black market exchange rate and the productivity bias hypothesis abstract previous studies that tested the productivity bias hypothesis employed the official nominal exchange rate in constructing the real rate hence in testing the productivity bias hypothesis in this paper we show that if official real exchange rate does not support the productivity bias hypothesis the real black market rate does this conjecture is tested by using data from chile colombia and costa rica

university competition grading standards and grade inflation we develop a model of strategic grade determination by universities distinguished by their distributions of student academic abilities universities choose grading standards to maximize total wages of graduates job placement and wages hinge on a firm s productivity assessment given a student s university grade and productivity signal we identify conditions under which better universities set lower grading standards exploiting the fact that firms cannot distinguish between good and bad a s in contrast a social planner sets stricter standards at better universities we show how increases in skilled jobs drive grade inflation and determine when grading standards fall faster at better schools

the law of one price conditional convergence evidence from disaggregated data this article contributes to the literature on the law of one price lop and absolute purchasing power parity ppp in two ways first it uses a novel set of ppp data from the international comparison programme for oecd countries and 195 internationally comparable products from 1980 to 1996 second it derives and applies a test of conditional convergence which does not require long time spans or high frequency data between 1990 and 1996 for 10 out of 23 countries a significant reduction in the variance of the deviations from lop is found for tradeables but none in case of nontradeables for the former the deviations from lop close out at half lives between 2 2 and 6 3 years however there are also persistent country specific deviations from lop parities

fiscal deficits and relative prices in a growing world economy abstract this paper studies the transmission of fiscal disturbances between countries and the effect of those disturbances on worldwide capital intensity in a context of growth the model developed to address these issues allows for the production of both nontradable and relatively capital intensive tradable goods a central finding is that factor markets can be a major channel for the communication of fiscal policy shocks to world interest rates to private saving decisions and ultimately to global asset supplies and their distribution among countries particular predictions of the model illustrate how changes in public debt ratios and shifts in government spending patterns affect resource allocation and the welfare of various generations both at home and abroad

the allocation of public funds in a hierarchical educational system abstract this paper studies the dynamic effects of allocating public funds between basic and advanced education holding the size of total public education funds fixed i identify the effects of their composition on aggregate efficiency and in equality first since basic education is a prerequisite for attending advanced education there exists a lower bound on funding it allocation policies below this lower bound are strictly pareto dominated whether a corresponding lower bound on funding advanced education exists or not depends on the development stage of the economy and the size of total public funds secondly while an allocation policy favoring basic education generates the usual redistribution from top to bottom one favoring advanced education may result in reverse redistribution from bottom to top last through the inter generational link short run allocation policies may have long run effects a simple rule of thumb is that for an economy in its early development stage focusing on basic education for sufficiently long duration is the only way out of polarization and low aggregate efficiency contrary to the actual policies pursued by many of the less developed economies

assessing students equality of opportunity in oecd countries the role of national and school level policies abstractthis article analyses the relationship between equality of opportunity and the characteristics of the educational system jointly considering country and school level policies because school social environment represents a fundamental channel in shaping educational opportunities we consider all policies recorded in pisa 2012 dataset that affect the sorting of students to schools we show that including sorting policies enriches the explanation of the socio economic gradient that is the association between students performances and parental background with respect to previous studies including only country level features the negative impact of early tracking on equality of opportunity is overvalued without including other sorting policies while grouping students within school by ability increases the socio economic gradient and a greater students heterogeneity in the school reduces the gradient

the wage expectations of european business and economics students expected earnings and expected returns to education are seen by labor economists as a major determinant of educational attainment in spite of this the empirical knowledge about expectations and their formation is scarce in this paper we report the results of the first systematic study of the wage expectations of european university students our data are based on a uniform questionnaire answered by about 3 000 business and economics university students across europe we study the determinants of wage expectations and expected employment probabilities the variability of these expectations and their variation across countries and universities we also examine the tradeoff between expected starting wages and expected wage growth

wage expectations of european college students expected earnings and expected returns to education are seen by labor economists as a major determinant of educational attainment in spite of this the empirical knowledge about expectations and their formation is scarce in this paper we report the results of the first systematic study of the wage expectations of european college students our data are based on the replies to the same questionnaire by more than 6000 college students all over europe we study the determinants of wage expectations and expected employment probabilities the variability of these expectations within a field of study and their variation across universities and fields we also examine the trade off between expected starting wages and wage growth in the final section of the paper we contrast expected returns to education with actual returns estimated from country specific micro data in line with u s studies we find that students overestimate returns to education jel j30

why are services cheaper in the poor countries in their important work on international comparisons of national incomes and of comparative price structure kravis heston and summers i982 p 8 have noted that services are much cheaper in the relative price structure of a typical poor country than in that of a rich country this phenonomen has been documented now fairly systematically by the data gathered under their guiding hand of the united nations international comparison icp which covers 34 countries table i reproduced from their work i982 and fig i based on rows 3 and ii 13 indeed show this tendencyfor the relationship between relative service prices and real per capita gdp in this kravis heston summers 34 country 6 group sample the tendency is strongly evident except for the intermediate groups iii and iv

the international transmission and effects of fiscal policies in recent years the world economy has been subject to large and unsyncronized changes in fiscal policies high and volatile real rates of tnterest large fluctuations in real exchange rates and significant variations in private sector spending this paper reviews some of the key facts characterizing the effects of fiscal policies during the first half of the 1980s and provides a simple analytical framework suitable for the interpretation of these facts the analytical framework builds on a two country model of the world economy which is applied to the analysis of the transmission and effects of various changes in the time profile of taxes and of government spending generally the predictions of the model concerning the relation among the intercountry patterns of consumption long and short term real rates of interest real exchange rates and fiscal policies are consistent with the stylized facts this abstract was borrowed from another version of this item

an experiment on risk taking and evaluation periods does the period over which individuals evaluate outcomes influence their investment in risky assets results from this study show that the more frequently returns are evaluated the more risk averse investors will be the results are in line with the behavioral hypothesis of myopic loss aversion which assumes that people are myopic in evaluating outcomes over time and are more sensitive to losses than to gains the results have relevance for the equity premium puzzle and also for the marketing strategies of fund managers

the economics of schooling production and efficiency in public schools n recent years public and professional interest in schools has been heightened by a spate of reports many of them critical of current school policy these policy documents have added to persistent and long standing concerns about the cost effectiveness and fairness of the current school structure and have made schooling once again a serious public issue as in the past however any renewed interest in education is likely to be short lived doomed to dissipate as frustration over the inability of policy to improve school practice sets in this frustration about school policy relates directly to knowledge about the educational production process and in turn to underlying research on schools although the educational process has been extensively researched clear policy prescriptions flowing from this research have been difficult to derive 2 there exists however a consistency to the research findings that does have an immediate application to school policy schools differ dramatically in quality

optimal higher education enrollment and productivity externalities in a two sector model abstract we analyze the optimal share of the skilled workforce over the course of development with two sectors using skilled and unskilled labor respectively and technological spillovers from higher education enrollment productivity in each sector depends on the average quality of workers and the size of the workforce when skill biased technological change prevails this structure of externalities coupled with the endogenous ability sorting of workers may well produce a pattern of overenrollment in early and late stages of development and underenrollment in between our normative analysis is followed by a positive analysis exploring how policy would differ under alternative political objectives

real exchange rates national price levels and the peace dividend the crumbling of the berlin wall in germany in 1989 the dismantling of communist party control of central and eastern european governments in 1990 and the dissolution of the soviet union in 1991 have created the opportunity for substantive reductions in military expenditures in the united states and europe this paper addresses conceptually and empirically some of the issues surrounding the potential structural impacts of disarmament upon an open economy s allocation of capital and labor between tradable and nontradable goods upon the relative price of tradables and nontradables and upon the nation s price level relative to a world average theoretically the effects of military spending reductions on these variables is ambiguous the effects depend upon the relative factor intensities in production of civilian versus military goods and those of civilian tradable versus nontradable goods as well as upon the relative importance in utility of civilian tradable versus nontradable goods empirically the model suggests that the effects of disarmament on the relative demand for and relative supply of nontradables to tradables are economically and statistically significant however because military spending reductions will tend to increase the relative supply only slightly more than the relative demand their relative price i e the real exchange rate is predicted to decline by only a small amount consequently lower military expenditures are predicted to result in a small real depreciation of a country s currency and thus only a minor fall in the national price level relative to the world average

grade inflation social background and labour market matching a model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school it is examined how this matching is affected if good grades are granted to some low ability students such grade inflation is shown to reduce the aggregate wage of the lower class workers because employers use social origin as a signal for productivity if grades are less than fully informative moreover the high ability students from the higher class may benefit from grade inflation since this shields them from the competition on the part of able students from the lower classes

real costs of nominal grade inflation new evidence from student course evaluations college gpas in the united states rose substantially between the 1960 s and the 2000 s over the same period study time declined by almost a half this paper uses a 12 quarter panel of course evaluations from the university of california san diego to discern whether a link between grades and effort investment holds up in a micro setting results indicate that average study time would be about 50 lower in a class in which the average expected grade was an a than in the same course taught by the same instructor in which students expected a c simultaneity suggests estimates are biased toward zero findings do not appear to be driven primarily by the individual student s expected grade but by the average expected grade of others in the class class specific characteristics that generate low expected grades appear to produce higher effort choices evidence that nominal changes in grades may lead to real changes in effort investment

structural determinants of real exchange rates and national price levels some empirical evidence contrary to the long held notion of purchasing power parity ppp economists have found systematic evidence that the general level of prices across countries at a point in time varies dramatically irving b kravis alan w heston and robert summers 1982 for example report that some countries national price levels are no more than one third the u s price level extensions of this work show that such departures from ppp have persisted for decades recently efforts have been made to explain systematically these persistent or structural departures from ppp pioneering work by kravis and robert e lipsey 1983 1987 1988 has demonstrated that a positive correlation between the price level and real per capita gross domestic product is robust across numerous cross sectional specifications for instance using data from kravis et al 1982 table 6 12 87 percent of the variation in national price levels pl of 21 countries in 1975 is explained by per capita gdp y and a constant

entry through the narrow door the costs of just failing high stakes exams abstract in many countries important thresholds in examinations act as a gateway to higher levels of education and or improved employment prospects this paper examines the consequences of just failing a particularly important high stakes national examination taken at the end of compulsory schooling in england it uses unique administrative data including full information on both initial and regraded exam marks to show that students of the same ability have significantly different educational trajectories depending on whether they just pass or fail this exam three years later students who just fail to achieve the required threshold have a lower probability of entering an upper secondary high level academic or vocational track and of starting tertiary education those who fail to pass the threshold are also more likely to drop out of education by age 18 without some form of employment the moderately high effects of just passing or failing to pass the threshold in this high stakes exam has high potential long term consequences for those affected

efficient tuition fees and examinations we assume that students observe only a private noisy signal of their ability and that universities can condition admission decisions on the results of noisy tests if the university observes a private signal of each student s ability which is soft information then asymmetries of information are two sided and the optimal admission policy involves a mix of pricing and pre entry selection based on the university s private information in contrast if all test results are public knowledge then there is no sorting on the basis of test scores tuition alone does the job of implementing an optimal degree of student self selection these results do not depend on the existence of peer effects the optimal tuition follows a classic marginal social cost pricing rule jel d82 h42 i22 j24

do high grading standards affect student performance abstract this paper explores the effects of high grading standards on student test performance in elementary school while high standards have been advocated by policy makers business groups and teacher unions very little is known about their effects on outcomes most of the existing research on standards is theoretical generally finding that standards have mixed effects on students however very little empirical work has to date been completed on this topic this paper provides the first empirical evidence on the effects of grading standards measured at the teacher level using an exceptionally rich set of data including every third fourth and fifth grader in a large school district over four years we match students test score gains and disciplinary problems to teacher level grading standards in models in which we control for student level fixed effects we find substantial evidence that higher grading standards benefit students and that the magnitudes of these effects depend on the match between the student and the classroom while dynamic selection and mean reversion complicate the estimated effects of grading standards they tend to lead to understated effects of standards

endogenous determination of public budget allocation across education stages abstract this paper studies the endogenous determination of public budget allocation across hierarchical education stages in less developed economies the top class has dominant political power to implement its most preferred policy which is characterized by exclusive participation and large schooling expenditure at higher education at the expense of basic education in developed economies the budget allocation is more balanced under certain parameters it leads to expanded participation of the middle class in higher education the model offers an explanation to the observed cross country policy difference and is broadly consistent with historical evidence

academic admissions standards implications for output distribution and mobility we examine the trade offs implicit in academic admissions standards when students are charged cost based tuition and offered loans that remove liquidity constraints lowering entry requirements while holding graduation requirements fixed increases aggregate output and promotes a more equal distribution of wages but reduces relative income mobility and diminishes the scope for affirmative action lowering admissions standards while raising graduation requirements so that the number of graduates remains constant has little direct effect on output distribution or mobility but again reduces the scope for affirmative action income based affirmative action offers a better trade off between output and relative mobility than income neutral admissions jel d31 h42 i23 i28 j24

can centralized educational standards raise welfare abstract i examine conditions under which centralized educational standards raise welfare compared to decentralization in this model a uniform centralized standard only raises welfare when there is excessive cross district pooling of graduates by employers high cross district heterogeneity of students and high degrees of egalitarianism can surprisingly favor centralization in other cases centralization can lower standards in all districts including the weakest the cross district patterns of winners and losers among high and low achievers depend crucially on the degree of cross district pooling finally i show that centralized standards with a local option to set higher standards are always welfare improving

the impact of educational standards on the level and distribution of earnings the goal of this paper is to present the following finding an egalitarian policy maker might prefer higher standards than would a policy maker whose goal was to maximize the sum of earnings the result is based on the observation that if workers are differentiated with respect to ability an increase in educational standards will increase the earnings of both the most able and the least able workers the only workers whose earnings fall are those workers who after the increase fail to continue meeting the standard

a simple model of educational standards the author models standards for educational credentials such as high school diplomas standard setters maximize their conception of social welfare knowing that utility maximizing students choose whether to meet the standard the author shows that more egalitarian policymakers set lower standards the median voter would prefer higher standards under symmetric distributions and decentralization lowers standards among identical communities optimal standards do not necessarily fall with increased student preference for leisure deterioration of nonstudent inputs to education or increased student heterogeneity superseding binary credentials by perfect information increases average achievement and social welfare for plausible degrees of heterogeneity egalitarianism and pooling under decentralization

car mechanics in the lab investigating the behavior of real experts on experimental markets for credence goods credence goods such as car repairs or medical services are characterized by severe informational asymmetries between sellers and consumers leading to fraud in the form of provision of insufficient service undertreatment provision of unnecessary service overtreatment and charging too much for a given service overcharging recent experimental research involving a standard student subject pool has examined the influence of informational and market conditions on the type and level of fraud we investigate whether professional car mechanics as real sellers of credence goods react in the same way to changes in informational and institutional constraints while we find qualitatively similar effects in the fraud dimensions of undertreatment and overcharging for both subject pools car mechanics are significantly more prone to supplying unnecessary services in all conditions which could be a result of decision heuristics they learned in their professional training