation for dynasties of poor credit constrained individuals the income from such contracts can be invested in education of offspring who then can find work in the formal manufacturing sector this process allows the economy to develop into a modern economy with a large manufacturing sector an excessive number of poor individuals competing for scarce land however drives up the rental price of land which then slows the process of accumulation and forces the economy to converge to a less efficient dual equilibrium in such cases a policy of land redistribution coupled with a temporary education subsidy may be needed to push the economy to a modern equilibrium

continuous time methods in finance a review and an assessment i survey and assess the development of continuous time methods in finance during the last 30 years the subperiod 1969 to 1980 saw a dizzying pace of development with seminal ideas in derivatives securities pricing term structure theory asset pricing and optimal consumption and portfolio choices during the period 1981 to 1999 the theory has been extended and modified to better explain empirical regularities in various subfields of finance this latter subperiod has seen significant progress in econometric theory computational and estimation methods to test and implement continuous time models capital market frictions and bargaining issues are being increasingly incorporated in continuous time theory the roots of modern continuous time methods in finance can be traced back to the seminal contributions of merton 1969 1971 1973b in the late 1960s and early 1970s merton 1969 pioneered the use of continuous time modeling in financial economics by formulating the intertemporal consumption and portfolio choice problem of an investor in a stochastic dynamic programming setting merton 1973b also showed how such a framework can be used to develop equilibrium asset pricing implications thereby significantly extending the asset pricing theory to richer dynamic settings and expanding the scope of applications of continuous time methods to study problems in financial economics 1 within a span of about 30 years from the publication of merton s inf luential papers continuous time methods have become an integral part of financial economics indeed in certain core areas in finance such as e g asset pricing derivatives valuation term structure theory and portfolio selection continuoustime methods have proved to be the most attractive way to conduct research and gain economic intuition the continuous time approach in these areas has produced models with a rich variety of testable implications the econometric theory for testing continuous time models has made rapid strides in the last decade and has thus kept pace with the impressive progress on the theoretical front one hopes that the actual empirical investigations and estimation using the new procedures will follow suit soon

the normalized ces production function theory and empirics abstract the elasticity of substitution between capital and labor and in turn the direction of technical change are critical parameters in many fields of economics until recently though the application of production functions with specifically non unitary substitution elasticities i e non cobb douglas was hampered by empirical and theoretical uncertainties as recently revealed normalization of production technology systems holds out the promise of resolving many of those uncertainties we survey and assess the intrinsic links between production as conceptualized in a production function factor substitution as made most explicit in constant elasticity of substitution functions and normalization defined by the fixing of baseline values for relevant variables first we recall how the normalized constant elasticity of substitution function came into existence and what normalization implies for its formal properties then we deal with the key role of normalization in recent advances in the theory of business cycles and of economic growth next we discuss the benefits normalization brings for empirical estimation and empirical growth research finally we identify promising areas of future research

uncertainty and the employment dynamics of small and large businesses we examine the impact of uncertainty on employment dynamics alternative measures of uncertainty are constructed based on the survey of professional forecasters and regression based forecasting models for gdp growth inflation sp the impact on large businesses are generally non existent or weaker our results suggest that to truly understand the effects of uncertainty on employment dynamics we need to focus on the relatively smaller and entrepreneurial businesses we discuss implications for the framing of economic policy

wages employment structure and employer size wage premia their relationship to advanced technology usage at us manufacturing establishments a common theme in the labour econiomics literature is that use of advanced technology in production requires a skilled and educated workforce using a new survey of production processes at us manufacturing plants we ask whether plants that employ advanced technology require a skilled workforce we find that plants that use the most advanced technology pay the highest wages and employ the greatest fraction of non production workers who are generally regarded as more skilled than production workers the inclusion in standard wage regressions of variables that indicate the use of advanced technology reduces the size wage premia by as much as 60 for some size categories

taxes cigarette consumption and smoking intensity reply this paper shows that smoking intensity i e the amount of nicotine extracted per cigarette smoked responds to changes in excise taxes and tobacco prices we exploit nhanes data covering the period 1988 to 2006 across many us states moreover using panel data from the coronary artery risk development in young adults cardia study we provide new evidence on the importance of cotinine measures in explaining long run smoking behavior we show the importance of smoking intensity as a long run determinant of smoking cessation we also investigate the sensitivity of smoking cessation to changes in excise taxes and their interaction with smoking intensity

the missing transmission mechanism in the monetary explanation of the great depression for many friedman and schwartz s monetary history of the united states 1963 is synonymous with the notion that monetary contraction and errors by the federal reserve caused the great depression but this quick summary both sells the book short and oversells its findings about the 1930s it sells the book short because the contributions of the monetary history extend far beyond the depression friedman and schwartz use an extensive reading of the historical record over nearly a century to identify times when the money supply moved for reasons unrelated to current or prospective macroeconomic conditions that output moved in the same direction as money following these crucial experiments remains some of the strongest evidence we have that monetary shocks have real effects but saying the book proves that monetary shocks caused the depression is a stretch of the monetary shocks friedman and schwartz identify those early in the depression are arguably the most tenuous and crucially the book provides scant discussion of how monetary shocks affect the economy this weakness is most pressing in the analysis of the depression because nominal interest rates fell precipitously early in the depression and remained low throughout it is hard to appeal to the standard transmission mechanism operating through the nominal cost of credit this paper seeks to fill in the missing transmission mechanism in friedman and schwartz s explanation of the depression in section i we describe previous work showing that falling

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

high performance work practices and core employee wages evidence from italian manufacturing plants past research has provided mixed evidence on the relationship between high performance work practices hpwps and wages drawing from more than 1 800 interviews with the hr managers in a stratified

public insurance expansions and smoking cessation medications we study the effect of public insurance on smoking cessation medication prescriptions and financing we leverage variation in insurance coverage generated by recent affordable care act expansions to medicaid we estimate differences in differences models using administrative data on the universe of medicaid financed prescriptions sold in retail and online pharmacies 2011 2017 our findings suggest that these expansions increased medicaid financed smoking cessation prescriptions by 34 this increase reflects new medication use and a shift in payment from private insurers and self paying patients to medicaid adjusting our estimate for changes in financing implies that medicaid expansion lead to a 24 increase in new medication use

a note on america s 1920 21 depression as an argument for austerity this note argues that recent interest in the 1920 21 depression in the usa as a historical precedent for austerity is inappropriate most of the austerity measures preceded the depression which had already begun receding by the time warren harding implemented the relatively modest spending and tax cuts that are cited by modern proponents of austerity the evidence suggests that the 1920 21 depression was the result of a variety of supply constraints rather than a deficiency of effective demand and is therefore a poor test of the efficacy of keynesian fiscal policy

investment and uncertainty precipitating the great depression in the united states a severe collapse of fixed capital formation distinguished the onset of the great depression from other investment downturns between the world wars using a model estimated for the years 1890 2000 we show that the expected profitability of capital measured by tobin s q and the uncertainty surrounding expected profits indicated by share price volatility were the chief influences on investment levels and that heightened share price volatility played the dominant role in the crucial investment collapse in 1930 investment did not simply follow the downward course of income at the onset of the depression rather its slump helped to propel the wider collapse

consumption commitments and habit formation we analyze the implications of household level adjustment costs for the dynamics of aggregate consumption we show that an economy in which agents have consumption commitments is approximately equivalent to a habit formation model in which the habit stock is a weighted average of past consumption if idiosyncratic risk is large relative to aggregate risk consumption commitments can thus explain the empirical regularity that consumption is excessively sensitive and excessively smooth findings that are typically attributed to habit formation unlike habit formation and other theories but consistent with empirical evidence the consumption commitments model also predicts that excess sensitivity and smoothness vanish for large shocks these results suggest that behavior previously attributed to habit formation may be better explained by adjustment costs we develop additional testable predictions to further distinguish the commitment and habit models and show that the two models have different welfare implications

credit card debt and consumption evidence from household level data this research investigates the relationship between credit card debt and consumption using household level data this is a departure from the previous studies which have used aggregate measures of consumption and general debt such as the debt service ratio or total revolving credit we use a detailed monthly survey of credit card use to impute credit card debt to respondents from the consumer expenditure survey sample in contrast to some earlier studies using aggregate data we find a negative relationship between debt and consumption growth our work shows that a 1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2 investigations are also made into effects of debt within different age categories and into the impact of expected income growth on the debt consumption relationship

does the volatility of commodity prices reflect macroeconomic uncertainty abstract while there exists numerous studies on the macroeconomic effects of oil and commodity shocks the literature is quite silent on the impact of macroeconomic uncertainty on oil and commodity prices and especially on their volatility this paper tackles this issue through the estimation of a structural threshold vector autoregressive tvar model on a sample of 19 commodity markets we aim at i assessing whether the effect of macroeconomic uncertainty shocks on commodity price returns depends on the degree of uncertainty and ii investigating the transfer from macroeconomic uncertainty to price uncertainty using a newly developed measure of commodity price uncertainty our findings show that both agricultural and industrial markets are highly sensitive to the variability and the level of macroeconomic uncertainty while the impact on precious metals is more parsimonious given their well identified safe haven role in time of economic turmoil in addition we find evidence that the recent 2007 09 recession has generated an unprecedented episode of high uncertainty in numerous commodity prices interestingly our analysis further reveals that volatility and uncertainty in prices can be disconnected this is especially true for the oil market as most important shocks in the 1990s and the beginning of the 2000s that lead to price volatility do not generate price uncertainty highlighting the relevance of our uncertainty measure in linking uncertainty to predictability rather than to volatility

the great crash and the onset of the great depression this paper argues that the collapse of stock prices in october 1929 generated temporary uncertainty about future income which led consumers to forgo purchases of durable goods that the great crash generated uncertainty is evidenced by the decline in surety expressed by contemporary forecasters that this uncertainty affected consumer behavior is shown by the fact that spending on consumer durables declined drastically in late 1929 while spending on perishable goods rose slightly this effect is confirmed by the fact that there is a significant negative relationship between stock market variability and the production of consumer durables in the prewar era

taxes cigarette consumption and smoking intensity this paper analyses the compensatory behavior of smokers exploiting data on cotinine concentration a metabolite of nicotine measured in a large population of smokers over time we show that smokers compensate for tax hikes by extracting more nicotine per cigarette our study makes two important contributions first as smoking a given cigarette more intensively is detrimental to health our results question the usefulness of tax increases second we develop a model of rational addiction where agents can also adjust their intensity of smoking and we show that the previous empirical results suffer from estimation biases

escape from the market negotiating work in lancashire list of figures list of tables preface glossary list of abbreviations 1 introduction the myth of the lancashire labour market part i labour market failure 2 custom against the market the early labour market 3 principals and agents the labour market into the second generation 4 who s minding the mill the supervision problem part ii the economics of piece rate bargaining 5 the fair wage model part iii how did labour markets really work 6 fair and unfair wages 1825 50 7 short hours and seniority in the hungry forties 8 rules and standards wage lists in lancashire part iv conclusion 9 more lessons from the cotton mills notes bibliography index

the simple analytics of tobacco taxation with illegal supply this paper examines the impact of tobacco excise taxes where legal and illegal supplies coexist the government s objective is to minimize cigarettes smoked in the economy or to maximize revenue or to minimize illegal activity it reacts to a competitive illegal supply in an adjoining jurisdiction a model of consumer choice is used to demonstrate how demand response to tax changes can yield counterintuitive results while the model mimics the canadian market similar situations characterize the us and european markets a novel element of the paper is the treatment of externalities on the supply side rather than the demand side resume analytique simple des taxes sur le tabac quand il y a offre illegale ce memoire examine l impact des taxes sur la vente de tabac quand des offres legale et illegale coexistent l objectif du gouvernement est de minimiser les cigarettes fumees dans l economie ou de maximiser le revenu fiscal ou de minimiser l activite illegale il doit prendre en compte l offre concurrentielle illegale dans une juridiction contigue on utilise un modele de choix du consommateur pour montrer comment la reaction de la demande aux changements dans les taxes peut engendrer des resultats contre intuitifs bien que le modele soit concu pour le marche canadien on trouve des situations avec des caracteristiques similaires dans les marches americain et europeens un element novateur du memoire est sa prise en compte des externalites du cote de l offre plutot que du cote de la demande

does inequality lead to a financial crisis abstract the recent global crisis has sparked interest in the relationship between income inequality credit booms and financial crises rajan 2010 and kumhof and ranciere 2011 propose that rising inequality led to a credit boom and eventually to a financial crisis in the us in the first decade of the 21st century as it did in the 1920s data from 14 advanced countries between 1920 and 2000 suggest these are not general relationships credit booms heighten the probability of a banking crisis but we find no evidence that a rise in top income shares leads to credit booms instead low interest rates and economic expansions are the only two robust determinants of credit booms in our data set anecdotal evidence from us experience in the 1920s and in the years up to 2007 and from other countries does not support the inequality credit crisis nexus rather it points back to a familiar boom bust pattern of declines in interest rates strong growth rising credit asset price booms and crises

measuring our ignorance one book at a time new indicators of technological change 1909 1949 abstract new indicators of technological change in the us based on information drawn from the catalogue of the library of congress for the period 1909 1949 are developed and used to pinpoint the relationship first between technical change and economic activity and second between fluctuations in innovative activity and the great depression although links between technological change output and productivity are found results suggest that the slowdown in technological progress in the early 1930s did not contribute significantly to the great depression on the other hand the remarkable acceleration in innovations after 1934 did play a role in the recovery

ability biased technological transition wage inequality and economic growth thispaper develops a growthmodel characterizedbyability biasedtechnological transition in which the evolution of technology education attainment and wage inequality is consistent with the observed pattern in the united states and other advanced countries over the past several decades it argues that an increase in the rate of technological progress raises the return to ability and simultaneously generates an increase in wage inequality between and within groups of skilled and unskilled workers an increase in average wages of skilled workers a temporary decline in average wages of unskilled workers an increase in education and a productivity transitory slowdown

opening the box information technology work practices and wages using 1994 95 survey data on customer service representatives in 303 u s bank branches the authors investigate the effects on wages of information technology it of work practices and of those two factors in combination offline high involvement practices measured by the presence of quality circles were related positively to wages as was more extensive use of it that supports sales efforts where it was used more extensively to automate routine processes wages were lower in branches that did not have high involvement work practices the effects are partially explained by higher education requirements and more extensive introductory training in higher wage jobs

population technology and growth from malthusian stagnation to the demographic transition and beyond this paper develops a unied growth model that captures the historical evolution of population technology and output it encompasses theendogenous transitionbetween three regimes that have characterized economic development the economy evolves from amalthusianregime wheretechnologicalprogressis slow andpopulationgrowthprevents anysustainedriseinincomepercapita intoapost malthusianregime wheretechnological progress rises and population growth absorbs only part of output growth ultimately a demographic transition reverses the positive relationship between income and population growth andtheeconomyentersamoderngrowthregimewithreducedpopulationgrowth

the unintended consequences of countermarketing strategies how particular antismoking measures may shift consumers to more dangerous cigarettes countermarketing or efforts to reduce consumption of certain products has become common in categories such as tobacco junk food fossil fuels and furs countermarketing has a particularly long history in the tobacco industry efforts to reduce smoking have included excise taxes that increase the cost of consumption smoke free restrictions that make consumption less convenient and antismoking advertising campaigns that highlight the dangers of tobacco use this article presents an analysis of the relative effectiveness of these different strategies we find that cigarette excise taxes are the most effective tool for reducing overall cigarette sales followed by antismoking advertising smoke free restrictions are not found to have a significant effect on cigarette sales we also investigate how these various policy tools induce product substitution this issue is of considerable importance because some countermarketing techniques may potentially shift consumers to more dangerous higher nicotine and

tax incidence with strategic firms in the soft drink market abstract because soft drink sd consumption is considered to be a contributor to the epidemic of obesity there is a growing interest in evaluating the impact on sd consumption of alternative tax policies in this paper we propose a methodology to evaluate the impact of taxation of a food market taking into account the strategic price response of both manufacturers and retailers we apply this methodology to the french sd market and simulate the impacts of ad valorem and excise taxes we find that firms behave differently when facing an ad valorem tax or an excise tax an excise tax is overshifted to consumer prices while an ad valorem tax is undershifted to consumer prices we find that an excise tax based on the sugar content of sd is the most effective at reducing sd consumption our results also indicate that ignoring strategic pricing by firms leads to misestimations of the impact of taxation by between 15 and 40 depending on the products and the tax implemented in the short term that is ignoring positive long term health effects a 9 cents l excise tax has a small negative welfare effect about 1 person year

the effects of soft drink taxes on child and adolescent consumption and weight outcomes abstract childhood and adolescent obesity is associated with serious adverse lifetime health consequences and its prevalence has increased rapidly soft drink consumption has also expanded rapidly so much so that soft drinks are currently the largest single contributors to energy intake in this paper we investigate the potential for soft drink taxes to combat rising levels of child and adolescent obesity through a reduction in consumption our results based on state soft drink sales and excise tax information between 1989 and 2006 and the national health examination and nutrition survey suggest that soft drink taxation as currently practiced in the united states leads to a moderate reduction in soft drink consumption by children and adolescents however we show that this reduction in soda consumption is completely offset by increases in consumption of other high calorie drinks

information the dual economy and development we examine the interactions between different institutional arrangements in a general equilibrium model of a modernizing economy there is a modern sector where productivity is high but information asymmetries are large and a traditional sector where productivity is low but information asymmetries are small consequently agency costs in the modern sector make consumption lending difficult while such lending is readily done in the traditional sector the resulting trade off between credit availability and productivity implies that not everyone will move to the modern sector in fact the laissez faire level of modernization may fail to maximize net social surplus this situation may also hold in the long run in a dynamic version of the model a trickle down effect links the process of modernization with reduction in modern sector agency costs this effect may be too weak and the economy may get stuck in a trap and never fully modernize the two sector structure also yields a natural theoretical testing ground for the kuznets inverted u hypothesis we show that even within the sectoral shifting class of models this phenomenon is not robust to small changes in model specification

the returns to computer use revisited have pencils changed the wage structure too are the large measured wage differentials for on the job computer use a true return to computer skills or do they just reflect that higher wage workers use computers on their jobs we examine this issue with three large cross sectional surveys from germany first we confirm that the estimated wage differential associated with computer use in germany is very similar to the u s differential second we also measure large differentials for on the job use of calculators telephones pens or pencils or for those who work while sitting down we argue that these findings cast some doubt on the literal interpretation of the computer use wage differential as reflecting true returns to computer use or skill

do high performance work practices exacerbate or mitigate the gender pay gap the impact of performance oriented work practices on the gender pay gap has been the subject of considerable conjecture but little empirical investigation using the 2004 and 2011 british workplace employment relations surveys the analysis finds that whilst average earnings are significantly higher for men and women across private sector workplaces that have introduced so called high performance work practices the presence of such practices is not associated with a narrowing of the gender pay gap and if anything tends to exacerbate the differential in earnings between men and women data from the 2004 survey suggest that women are more likely to work in high performance workplaces but this is not the case for 2011 there is no evidence that gender segregation is significantly less in high performance workplaces than in workplaces taking a more traditional route policy makers and employing organisations therefore need to be careful in reconciling their performance and equality strategies in particular they need to examine whether the former are truly gender neutral this requires additional measures possibly the introduction of human resource audits in the public and private sectors

uncertainty irreversibility durable consumption and the great depression what was the role of uncertainty in the great depression this paper uses a calibrated general equilibrium model to show that in response to an increase in uncertainty agents increase expenditure on irreversible durable goods and reduce investment in irreversible physical capital these relative movements occur because durable goods provide a store of utility and are less irreversible than physical capital these substitutions are unclear at the start of the great depression but are clearly visible at the deep end of it in 1932 when the volatility of stock returns is consistently high coefficients on the variance which is consistent with the uncertainty hypothesis both the theoretical hypothesis and its empirical tests are of a partial equilibrium nature yet the great depression was a general equilibrium event this paper puts the uncertainty argument explicitly in a general equilibrium model with consumer durables and capital goods both subject to irreversibility constraints i associate income uncertainty with the stochastic process driving output fluctuations and an increase in uncertainty is modelled as a mean preserving spread on the distribution of this shock the general equilibrium setup also incorporates a specific notion of irreversibility namely that goods are irreversible if there are no buyers when one wants to sell the test of the uncertainty hypothesis in general equilibrium is a simulation of a calibrated version of the model what makes the reaction to a mean preserving spread nontrivial is the clash of the theoretical predictions of precautionary savings and irreversible investment in a general equilibrium context savings should increase and investment should fall to complicate matters durable goods have components of both consumption and investment so what was the role of uncertainty in the great depression in this setup a calibrated model provides a simple answer higher uncertainty makes agents cut capital investment and increase expenditure on durables there are two reasons for this the first is that durables are the least irreversible of the two assets in the model and the second is that durable goods act as a store of utility and thus as insurance the view of the uncertainty hypothesis that a cut in expenditure on durable goods is a key response to high uncertainty is not supported by a standard general equilibrium model there may however be some truth in itfbut for the wrong reasons and at the wrong time it is not a fall in durable expenditure per se but rather an increase relative to

malthus to solow a unified growth theory is developed that accounts for the roughly constant living standards displayed by world economies prior to 1800 as well as the growing living standards exhibited by modern industrial economies our theory also explains the industrial revolution which is the transition from an era when per capita incomes are stagnant to one with sustained growth the authors use a standard growth model with several technologies the first denoted the malthus technology requires land labor and reproducible capital as inputs the second denoted the solow technology does not require land the authors show that in the early stages of development only the malthus technology is used and due to population growth living standards are stagnant despite technological progress eventually technological progress causes the solow technology to become profitable and both technologies are employed at this point living standards improve since population growth has less influence on per capita income growth in the limit the economy behaves like a standard solow growth model excerpt

does banning carbonated beverages in schools decrease student consumption abstract i evaluate the effectiveness of carbonated beverage bans in schools by investigating their impact on household soda consumption i match households in nielsen homescan data to their school district s carbonated beverage policies over an eight year period 2002 2009 i find that when high schools ban the sale of carbonated beverages to students households with a high school student experiencing the ban increase their consumption of non diet soda by roughly the equivalent of 3 4 cans per month i present evidence that this is a substantial offsetting 67 75 of the average non diet carbonated beverage consumption in high schools when these are available to students thus demonstrating the persistence of preferences when attempting to alter unhealthy habits