Entry, Pricing, and Product Design in an Initially Monopolized Market
We analyze entry, pricing, and product design in a model with differentiated products. Market equilibrium can be "separating," with multiple sellers and a sorting of heterogeneous consumers across goods, or "exclusionary," with one seller serving all customer types. Entry into an initially monopolized market can occur because of cost reductions or product improvements, but entry need not lower the incumbent's price, improve efficiency, or raise consumer welfare. Postentry design incentives favor
A Time-Series Model of Housing Investment in the U.S.
A decentralized market theory of investment based on rising supply price is formulated and explained. Asset prices embody all available information in a competitive market and serve as "sufficient statistics" for future market conditions. Construction is determined myopically by marginal cost pricing: rising supply price constrains aggregate investment. market dynamics imply that anticipated pulses in demand and interest rates lead to "bubbles" in prices, rentals and construction, because it
New: The Assimilation of Immigrants in the U.S. Labor Markets
No abstract is available for this paper.
New: The Value of Health and Longevity
We develop a framework for valuing improvements in health and apply it to past and prospective reductions in mortality in the United States. We calculate social values of (i) increased longevity over the twentieth century, (ii) progress against various diseases after 1970, and (iii) potential future progress against major diseases. Cumulative gains in life expectancy after 1900 were worth over $1.2 million to the representative American in 2000, whereas post‐ 1970 gains added about $3.2 t
New: War in Iraq versus Containment
We consider three questions related to the choice between war in Iraq and a continuation of the pre-war containment policy. First, in terms of military resources, casualties and expenditures for humanitarian assistance and reconstruction, is war more or less costly for the United States than containment? Second, compared to war and forcible regime change, would a continuation of the containment policy have saved Iraqi lives? Third, is war likely to bring about an improvement or deterioration in
The Value of Health and Longevity
We develop an economic framework for valuing improvements to health and life expectancy, based on individuals' willingness to pay. We then apply the framework to past and prospective reductions in mortality risks, both overall and for specific life-threatening diseases. We calculate (i) the social values of increased longevity for men and women over the 20th century; (ii) the social value of progress against various diseases after 1970; and (iii) the social value of potential future progress aga
Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority
The idea that wages rise relative to alternatives as job seniority accumulates is the foundation of the theory of specific human capital, as well as other widely accepted theories of compensation. The fact that persons with longer job tenures typically earn higher wages tends to support these views, yet this evidence ignores the decisions that have brought individuals to the combination of wages, job tenure, and experience that are observed in survey data. Allowing for sources of bias generate
Job Mobility and the Careers of Young Men
We study the joint processes of job mobility and wage growth among young men drawn from the Longitudinal Employee-Employer Data. Following individuals at three month intervals from their entry into the labor market, we track career patterns of job changing and the evolution of wages for up to 15 years. Following an initial period of weak attachment to both the labor force and particular employers, careers tend to stabilize in the sense of strong labor force attachment and increasing durability o
Why Has the Natural Rate of Unemployment Increased over Time?
In 1970, when Robert Hall asked, "Why Is the Unemployment Rate So High at Full Employment?" the unemployment rate for adult men stood at 3.5 percent. That rate, which had been substantially below that level throughout the late 1960s, would climb to 4.4 percent in the recession of 1971. More recently, after the longest economic expansion of the post-war period, the unemployment rate of prime-aged men in the late 1980s settled at just below 5 percent of the labor force. What changes in the America
Entry, Pricing and Product Design in an Initially Monopolized Market
We analyze entry, pricing and product design in a model with differentiated products. Under plausible conditions, entry into an initially monopolized market leads to higher prices for some, possibly all, consumers. Entry can induce a misallocation of goods to consumers, segment the market in a way that transfers surplus to producers and undermine aggressive pricing by the incumbent. Post entry, firms have strong incentives to modify product designs so as to raise price by strengthening market se
Favoritism in Organizations
Objective measures of employee performance are rarely available. Instead, firms rely on subjective judgments by supervisors. Subjectivity opens the door to favoritism, where evaluators act on personal preferences toward subordinates to favor some employees over others. Firms must balance the costs of favoritism arbitrary rewards and less productive job assignments against supervisors' demands for authority over subordinates. We analyze the conditions under which favoritism is costly to organizat