American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Symposia Will the Stork Return to Europe and Japan? Understanding Fertility within Developed Nations JamesFeyrerDartmouth College BruceSacerdoteDartmouth College Ariel DoraSternDartmouth College 3 22 We seek to explain the differences in fertility rates across high-income countries by focusing on the interaction between the increasing status of women in the workforce and their status in the household, particularly with regards to child care and home production. We observe three distinct phases in women’s status generated by the gradual increase in women's workforce opportunities. In the earliest phase, characteristic of the 1950s and 1960s in the United States, women earn low wages relative to men and are expected to shoulder all of the child care at home. As a result, most women specialize in home production and raising children. In an intermediate stage, women have improved (but not equal) labor market opportunities, but their household status lags. Women in this stage are still expected to do the majority of child care and household production. Increasing access to market work increases the opportunity cost of having children, and fertility falls. Female labor force participation increases. Working women in this phase of development have the strongest disincentives to having additional children since the entire burden of child care falls on them. In the final phase of development, women's labor market opportunities begin to equal those of men. In addition, the increased household bargaining power that comes from more equal wages results in much higher (if not gender-equal) male participation in household production. Female labor force participation is higher than in the intermediate phase. The increased participation of men in the household also reduces the disincentives for women to have additional children, and fertility rates rise compared to the intermediate phase. The intermediate, low-fertility phase might describe Japan, Italy, and Spain in the present day, while the Scandinavian countries, the Netherlands, and the modern-day United States may be entering the final phase. After presenting the empirical evidence, we predict that high-income countries with the lowest fertility rates are likely to see an increase in fertility in the coming decades. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=1&issue_date=Summer 2008 10.1257/jep.22.3.3 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Symposia Parental Education and Parental Time with Children JonathanGuryanU Chicago ErikHurstU Chicago MelissaKearneyU MD 23 46 This paper examines parental time allocated to the care of one’s children. Using data from the recent American Time Use Surveys, we highlight some interesting cross-sectional patterns in time spent by American parents as they care for their children: we find that higher-educated parents spend more time with their children; for example, mothers with a college education or greater spend roughly 4.5 hours more per week in child care than mothers with a high school degree or less. This relationship is striking, given that higher-educated parents also spend more time working outside the home. This robust relationship holds across all subgroups examined, including both nonworking and working mothers and working fathers. It also holds across all four subcategories of child care: basic, educational, recreational, and travel related to child care. From an economic perspective, this positive education gradient in child care (and a similar positive gradient found for income) can be viewed as surprising, given that the opportunity cost of time is higher for higher-educated, high-wage adults. In sharp contrast, the amount of time allocated to home production and to leisure falls sharply as education and income rise. We conclude that child care is best modeled as being distinct from typical home production or leisure activities, and thinking about it differently suggests important questions for economists to explore. Finally, using data from a sample of 14 countries, we explore whether the same patterns holds across countries and within other countries. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=2&issue_date=Summer 2008 10.1257/jep.22.3.23 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Symposia Education and the Age Profile of Literacy into Adulthood ElizabethCascioDartmouth College DamonClarkU FL NoraGordonU CA, San Diego 47 70 American teenagers perform considerably worse on international assessments of achievement than do teenagers in other high-income countries. This observation has been a source of great concern since the first international tests were administered in the 1960s. But does this skill gap persist into adulthood? We examine this question using the first international assessment of adult literacy, conducted in the 1990s. We find that, consistent with other assessments of the school-age population, U.S. teenagers perform relatively poorly, ranking behind teenagers in the twelve other rich countries surveyed. However, by their late twenties, Americans compare much more favorably to their counterparts abroad: U.S. adults aged 26–30 assessed at the same time using the same test ranked seventh in the same group of countries, and the gap with countries still ahead was much diminished. The historical advantage that the United States has enjoyed in college graduation appears to be an important reason why, between the teen years and the late twenties, American literacy rates appear to catch up with those in other high-income countries. The educational systems of countries with high university graduation rates appear to share two features: comprehensive secondary schools—in which all students have the option of taking courses to prepare for university—and a highly accessible university sector. For most of the twentieth century, the United States led the developed world in participation and completion of higher education. In recent years, however, other high-income countries—many of which established comprehensive secondary schooling in decades prior—have substantially expanded access to university education. These changes should have striking consequences for the distribution of skill across countries in the years to come. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=3&issue_date=Summer 2008 10.1257/jep.22.3.47 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Symposia The Lengthening of Childhood DavidDemingHarvard U SusanDynarskiHarvard U 71 92 Over the past 40 years, the age at which children enter first grade has slowly drifted upward. In the fall of 1968, 96 percent of six-year-old children were enrolled in first grade or above. By 2005, the proportion had dropped to 84 percent, mainly because a substantial share of six-year-olds were still in kindergarten. About a third of the increase in age at school entry can be explained by legal changes. Almost every state has increased the age at which children are allowed to start primary school. The other two-thirds of the increase in the age at school entry reflects the individual decisions of parents and teachers who choose to keep children out of kindergarten or first grade even when they are legally eligible to attend. This practice is sometimes called "red-shirting," a phrase originally used to describe the practice of holding college athletes out of play until they have grown larger and stronger. Red-shirting is referred to as "the gift of time" in education circles, reflecting a perception that children who have been allowed to mature for another year will benefit more from their schooling. As we will discuss, little evidence supports this perception. It is indeed true that in any grade, older children tend to perform better academically than the younger children. In the early grades there is a strong, positive relationship between a child’s age in months and his performance relative to his peers. But there is little evidence that being older than your classmates has any long-term, positive effect on adult outcomes such as IQ, earnings, or educational attainment. By contrast, there is substantial evidence that entering school later reduces educational attainment (by increasing high school dropout rates) and depresses lifetime earnings (by delaying entry into the labor market). http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=4&issue_date=Summer 2008 10.1257/jep.22.3.71 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Symposia Global Imbalances: Globalization, Demography, and Sustainability Richard N.CooperHarvard U 93 112 The current account deficit of the United States has been large in recent years, both in absolute size and relative to GDP. In 2006, it reached $811 billion, 6.1 percent of GDP. It has become a dominant feature of the world economy; if you sum up the current account deficits of all nations that are running deficits in the world economy, the U.S. deficit accounts for about 70 percent of the total. This paper looks beyond the national income accounting relationships to offer a more complex view of the U.S. imbalance. I argue that the generally rising U.S. trade deficit over the last 10–15 years is a natural outcome of two important forces in the world economy—globalization of financial markets and demographic change—and therefore that the U.S. current account deficit is likely to remain large for at least a decade. In a globalized market, the United States has a comparative advantage in producing marketable securities and in exchanging low-risk debt for higher-risk equity. It is not surprising that savers around the world want to put a growing portion of their savings into the U.S. economy. I argue that serious efforts to reduce the U.S. deficit, even collaborative efforts with other countries, may well precipitate a financial crisis and an economic downturn every bit as severe as the one that many fear could result from a disorderly market adjustment to the trade deficit. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=5&issue_date=Summer 2008 10.1257/jep.22.3.93 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Symposia Resolving the Global Imbalance: The Dollar and the U.S. Saving Rate MartinFeldsteinHarvard U 113 25 The massive deficit in the U.S. trade and current accounts is one of the most striking features of the current global economy and, to some observers, one of the most worrying. Although the current account deficit finally began to shrink in 2007, it remained at more than 5 percent of GDP—more than $700 billion. While some observers claim that the U.S. economy can continue to have trade deficits of this magnitude for years—some would say for decades—into the future, I believe that such enormous deficits cannot continue and will decline significantly in the coming years. This paper discusses the reasons for that decline and the changes that are needed in the U.S. saving rate and in the value of the dollar to bring it about. Reducing the U.S. current account deficit does not require action by the U.S. government or by the governments of America's trading partners. Market forces alone will cause the U.S. trade deficit to decline further. In practice, however, changes in government policies at home and abroad may lead to faster reductions in the U.S. trade deficit. More important, the response of the U.S. and foreign governments and central banks will determine the way in which the global economy as a whole adjusts to the decline in the U.S. trade deficit. Reductions in the U.S. current account deficit will of course imply lower aggregate trade surpluses in the rest of the world. Taken by itself, a reduction in any country's trade surplus will reduce aggregate demand and therefore employment in that country. I will therefore look at what other countries—China, Japan, and European countries—can do to avoid the adverse consequences of the inevitable decline of the U.S. trade deficit. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=6&issue_date=Summer 2008 10.1257/jep.22.3.113 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Articles Forensic Finance Jay R.RitterU FL 127 47 During popular prime-time television shows, forensic investigators use specialized but wide-ranging scientific knowledge of chemical trace evidence, bacteria, DNA, teeth, insects, and other specialties to collect and sift evidence of possible crimes. In economics and finance, forensic investigators apply their own specialized knowledge of prices, quantities, timing, and market institutions—and sometimes discover or substantiate evidence that is used by regulatory or criminal enforcement agencies. In this article, I will discuss four recent topics in forensic finance, all of which have attracted media attention: 1) the late trading of mutual funds, 2) stock option backdating, 3) the allocation of underpriced initial public offerings to corporate executives, and 4) changes in the records of stock analyst recommendations. In most of these cases, once certain practices or patterns have been publicized, financial industry practice has changed. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=7&issue_date=Summer 2008 10.1257/jep.22.3.127 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Articles A Pragmatic Approach to Capital Account Liberalization Eswar S.PrasadCornell U Raghuram G.RajanU Chicago 149 72 In the mid-1990s, mainstream economists of nearly all stripes commonly recommended capital account liberalization—that is, allowing a free flow of funds in and out of a country's economy—as an essential step in the process of economic development. But then came the East Asian financial crisis of 1997–98, in which even seemingly healthy and well-managed economies like those of South Korea were engulfed by massive capital outflows and tremendous currency volatility, and capital account liberalization became quite controversial in the economics profession. A decade later, now that time has quelled passions and intervening research can shed more light on the debate, it appears that both the costs and benefits of capital account liberalization may have been misunderstood in that earlier debate. Now it appears that the main benefits of capital account liberalization for emerging markets are indirect, more related to their role in building other institutions than to the increased financing provided by capital inflows. And these indirect benefits are important enough that countries should look for creative approaches to capital account liberalization that would help attain these benefits while reducing the risks. Countries don’t have much choice but to plan for capital account liberalization because capital accounts are de facto becoming more open over time, whatever governments may do to try to control them. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=8&issue_date=Summer 2008 10.1257/jep.22.3.149 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Articles Probability and Uncertainty in Economic Modeling ItzhakGilboaTel-Aviv U and HEC Andrew W.PostlewaiteU PA DavidSchmeidlerTel-Aviv U and OH State U 173 88 Economic modeling assumes, for the most part, that agents are Bayesian, that is, that they entertain probabilistic beliefs, objective or subjective, regarding any event in question. We argue that the formation of such beliefs calls for a deeper examination and for explicit modeling. Models of belief formation may enhance our understanding of the probabilistic beliefs when these exist, and may also help us characterize situations in which entertaining such beliefs is neither realistic nor necessarily rational. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=9&issue_date=Summer 2008 10.1257/jep.22.3.173 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Articles Peer Effects and Alcohol Use among College Students MichaelKremerHarvard U and Brookings Institution DanLevyHarvard U and Mathematica Policy Research Inc, Princeton, NJ 189 206 This paper examines the extent to which college students who drink alcohol influence their peers. We exploit a natural experiment in which students at a large state university were randomly assigned roommates through a lottery system. We find that on average, males assigned to roommates who reported drinking in the year prior to entering college had a Grade Point Average (GPA) one quarter-point lower than those assigned to nondrinking roommates. The effect of initial assignment to a drinking roommate persists into the second year of college and possibly grows. The effect is especially large for students who drank alcohol themselves in the year prior to college. In contrast to the males, females' GPAs do not appear affected by roommates' drinking prior to college. Furthermore, students' college GPA is not significantly affected by roommates' high school grades, admission test scores, or family background. These findings are more consistent with models in which peers change people's preferences than with models in which peers change people's choice sets. Surprisingly, the policy of segregating drinkers by having substance-free housing could potentially lower average GPA in the university. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=10&issue_date=Summer 2008 10.1257/jep.22.3.189 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Articles Secrets of the Academy: The Drivers of University Endowment Success JoshLernerHarvard U AntoinetteSchoarMIT JialanWangMIT 207 22 University endowments have received much attention recently for their superior investment returns compared with other institutional investors. This study documents trends in college and university endowment returns and investments in the United States between 1992 and 2005 using data on over a thousand schools. Such endowments have generally performed well over this time period, with a median growth rate of 7.4 percent per year and median return of 6.9 percent. This sector has been dominated both in size and performance by the endowments of elite universities such as the Ivy League schools. The top 20 endowments grew more than 9 percent annually on a real basis between 1992 and 2005. As of 2007, the two largest endowments, belonging to Harvard and Yale, have grown to $35 billion and $22 billion in size, respectively. Much of the growth in endowment size has been driven by investment performance. As we will show in the paper, the top endowments posted impressive returns in 2005, averaging a net real return of 12.3 percent, compared to 4.4 percent posted by the S&P 500 index in the same year. We investigate the underlying drivers of these high returns and show that performance is related to the size of endowment, the quality of the student body, and the use of alternative investments. We caution ordinary investors that mimicking the strategies of the top endowments would not necessarily result in similar returns. http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=11&issue_date=Summer 2008 10.1257/jep.22.3.207 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Features Recommendations for Further Reading TimothyTaylorJournal of Economic Perspectives 223 30 http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=12&issue_date=Summer 2008 10.1257/jep.22.3.223 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 22 3 Summer 2008 http://www.aeaweb.org/articles/issue_detail.php?journal=JEP&volume=22&issue=3&issue_date=Summer 2008 Features Notes 231 35 http://www.aeaweb.org/articles/article_detail.php?journal=JEP&volume=22&issue=3&article=13&issue_date=Summer 2008 10.1257/jep.22.3.231