Journal of Economic Literature
Vol. 34, No. 3, September 1996

Contents

The Economics of Science
Paula E. Stephan      1199

Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection
Joseph P. Newhouse      1236

Adjustment Costs in Factor Demand
Daniel S. Hamermesh and Gerard A. Pfann      1264

Economics and Psychology: Lessons for Our Own Day from the Early Twentieth Century
Shira B. Lewin      1293

The Discovery of the Residual: A Historical Note
Zvi Griliches      1324

Reply to Review by George Borjas [Review of Julian Simon, The Economic Consequences of Immigration].
Julian L. Simon      1331

Reply to Julian Simon's Rejoinder [Review of Julian Simon, The Economic Consequences of Immigration].
George J. Borjas      1332

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The Economics of Science
Paula E. Stephan

This essay examines in an interdisciplinary context the contributions that economists have made to the study of science and the types of contributions the profession is positioned to make in the future. Special emphasis is placed on the public nature of knowledge and characteristics of the reward structure that encourage the production and sharing of knowledge. Scientific labor markets are discussed as are life-cycle models. The role that resources play in discovery leads to the conclusion that the human capital model is not up to the task of explaining the career patterns that emerge in science. The essay also discusses the relationship of scientific research to economic growth.

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Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection
Joseph P. Newhouse

The tradeoff between an insurer's or medical provider's incentives to select good risks and to produce efficiently is governed by the supply-price analog to the demand-price tradeoff between moral hazard and risk aversion. Under a variety of models the optimum supply price is a mixture of capitation and fee-for-service payments. Empirical literature shows that pure capitation payment leaves strong incentives for selection that are acted upon. The presence of contracting costs in a Rothschild-Stiglitz model means a limited pooling equilibrium can exist and that poor risks will not be at their preferred outcome.

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Adjustment Costs in Factor Demand
Daniel S. Hamermesh and Gerard A. Pfann

This study discusses the nature of adjustment costs, which underlie the dynamic theory of input demand. We examine the implications of the conventional assumption that they are quadratic-symmetric and of various alternatives. A recent rapidly growing literature based on microeconomic data shows that the conventional assumption is inferior. We demonstrate the importance of this new knowledge for predicting macroeconomic fluctuations in employment and investment. We indicate its relevance for constructing general equilibrium simulation models, drawing inferences about the likely impacts of labor-market and investment policies, and analyzing firms' dynamic behavior in factor markets.

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Economics and Psychology: Lessons for Our Own Day from the Early Twentieth Century
Shira B. Lewin

This paper studies the historical roots of the relationship between economics and psychology, and places recurring controversies between these disciplines in the context of the relationship between economics and the other human sciences, especially sociology. We focus on the formative years of contemporary economics, the early twentieth century, when psychologists and institutionalist economists attacked the "unscientific" nature of economics. Economists responded by (mistakenly) renouncing verstehen and claiming adherence to behaviorism, rather than by actually addressing the institutionalist critique. "Behaviorist" economics declared independence from psychology, and by analogy, from the other human sciences. Our illusion of independence continues to this day.

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The Discovery of the Residual: A Historical Note
Zvi Griliches

This note reviews the history of the "residual," from its earliest articulation in Copeland (1937) to its codification in Solow (1957), describing the various earlier contributions by Tinbergen, Stigler, Schmookler, Fabricant, Kendrick, Abramovitz, and others.

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Reply to Review by George Borjas [Review of Julian Simon, The Economic Consequences of Immigration].
Julian L. Simon

No abstract available.

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Reply to Julian Simon's Rejoinder [Review of Julian Simon, The Economic Consequences of Immigration].
George J. Borjas

No abstract available.

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