American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 755777 Rising U.S. Earnings Inequality and Family Labor Supply: The Covariance Structure of Intrafamily Earnings Dean R.Hyslop This paper studies the labor supply contributions to individual and family earnings inequality during the period of rising wage inequality in the early 1980's. Working couples have positively correlated labor market outcomes, which are almost entirely attributable to permanent factors. An intertemporal family labor supply model with this feature is used to estimate labor supply elasticities for husbands of 0.05, and wives of 0.40. This implies that labor supply explains little of the rising annual earnings inequality for married men, but over 20 percent of the rise in family inequality and 50 percent of the modest rise in female inequality. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 778794 Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players Guido W.ImbensDonald B.RubinBruce I.Sacerdote This paper provides empirical evidence about the effect of unearned income on earnings, consumption, and savings. Using an original survey of people playing the lottery in Massachusetts in the mid-1980s, we analyze the effects of the magnitude of lottery prizes on economic behavior. The critical assumption is that among lottery winners the magnitude of the prize is randomly assigned. We find that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately 11 percent, with larger effects for individuals between 55 and 65 years old. After receiving about half their prize, individuals saved about 16 percent. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 795813 Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment EstherDuflo Between 1973 and 1978, the Indonesian government engaged in one of the largest school construction programs on record. Combining differences across regions in the number of schools constructed with differences across cohorts induced by the timing of the program suggests that each primary school constructed per 1,000 children led to an average increase of 0.12 to 0.19 years of education, as well as a 1.5 to 2.7 percent increase in wages. This implies estimates of economic returns to education ranging from 6.8 to 10.6 percent. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 814831 The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry Sandra E.BlackPhilip E.Strahan Until the middle of the 1970s, regulations constrained banks' ability to enter new markets. Over the subsequent 25 years, states gradually lifted these restrictions. This paper tests whether rents fostered by regulation were shared with labor, and whether firms were discriminating by sharing these rents disproportionately with male workers. We find that average compensation and average wages for banking employees fell after states deregulated. Male wages fell by about 12 percent after deregulation, whereas women's wages fell by only 3 percent, suggesting that rents were shared mainly with men. Women's share of employment in managerial positions also increased following deregulation. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 832857 What Accounts for the Variation in Retirement Wealth among U.S. Households? B. DouglasBernheimJonathanSkinnerStevenWeinberg Even among households with similar socioeconomic characteristics, saving and wealth vary considerably. Life-cycle models attribute this variation to differences in time preference rates, risk tolerance, exposure to uncertainty, relative tastes for work and leisure at advanced ages, and income replacement rates. These factors have testable implications concerning the relation between accumulated wealth and the shape of the consumption profile. Using the Panel Study of Income Dynamics and the Consumer Expenditure Survey, we find little support for these implications. The data are instead consistent with "rule of thumb," "mental accounting," or hyperbolic discounting theories of wealth accumulation. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 858876 Increasing Returns versus National Product Differentiation as an Explanation for the Pattern of U.S.-Canada Trade KeithHeadJohnRies We evaluate two alternative models of international trade in differentiated products. An increasing returns model where varieties are linked to firms predicts home market effects: increases in a country's share of demand cause disproportionate increases in its share of output. In contrast, a constant returns model with national product differentiation predicts a less than proportionate increase. We examine a panel of U.S. and Canadian manufacturing industries to test the models. Although we find support for either model, depending on whether we estimate based on within or between variation, the preponderance of the evidence supports national product differentiation. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 877908 Is Free Trade Good for the Environment? WernerAntweilerBrian R.CopelandM. ScottTaylor This paper investigates how openness to international goods markets affects pollution concentrations. We develop a theoretical model to divide trade's impact on pollution into scale, technique, and composition effects and then examine this theory using data on sulfur dioxide concentrations. We find international trade creates relatively small changes in pollution concentrations when it alters the composition of national output. Estimates of the trade-induced technique and scale effects imply a net reduction in pollution from these sources. Combining our estimates of all three effects yields a somewhat surprising conclusion: freer trade appears to be good for the environment. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 909923 Telecommunications Infrastructure and Economic Development: A Simultaneous Approach Lars-HendrikRollerLeonardWaverman In this paper we investigate how telecommunications infrastructure affects economic growth. We use evidence from 21 OECD countries over a 20-year period to examine the impacts that telecommunications developments may have had. We jointly estimate a micromodel for telecommunication investment with a macro production function. We find evidence of a significant positive causal link, especially when a critical mass of telecommunications infrastructure is present. Interestingly, the critical mass appears to be at a level of telecommunications infrastructure that is near universal service. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 924937 Social Culture and Economic Performance HanmingFang The connection between obtaining higher paying jobs and undertaking some seemingly irrelevant activity is interpreted as "social culture." In the context of a society trying to adopt a new technology, I show that by allowing the firms to give preferential treatment to workers based on some "cultural activity," the society can partially overcome an informational free-riding problem. Therefore, social culture may affect the economic performance by altering the effective production technology of the economy. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 938963 A Theory of Political Transitions DaronAcemogluJames A.Robinson We develop a theory of political transitions inspired by the experiences of Western Europe and Latin America. Nondemocratic societies are controlled by a rich elite. The initially disenfranchised poor can contest power by threatening revolution, especially when the opportunity cost is low, for example, during recessions. The threat of revolution may force the elite to democratize. Democracy may not consolidate because it is redistributive, and so gives the elite an incentive to mount a coup. Highly unequal societies are less likely to consolidate democracy, and may end up oscillating between regimes and suffer substantial fiscal volatility. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 964985 Monetary Policy Rules Based on Real-Time Data AthanasiosOrphanides This paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules. Using Taylor's rule as an example, I demonstrate that real-time policy recommendations differ considerably from those obtained with ex post revised data. Further, estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the Federal Reserve in real time. These results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 9861005 Testing for the Lucas Critique: A Quantitative Investigation JesperLinde In this paper, I try to shed some new light on the "puzzle" of why the Lucas critique, believed to be important by most economists, seems to have received very little empirical support. I use a real-business-cycle model to verify that the Lucas critique is quantitatively important in theory, and to examine the properties of the super-exogeneity test, which is used to detect the applicability of the Lucas critique in practice. The results suggest that the superexogeneity test is not capable of detecting the relevance of the Lucas critique in practice in small samples. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10061030 Quantifying Quality Growth MarkBilsPeter J.Klenow Using U.S. Consumer Expenditure Surveys, we estimate "quality Engel curves" for 66 durable goods based on the extent richer households pay more for each good. The same data show that the average price paid rises faster from 1980 to 1996 for goods with steeper quality Engel curves, as if households are ascending these curves. BLS prices likewise increase more quickly for goods with steeper quality Engel curves, suggesting the BLS does not fully net out the impact of quality upgrading. We estimate that annual quality growth averages 3.7 percent for our goods, with 2.2 percent showing up as higher inflation. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10311054 World Income Components: Measuring and Exploiting Risk-Sharing Opportunities Stefano G.AthanasoulisRobert J.Shiller A method is constructed for decomposing the variance of changes in incomes in the world into components, to indicate the most important risk-sharing opportunities among people of the world. A constant absolute risk premium (CARP) model, an intertemporal general-equilibrium model of the world, is presented to permit optimal contract design. For a contract designer maximizing a social welfare function, the optimal contracts maximize the equilibrium world real interest rate. Securities are defined in terms of eigenvectors of a transformed variance matrix. The method is applied using Penn World Table data on the G-7 countries, 1950-92. http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10551062 The Declining Price Anomaly in Dutch Dutch Rose Auctions Gerard J.van den BergJan C.van OursMenno P.Pradhan http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10631071 Creating Modern Art: The Changing Careers of Painters in France from Impressionism to Cubism David W.GalensonBruce A.Weinberg http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10721083 The Law of One Price in Scandinavian Duty-Free Stores MarcusAsplundRichardFriberg http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10841094 VAT Base Broadening, Self Supply, and the Informal Sector JohnPiggottJohnWhalley http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 10951102 Estimating the Value of Political Connections RaymondFisman http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11031115 The Political Geography of Tax H(e)avens and Tax Hells Nico A.HansenAnke S.Kessler http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11161125 Individual Risk in an Investment-Based Social Security System MartinFeldsteinElenaRanguelova http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11261134 Longevity Expectations and Death: Can People Predict Their Own Demise? V. KerrySmithDonald H.TaylorJr.Frank A.Sloan http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11351148 Technological Change, Depletion, and the U.S. Petroleum Industry John T.CuddingtonDiana L.Moss http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11491159 Intertemporal Depletion of Resource Sites by Spatially Distributed Users GerardGaudetMichelMoreauxStephen W.Salant http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11601167 Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries: Comment AndersSorensen http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11681169 Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries: Reply Andrew B.BernardCharles I.Jones http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11701179 An Asset Allocation Puzzle: Comment IsabelleBajeux-BesnainouJames V.JordanRolandPortait http://www.aeaweb.org/aer/contents/sept2001.html American Economic Association Nashville, Tennessee 0002-8282 American Economic Review 91 4 September 2001 11801183 Incorporating Fairness into Game Theory and Economics: Comment William RobertNelsonJr. http://www.aeaweb.org/aer/contents/sept2001.html