The Quarterly Journal of Economics

Rodrik, Dani

doi: 10.1162/003355399556115pmid: N/A

Controlling for labor productivity, income levels, and other possible determinants, there is a robust and statistically significant association between the extent of democracy and the level of manufacturing wages in a country. The association exists both across countries and over time within countries. The coefficient estimates suggest that nonnegligible wage improvements result from the enhancement of democratic institutions: average wages in a country like Mexico would be expected to increase by 10 to 40 percent if Mexico were to attain a level of democracy comparable to that prevailing in the United States. Political competition and participation seem to be the driving force behind the result.

Gabaix, Xavier

doi: 10.1162/003355399556133pmid: N/A

Zipf's law is a very tight constraint on the class of admissible models of local growth. It says that for most countries the size distribution of cities strikingly fits a power law: the number of cities with populations greater than S is proportional to 1/S. Suppose that, at least in the upper tail, all cities follow some proportional growth process (this appears to be verified emperically). This automatically leads their distribution to converge to Zipf's law.

O'Donoghue, Ted; Rabin, Matthew

doi: 10.1162/003355399556142pmid: N/A

We examine how principals should design incentives to induce time-inconsistent procrastinating agents to complete tasks efficiently. Delay is costly to the principal, but the agent faces stochastic costs of completing the task, and efficiency requires waiting when costs are high. If the principal knows the task-cost distribution, she can always achieve first-best efficiency. If the agent has private information, the principal can induce first-best efficiency for time-consistent agents, but often cannot for procrastinators. We show that second-best optimal incentives for procrastinators typically involve an increasing punishment for delay as time passes.

Fehr, Ernst; Schmidt, Klaus M.

doi: 10.1162/003355399556151pmid: N/A

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.

Chamley, Christophe

doi: 10.1162/003355399556160pmid: N/A

The canonical model of strategic complementarities between individual actions, which exhibits multiple equilibria under perfect information, is extended with heterogeneous agents and imperfect information. Agents observe their own cost of action and the history of the levels of aggregate activity. The distribution of individual characteristics evolves through a random process, and individuals are rational Bayesians. Under plausible conditions, there is a unique equilibrium with phases of high and low activity and random switches. Applications may be found in macroeconomics and revolutions.

Feenstra, Robert C.; Hanson, Gordon H.

doi: 10.1162/003355399556179pmid: N/A

We estimate the relative influence of trade versus technology on wages in a “large-country” setting, where technological change affects product prices. Trade is measured by the foreign outsourcing of intermediate inputs, while technological change is measured by expenditures on high-technology capital such as computers. The estimation procedure we develop, which modifies the conventional “price regression,” is able to distinguish whether product price changes are due to factor-biased versus sector-biased technology shifts. In our base specification we find that computers explain about 35 percent of the increase in the relative wage of nonproduction workers, while outsourcing explains 15 percent; both of these effects are higher in other specifications.

Newell, Richard G.; Jaffe, Adam B.; Stavins, Robert N.

doi: 10.1162/003355399556188pmid: N/A

We develop a methodology for testing Hicks's induced innovation hypothesis by estimating a product-characteristics model of energy-using consumer durables, augmenting the hypothesis to allow for the influence of government regulations. For the products we explored, the evidence suggests that (i) the rate of overall innovation was independent of energy prices and regulations; (ii) the direction of innovation was responsive to energy price changes for some products but not for others; (iii) energy price changes induced changes in the subset of technically feasible models that were offered for sale; (iv) this responsiveness increased substantially during the period after energy-efficiency product labeling was required; and (v) nonetheless, a sizable portion of efficiency improvements were autonomous.

Lee, David S.

doi: 10.1162/003355399556197pmid: N/A

The magnitude of growth in “underlying” wage inequality in the United States during the 1980s is obscured by a concurrent decline in the federal minimum wage, which itself could cause an increase in observed wage inequality. This study uses regional variation in the relative level of the federal minimum wage to separately identify the impact of the minimum wage from nationwide growth in “latent” wage dispersion during the 1980s. The analysis suggests that the minimum wage can account for much of the rise in dispersion in the lower tail of the wage distribution, particularly for women.

Ades, Alberto F.; Glaeser, Edward L.

doi: 10.1162/003355399556205pmid: N/A

If economic growth relies upon the extent-of-the-market, then openness will decrease the connection between initial income and later growth. Alternatively, learning-by-doing models suggest that wealth will be more positively correlated with growth in open economies, because trade causes advanced economies to specialize in products with more opportunities for learning. We examine twentieth century less developed countries and nineteenth century U. S. states. In both data sets, there is a much stronger correlation between growth and initial wealth among closed economies. These findings support the importance of the extent-of-the-market, and aggregate demand in fostering growth.

Case, Anne; Deaton, Angus

doi: 10.1162/003355399556124pmid: N/A

We examine the relationship between educational inputs—primarily pupilteacher ratios—and school outcomes in South Africa immediately before the end of apartheid government. Black households were severely limited in their residential choice under apartheid and attended schools for which funding decisions were made centrally, by White-controlled entities over which they had no control. The allocations resulted in marked disparities in average class sizes. Controlling for household background variables, we find strong and significant effects of pupilteacher ratios on enrollment, on educational achievement, and on test scores for numeracy.